For the past three years, Washington journalists and politicos have obsessed over a 57-page memo that Barack Obama’s incoming economic team prepared for him in late 2008. The document has achieved such totemic status for good reason: It decisively shaped the Obama administration’s initial response to the economic crisis. The memo outlined the president-elect’s options for dealing with the teetering banks, the cash-strapped automakers, and the country’s tidal wave of foreclosures. Above all, the memo laid out options for a massive stimulus package—the mix of tax cuts and government spending designed to end the recession and boost employment. The economic team presented the contents of the memo to Obama at his transition headquarters on December 16, 2008, at which point they collectively settled on a proposed stimulus of nearly $800 billion.
Last month, my friend and former colleague, Ryan Lizza, wrote a much-discussed piece in The New Yorker based on a copy of this and several other previously-unpublished memos. The piece and the corresponding memo described the stimulus options that Obama’s team—including Larry Summers, his top economic adviser, and Christy Romer, soon to be his chief White House economist—ultimately sent him. The options ranged from about $550 billion to just under $900 billion.
Intriguingly, Lizza also noted that Romer “was frustrated that she wasn’t allowed to present an even larger option,” suggesting that while the memo he obtained may have been the end of the story, it was far from the whole story.
Now, based on reporting I’ve done for my forthcoming book on the Obama administration, I can fill in a major gap in the narrative—an earlier version of the same memo that includes Romer’s larger option. (A source provided the memo on the condition that he not be named.) In this version of the memo, Romer calculated that it would take an eye-popping $1.7-to-$1.8 trillion to fill the entire hole in the economy—the “output gap,” in economist-speak. “An ambitious goal would be to eliminate the output gap by 2011–Q1 [the first quarter of 2011], returning the economy to full employment by that date,” she wrote. “To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes and transfers to states and localities would require package costing about $1.8 trillion over two years.” Alas, these words never made it into the memo the president saw.
By clicking on the graphic below, you can examine the relevant section of Romer’s version of the memo alongside the final version that Lizza recently published. What’s striking is that the two versions are very similar, except that the paragraph in which Romer makes the case for $1.7-to-$1.8 trillion has simply vanished.
[Note: To view the Romer version of the memo in its entirety, please click here.]
What happened? When Romer showed Summers her $1.7-to-$1.8 trillion figure late the week before the memo was due, he dismissed it as impractical. So Romer spent the next day or two coming up with a reasonable compromise: $1.2 trillion. In a revised document that she sent Summers over the weekend, she included the $1.2 trillion figure, along with two more limited options: about $600 billion and about $850 billion.
At first, Summers gave her every indication that all three figures would appear in the memo he was sending the president-elect. But with less than twenty-four hours before the memo needed to be in Obama’s hands, Summers informed her that he was inclined to strike the $1.2 trillion figure. Though Summers, like Romer, believed more stimulus was almost unambiguously better, he also felt that a $1.2 trillion proposal, to say nothing of $1.8 trillion, would be dead on arrival in Congress. Moreover, since Obama’s political operatives were convinced that any stimulus approaching a trillion dollars was hopeless, Summers worried that urging more than this amount would stamp him and Romer as oblivious in their eyes. “$1.2 trillion is nonplanetary,” he told Romer, invoking a Summers-ism for “ludicrous.” “People will think we don’t get it.”
Romer was uneasy with this. She felt that $1.2 trillion was itself a pragmatic middle ground. She also believed the president-elect should deeply grasp all the trade-offs he faced, and in this she wasn’t alone. Peter Orszag, the incoming budget director, agreed in retrospect that 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.”
But Romer was reluctant to second-guess Summers on political questions in light of his imposing government résumé. She protested, but dropped the matter when Summers held firm.
When the economic team finally walked through the contents of the memo with the president-elect on December 16, Romer mentioned her preference for over a trillion dollars. Summers allowed that bigger would be better. But these points were made in passing. “I don’t remember that as part of the discussion,” conceded one member of the economic team in attendance. The final version of the memo had framed the debate around two basic choices—roughly $600 billion and roughly $850 billion—and these were the focus of the conversation. “The option of going well above $800 billion was certainly raised, but it was not discussed extensively,” Romer later recalled in an interview. “We felt the most important thing was to make sure the president-elect was on board with a plan as large as $800 billion.” Neither the memo nor the meeting would have given Obama reason to suspect this amount was arguably $1 trillion too small.
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.
Noam Scheiber is a senior editor at The New Republic, a Schwartz Fellow at the New America Foundation, and the author of the forthcoming book The Escape Artists: How Obama’s Team Fumbled the Recovery (Simon & Schuster), from which this article is adapted.
