Legal Commentary

What Went Wrong: Not Recognizing The Need For Boldness

By Big Tent Democrat

Why was the 2009 stimulus too small? Two primary reasons -- one, Lawrence Summers misread the economic catastrophe at hand:

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.” [. . .] Summers [. . .] believed that filling the output gap through deficit spending was important, but that a package that was too large could potentially shift fears from the current crisis to the long-term budget deficit, which would have an unwelcome effect on the bond market.

Two, Rahm Emanuel misunderstood the Congressional process:

There were sound arguments why the $1.2-trillion figure was too high. First, Emanuel and the legislative-affairs team thought that it would be impossible to move legislation of that size, and dismissed the idea out of hand. Congress was “a big constraint,” Axelrod said. “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.” He pointed east, toward Capitol Hill. “And the world was watching us, the market was watching us. If we failed to produce a stimulus bill, that in and of itself could have had deleterious effects.”

In fact, the Obama White House believed that Congress would increase the size of their stimulus proposal:

HARWOOD: If it's correct that, as your aides have said, the danger is doing too little rather than doing too much [. . .] why stop at $775 billion? Why not go to the $1.2 trillion that some economists have recommended? Is that because you think that the political figure of a trillion dollars is too politically charged to get over? Is it because you think more spending would be pork rather than stimulus? Or do you think you've figured out exactly the right amount of stimulus that's needed?

Pres.-elect OBAMA: [. . .] We've seen ranges from 800 to 1.3 trillion and our attitude was that given the legislative process, if we start towards the low end of that, we'll see how it develops.

(Emphasis supplied.) The President was failed by his advisors, but he also failed himself. This was his moment to be bold - to be great. Instead he chose the path of timidity and business as usual. And the end result was a stimulus package that was too small and too dependent on ineffective stimulative measures like tax cuts.

Perhaps nothing better could have been done. But what WAS done was clearly inadequate and doomed to be perceived as a flop. Obama's chances for greatness were squelched.

Speaking for me only

Full post as published by TalkLeft on October 25, 2010 (boomark / email).