The New New Deal

[Puppycow]

The New New Deal: Michael Grunwald argues that the stimulus was an astonishing, unrecognized success

Michael Grunwald, a Time magazine correspondent, this week publishes The New New Deal: The Hidden Story of Change in the Obama Era, a gripping account of President Obama’s stimulus bill. Grunwald writes that the stimulus has transformed America—and American politics—in ways that we have failed to recognize. I interviewed him by email about the book.

There's a lot in this interview that's worth reading and I can't quote all of it, so please follow the link to get the full argument.

The Obama team thought a lot about the New Deal while they were putting the stimulus together, but times have changed since the New Deal. The Hoover Dam put 5,000 Americans to work with shovels. A comparable project today would only require a few hundred workers with heavy equipment. Christy Romer, the Depression scholar who led Obama’s Council of Economic Advisers, kept reminding colleagues that the Roosevelt administration hired 4 million Americans in the winter of 1934. At one point she started calling Cabinet departments to see how many employees they could hire with unlimited funds: They’d say oh, a lot, maybe 20,000! So the stimulus didn’t create giant new alphabet agencies like the WPA or CCC. It only created one new agency, a tiny incubator for cutting-edge energy research called ARPA-E.

People forget that the CCC herded unemployed urban youths into militarized rural work camps—often known as “concentration camps,” before that phrase became uncool—for less than a dollar a day. That kind of thing wouldn’t fly today. The New Deal basically created Big Government, but it’s still here. There was no need to re-create Big Government, and no political desire to expand Big Government.

So, yeah. Obviously Obama couldn't just copy Roosevelt's game plan, even if congress would go along with it, which they wouldn't.

But it was a really big bill, 50 percent bigger than the entire New Deal in constant dollars. It included some New Deal-ish programs, like a $7 billion initiative to bring broadband to underserved areas, a modern version of FDR’s rural electrification. It included another $7 billion in incentives for states to modernize and expand the New Deal-era unemployment insurance system, which was created for a workforce of male breadwinners. Its aid to victims of the Great Recession lifted at least 7 million people out of poverty and made 32 million poor people less poor. It built power lines and sewage plants and fire stations, just like the New Deal. It refurbished a lot of New Deal parks and train stations and libraries. And Republicans have trashed the stimulus as a radical exercise in socialism, just as some Republicans—but not all Republicans—trashed the New Deal.

The most significant difference is that the New Deal was wildly popular, while the stimulus has been a political bust. There are many reasons for this, but the most important is that FDR launched the New Deal after the U.S. had suffered through more than two years of depression under Hoover, while Obama launched the stimulus when the economy was nowhere near rock bottom. Everyone knew about the financial earthquake, but the economic tsunami hadn’t yet hit the shore.

Roosevelt's program was more popular because the US had already been in a deep depression for two years before he launched it, Obama came to office only a few months after the economy had fallen over a cliff, and hadn't hit bottom yet.

Your subtitle is: “The Hidden Story of Change in the Obama Era.” Why hidden? What are the great hidden accomplishments?

There are two reasons this story has been hidden, one understandable, one less so. First, the stimulus was supposed to create jobs at a time when jobs were vanishing at a terrifying rate. Nonpartisan economists agree that it helped stop the free fall; job losses peaked the month before it passed, and the economy dramatically improved once it kicked into gear. But even after the dramatic improvements, the unemployment rate was still sky-high and rising; an economy can do a lot better than losing 800,000 jobs a month without doing well. Ultimately, the stimulus was a 2.5 million-job solution to an 8 million-job problem.

. . .



That said, the national media should have tried to look past that, but it didn’t, because the national media sucks at covering public policy. The stimulus included $27 billion to computerize our pen-and-paper health care system, which should reduce redundant tests, dangerous drug interactions, and fatalities caused by doctors with chicken-scratch handwriting. It doubled our renewable power generation; it increased solar installations over 600 percent; it essentially launched our transition to a low-carbon economy. It provided a new model for government spending—with unprecedented transparency, unprecedented scrutiny, and unprecedented competition for the cash. Experts predicted that as much as 5 percent of it would be lost to fraud, but so far, investigators have documented less than $10 million in losses, about 0.001 percent. Despite all the controversy over the lack of shovel-ready projects, the Obama administration has met every spending deadline, and it’s kept costs so far under budget that it’s been able to finance over 3,000 additional projects with the savings. But the media coverage of the stimulus was almost exclusively gotcha stuff, usually without a real gotcha. And when the media did notice long-term investments in the stimulus, like Race to the Top or clean-energy research, it rarely mentioned the stimulus connection.

