A lengthy piece in The New Yorker looks at policymaking in the Obama White House. A key source for writer Ryan Lizza is a 57-page, “Sensitive & Confidential” memo written by economist Larry Summers—eventually to be head of Obama’s National Economic Council—to Obama in December 2008. Here’s some of what I learned about Team Obama’s thinking as the financial crisis was exploding, followed by quotes from the memo itself:
1. The stimulus was about implementing the Obama agenda.
The short-run economic imperative was to identify as many campaign promises or high priority items that would spend out quickly and be inherently temporary. … The stimulus package is a key tool for advancing clean energy goals and fulfilling a number of campaign commitments.
2. Team Obama knows these deficits are dangerous (although it has offered no long-term plan to deal with them).
Closing the gap between what the campaign proposed and the estimates of the campaign offsets would require scaling back proposals by about $100 billion annually or adding new offsets totaling the same. Even this, however, would leave an average deficit over the next decade that would be worse than any post-World War II decade. This would be entirely unsustainable and could cause serious economic problems in the both the short run and the long run.
3. Obamanomics was pricier than advertised.
Your campaign proposals add about $100 billion per year to the deficit largely because rescoring indicates that some of your revenue raisers do not raise as much as the campaign assumed and some of your proposals cost more than the campaign assumed. … Treasury estimates that repealing the tax cuts above $250,000 would raise about $40 billion less than the campaign assumed. … The health plan is about $10 billion more costly than the campaign estimated and the health savings are about $25 billion lower than the campaign estimated.
4. Even Washington can only spend so much money so fast.
Constructing a package of this size, or even in the $500 billion range, is a major challenge. While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy. Moreover, there is a tension between the need to spend the money quickly and the desire to spend the money wisely. To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses.