The Administration's Key Miscalculation On Fiscal Stimulus

A blog about business and economics.
Jan. 23 2012 1:29 PM

The Administration's Key Miscalculation on Fiscal Stimulus

The world's heard endless debates over why the Obama administration didn't go for a bigger fiscal stimulus in 2009, and I think the New Yorker's Ryan Lizza has unearthed some powerful new evidence about their thinking in the form of this long memo from Larry Summers to the president-elect in December 2009. Summers makes a point that, as a matter of logic, counts as a powerful reason for aiming relatively low on fiscal stimulus. He acknowledges that a plan in the $800-billion range won't fully close the output gap but says "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."

If that's right, then it would of course be a huge waste of time to pick a fight with Congress about a $1.2 trillion stimulus package. You do what you can do, and when it turns out to be insufficient you go do some more. The logic is impeccable, but of course the political analysis was totally mistaken. In retrospect, the administration has started saying it would have been politically infeasible to do more than $800 billion and that's all there was too it. But according to this document, the contemporaneous political judgment was actually about something else—they thought they could go back and get more later. But having made that judgment, where was the follow-through? Nobody ever tried to write reconciliation instructions about this, use the health care bill as a vehicle for stimulus, or otherwise act as if they remembered that this initial memo had explicitly stated that the stimulus they were going for was insufficient.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10


Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

The Ludicrous Claims You’ll Hear at This Company’s “Egg Freezing Parties”

  News & Politics
Sept. 30 2014 9:33 PM Political Theater With a Purpose Darrell Issa’s public shaming of the head of the Secret Service was congressional grandstanding at its best.
Oct. 1 2014 8:34 AM Going Private To undertake a massively ambitious energy project, you don’t need the government anymore.
Atlas Obscura
Oct. 1 2014 10:32 AM The Corpse-Lined Hallways of the Capuchin Monastery Catacombs
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Sept. 30 2014 3:21 PM Meet Jordan Weissmann Five questions with Slate’s senior business and economics correspondent.
Brow Beat
Oct. 1 2014 10:44 AM Everyone’s Favorite Bob’s Burgers Character Gets a Remix You Can Dance to
Future Tense
Oct. 1 2014 10:27 AM 3,000 French Scientists Are Marching to Demand More Research Funding
  Health & Science
Bad Astronomy
Oct. 1 2014 7:30 AM Say Hello to Our Quasi-Moon, 2014 OL339
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.