Except, of course, when it was noticing Solyndra. After a year of screaming headlines about crony capitalism and shady deals, even Republican investigators have admitted there’s no evidence of any political interference or other wrongdoing. A slew of independent reviews—including one led by John McCain’s finance chairman—have concluded that the clean-energy loan program is working well. Everyone knew that some of its loans would go bad. But the Solyndra scandal—which isn’t even a scandal—is probably the best-known product of the stimulus.

So the standard complaint that the stimulus wasted a lot of money doesn't seem to be true when you really look at it. And it did create millions of jobs, but as Grunwald notes, the housing slump and financial crisis killed millions more jobs. So the stimulus was really too small. But could we have done better? According to Grunwald it wouldn't have been possible to get anything bigger through congress:

The complaint from the left about the stimulus has long been: It was too small. According to your reporting, that’s an unrealistic claim. Why?

Well, it was too small. More aid to states would have prevented more layoffs of public employees. More infrastructure projects would have put more unemployed laborers to work. More tax cuts would have put more money into the hands of consumers. What my reporting shows is that the disillusionment addicts of the left are wrong to blame President Obama for the size of the stimulus.

People forget that after Lehman Bros. collapsed in September 2008, Democrats couldn’t even get 60 votes in the Senate for a $50 billion stimulus; in fact, two Democrats voted against it. The $800 billion stimulus was over four times larger than Obama’s campaign proposal in October 2008. It was over twice as large as the package that 387 liberal economists urged Congress to pass in late November. It’s only in retrospect that $800 billion seems wimpy. And Obama couldn’t have gotten a dime more through the Senate. The three moderate Republicans who voted yes—Collins, Olympia Snowe, and Arlen Specter—all insisted they wouldn’t support anything over $800 billion. So did at least a half-dozen centrist Democrats, like Mark Begich of Alaska, Ben Nelson of Nebraska, and Blanche Lincoln of Arkansas. Byron Dorgan of North Dakota wanted a bigger stimulus, but he was in the room during the negotiations, and he told me: There was absolutely no way to make that happen.

Any thoughts?

 

[JoeTheJuggler]

How did the Republicans succeed so well in painting the stimulus packages (including the one, presumably, that Dubya signed into law) as failures?

 

[Magyar]

How did the Republicans succeed so well in painting the stimulus packages (including the one, presumably, that Dubya signed into law) as failures?

Most of their constituants are brainless sheeple! Are there REAL conservative ideals and ideas that republicans could make ABSOLUTELY - while I still don't agree with them to a varying degree. I recognize them as valid arguement. THe thing is - There is NOT a single right wing, pundant, talking head or politician in the US making those arguements.

The meme of voodoo economics, "smaller" govt. and freedom are hollow menaingless bumper stickers. But the right wing, fundie, mostly undereducated poor whites who vote republican asre simply not capable of understanding any arguement that requires more than 30 seconds of thought.

The midle class and upper middle class whites who continue to vote republican large still live in the fantasy world where they believe that "those" kinds of things can't happen to them because they're privilaged.

 

[BenBurch]

The Stimulus needed to be about 20% larger to have recovered us by now. But it ended the Second Great Depression early.

 

[JoeTheJuggler]

Most of their constituants are brainless sheeple! Are there REAL conservative ideals and ideas that republicans could make ABSOLUTELY - while I still don't agree with them to a varying degree. I recognize them as valid arguement. THe thing is - There is NOT a single right wing, pundant, talking head or politician in the US making those arguements.

Maybe so, but I think this is also a failure on the part of the Obama administration. He should have stood up for his stimulus and cleared the air of the misinformation about it.

Ditto the ACA. That's why we have the absurd phenomenon of a majority of people in favor of all the major provisions of it and a majority of people opposed to it as a whole.

 

[Malcolm Kirkpatrick]

The Stimulus needed to be about 20% larger to have recovered us by now. But it ended the Second Great Depression early.

It's not over. No matter who wins in November, we're in for a rough decade. Governments at all levels, from your local school district to the EU, have made more promises than they can keep. Millions of people have composed their plans on seriously mistaken assumptions of support that will not be there.

 

[Puppycow]

How did the Republicans succeed so well in painting the stimulus packages (including the one, presumably, that Dubya signed into law) as failures?

