The notion that President Obama wasn’t “focused” enough on jobs and the economy is an absurdity. Setting aside the dubious criticism that the President was so “distracted” by health reform that he ignored the economy—as if it were impossible for a president to walk and chew gum at the same time—the fact is, Obama did focus on recovery. Constantly. To wit, within four weeks of taking office, Congress passed, and the President signed, a massive $800 billion economic and jobs package—one which, mea

The notion that President Obama wasn’t “focused” enough on jobs and the economy is an absurdity. Setting aside the dubious criticism that the President was so “distracted” by health reform that he ignored the economy—as if it were impossible for a president to walk and chew gum at the same time—the fact is, Obama did focus on recovery. Constantly. To wit, within four weeks of taking office, Congress passed, and the President signed, a massive $800 billion economic and jobs package—one which, measured in real dollars, dwarfed the size and scope of the New Deal. This landmark legislation, the America Recovery and Reinvestment Act (shorthanded to “the stimulus,” ARRA, or Recovery Act), is given a full hearing, passing with (mostly) flying colors, in Michael Grunwald’s detailed examination of what amounts to the second-most crucial piece of legislation during the Obama presidency.



It’s also worth dispelling, up front, the misguided argument that Obama “didn’t focus” on jobs or the economy after the Recovery Act passed. True, the Recovery Act filled part of the economic gap, stopped the hemorrhaging in demand and employment, and allowed us to avoid a second Great Depression, but the Administration and Congress went far beyond that first bill, though frequently that fact is overlooked. Within the space of three years, President Obama and Congress enacted nearly a dozen pieces of legislation that pumped more than $1.5 trillion into a sputtering economy. While not quite enough to close the total economic shortfall (the output gap, or shortfall in demand, totaled about -$4 trillion), these efforts were sufficient to prevent a descent into the abyss, turn the corner, and dig out of the hole.



In the fourth quarter of 2008, one-eleventh of the economy essentially evaporated, GDP shrinking almost by 9%—though even the most pessimistic projects at the time didn’t recognized yet how bad it was. If we hadn’t enacted all the measures that we did, it’s conceivable that unemployment would have reached Depression-era levels.



Fortunately, the Recovery Act stopped a second Great Depression dead in its tracks.



The Recovery Act had two jobs, essentially. The first was to inject enough money into the economy to offset the massive pullback in spending by consumers and businesses (fall in aggregate demand) that was brought on by the 2008 financial crisis, collapse of the housing bubble, and temporary spike in oil and food prices. Simply put, everyone stopped spending. People stopped buying widgets, so stores stopped selling widgets (laying off the widget sales force) and stopped buying widgets from distributors, who stopped distributing widgets (laying off the widget distributors and transporters) and stopped buying widgets from manufacturers, who stopped manufacturing widgets (laying off the factory workers who made widgets) and stopped buying raw materials from resource producers, who—et cetera et cetera. And each new round of layoffs meant that even fewer widgets were bought, making the whole vicious cycle worse. You get the point.



Fortunately, there is one institution capable of stopping this vicious cycle: the federal government. By a combination of increased spending (on widgets, directly or indirectly) and tax cuts (so people can go out and buy widgets), the government can make up all or part of this short fall. And the elegant beauty of the whole system is this: The government pays for all of these spending increases and tax cuts by borrowing at almost ZERO percent interest. Wouldn’t you love a mortgage, car loan, or college loan at zero percent? Well, that’s that the Recovery Act cost. The interest rate on federal debt—in marked contrast to the high interest rates of the Bush deficits—was around one percent, less than inflation. We got the stimulus and ended economic calamity for free.



Economic stimulus, in other words, is a NPV-positive proposition.



Not only that, but it is also the decent thing to do. A lot of the most efficient government stimulus (the widget-buying and so forth) is found in measures that helped people get back on their feet and alleviate the worst suffering faced by families whose breadwinners lost their jobs or their health insurance. The Recovery Act wasn’t enough to fix all of this—depressingly so, for reasons I’ll get to shortly—but it kept us from going off the cliff and helped a lot of people get by in the meantime. Without the Recovery Act and subsequent jobs bills, millions more Americans would be jobless today, millions more would be without health insurance, millions more would have lost their homes.



The problem, of course, is that the Recovery Act—indeed, all successful disaster-avoidance measures, whether the Cuban Missile Crisis or levees that work properly or preventing a terrorist attack or avoiding economic calamity—faces what Grunwald refers to as the “counterfactual problem.” Crisis aversion is right on substance but weak when it comes to marketing, because if the crisis is averted then nobody experiences—truly experiences—just how bad “it could have been.” As a result, nobody internalizes the true value of the crisis avoidance mechanism. Grunwald put it this way:



“Obama is the ultimate counterfactual president. ‘That’s us: avoiding even bigger messes since 2009,’ one aide quips. He helped reduce our dependence on foreign oil, but we’re still dependent. He helped prevent atrocities in Libya, but he didn’t get credit, because the atrocities were prevented. His financial reforms could prevent another disaster, but presidents rarely earn points for averting disaster. One exception was George W. Bush, who got huge mileage out of ‘keeping us safe’ after September 11. Obama has kept us safer, and wiped out most of al Qaeda’s leaders, but apparently there needs to be a spectacular terrorist attack on U.S. soil during your presidency before you can get credit for avoiding another one. The Recovery Act is the ultimate counterfactual policy. It’s impossible to know precisely what the economy would look like without stimulus, because there’s no way to run a double-blind study of an alternative U.S. economy.”



