In his much-celebrated memoir ”A Promised Land,” former President Barack Obama described his 2009 stimulus bill in sweeping terms. “By any conventional yardstick, I was about to sign historic legislation: a recovery effort comparable in size to FDR’s New Deal,” Obama wrote.
It was a middle-class tax cut bigger than anything “since Reagan” and an infrastructure program bigger than anything “since the Eisenhower administration” Obama proclaimed, adding that in his first month in office, he had secured “the successful work of an entire first term.”
Little of this description is accurate. Obama’s $800 billion bill was equivalent to about 5.5% of U.S. economic output in 2008; New Deal spending amounted to around 70% of the economy the year before Franklin D. Roosevelt took office. There is no doubt the Great Recession would have been worse without Obama’s bill, but it was not transformational legislation.
Every president wants to look on the bright side of his achievements, of course, and people will debate whether a bigger bill was politically possible until the end of time. But Obama’s optimistic assessment of the 2009 Recovery Act rings hollow today not only for its statistical muddles. Over the past few years, a new intellectual consensus has emerged about how the economy works and what the government’s proper role in managing it should be.
Back in 2009, many if not most mainstream economists believed that excessive government budget deficits were a bigger threat to society than weak growth or prolonged unemployment. Going too big wouldn’t just risk “overheating” ― it raised the prospect of a second financial crisis that could bring down the dollar and even American political hegemony.
Today, by contrast, economists increasingly accept the idea that deficits are not inherently destabilizing, but a normal part of economic management. The price of going too big isn’t a crash, but a little unwanted inflation ― something that can be reined in through Federal Reserve policymaking or some tax increases from Congress. These may be unpleasant when they come, but it will be much worse for people to lose jobs, incomes and homes in the meantime. When the costs of going too small are shattered families and broken faith in a shared national project, the choice is not difficult.
As conservative New York Times columnist David Brooks put it on Friday, “When your great nation is facing decline because of rising inequality, insecurity, distrust and alienation, you don’t just sit there. You try something big.”
One of the few dissents from this new consensus is Larry Summers, the principal economic architect of the Obama stimulus who only a few months ago was among the chorus of economists urging President Joe Biden to go big. But Summers abruptly changed course on Thursday, arguing in The Washington Post that Biden’s agenda risked “inflationary pressures of a kind we have not seen in a generation,” along with “consequences for the dollar and financial stability” ― in other words, another crash.
Politico’s Washington-insider newsletter Playbook amplified the Summers analysis, and it was blasted across cable news for much of Friday morning … and slapped down repeatedly by the Biden administration.
“We can’t do too much here. We can do too little. We can do too little and sputter.”
Jared Bernstein, a member of Biden’s Council of Economic Advisers, told CNN that Summers’ analysis was “profoundly wrong,” while other administration officials spent the day trashing Summers across the media landscape.
Biden himself shows no sign of changing course. Every signal from the president and his top economists has been consistent and clear since his election victory in November: He will not roll the dice on the country or his presidency with a skimpy bill. On Friday, after the Senate approved an early version of his proposed $1.9 trillion COVID-19 relief bill, the president told a meeting of House Democrats: “We can’t do too much here. We can do too little. We can do too little and sputter.”
It is not merely the left pushing back against Summers. Mainline party brass Democrats are convinced that the cost of going too small is a broken Democratic Party. On Friday, over 200 former Obama administration officials ― including recently departed Democratic National Committee Chair Tom Perez ― signed a letter saying the undersized 2009 stimulus bill “ended up prolonging the economic pain and inhibited our ability to bounce back quickly.” They urgee the Biden administration to “learn the lessons from the last economic crisis and pass a large stimulus package.”
Democrats will, of course, still listen to Obama; he will remain a revered figure within the party, whatever intellectual paradigm we are now living in. But Summers is going out with the tide. By declining to hire Summers and nominating Janet Yellen to be Treasury secretary, Biden demonstrated that he does not share Obama’s admiration for Summers. Back in 2013, Obama had hoped to make Summers chairman of the Federal Reserve, but was forced to settle for Yellen when Democrats on the Senate Banking Committee blocked his man.
Biden’s $1.9 trillion relief package is welcome and robust, but like Obama’s Recovery Act, it is not transformative lawmaking. It will enable the country to weather a difficult year, but it will not update the antiquated American economic infrastructure for the 21st century. Biden’s payments to families will be welcome and its support for small business is urgently needed. The crises of inequality, climate change, and post-COVID-19 globalization will remain.
In his op-ed, Summers charged that Biden would burn up all of his political and economic space to address those issues by supporting American families.
The opposite is true. Republicans made clear this week they will not support even emergency economic relief from a Democratic president. Democrats will have no choice but to go it alone, and passing a popular bill will not hurt their ability to pass additional popular measures in the coming months. The economic growth enabled by Biden’s COVID-19-relief bill will not crowd out other investments, but produce an expanding economy in which more investments are possible. His next bill to reform the mangled international trade system and update American infrastructure must be every bit as ambitious as his COVID-19 relief legislation, and Biden stated emphatically last month that it would be.
The Larry Summers Age is over; the Biden era begins.
Zachary D. Carter is the author of The New York Times bestseller “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes,” a finalist for the National Book Critics Circle Award that has been named one of the best books of the year by The New York Times, The Economist, TechCrunch, Publishers Weekly and others.