I think the interview does a pretty good job of explaining why. There were some unforced errors by the Administration in setting expectations too high. The media only focuses on things that go wrong and ignores things things that go right. And, it was a 2.5 million job solution for an 8 million job problem, so overall things got worse despite the stimulus. When things get worse overall, it's hard to make the argument that things could have been even worse than they were.

Maybe so, but I think this is also a failure on the part of the Obama administration. He should have stood up for his stimulus and cleared the air of the misinformation about it.

Ditto the ACA. That's why we have the absurd phenomenon of a majority of people in favor of all the major provisions of it and a majority of people opposed to it as a whole.

This may be true to some extent, but there's only so much that one man can do to influence the national conversation. I think he has, in fact, tried to stand up for both of these programs in his speeches and campaign events.

 

[Malcolm Kirkpatrick]

The Stimulus needed to be about 20% larger to have recovered us by now. But it ended the Second Great Depression early.

How do you derive this 20% figure?
Sorry to disturbe the peace of mind of the community of the faith. Monetary expansion can only "stimulate" economic activity when it's unanticipated, and unanticipated policy is incompatible with democracy. It's also incompatible with the assumption of rationality.

 

[Juniversal]

Most of their constituants are brainless sheeple! Are there REAL conservative ideals and ideas that republicans could make ABSOLUTELY - while I still don't agree with them to a varying degree. I recognize them as valid arguement. THe thing is - There is NOT a single right wing, pundant, talking head or politician in the US making those arguements.

The meme of voodoo economics, "smaller" govt. and freedom are hollow menaingless bumper stickers. But the right wing, fundie, mostly undereducated poor whites who vote republican asre simply not capable of understanding any arguement that requires more than 30 seconds of thought.

The midle class and upper middle class whites who continue to vote republican large still live in the fantasy world where they believe that "those" kinds of things can't happen to them because they're privilaged.

Don't be silly. Obama is the worst President in American history!!! But seriously, i've seen some people convince themselves that Bush wasn't so bad but Obama is the worst President in our history. Talk about delusional.

 

[Ziggurat]

Any thoughts?

Yes: his argument is unconvincing. The stimulus was politicized from the start, with funds allocated among states by political power, not by economic need. Gender politics was used to direct money away from infrastructure investments. There are countless examples of wasteful and ridiculous stimulus expenditures, making his claim about the competitiveness and openness of the whole thing hard to take seriously. Job creation estimates are all over the map so it's hard to place much confidence in any of them (and it's a very hard thing to measure with any accuracy), but many of the jobs directly funded by stimulus money are simply disappearing after the stimulus ends. Economic indicators keep coming back "surprisingly" bad, and the administration continually overestimates how good the economy will be, so there's not a lot of credibility from the people saying that it all worked. And the primary excuse offered by advocates for why our recovery is so anemic is that the stimulus wasn't big enough. But that's not only unfalsifiable, it's also an excuse that could be used for any failed spending project.

 

[Puppycow]

Yes: his argument is unconvincing. The stimulus was politicized from the start, with funds allocated among states by political power, not by economic need.

A function of our political system. A congressperson won't vote for it unless there's something in it for his/her district/state.

Gender politics was used to direct money away from infrastructure investments.

Could you explain what you mean by that? A link would be nice. This is the first time I've heard that charge.

There are countless examples of wasteful and ridiculous stimulus expenditures, making his claim about the competitiveness and openness of the whole thing hard to take seriously.

Again, how about some concrete examples?

Job creation estimates are all over the map so it's hard to place much confidence in any of them (and it's a very hard thing to measure with any accuracy), but many of the jobs directly funded by stimulus money are simply disappearing after the stimulus ends.

I don't know about them being "all over the map". At least among estimates by nonpartisan observers. It's hard, but that's why they have people with PhDs working to figure this out.

Economic indicators keep coming back "surprisingly" bad, and the administration continually overestimates how good the economy will be, so there's not a lot of credibility from the people saying that it all worked.

Well they were working with bad estimates of how bad the initial problem was, as Grunwald explains:

In fairness, the situation was deteriorating far faster than people realized; the government had announced a growth rate of -4 percent in the fourth quarter of 2008, which is hideous, but that was later revised to -9 percent, which is way beyond hideous. Unemployment actually topped 8 percent the month the stimulus passed, which obviously wasn’t the fault of the stimulus.

