Noam Scheiber’s upcoming book on the Obama Administration’s economic decisions is being touted (mainly by The New Republic of which he is editor) for its focus on the White House intrigue in the early days of the 2008 financial crisis. As a prelude, he wrote a piece about a memo written by incoming economic advisor Cristina Romer advising as much as $ 1.8 trillion in stimulus to bring unemployment down to 5.1% by 2011 (full memo). Scheiber notes in the article that Larry Summers, the principal economic advisor to the President-Elect, never presented this item to Obama in his famous 57-page memo that became the blueprint for President Obama’s economic policy. Jake Tapper convincingly reported that ABC News learned that it was former White House Budget Director Peter Orszag who leaked the Romer draft memo, adding:
The incoming director of the Office of Management and Budget, Peter Orszag told Scheiber that in retrospect “the figure should have been included in Obama’s memo even though Orszag personally opposed the larger number. ‘I think there’s a basic principle that if a senior member of the economic team wants something presented to the president, it should be presented-with the pros and cons,’ he said. ‘I do not think it’s the role of the economic team to play politics.’
Writes Scheiber: “In the end, the significance of the fateful document has as much to do with what wasn’t in it as what was. Though Obama was never going to propose a $ 1.8 trillion stimulus, and Congress certainly wasn’t going to pass one, the president may well have felt a greater sense of urgency had he better understood how far he was from the ideal.”
The argument about what the stimulus should have been and could have been still go on. There are those who believe that a larger stimulus was possible in the early days had President Obama pushed more effectively for it. There are those who argue that such a stimulus was not politically possible and that the president’s plan, which eventually became the Recovery Act, was the best that could have possibly passed Congress. Without debating either point of view, two things are clear: 1. The Recovery Act worked. 2. A bigger stimulus would have worked even better. Both points, of course, are irrelevant in hindsight. What’s done is done. There is, however, a point about the Romer memo that is enlightening and can illuminate how a second Obama term, at least in the area of economic management, can be better than the first.
The number one thing I take away from the Romer memo and the subsequent tabling of it by Larry Summers, is that economic analysis and political management were bifurcated. And when they weren’t, they were folded into the hands of the wrong person, namely Larry Summers. Romer simply left politics to the politicos and focused strictly on the economic analysis, as is proper. I am convinced that her best ideas would have worked and that none of them stood any chance of being enacted. The problem here is that President Obama relied on an economist to tell him one thing and political handlers to tell him another, and he having to fuse those options together. The way this should work, and should have worked, is for political handlers and economists to work together to present the president with options that would be both popular and economically productive.
Perhaps if the President had been presented with several options, ranging from very popular to unpopular, rather than a series of econometric data points (which always get revised later), he could have selected a recovery program that not only would have been more effective but easier to get through Congress. Just imagine, for example, if we had pushed through a much, much bigger “Cash-for-Clunkers” program in 2009. This program was perhaps the most popular thing the federal government did in 2009. They spent about $ 3 billion on it and caused the sale of about 700,000 additional cars. Imagine if we had made that program ten times larger and spread it out over 4 years. We could have passed that program through Congress, limited it to cars manufactured in America, and capped spending for it at $ 120 billion. It would have led to a even more robust auto recovery, which is lifting Obama’s popularity in crucial swing Midwestern auto manufacturing states. This is a good example of economic science and smart politics meeting in the sweet spot. To this day, i still do not understand why this program has not been re-authorized.
However, if you looked at it strictly from the point of view of an economist, you might conclude Cash-for-Clunkers was ineffective. Some are still saying it was a waste of time. However, common sense tells you this means more cars sold, more jobs, and if done right, a great deal more fuel efficient cars on the road. It means people working a third shift in Ohio. It means happy people driving new cars. I’m sure this program had been big enough, a great deal more people would be thanking President Obama today for saving them from high gas prices. The economic and political bang for the buck in Cash-for-Clunkers was substantially greater than that for “shovel ready” projects and small business tax credits. With a little imagination, similar programs could have been expanded into other domestically-made household durable goods.
Perhaps this would have made for a less rocky first term, perhaps not. But there is no question that despite the Romer memo, the Summers memo, Recovery Act and its implantation, the country has not taken great confidence in President Obama’s economic policies in his first term. Those policies almost, and still may, cost him the White House. Perhaps in a second term the President could demand from his staff to present policies that are both economically beneficial and popular, rather than either/or.