To the extent that Obama is a smart guy who likes to come to his own conclusions after he hears all the parameters of a situation from people who know what they are doing, this seems like a fireable offence. I mean, replay the case in your head: the president, as we hear time and again, is the person who has to make difficult decisions because if they were easy, some subordinate would have taken care of it already. The US is dealing with a national emergency that hasn't been satisfactorily dispatched by his predecessors. Who is Larry Summers to decide that sending in Seal Team Six to assassinate OBL is outside the scope of the mission and should be omitted from a memo on possible strategies?
To the extent that Obama is a smart guy who likes to come to his own conclusions after he hears all the parameters of a situation from people who know what they are doing, this seems like a fireable offence. I mean, replay the case in your head: the president, as we hear time and again, is the person who has to make difficult decisions because if they were easy, some subordinate would have taken care of it already. The US is dealing with a national emergency that hasn't been satisfactorily dispatched by his predecessors. Who is Larry Summers to decide that sending in Seal Team Six to assassinate OBL is outside the scope of the mission and should be omitted from a memo on possible strategies?
Like chaitless said. Summers' track record over the years is largely one of failure, pure and simple, with the country paying the price for his incredibly lousy and arrogant judgment.
But as much as Obama should have had more options and heard more arguments, the responsibility is ultimately his own. He put Summers in the position to screen out other viewpoints to begin with.
Like chaitless said. Summers' track record over the years is largely one of failure, pure and simple, with the country paying the price for his incredibly lousy and arrogant judgment.
But as much as Obama should have had more options and heard more arguments, the responsibility is ultimately his own. He put Summers in the position to screen out other viewpoints to begin with.
Summers was a spectacularly bad choice. One has only to re-read his Clinton era speech extolling the benefits of abandoning financial controls, the absence of which led directly to the 2008 crash. He blabbers on about he growth and efficiency that will be unleashed. Chilling.
Why was there no one to tell Obama, if there is anything you do, stay away from Summers?
Summers was a spectacularly bad choice. One has only to re-read his Clinton era speech extolling the benefits of abandoning financial controls, the absence of which led directly to the 2008 crash. He blabbers on about he growth and efficiency that will be unleashed. Chilling.
Why was there no one to tell Obama, if there is anything you do, stay away from Summers?
And Obama is to nominate Larry Summers to head the World Bank!!!.
BTW. The stimulus went to the big banks and bailout of wall street. No restrictions imposed. Then Bernanke declared he could do nothing about the big banks not lending to smaller banks to help small businesses that fuel 85% of the USA economy. Bernanke declares time and time again that unemployment is here to stay for a long time. BTW Bernanke who declared time and time again that there was no problem with the housing bubble (subprime ) until the bubble exploded showing how inept he was for the job, was reappointed as head of the Federal Reserve by none other than Obama. Bernanke prime priority is to fight inflation!!! Which ... view full comment
And Obama is to nominate Larry Summers to head the World Bank!!!.
BTW. The stimulus went to the big banks and bailout of wall street. No restrictions imposed. Then Bernanke declared he could do nothing about the big banks not lending to smaller banks to help small businesses that fuel 85% of the USA economy. Bernanke declares time and time again that unemployment is here to stay for a long time. BTW Bernanke who declared time and time again that there was no problem with the housing bubble (subprime ) until the bubble exploded showing how inept he was for the job, was reappointed as head of the Federal Reserve by none other than Obama. Bernanke prime priority is to fight inflation!!! Which has been absent during this tragic period. The right man for this job is professor Stiglitz from Columbia University and Nobel prize Winner in economics. But halas, Stiglitz and Larry Summers clashed when they worked at the World Bank. Has Obama consulted with Stiglitz?, has Obama read/watched the writings/tv interviews of Stiglitz? If he has he has ignored them. Just like our mutual relationship between myself and K2K.
And I kid you not. 25 million unemployed, affecting 100 million Americans, 10 million homes under foreclosure. And Bernanke is fighting none existent inflation . And the Republicans are trying to steal from the poor to give to the reach.
Shame Shame Shame.
Again here is Joseph Stiglitz proposal to repair the USA economy
http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201
BTW. Bernanke PhD thesis, and apparent specialty, was the great depression. How soon can you forget. Bernanke probably spends most of his time grooming his beard in front of the mirror. Mirror mirror on the wall who is the best controller of inflation of them all? No Snow White and Prince Charming to save us, nor seven dwarfs. But miracles sometimes happen. I kid you not.
Again here is Joseph Stiglitz proposal to repair the USA economy
http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201
BTW. Bernanke PhD thesis, and apparent specialty, was the great depression. How soon can you forget. Bernanke probably spends most of his time grooming his beard in front of the mirror. Mirror mirror on the wall who is the best controller of inflation of them all? No Snow White and Prince Charming to save us, nor seven dwarfs. But miracles sometimes happen. I kid you not.
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