Now, I just came across this fact checking of a Niall Ferguson hatchet job:

A Full Fact-Check of Niall Ferguson's Very Bad Argument Against Obama

And it contains the following graph of private sector payrolls under Obama:

The private sector has actually added jobs since Obama was sworn in -- 427,000 of them, to be exact. For context, remember that the private sector lost 170,000 jobs during George W. Bush's eight years.

The graph seems to show a pretty nice recovery since Feb. 2010.

 

[Ziggurat]

A function of our political system. A congressperson won't vote for it unless there's something in it for his/her district/state.

Apportion the blame however you want: it was allocated by power and not need.

Could you explain what you mean by that? A link would be nice. This is the first time I've heard that charge.

http://www.weeklystandard.com/Content/Public/Articles/000/000/016/659dkrod.asp
Most of the people who lost in the beginning of the recession were men. Obama's original plan called for a lot of construction spending, jobs dominated by men. Various feminist groups protested this, and shifted the emphasis in spending away from such jobs to include more spending on jobs that women had high representations in.

Well they were working with bad estimates of how bad the initial problem was, as Grunwald explains:

That's only a partial explanation, and not one that really gives me confidence it their abilities. Yes, they screwed up because they had a number wrong, but why did they have it wrong? And why do they keep getting numbers wrong? Whatever the excuses for why they screwed up in the past, how can we have confidence in any of their future projections? They simply do not have a track record of success.

The graph seems to show a pretty nice recovery since Feb. 2010.

Not really. You see, not only has much of the drop been cut off from that graph (so we're still well below the start of the recession), population growth means that you need an upward slope just to stand still. You need around 1,000,000 new jobs each year just to keep employment rates from falling. Factor that out and we're hardly increasing at all, certainly still below Feb '09, and WAY below the start of the recession.

 

[dc1971]

There are countless examples of wasteful and ridiculous stimulus expenditures...

Such as?

 

[Alt+F4]

Any thoughts?

Blah. There never was a New New Deal. Take the CCC for example, that was only for MEN, single MEN and they had to send a portion of their pay to their parents. They did work that need very little skill. How would something like that ever fly today? Obama wants to think he's 2009 answer to FDR, he's been a total failure.

 

[Puppycow]

Not really. You see, not only has much of the drop been cut off from that graph (so we're still well below the start of the recession), population growth means that you need an upward slope just to stand still. You need around 1,000,000 new jobs each year just to keep employment rates from falling. Factor that out and we're hardly increasing at all, certainly still below Feb '09, and WAY below the start of the recession.

The same graph, but with the Bush recovery superimposed for comparison:

The recession, which began under Bush, was worse, but the Obama recovery in the private sector was clearly more rapid than the Bush recovery.

This graph really speaks for itself.

http://www.weeklystandard.com/Content/Public/Articles/000/000/016/659dkrod.asp
Most of the people who lost in the beginning of the recession were men. Obama's original plan called for a lot of construction spending, jobs dominated by men. Various feminist groups protested this, and shifted the emphasis in spending away from such jobs to include more spending on jobs that women had high representations in.

That's an interesting point. I note that article is from 2009.
In point of fact, however, most of the job growth in the recovery has gone to men, as more recent reporting shows:
Jobs Report: Unemployment Rates For Men And Women Equal For First Time Since Recession Started

Women are trailing behind men in the economic recovery, claiming a mere eight percent of the 1.9 million jobs that have been added to the economy since the end of the recession in June 2009, a NWLC study shows. Unemployment rates for women have actually risen from 7.6 percent in June 2009 to today's figure of 7.7 percent, while men have seen unemployment fall from 9.9 to 7.7 percent over the course of the recovery.

The recession was originally dubbed "the mancession," with more men than women feeling the heat from the economic downturn. Men lost 70 percent of the 7.5 million jobs that were eliminated between December 2007 and June 2009. Some speculated that women may, for the first time, hold a majority stake in the nation's workforce, according to the New York Times.

Men are now earning back the jobs they lost in the recession, outpacing women and defying historical post-recession trends that have been favorable to women, according to the Pew Research Center:

So it's difficult to argue that the stimulus favored women.

That's only a partial explanation, and not one that really gives me confidence it their abilities. Yes, they screwed up because they had a number wrong, but why did they have it wrong? And why do they keep getting numbers wrong? Whatever the excuses for why they screwed up in the past, how can we have confidence in any of their future projections? They simply do not have a track record of success.

