The New Yorker magazine today released the 57-page memo that former Treasury Secretary Lawrence Summers handed Barack Obama in December 2008 as the President-elect grappled with the daunting reality that he was taking office just as the U.S. was entering the worst economic downturn since the Great Depression. The memo informed an 11,000-word article that describes the novice president’s shift “from idealism to pragmatism.”
One of the juicier tidbits in the long memo from the former Treasury Secretary was a recitation of the range of advice on how large a stimulus package to submit to Congress. The eventual number: $789 billion over two years.
But it turns out that the number – driven by political consideration and too low to rapidly pull the economy out of its downward spiral – was significantly below what most economists from both sides of the political spectrum thought necessary. Summers, who would head the National Economic Council, also warned about a “debt” backlash in the memo.
Left-of-center economists pushed for significantly larger packages, as expected. University of Texas economist “Jamie” Galbraith wanted $900 billion in a single year. Former Labor Secretary Robert Reich called for $1.2 trillion over two years. Nobel laureate Joseph Stiglitz of Columbia University said a trillion.
Notably, Paul Krugman, the New York Times columnist, called for a humble $600 billion in one year, which was less than “Larry” Lindsey wanted. The former Federal Reserve governor and National Economic Council director under President George W. Bush wanted at least $800 billion to $1 trillion. Among other Republicans consulted, Harvard’s “Marty” Feldstein, President Ronald Reagan’s top economic adviser, suggested a $400 billion package – about what the administration sought in the first year.
Other notables: Ken Rogoff, former chief economist at the International Monetary Fund who had just written a history of financial crises throughout history, advised $1 trillion over two years. Mark Zandi of Moody’s Analytics and an adviser to defeated Republican John McCain, wanted at least $600 billion in the first year. The memo also said that “senior federal reserve officials” (unnamed) wanted a plan that “well exceeds $600 billion.”
Nearly every economist consulted by the administration, it turns out, called for as large or larger stimulus package than was eventually submitted to Congress. But there was one outlier. Harvard University’s Greg Mankiw, who is now advising former Massachusetts Gov. Mitt Romney, “refused to name a number and was generally skeptical about stimulus,” the memo said.