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Home Publications Blogs Beat the Press Rewriting the History of the Stimulus

Rewriting the History of the Stimulus

Tuesday, 19 July 2011 07:05

Ezra Klein recounted the record of President Obama's stimulus with the help of two of his top economic advisers at the time, Larry Summers and Christine Romer. Romer commented that she failed to recognize that they would only have one shot at stimulus, therefore they had to get as much as possible in their first package.

While this turned out to be true, a main reason was the way the Obama administration sold the stimulus. They used a set of economic projections that were hugely overly-optimistic. Their baseline had the unemployment rate just reaching 9.0 percent in the absence of stimulus.

The fact that the projections were overly optimistic was already quite evident at the point the stimulus was signed in late February. In addition, both Romer and Summers knew that the package they got was grossly inadequate even for the economic path they had projected.

However rather than trying to lay out a path in which more stimulus was possible, President Obama began touting the "green shoots of recovery" and talking about the need to deal with the deficit. It was President Obama's course, presumably carried through on the advice of his Keynesian advisers, that made any further stimulus impossible.

Comments (12)Add Comment
clinton's ghost
written by frankenduf, July 19, 2011 8:56
also triangulation- they rolled out a stimulus to appease the left (imagine if we had no stimulus! blahblah), but made it nominal to appease conservatives (billions of $ in spending scare old people)
written by Josh, July 19, 2011 9:05

Your link does not go directly to Ezra's blog, but to the general WaPo website. What gives?
written by bakho, July 19, 2011 9:22
Obama's understanding of economics is hopelessly poor as evidenced by his often incorrect assertions and misstatements. We needed policy closer to FDR and got a supply-side, trickle down apologist.

Did Obama load his "stimulus" with tax cuts to appease the GOP? Or do we believe that Obama is speaking is true mind when he voices support for these trickle down policies?

As Dean point out, it is impossible to know true motives. Focus on the actions and Obama is a Reaganomics, trickle down advocate.
Missing some history
written by AndrewDover, July 19, 2011 9:58
Don't you remember that just six months ago:

"Obama described the bill as "a package of tax relief that will protect the middle class, that will grow our economy and will create jobs for the American people."

"The $858 billion package prevents taxes from rising on New Year's Day for virtually every American household. The measure also will guarantee unemployed workers in hard-hit states up to 99 weeks of jobless benefits through the end of next year. And it will create major new incentives for business and consumer spending in 2011, including a two-percentage-point reduction in the Social Security payroll tax that would let workers keep as much as $2,136."


President Obama has been trying stimulus all along, not deficit reduction. But the scale and type of stimulus was insufficient to counter 9% unemployment.

Most of the "Stimulus" was not stimulus spending
written by H-Bob, July 19, 2011 1:01
The final stimulus bill actually was only 40%-45% stimulus spending, with the remainder consisting of tax cuts demanded by the Maine dynamic duo and of early appropriation of spending that was going to occur anyways. Still, the recession ended (i.e., no more declining GDP) with only 45% of the requested stimulus spending and during the first full quarter of such spending. However, that 45% was insufficient to complete the recovery. The 12/2010 package was completely offset by state budget cuts.
written by johnluke, July 19, 2011 1:25
In his book "Obama's Challenge," which came out during the 2008 general election campaign, Robert Kuttner wrote, "As a simple matter of politics, if the crisis deepens in 2009 and he fails to deliver relief, his support could well erode and he could lose a working legislative majority midway through his first term in the 2010 elections. Then the country would face economic crisis coupled with political stalemate." Perfect storm, predicted.
written by Jeff Z, July 19, 2011 4:27
Stimulus? It has all the trappings, but virtually none of the effects. As a response to the economic crisis, its only success had been to prevent a further fall. Not a bad thing, but hardly an adequate response to a deep economic calamity. The effects may be wearing off.

Obama and Both political parties are trying to sell deficit reduction AS stimulus, which is supply side poisoned Kool-aid. For "serious people in DC" this is a "serious discussion of the issues." Except that this discussion doesn't include increasing revenues, either through truly progressive taxation, or a financial transactions tax, or addressing any of the myriad ills that beset us.

For the rest of us it's a farce.

The nation is burning, and Obama is fiddling.
written by urban legend, July 19, 2011 4:32
Let's not forget the toxic role played by Rahm Emanuel in making the first round insufficient, while also giving cover to right-wingers that made future requests impossible.
Keeping Taxes from Rising Does not Fit the Bill of Stimulus
written by Dean, July 19, 2011 5:06

you're going to have to work a little harder. Almost everything in the 2010 bill was already in place. The biggest difference was replacing the Making Work Pay tax credit with a 2 percentage point reduction in the payroll tax. The latter is somewhat larger although more focused on higher income people. Even in Washington this doesn't pass the laugh test as "stimulus."
Keeping Taxes from Rising Does not fit the Bill of Defict Reduction
written by AndrewDover, July 19, 2011 6:41
My theory is that the balance of forces in Congress determined the size and content of the 2009 stimulus package.

Dean's theory is that it was President Obama's public comments on deficit reduction and Ben Bernanke's Green Shoots.

As I recall, President Obama did not start talking about deficit reduction until after the 2010 elections.

I presented the example of the extension of the Bush tax cuts as evidence that President Obama was not pushing deficit reduction even 6 months ago. If President Obama was pushing deficit reduction, he could have simply vetoed any attempt to extend the Bush tax cuts.

So I don't think the level of the stimulus actions can be blamed on President Obama's
talking about the need to deal with the deficit.

written by liberal, July 19, 2011 9:26
AndrewDover wrote,
As I recall, President Obama did not start talking about deficit reduction until after the 2010 elections.

Social Security Cuts
written by Ron Alley, July 19, 2011 10:23
Apparently President Obama continues to pursue both social security cuts and tax cuts. If President Obama succeeds in getting social security cuts enacted, the blow back in the Spring of 2012 will be so severe that Mr. Obama will be a one-term president.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.