Jan 23, 2012 at 5:22 pm
Ryan Lizza has a great piece out on President Obama’s decision making processes through many of the toughest issues he’s faced.
Most interesting is the way Lizza crafts the arguments around memos received and responded to by the President. He even links to one of key economic memos, and here, on one specific point, I’d like to offer a different, and I think more accurate, angle to Lizza’s take.
Throughout the article, Lizza supports the view that economic adviser Larry Summers was on the side of doing less in terms of stimulus against those of us who argued for doing more. Not so. Larry clearly recognized the need for as large a stimulus package as the political and implementation markets could bear, and as I remember it, that’s what he consistently advocated for.
Rather than discouraging the President from doing more, I recall his position as being much like he describes in the memo Lizza cites throughout the piece (see second link above). From page one, following the executive summary, in reference to stimulus:
“The rule that it is better to err on the side of doing too much rather than too little should apply forcefully to the overall set of economic proposals.”
I’m not saying we did enough, but I am saying Larry was among those who recognized the urgency of the Keynesian imperative. And not just in January of 2009, but for the duration of his tenure.
How does that square with a section like this, from Lizza’s piece?
Summers advised the President that a larger stimulus could actually make things worse. “An excessive recovery package could spook markets or the public and be counterproductive,” he wrote, and added that none of his recommendations “returns the unemployment rate to its normal, pre-recession level. To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.”
Again, look at the actual memo. On page 11, Larry cites four reasons for not going big on the stimulus, including spooking the bond markets. And in each case, he stresses the counterargument to the President (my bold on the counterarguments).
–It may be possible to achieve some stimulus in other ways such as through financial policy actions. However the forecasts all assume reasonably aggressive behavior on the part of the Fed and likely are too optimistic about demand coming from the rest of the world…
–An excessive recovery package could spook markets or the public and be counterproductive. Given where the public discussion is moving and given the “flight to treasuries” present in markets at this point, we do not believe this should deter escalation well above $600 billion…
–The economy can absorb only so much “priority investment” over the next two years…On the other hand, insufficient fiscal impetus could put recovery at risk with catastrophic consequences.
–It is easier to add down the road to insufficient fiscal stimulus than to subtract from excessive fiscal stimulus. We can if necessary take further steps. However, this is a key moment to get ahead of the curve in responding to economic distress.
OK, at this point, the President may have been longing for Truman’s one-handed economist, but with respect to Lizza’s otherwise excellent piece, the thrust of Larry’s emphases here is consistent with his view that the risk was doing too little on stimulus, not too much.
And yes, Larry was wrong, as was I and many others, that it would be easier to add than subtract. In fact, the evolution of that view is at the heart of the Lizza’s trenchant analysis, which at its core is an anatomy of the level of partisanship with which we are currently stuck.
It’s fair to say that too few of us recognized that dynamic coming out of the gate. It’s also fair to say that such die-hard, mindless opposition by those whose primary goal is to defeat the President is…um…antithetical to good government, to put it nicely.
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