Copyright © 2012 jsd
The New New Deal is a recent book by Michael Grunwald. It is very interesting, important, informative, readable, thorough, and persuasive. It revolves around the so-called Stimulus Act of 2009. There are three parts to the story: (1) The economic collapse and the election in the autumn of 2008; (2) the drafting and passage of the Stimulus Act in the winter of 2008–2009; and (3) the implementation and the consequences from 2009 to 2012.
I wish everybody would read this book, in order to know what was done and how well it worked. This is important, because many of the same policy issues are still with us, in connection with today’s fiscal negotiations and in the longer term, forever. We need public support for making the right decisions.
Steve Benen called this “the best book on the Obama presidency to date.” It injects some desperately needed reality into the discussion.
In the winter of 2008–2009, the economy was losing somewhere between 400,000 and 800,000 jobs per month ... month after month. It was nearly impossible to get a mortgage or a routine business loan. Businesses large and small were going bankrupt. Things were threatening to get much, much worse. In October 2008, the TARP act bailed out some of the bad actors on Wall Street, which was necessary but nowhere near sufficient. Somebody needed to bail out the rest of the economy.
The Obama team set to work on this, even before they took office. The Recovery Act was signed into law on February 17th, 2009, less than a month after the inauguration.
|About half of the bill was “generic” stimulus such as tax rebates and unemployment insurance. Basic Keynesian economics suggests that almost any money injected into the system will stimulate the economy. You give money to people who will spend it, without trying to control what they spend it on.||More than half was specifically targeted, which makes for a more interesting story. If you’re going to spend a bunch of money, you might as well spend it on stuff you actually want, such as green energy, education, health care, and infrastructure. In this way, each dollar buys both a short-term benefit (stimulus) and a long-term benefit (policy).|
Many people are unware of how much the Recovery Act did, let alone what it did or how it came to be. There are several reasons for this:
Answer: It was a huuuge bill. If you broke it into ten or twenty separate bills, each one would be a remarkable accomplishment. From page 237 of the book:
the boldest countercyclical push in U.S. history, far more aggressive as a percentage of GDP than the New Deal’s ever was.
- The bill did have a big short-term effect on the economy. It dug us out of a very deep hole. If you don’t think this bill was super-important, it means you don’t appreciate how dire the problem was. There was 8 trillion dollars of wealth lost in the housing sector alone, plus trillions more in lost output (page 237).
We narrowly avoided a complete meltdown. To get out of trouble, and to stay out of trouble, it is of the utmost importance to understand what was done and how well it worked.
- The bill also had a number of long-term effects, which were never intended to be effective or even noticeable in the short term. For example, installing solar power capacity is now cheaper than installing new nuclear power capacity ... and there is no chance that this would have happened without the Stimulus Act (page 438).
- People at the time didn’t fully realize how bad things were. There was some doubt as to whether the stimulus was too big or too small. As it turns out, it was barely big enough to avert a complete meltdown, but that was not known at the time. From page 248:
At the time the stimulus passed, the official GDP estimate for the fourth quarter of 2008 was −3.8 percent. That was disastrous, but a couple weeks later, it would be revised to an unthinkable −6.2 percent. And it would eventually be rerevised to −8.9 percent. That’s Great Depression territory.
- To the extent that the Obama team knew how bad things were, they chose not to publicize it. Even if “we have nothing to fear but fear itself” it doesn’t mean everything is hunky-dory; it just means there is a feedback loop. If there is a lot of well-founded fear, calling attention to it creates more fear, thereby making situation worse.
- The Republicans had their own reasons for not talking about how bad the problem was, given that they were to blame for it. They also systematically lied about the stimulus bill. They lied about what was in it, and they lied about how effective it was. See section 2.
- The media have done an absolutely terrible job of covering this issue. See section 3.
In the course of drafting the Recovery Act, on numerous occasions the Obama team faced a choice between good governance and petty partisan advantage. Time and time again they decided that in general, and in time of national emergency in particular, that they would do what was best for the country.
They assumed Republicans would do the same, but they were very, very wrong about this. Time and time again, the Republicans did what was short-sighted and selfishly partisan.
From page 138:
Why would an unpopular minority want to block a popular new president’s jobs bill during an existential crisis? Who would want to vote against unemployment benefits, highways, and middle-class tax cuts? Democrats had just put aside partisanship to help Bush pass a Wall Wtreet bailout two monhts before the last electon; why wouldn’t Republicans help Obama pass something for Main Street twenty-two months before the next election?
To which some Democrats replied: Because they’re Republicans.... “Everything’s a holy war for them.”
From page 185:
Republican leaders didn’t view Obama’s concessions as signs they could work with him. They viewed his concessions as signs they could beat thim. After condoms and sod were removed from the legislation, they moved on to new targets, like programs to prevent sexually transmitted diseases and help smokers quit. When Obama got those items removed as well, Republicans found new things to complain about. Sometimes they continued to complain about condoms and sod.
From page 142:
In early January, the House Republican leadership team held a retreat at an Annapolis inn. Pete Sessions, the new campaign chair, opened his presentation with the political equivalent of an existential question:“If the Purpose of the Majority is to Govern ... What is Our Purpose?”
Not to govern, that was for sure. His next slide provided the answer:“The Purpose of the Minority is to become the Majority.”
That reminds me of Voldemort’s dictum:
“There is no good or evil; only power, and those too weak to seek it.”
I take a different view. I say we should give power to those who deserve it the most, not to those who seek it the most. People who are wantonly opposed to good governance should never be entrusted with the reins of government.
This book implicitly paints an unflattering picture of the mainstream media, which is a bit ironic, given that the author is himself a senior national correspondent at Time magazine.
This is a very bad situation, because it means there will not be public support for doing the right thing next time.
The New New Deal injects some desperately needed reality into the discussion.
Copyright © 2012 jsd