Summers and Stimulus

January 23rd, 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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21 comments in reply to "Summers and Stimulus"

  1. Michael says:

    Yeah, you all seemed to be utterly delusional about what the GOP base would allow them to do with respect to an African-American President. What was the origin of that failure, and what are the plans to bring in people who understood how conservatives work from the beginning?

    • bakho says:

      It was totally naive to believe that the GOP would behave different to Obama than they would to Hillary Clinton. The post-partisan crap was delusional. The GOP base is “Anti-government”. Reagan was a master at feeding the base with words while giving the “Hands are tied by Democrats” schtick.

      That doesn’t work when the GOP owns a Congress and bomb throwers like Newt are in charge. The GOP doesn’t want to govern which is why they do such a poor job when they get power. GWBush wanted the power to attack his enemies (Saddam) and reward his friends with no-bid contracts. A GOP Congress can go along with that. A GOP Congress will not go along with a Dem President rewarding his base. Republicans don’t see help for the poor as helping the country. They see it as Dems rewarding their base. Get it?

      • Michael says:

        That doesn’t answer my question, though. Are there plans to bring into “the room” people who understand Republicans?

  2. Bob Walling says:

    Thank You. This is another great paper for “us” non-econs.

  3. Eric says:

    Nice try, but you’ve got to be kidding that Summers “recognized the urgency of the Keynesian imperative.” Anyone who recognized that urgency would have been spelling out that urgency in much, much stronger terms than those you cite here. Because of the weak, wimpy advice of Summers and others and the naivety of the President himself, unemployment went up to around 10% and stayed there for over a year. Because of Summers and others, re-election is not at all assured. I am really disappointed, and I do blame Summers, among many others.

  4. TC@LeatherPenguin says:

    You’re an educated man; how did that opening sentence survive even a cursory scan before you hit “publish,” leaving such an egregious constructional error hanging out there for all the world to see?

    • Julio Huato says:

      Not a “construction error.” It is just a typo. It happens in blogs.

      • TC@LeatherPenguin says:

        “typo” is lazy-talk for “construction error.” Don’t try correcting someone who gets paid for being a Grammar Nazi… 🙂

        • Jared Bernstein says:


        • Fred Fnord says:

          I prefer to think of ‘construction error’ as the ‘excessively nice’ (in the less-used sense of the word) way of saying ‘typo’. It seems that the vast enormous majority of the English-speaking public, including most writers, would tend to agree with me.

  5. Jeff says:

    Anyone who didn’t “recognize that dynamic coming out of the gate” must not have been reading newspapers in the 1990s.

  6. Ransome says:

    I was impressed with the memo and how much of the future it predicted. There was no warning of the immediate hostility of all things Obama. There was no “honeymoon” even though Obama’s meeting with the conservative press produced no overt hostility. The key is the focus on talking points that evolved from Day 1, framing Obama as an outsider, one that could not be trusted, and the incessant screaming of money printing and ultra inflation. None of the main stream economists on both sides mentioned uncontrolled inflation. What was the origin? We know why it was brought up, to preserve the wealth of those with idle capital who fear taxes and inflation. Larry knows where it came from because he repeats the meme, the bond vigilantes will attack, disregarding the power of the Fed to put downward pressure and the giant hole in the economy that the collapsing money substitutes of the shadow banking system left. It is troubling that there was so much agreement among economists for a stabilization and stimulus injection and the absolute opposition by the GOP. Even Wallison and Pinto were ahead of the crowd in 2008 when they suggested haircuts for bubble mortgages. They abruptly changed their tune and began attacking F&F.

  7. beowulf says:

    During the campaign, John Edwards had a better lay of the land (no pun intended), but then again so did Krugman.

    Mr. Edwards replied, “Some people argue that we’re going to sit at a table with these people and they’re going to voluntarily give their power away. I think it is a complete fantasy; it will never happen.”…
    And nothing Mr. Obama has said suggests that he appreciates the bitterness of the battles he will have to fight if he does become president, and tries to get anything done.

