Stimulating Reading

Few things in life provide as much voyeuristic thrill as a leaked memo, at least for people afflicted with a politics obsession. Previously the most tantalizing batch of purloined documents we’d come across were the embarrassingly frank e-mails hacked from some alarmist climate scientists a few years back, but even those juicy missives might be topped by the “sensitive and confidential” memo recently provided to The New Yorker.

The 57-page document was written in December of 2008 by Larry Summers, then an economic adviser to President Barack Obama, offering advice to his boss on the “stimulus plan” being developed by the White House. Filled with arcane economic and political arguments, and laden with the awful bureaucratic jargon common to inter-office communications, the memo makes for sluggish reading, but critics of the plans who slog through to the end will find plenty of vindicating nuggets along the way.

James Pethokoukis, one of the smart guys at the American Enterprise Institute, discovered “11 stunning revelations” in the memo. One was that the stimulus was intended “as a key tool for advancing clean energy goals and fulfilling a number of campaign commitments.” We find this stunning in much the same way that Claude Rains’ Captain Renault was “shocked, shocked” to learn of gambling at Rick’s American Café in “Casablanca,” but are pleased to find confirmation for a long-held suspicion that the stimulus bill wasn’t crafted for the sole purpose of stimulating the economy.

Also stunning to Pethokoukis was Summers’ warning to Obama that the deficit spending for the bill was greater than the campaign had promised, posed serious dangers to the long-term health of the American economy, and that no one at the White House seemed to have any idea what to do about it. Although we are somewhat stunned to learn that Summers was ever so prescient, the rest of these revelations are not surprising. Another of Pethokoukis’ stunners was Summers’ admission that “it is difficult to identify feasible spending projects on the scale need to stabilize the macroeconomy,” a highfalutin way of putting what Obama himself laughingly admitted when he said that “shovel-ready was not as shovel-ready as we expected.”

Summers’ memo also reveals that the stimulus bill could have been worse, and one might even say stunningly worse. Several administration officials wanted more spending, fewer tax cuts, and using the courts to force massive mortgage principal write-downs, all ideas that were rejected not because of their inherent craziness but for fear they would outrage international financial markets, the American public, and even congressional Democrats. Only one economist consulted by the Obama team, Greg Mankiw, now an advisor to Republican candidate Mitt Romney, voiced any skepticism about the Keynesian assumptions underlying the stimulus plan.

The New Yorker might seem an unlikely publication to reveal such a document, given its previous enthusiasm for all things Obama, but rest assured that Ryan Lizza’s lengthy article strives mightily to make the best of it. He begins by noting the angry, divisive, and harshly partisan atmosphere that prevailed at the time, caused entirely by those crazed right-wing extremist Republicans, and recalling the glorious promise of hand-holding unity offered by candidate Obama. Lizza concedes that perhaps the Obama of ’08 wasn’t an entirely immaculate messiah, noting his hypocritical decision to forgo public campaign funding in order to blanket the airwaves with negative advertising, among other things, but he clearly blames Obama’s opponents for preventing a more expensive and therefore better stimulus plan.

Democrats so thoroughly controlled both chambers of Congress at the time that the stimulus was passed with few Republican votes, and Obamacare with none at all, but Lizza helpfully explains Obama’s fear of being “caricatured by the right-wing press” as a free-spending liberal restrained his ambitions. Although Lizza seems slightly disappointed that Obama didn’t turn out to be the transformational figure of his campaign, a failure entirely attributable to those darned Republicans, he settles for portraying Obama as the moderate, centrist fellow he also claimed to be.

Even in the midst of such strained apologetics, however, Lizza makes a few grudging concessions to Obama’s critics. He notes that Obama’s most ambitious proposals, so-called “moon shot” programs such as smart grid energy systems and high-speed railroads, were found to be well beyond the government’s means and had little support even among a star-struck Democratic congress. Even the actual moon shot programs at NASA wound up taking budget cuts. Lizza even admits that “Obama didn’t remake Washington.”

Ending on the obligatory high note, though, Lizza recalls the heady days of total Democratic control as “one of the most successful legislative periods in modern history,” and repeats the now-familiar claim that Obama “saved the economy from depression.”

The stimulus bill objectively failed to live up to the claims that were made for it at the time, by the administration’s own predictions it has made things worse, and the reckoning for its deficit spending might yet come crashing down us, so its defenders have to say something, and they’re saying that it saved us from catastrophe. The boast can’t be disproved, as there is no way for economists to conduct a laboratory experiment that recreates the economic circumstances of early 2009 and tests what would have happened without the stimulus, but one can doubt it. The claim that economic cataclysm would have resulted if we hadn’t racked up $800 billion in debt, handed it out to Democratic Party allies, blew millions of it on far-fetched and soon gone “green jobs” run by campaign contributors, and forestalled the necessary changes in state budgets for two years, is going to be a hard sell.

Thanks to Lizza, though, at least we have documented proof that someone in the White House had at least pondered the possibilities.

— Bud Norman