The Stimulus That Could Have Been?

The Stimulus That Could Have Been?

David Mermelstein: The Stimulus That Could Have Been?

James Fallows recently wrote a long and probing analysis of the politics and personality of Barack Obama in the Atlantic. Many defenders or critics of the president will no doubt be discomforted by his arguments, since he presents alternative views well. Since Fallows discusses most of the questions usually asked about Obama?s decisions, it?s helpful to settle on just one?the one on which his re-election most likely depends.

Fallows succinctly presents the view that the early Obama administration underestimated the severity of the economic crisis and that consequently the stimulus was too small. Fallows then seems to accept Rahm Emanuel?s argument that while it should have been larger, it couldn?t be: ?A dollar more, you were irresponsible.?

Actually, we now know, thanks to the efforts of Noam Scheiber in the New Republic (in a piece based on research from his recently published book, The Escape Artists: How Obama?s Team Fumbled the Recovery), more about the reality behind the economic scene than Fallows did when writing his article. It is both complex and nasty.

In the late fall of 2008, Obama?s economic team prepared a fifty-seven-page memo on what to do about the unfolding economic crisis when Obama took the reins the following January. The memo the president received, however, did not mention that Christina Romer, the incoming chairwoman of the Council of Economic Advisers, believed that the amount of stimulus needed, in Scheiber?s words, was ?an eye-popping $1.7-to-$1.8 trillion.? Worse, it did not even mention her bullied down compromise of $1.2 trillion. The browbeater, who struck the $1.2 trillion from the memo, was Larry Summers, who ironically believed more stimulus was needed than what was being asked for but felt Romer?s figures were politically infeasible, or in his words, ?nonplanetary.?

Whether or not the formal presentation of a wider range of options could have broadened the president?s perspective and pushed him into proposing a larger stimulus is unknown, and doubtful. We now know Obama is more cautious than his rhetoric. But that the president, thanks to Summers, was not formally informed by responsible members of his staff is reprehensible.

Given the unfolding economic crisis, and even accepting, in part, Summers?s political caution, there are still other ways of looking at what could have been done that go beyond the familiar arguments that Fallows and others have put forward.

First, while it is clear that the political sky has limits, a newly elected president always has a ?bully pulpit? and because of that a greater degree of leeway than is usually the case. Obama could have tried to increase the stimulus to just under that magical and politically unobtainable trillion dollar mark?say, to $975 billion, nearly 25 percent higher than the actual stimulus. Keep in mind that prominent Nobelists, such as Paul Krugman and Joseph Stiglitz, were at the time recommending a greater stimulus than that. $975 billion was not, therefore, out of political range, but it had to be seen as possible and fought for.

Second, almost one-fourth of the $787 billion stimulus was in tax cuts. Fallows doesn?t consider that Obama might have attempted to separate these from the spending?a two-faced ploy, if you like?which might have enabled expenditures, the more powerful stimulus, to have been higher. Unfortunately, Obama was timid and his team?Geithner and Orszag in particular, from some accounts?did not push for such a plan.

Whatever amount the initial stimulus, a more politically astute president would have stated vigorously and authoritatively that this was just the first step. He should have made this point, and made it strongly, even if these days you get only one chance with a formal stimulus. It would have made it easier to resist the reactionary attempts of fiscal hawks to enact cutbacks that function as reverse stimuli later in Obama?s presidency, and easier to push for federal expenditures to help states reduce education cuts and layoffs of firefighters and police.

Unfortunately, Obama did the opposite, making irresponsible statements about economic corners being turned. Claiming that prosperity was on the way never benefited Herbert Hoover. Such pronouncements, not mentioned by Fallows, damaged Obama?s credibility and undermined his appeal.

Fallows tries to downplay Obama?s political incompetence by arguing that FDR was not immediately ?FDR,? but Roosevelt did in fact became ?FDR? within two years, enacting the Wagner Act in mid-1935. When he reverted in 1937, cutting spending to reduce the deficits, a disastrous ?recession within the depression? resulted.

Under pressure from Republicans, Obama seems to be considering further cutbacks to reduce our national debt?in other words, a partial acceptance of a so-called ?austerity? program. Such a program has badly damaged Great Britain and could, if adopted more fully, do the same to us. While, as of today, approval of Obama?s presidency has increased because of slightly declining unemployment rates and marginally improved hiring rates, both improvements remain tenuous.

Fallows believes the president is learning and is now realizing better what is politically appropriate and what is not. One hopes so. A moderate Democrat is far, far better than anyone the Republicans will nominate.


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