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Sorry Joe: Obama, Not GOP, to Blame for Smaller Stimulus

July 19, 2010

Vice President Joe Biden, backed by the overwhelming consensus of economists, is right that the $787 billion Obama stimulus package has succeeded as designed. But as many warned - and the sluggish recovery now sadly seems to confirm - the American Reinvestment and Recovery Act (ARRA) should have been larger. But in blaming the Republicans for that on Sunday, Joe Biden has it wrong. Barack Obama can find the responsible party in his mirror.
Appearing on ABC This Week with Jake Tapper, the Vice President acknowledged that when it comes to a stimulus package, both size and performance matter. But for the legislative reality of Republican opposition, "I think it would have been bigger":

"There's a lot of people at the time argued it was too small," he said. "A lot of people in our administration...even some Republican economists and some Nobel laureates like Paul Krugman, who continues to argue it was too small."

"But, you know," Biden told Tapper, "there was a reality. In order to get what we got passed, we had to find Republican votes. And we found three. And we finally got it passed," Biden said.

But on this point, conservative blogger Ed Morrissey is half-right in defending his party. As Morrissey notes, President Obama in February 2009 said of the roughly $800 billion recovery program winding its way through Congress "I think we're in range" and "It is the right size, it is the right scope."
But as the record shows, the Obama administration's decision to not to fight for a much larger stimulus program came months before. Sadly, that fateful step, made before Barack Obama even took the oath of office, would come back to haunt both the economic recovery and Democratic political prospects.
Writing in The New Yorker last fall, Ryan Lizza recounted how President Obama and his advisers, especially Larry Summers, concluded that discretion was the better part of valor when it came to the $1.2 trillion package many felt was needed:

The most important question facing Obama that day [in December 2008] was how large the stimulus should be. Since the election, as the economy continued to worsen, the consensus among economists kept rising. A hundred-billion-dollar stimulus had seemed prudent earlier in the year. Congress now appeared receptive to something on the order of five hundred billion. Joseph Stiglitz, the Nobel laureate, was calling for a trillion. Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn't require two trillion dollars of government spending, but Romer's analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer's $1.2-trillion projection. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was "an insurance package against catastrophic failure." At the meeting, according to one participant, "there was no serious discussion to going above a trillion dollars."

Of course, it's true, as David Axelrod argued, that Congress was a "big constraint." (As he put it, "If we asked for $1.2 trillion, it probably would have created such a case of sticker shock that the system would have locked up there.") And to be sure, the entire Republican caucus would have been joined by some squeamish Democrats weak at the knees over the staggering price tag. As Matthew Yglesias summed up the administration's rejection of Christina Romer's prescription, "they felt it wasn't possible, legislatively speaking, to do what was objectively necessary."
Instead, President Obama set the pattern that would define much of his first year in office. Hostage to his own fetish of bipartisanship, Obama would make major concessions to Republicans before the negotiations even started. In return, he was greeted with virtually total Republican opposition. On the stimulus as on health care and so much else, President Obama extended his hand to the GOP, only to be slapped in the face.
The result has been a triple whammy for the President and his party. First, the recovery has been slower than it otherwise could have been. Second, the economy's slow ramp up has created a perception problem: Americans wrongly believe the stimulus has failed despite incontrovertible evidence of its success at producing jobs and economic growth. And last, the political blowback from that perception is not only making a second stimulus bill almost impossible, but threatens to wipe out the Democratic majorities in both houses of Congress.
And from the beginning, Paul Krugman has been prescient about the political path the recovery from the Bush recession would take. On January 5th, 2009, Krugman warned then President-elect Obama about the stimulus plan, "Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they'll demand 100%." The next day on January 6th, Krugman warned that the $787 billion recovery package was not only too small, but would pose dire political consequences for President Obama:

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we're talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says "See, government spending doesn't work."

In October, Krugman updated his grim assessment. "I went back to my first blog post -- January 6, 2009 -- worrying that the Obama economic plan was too cautious...Alas, I didn't have it wrong -- except that unemployment will, if we're lucky, peak around 10 percent, not 9." A second stimulus would almost surely be required, an economic necessity that politically would be almost impossible to produce.
As Vice President Bidenand the CBO among others have pointed out, the undersized American Recovery and Reinvestment Act worked as designed. ("Imagine," the Times' David Leonhardt asked in February, "if one year ago, Congress had passed a stimulus bill that really worked...what would the economy look like today? Well, it would look almost exactly as it does now.") But since then, the continued struggles of the U.S. housing market, the teetering of the Eurozone and political intransigence in the face of President Obama's own caution has made the nascent recovery a tenuous one.
Alas, in office Barack Obama replaced the audacity with timidity. In dealing with Republicans on the stimulus, Obama should have listened not to the better angels of his nature, but to Biden's predecessor, Dick Cheney. Arriving in office without a popular vote mandate or large majorities on Capitol Hill, the Bush administration nevertheless rammed its $1.4 trillion tax cut package through Congress. As Cheney put it in December 2000, "we don't negotiate with ourselves":

"It's his program, it's his agenda, and we have no intention at all of backing off of it. It's why we got elected."

On the size of the stimulus, President Obama backed off before the first shot was fired. And for that, he can't blame the Republicans.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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