So did the Obama administration get cold feet and settle for a $787 billion economic stimulus package early last year that was smaller than needed?
The debate was rekindled earlier this month when David Obey, a liberal Democrat and chairman of the House Appropriations Committee, told The Fiscal Times in a lengthy interview that the nation needed a $1.4 trillion package, but White House chief of staff Rahm Emanuel and the Office of Management and Budget settled for much less for fear of triggering a political backlash to a massive spending bill.
“Emanuel said to me, ‘Geez, do you really think we can afford to come in with a package that big, isn’t it going to scare people?’” Obey recalled in the interview. “I said, ‘Rahm, you will need that shock value so that people understand just how serious this problem is.’ They wanted to hold it to less than $1 trillion.” The interview prompted an outpouring of liberal vitriol about the administration, which had allowed political concerns to cloud its judgment about the magnitude of spending and tax breaks needed to jump-start the recession-devastated economy.
In his final public speech before leaving government this week, OMB Director Peter Orszag on Wednesday offered a ringing defense of Obama’s response to the economic crisis and insisted the administration had assembled the largest recovery package possible given political realities and a tough deadline for action.
Damned if You Do … Damned if You Don’t
Orszag said that he was “sympathetic” to those who wanted a much bigger stimulus package, but he insisted there was no choice. “I think [that was] not even remotely within the politically viable range he said. “I was in the room when that [the package] was being negotiated, and I can personally guarantee you that I see zero — zero point zero zero zero — probability that it could have been any substantially larger,” Orszag said in a speech to a group of journalists and policy experts at the Brookings Institution, the Washington think tank where he once worked as a researcher.
“I am actually pleased that it was as large as it was,” Orszag added. “I think we did the best that could have been done without significant delay. And there’s a tradeoff. Twenty-eight days after taking office, there was a desire and I think an imperative [on the part of President Obama and his senior advisers] to get something signed into law quickly so that you could stop the bleeding as rapidly as possible. From my perspective, any attempt to have gone much larger undoubtedly would have been unsuccessful and undoubtedly would have led to very substantial delays. So within the realm of politically feasible, I think this is about as good as could have been done.”
The stimulus package has been a target of derision by liberal Democrats, who claim it was insufficient to keep unemployment below 8 percent, as the administration pledged it would do, and conservative Republicans, who say it’s wasteful and ineffective. A study released Wednesday by Moody’s chief economist Mark Zandi and Princeton economist Alan Blinder concludes that a series of emergency solutions devised by the Bush and Obama administrations staved off a second Great Depression. Zandi and Blinder examined two key economic indicators — gross domestic product and unemployment. With the stimulus and other programs, 2009 GDP declined 2.4 percent. Without it, they argue, it would have dropped 7.4 percent. Polls also indicate that many Americans are disappointed with the program or say they have seen no sign of its impact on employment or public projects.
While the unemployment rate continues to hover just below 10 percent, Congressional Budget Office estimates indicate that the Recovery Act raised real gross domestic product in the second quarter of 2010 by 1.7 to 4.6 percent, Orszag noted. In no small part because of that boost, he said, the economy has grown for three consecutive quarters and created nearly 600,000 private sector jobs in the first half of this year – a stark contrast to the 3.7 million lost over the first half of last year.
But a growing volume of new economic data, from falling home sales to falling consumer confidence, has prompted many private forecasters and the Federal Reserve to trim back estimates of growth for this year and next. On Wednesday, the Fed reported that economic activity in many parts of the country appeared to have slowed or was flat in many parts of the country.
The First to Leave the Administration
Orszag disclosed last month his plans to become the first member of Obama’s Cabinet to leave the White House. Obama has nominated Jacob (Jack) Lew, a State Department official and a former head of the OMB, to take his place. Orszag was one of the president’s top strategists on two of Obama’s signature legislative efforts: the stimulus bill, passed early in the administration, and the health care overhaul that was passed this year. The highly regarded policy wonk also generated some headlines of his own, with the news that he had fathered a child with ex-girlfriend Claire Milonas, a Greek shipping heiress, and that he had become engaged to ABC News reporter Bianna Golodryga. Their wedding is planned for September.
In recalling the challenging early weeks of the Obama administration, Orszag said that the top priority was responding to a financial meltdown on Wall Street and a collapsing economy. “Even before the president took office and I was sworn in as OMB Director, the economics team was working day and night to mitigate the effects of what threatened to be a second Great Depression,” he said. “And in the initial days of the administration, the dedicated staff at OMB did the work of six months in six weeks by putting together the president’s first budget — the document that would lay out the blueprint for the president’s first term. From there, we worked on health care, education reform, eliminating unnecessary military weapons programs while providing the necessary funding for our troops and veterans — and the list goes on and on.
“Our most immediate task was ... to increase aggregate demand and spark economic growth as quickly and efficiently as possible. And 28 days after taking office, much shorter than the ‘inside lag’ often feared for discretionary fiscal policy, the president signed into law the Recovery Act. And despite what some pundits might assert, most serious analysts agree that the Recovery Act helped prevent a further deterioration in the economy and played a key role in the economic growth we see today.”