  8. jack johnson says:

    I’m sorry – very sorry – to second the sentiment already expressed: those of you in the administration who thought the Republicans would play nice were stupid, cowardly, or willfully naive. It was plain to anyone who cared to see it that the Republicans would do no such thing, in fact, that they wouldn’t even recognize the legitimacy of a Democratic president. You bear a great responsibility, Mr. Bernstein, and your aw-shucks demurring at “die hard, mindless opposition” is hardly the way to make good. How about some die hard, mindful fighting? “The best lack all conviction”, indeed. I’ve just about lost hope.

  9. jcb says:

    In defending Summers’ memo you ignore what is revealed by the figures for various components of stimuluses of different sizes, as presented to Obama by Summers (the table on page 2 of the memo).

    In fact, the “core” ($300 billion) remained the same for every size stimulus. This core represented the most effective (and most redistributive) parts. The rationale for a fixed core was that only a limited number of “core” projects were “shovel-ready,” that (although necessary) anything larger than $600 billion would upset markets, and that therefore anything larger than $600 billion would have to be achieved primarily by added tax cuts.

    Two obvious points. The notion that funding was limited by what was “shovel-ready” within two years prefigured the administration’s tendency to construct policy by first setting limitations, rather than going full-out to innovate and fund the necessary government bodies to initiate projects and supervise programs where there was obvious need (infrastructure).

    Then look on pp. 13-14 of the memo to see how the core $300 billion was to be allocated. Even assuming that infrastructure repair was limited by planning lags there were a host of programs under the rubrics “Supporting the Success of Children and Young Adults” and “Protecting the Most Vulnerable” where the increase to already existing programs was arbitrarily set in stone: job training programs, increasing funding for child-care, unemployment insurance, food stamps, etc. etc. All of these DID NOT INCREASE NO MATTER HOW LARGE THE TOTAL STIMULUS.

    For these reasons, Summers’ memo shows how unwilling the administration was to increase directly redistributive payments (with highest economic benefit) and to plan beyond a very narrow window of time whose parameters were allegedly set. hence to limit the scope of government innovation and direct intervention in the style of the New Deal. There was both a failure of imagination, and a failure of will. Were there responses to the memo by Obama that showed a willingness to probe more deeply into Summer’s economic “realism,” to challenge his deference to the bond market and his defense of apparently arbitrary limitations on the size of the core stimulus?

  10. Bernard says:

    wow, defending Larry Summers. Summers is part of the problem, always has been. to think otherwise is akin to thinking the Republicans are going to work with the “enemy” they are dedicated to destroy by any and all means possible.

    i don’t get such naivete about Summers. really beyond my ken. though, i imagine it sells. Obama has engineered his own “problems” you talk about in this article with people like Summers and the rest of the “team” from day one.

    interesting fantasy article, i must say.

    • Michael says:

      Yeah. It really is depressing seeing our leadership as profoundly confused as they are. Republicans view Al Qaeda, Mexican drug gangs, and Timmy McVeigh as “problems.” They view liberal Americans as “the enemy.” Understanding this is key to understanding American politics.

      Remember, Obama killed bin Laden and this made them mad, because it meant he’d get credit. The event itself had no upside, to Republicans.

  11. farang says:


    “A GOP Congress will not go along with a Dem President rewarding his base.”

    Excuse me? Wall Street is Obama’s base. He rewarded them, and still is.

    Any other perception is false.

  12. Linda Amick says:

    Politics has become pure theater in the US. Transnational corporations rule via their corporate lobbyists and campaign financing. According to the Transnational Corporate viewpoints, the US is only useful for its resources and free infrastructure. Labor is too expensive. The Social Contract is dead. The only hope for a better country is systemic change.

  13. Rob Lewis says:

    It’s just stunning that anyone with a claim to political savvy–from Obama on down–ever thought that Republicans could be reasoned with. Based on what?