A comparison with President Franklin Roosevelt’s efforts to combat the Great Depression is instructive. The Depression had been raging for nearly four years by the time FDR came in and pushed the New Deal through Congress. People had experienced, truly suffered, the Depression, and so they know what recovery looked like. In a way, Americans of the time knew the counterfactual possibilities.



In contrast, when Obama took office in January 2009, we were still at the beginning of the collapse. The good news: There’s still time to avert complete collapse, to avoid a 1929/30-level disaster. So far, so good. The bad news: You can’t get credit for it, and in fact, because things haven’t been fixed fast enough, the very stimulus policies that averted disaster are going to be blamed for the still-weak economy instead. It’s insane, but that’s exactly what has happened. Listen to any Republican running for Congress. (Or president.)



The stimulus worked, at least as far as it was intended to. Though not large enough, it was enough of a jolt to keep the U.S. (and global) economy from careening off a cliff, and ultimately made sure that unemployment, homelessness, and destitution didn’t rise anywhere near Great Depression levels.



So, that’s the “recovery” part of the American Recovery and Reinvestment Act. But with this legislation, the President and Congress had a second, longer-term objective, denoted by the “reinvestment” in the bill title. The President and many other Democrats believed that the stimulus bill was an opportunity to tackle not just the short-run weak-demand problem, but also, to make headway in fixing what got our country in this mess in the first place—to begin correcting the economic and social imbalances in our energy, education, transportation, and health care policies so that our country is better able to meet similar calamities in the future. The argument, as described by Grunwald in this book, is that “Obama believed that the economy would never produce sustainable long-term growth until its long-term needs were addressed… after campaigning for change [in 2008], he managed to slip a lot of it into the Recovery Act,” often in an under-the-radar way.



I helped work on the stimulus bill, working for a member of the U.S. Senate. It was gratifying to read about some of the headway being made on a whole range of longer-term issues as a result of the some of the more “transformational” efforts in the bill. Michael Grunwald’s chapters that cover the infusion of funds for clean, renewable energy, health information technology, education reform, sustainable transportation, mass transit—a range of public goods that are critical to long run growth and U.S. international economic competitiveness, but which “the market” simply cannot accomplish on its own—was heartening, demonstrating how the advances coming online in the years to come, swaths of which will be attributable to the Recovery Act.



That these efforts—government spending! gasp!—were achieved with literally record-breakingly tiny levels of fraud, and more efficiency than market counterparts (for example, in the private equity business) to boot, is a testament to the seriousness with which this administration ensured accountability. They wanted to prove that government can work, and work efficiently. They did, and it did. This is the untold story of the stimulus: It was accomplished with almost no fraud or waste. And it’s provable, though if you watch Fox News it is unlikely that you will believe it.



Back to the “recovery” part of the Recovery Act. Despite the many merits of the Recovery Act, from the political Left you see repeated criticism that there wasn’t enough stimulus, that the Recovery Act and other stimulus measures weren’t “big enough.” Undoubtedly, this is true.



Two points have been made in defense of this failure. First, many observers point out that policymakers didn’t yet appreciate or understand the magnitude of the problem, how deep the collapse and how tough the recovery would be from a financial crisis. In the book Michael Grunwald cuts the Administration some slack on this score, given that the realtime data didn’t show just how bad the economy had gotten in late 2008 and early 2009. For example, the unemployment rate was already at a higher level (unbeknownst yet to anyone) in February 2009 than the worst-case scenarios were projecting. Some members of the economic team appreciated this likelihood, and proposed a much higher figure—such as Christina Romer—and that debate covered in illuminating detail in Grunwald’s book. However, in the end, this doesn’t fly. There were plenty of economists warning that the recession was going to be much worse than some of the official estimates projected. There a lot of data available that recessions induced by financial crises have always much deeper and longer than other, more “standard” types of recessions and lengthy. Objectively, the amount of stimulus should have been much larger, and last for much longer. In a perfect world, we should have erred on the side of caution and done “too much” stimulus rather than what we thought, based on imperfect data, was “just enough.”



That said, obviously we don’t live in a perfect world. And for that reason, I find the second defense of why the Recovery Act was too small much more (though not completely) compelling—and since I happen to work for a United States Senator, one that I have direct experience with: Republicans planned to do everything in their power to deny the President with a way to boost demand and stimulate the economy. Simply put, there probably was no way for Obama to wring much more stimulus out of Congress than he already did.



