Obama’s Stimulus Plan: What Worked, What Didn’t
Policy + Politics

Obama’s Stimulus Plan: What Worked, What Didn’t

REUTERS/Rick Wilking

Cultural issues like whether religious institutions should have to offer their employees contraception may be making headlines now, but as election season wears on, the economy is bound to take center stage in the contest between President Barack Obama and the eventual Republican nominee. At the heart of that debate is a sharp disagreement over the effects of Obama’s stimulus plan, the American Recovery and Reinvestment Act.

To set the record straight about it, author Michael Grabell, a reporter with ProPublica since 2008, visited projects in 15 states and pored over thousands of pages of government documents. His new book, Money Well Spent?: The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History, looks at the stimulus overall as well as its effects on specific communities like Elkhart, Ind., the country’s mobile-home manufacturing capital; Aiken, S.C., site of the Savannah River nuclear site; and Fremont, Calif., home of solar panel startup Solyndra.

The Fiscal Times spoke with Grabell about the size of the stimulus, the politics behind it, and whether it was really money well spent. Here are excerpts:

The Fiscal Times (TFT): The stimulus is the biggest economic recovery plan ever, bigger even than Depression-era programs like the Works Progress Administration, you say. But you also describe the WPA as going from zero to 60 and the stimulus as going from 35 miles an hour to 50 miles an hour. What do you mean by that?

Michael Grabell (MG): In raw dollars, inflation adjusted, the stimulus comes out as the biggest – bigger than the moon race, the WPA, the Louisiana Purchase, the Manhattan Project. The point of the zero to 60 is that the annual budget in the 1930s was $3 billion. So when the WPA came in spending $11 billion in the dollars of the time, it was three times the annual budget. All of a sudden there’s this huge government ramp-up in spending. It’s obviously going to be a lot more noticeable than today, when we have a $3 trillion budget that includes Social Security and Medicare. This [stimulus] was only 25 percent or so of the annual budget; it was a lot more like going from 35 miles per hour to 50.

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TFT: How do the people you talked to in your reporting see the stimulus?

MG: Politically you get this very polarized view: Republicans say it was a total flop and Democrats say it prevented a second Great Depression. A lot of Democrats say we should have just had more. When I talked to regular people who were out of work or hoping to find jobs, a lot of folks were disappointed, hoping that it [the stimulus] would be more noticeable and would bring more jobs into their communities. But I also spoke to people who benefitted. [They said] if it wasn’t for the stimulus, “I wouldn’t have had this extra unemployment benefit and would have been completely out of my house.”

TFT: President Obama’s liberal critics complain that he compromised too much, that Christina Romer, Obama’s chair of the Council of Economic Advisers, wanted a $1.2 trillion package, but it wasn’t advanced for political reasons. Your thoughts?

MG: In my discussions with Dr. Romer and others on the team, there was an economic model that was done on the $1.2 trillion economic stimulus, but it was not something she pushed very hard. [Economic adviser] Larry Summers and [incoming White House Chief of Staff] Rahm Emanuel [believed] that they would never get a trillion-dollar bill through Congress. There was a political caution and almost internal censorship to not look politically naïve. Dr. Romer told me she was the new kid in Washington. So when they got up to $800 billion she thought that was a pretty big coup because at the time they were talking about $600 billion. And when they went into this meeting on December 8, 2008, to really lay out the stimulus effects, they were taking about $700, $800, $900 billion. And no one really mentioned “the T word” at this meeting.

TFT: Summers and others were worried that a far larger stimulus package would frighten the markets. Given the political environment, was this package the best they could do?

MG: In the environment of February 2009, there was no political stomach for a trillion-dollar stimulus. Sen. Susan Collins in Maine came into the first week of February thinking $600 billion is the stimulus. When she and others had their one-on-one meetings with the president, he convinced her and others to go up to $800 billion. He made a pretty strong case. However, the president could have changed this if had he come in and laid out all of these things for the public and said, “We have run models of $600 billion, $800 billion, $400 billion and even $1.2 trillion, and I know it’s going to be politically difficult, but the one that will get us back on our feet the quickest is this $1.2 trillion stimulus.” That might have changed the senators’ viewpoint and sent a shock through Congress and the public.