These are best numbers that were available to anyone at the time. Is your complaint that they didn't have a crystal ball? Why do they keep getting projections wrong? Because economic forecasting is extraordinarily difficult for anyone. Event like natural disasters or unusual weather patterns or major economic disruptions in other countries or many other things can throw them off. Republicans are no better at predicting the future.

 

[Random]

These are best numbers that were available to anyone at the time. Is your complaint that they didn't have a crystal ball? Why do they keep getting projections wrong? Because economic forecasting is extraordinarily difficult for anyone. Event like natural disasters or unusual weather patterns or major economic disruptions in other countries or many other things can throw them off. Republicans are no better at predicting the future.

Krugman had it right. A lot of people had it right. The problem was bigger than people wanted to admit at the time, and the stimulus package was too small. Obama didn't want to say so because it was the best package he could get politically without expressly going the "New Deal Two" route, and he was trying to be "post-partisan". So he cobbled together the biggest package he could, then crossed his fingers and hoped.

 

[Caper]

The same graph, but with the Bush recovery superimposed for comparison:
[qimg]http://www.internationalskeptics.com/forums/picture.php?albumid=200&pictureid=6465[/qimg]

The recession, which began under Bush, was worse, but the Obama recovery in the private sector was clearly more rapid than the Bush recovery.

This graph really speaks for itself.


That's an interesting point. I note that article is from 2009.
In point of fact, however, most of the job growth in the recovery has gone to men, as more recent reporting shows:
Jobs Report: Unemployment Rates For Men And Women Equal For First Time Since Recession Started


So it's difficult to argue that the stimulus favored women.


These are best numbers that were available to anyone at the time. Is your complaint that they didn't have a crystal ball? Why do they keep getting projections wrong? Because economic forecasting is extraordinarily difficult for anyone. Event like natural disasters or unusual weather patterns or major economic disruptions in other countries or many other things can throw them off. Republicans are no better at predicting the future.

I think you should make Obamas line go up a little higher and Bush's line flatline a little lower for better effect. Also, I feel a further maritime should be added to bolster Obama's performance. Perhaps we can say he saved the country from inevitable breakup.... you can add a pie chart to show how.

 

[Beerina]

How did the Republicans succeed so well in painting the stimulus packages (including the one, presumably, that Dubya signed into law) as failures?

Independently of that, it's been pointed out that massive overspending during good times left us with the question, assuming government increased spending is helpful during a recession, what would the government do when it was already tapped out on borrowing during good times, when things get rough?

Now we know. Just borrow a magnitude more. These clods had no problem conceiving the inconceivable. And Bush led the way.

Hence the Tea Party, an insurrection in the Republican party because of the Republicans' complicity in this.

You need a score card to know who's up in the batting order.

 

[Beerina]

How did the Republicans succeed so well in painting the stimulus packages (including the one, presumably, that Dubya signed into law) as failures?

Look about thee. "It could have been worse" is having difficulty gaining purchase, especially with the countervailing argument, that government overspending, with the attendant massive tax increases politicians keep promising are on the way, are stunting business investment.

- Risky environment.
- If you should succeed, you're labeled greedy and evil and you have an "ability to pay more".
- Unable to even enter a stable calculus of what the tax rates will be, for that matter. So your risk is all over the board.
- Investment is thus reduced from what it would be -- just a little bit counts -- and there's a sluggish recovery.

 

[Ziggurat]

The recession, which began under Bush, was worse, but the Obama recovery in the private sector was clearly more rapid than the Bush recovery.

This graph really speaks for itself.

No, it really doesn't speak for itself. It again leaves out critical information, and it compares information deceptively. Why do both graphs start at the beginning of the president's term, and not at the beginning of the recession? If you want to understand how we're recovering from our recession, that's the relevant comparison, so why present it this way? Again, because cutting off the initial precipitous drop makes things look better than they are for Obama.

So it's difficult to argue that the stimulus favored women.

That's not really the point. Whether or not it succeeded in doing so, it tried. And that effort diverted money away from infrastructure investments, which would have been one of the more productive things they could have done.

These are best numbers that were available to anyone at the time. Is your complaint that they didn't have a crystal ball? Why do they keep getting projections wrong? Because economic forecasting is extraordinarily difficult for anyone. Event like natural disasters or unusual weather patterns or major economic disruptions in other countries or many other things can throw them off. Republicans are no better at predicting the future.

They keep getting it wrong in one direction. If the problem were merely the difficulty of getting it right, then their misses should be split between optimism and pessimism, but it isn't.