During the first two years of the Obama presidency, Republican obstruction manifested itself mostly in the United States Senate. Though the Senate, like the House, was ostensibly controlled by Democrats who were in agreement with the President’s agenda, the sad political reality is that the rules require 60 yes votes—not a mere 51-vote majority—for almost anything to pass through the U.S. Senate.



No matter where you are on the political spectrum, no matter how knowledgeable you think you are about politics or policy, you will not truly understand anything about the modern political process if you don’t grasp the need for sixty votes to accomplish anything in the United States Senate.



Because Democrats didn’t achieve a “filibuster-proof,” 60-vote majority until the spring of 2009—the recount fight in Minnesota limited Democrats to 59 seats until Al Franken finally was certified as the winner— in order to achieve approval by at least 60 senators, the pieces of the Recovery Act had to make at least one Republican happy. That constraint made the Recovery Act smaller than it should have been based even on the economic data we had at the time. And then, even after Democrats reached a 60-seat majority, more than handful of those Dems were “red state Democrats,” who were limited by the ideological disposition of the mostly Republican constituents who sent them to Washington. It’s a testament to the President and to the dedication of the Democratic leadership that, despite these obstacles, as I noted above, a number of additional economic recovery and jobs bills were enacted in 2009 and 2010.



At that point, the 2010 midterm election calamity hit, the Tea Party ran rampant, and the President faced a crowd even more determined to prevent him from fixing the economy: Republicans took over the House, while the Democrats Senate majority was trimmed to the low 50s.



True, Republicans have an ideological objection to Keynesian stimulus—well, right now, anyway, despite their advocacy of “stimulus” measures in past decades, but that’s really a case of motivated reasoning: conservatives have advocated for “stimulus” measures (spending too, not just tax cuts) in previous decades, even as late at 2008. The real cause of their obstructionism was a commitment to, in Republican Senate Minority Leader Mitch McConnell’s words, “make Obama a one-term president.”



The idea is this: Make the economy bad enough, voters might just reward the obstructionists who are blocking the President’s efforts to improve the economy by electing even more of the them—including to the White House. Since I write this nine days from the 2012 Presidential election, we have yet to see whether this atrocious, cynical experiment work. I pray it doesn’t.



All this is to say, there is little more that Obama could do to make the Recovery Act much bigger. Much more stimulus simply wasn’t achievable in Congress, whether or not Obama did health care, banking reform, and the rest. What was economically necessary simply wasn’t politically possible.



(That is not to say, however, that there wasn’t a bit more that could have been done. Earlier I wrote there was no way for Obama to wring “much” more stimulus out of Congress than he did. It’s a caveat worth examining. In late 2008, shortly before taking office, President-Elect Obama recommended that the amount of stimulus should be $800. This figure was based on various political, practical, tactical reasons, many of them valid. Whether that specific amount was the right call—whether some slightly higher figure was doable—will be debated for decades to come. But one key takeaway is, initial markers matter: Obama suggested $800 billion… and Congress went ahead and enacted roughly $800 billion. Obviously the amount that was needed—in the trillions of dollars—would never have passed Congress. But what if the President suggested a package worth, say, $950 billion? It’s possible that that additional stimulus, or something close to it—directed to housing, tax cuts, infrastructure, or whatever—would have been passed by Congress, perhaps shaving some X percent more off the unemployment rate and boosting economic growth just a bit more. Maybe. Maybe not. All this is speculation. But in any case, even if you buy this argument, making the Recovery Act $150 billion or more larger, it wouldn’t have been a full solution to the scale of the $4 trillion problem.)



In any case, the fact remain that, had Congress had done nothing—or done less—chances were strong that we would have suffered a repeat of the Great Depression of the 1930s. Since that Depression not only caused massive devastation and joblessness—at one point, the unemployment rate reached 25%—but also produced Hitler and World War II, it’s sobering to consider the alternatives we might have faced in the years to come. Thank god for the stimulus.



The New New Deal an engaging—nay, enthralling—read, delving into everything from the unfairness of the legislative process, the vacuousness and vapidity of much of the media coverage, the irrational propensity to let ideology trump evidence, and the failure to grasp the real, profound change given birth by this one piece of legislation. I didn’t agree with everything in it, but Grunwald’s work here is, I believe, the first step in the economic and history-writing process that ultimately will vindicate the Obama Administration, Keynesian economics, and the American Recovery and Reinvestment Act. Please, do yourself a favor and read this book.



Finally, let me say this—particularly if you don’t plan to read this book or don’t wish to buy it—here’s a suggestion: Go the bookstore and read pages 426 through 448—that, more than anything else, summarizes the argument of this book. And, since Grunwald is a better writer than me, no doubt those pages will do so better than any scribblings of mine above.