TFT: You believe that, overall, the stimulus was poorly designed. Why?

MG: The stimulus did a lot of good but ultimately failed to bring about the strong recovery the public expected. The money was spread so far and wide that in a lot of different programs it was absorbed into existing budgets. The tax cuts weren’t strong enough and public enough to overcome these prevailing fears of losing a job, a home, or years of retirement savings. So those were mostly saved.

In terms of projects, you have these short-term projects that took too long to get off the ground and didn’t give the American economy the oomph it needed to withstand the headwinds of the European debt crisis in 2010. On long-term investments, things like clean energy, high-speed rail and electric cars are things that the administration knew or should have known are going to take decades to achieve. But in a stimulus package, they had to meet these very quick deadlines. So there were some bad investments made and bad decisions made about where to start a high-speed rail project, for example. Some decisions were rushed and may have jeopardized the long-term goal of the investments.

TFT: Do you think the administration could have laid out a short-term plan and a long-term plan and gotten something through?

MG: A former Obama adviser said to me, "What if we had two packages?" One, a stimulus package that may have been more bipartisan. Then his advisers could have been working on a more sustainable investment package of infrastructure projects. Unemployment would still have been increasing; there likely would have been an appetite for this in 2009 and they would have come in not looking like they were trying to force through different things at once. They might not have burned bridges on the politics side.

TFT: Were the flaws in the stimulus more the result of misjudgments from a new team, or just the nature of politics?

MG: I think it is a combination of misjudgments but also the way we do things traditionally in Congress. When the president came in and said, “I am going to change Washington,” the first bill was Washington as usual. Or Washington as usual won. There were pet issues and pet projects and different formulas and horse-trading to try and get special issues and projects into the bill. Rather than having an easily definable thing for the public to see, this was more than a hundred different programs, wide and varying. In the book I just listed the programs to show the extraordinary nature and scope of the bill.

TFT: What stands out to you as the most interesting, surprising, or confounding?

MG: An incorrect assumption is that the stimulus package just filled potholes and didn’t create any lasting legacy. There are some very big projects we’ll be able to look back on 75 years from now and say, that was because of the stimulus. The Fourth Bore, the Caldecott Tunnel in Oakland in its suburbs, the Cleveland Interbelt Bridge got $79 million to replace this 50-year-old bridge in downtown Cleveland, and South Dakota is building a tribal school for the Sioux tribe’s Crow Creek reservation. In New York, Moynihan Station, the Second Avenue subway, Staten Island’s ferry terminal, the Fulton Street transit center – there are big projects that got a significant chunk of money and now can go forward in a bigger way.

TFT: If Nixon is popularly credited with saying we’re all Keynesians now, Ron Paul these days is saying we’re all Austrians now. Given the way the stimulus was spent, can we actually draw any conclusions about Keynesian spending?

MG: That’s why I went to Aiken, S.C., where they had that Savannah River site. It got $1.6 billion in funding for an area that only had tens of thousands of people. The unemployment rate went down from 10.2 percent to 8.5 percent and hotels were booked up and apartments were full and the city of Aiken saw its hotel tax not only get back to where it was before the recession, but go 10 percent above that. There were multiplier effects for real. In most other places, the money was spread so far and wide you really couldn’t notice. That said, in order to really have effective Keynesian stimulus, you need substantial amounts of money that may be politically untenable in any generation. The question is, will the lessons of the stimulus change the way we talk about what Keynesian stimulus can and can’t do. It needs to be paired with other things like long-term policies to bring about strong recoveries and strong economic foundations.

TFT: What other takeaways do you draw from the stimulus?

MG: Most infrastructure projects take a longer period of time. That doesn’t mean there’s no such thing as a shovel-ready project. Programs that were really successful were [because] the federal government already had a well-established plan and there weren’t multiple levels of funding. For example, the nuclear site worked because a contractor was already in place; they already knew what work had to be done; they had already drawn the specs up. With weatherization it was the opposite. It was a much larger program, with new rules regarding prevailing wages. You also had this bureaucracy where the feds gave money to the states, which gave money to a local non-profit, which then hired the contractor. You had so many different layers. As a result, it took a really long time before weatherization got off the ground, even though it was talked about by the Secretary of Energy as not only low-hanging fruit, but fruit on the ground.