By now it is clear to everyone that the Obama administration bungled the 2009 stimulus package. The dispute now is over the reasons for its failure. The conventional wisdom is coalescing around a view crystallized in a column by Mr. Conventional Wisdom himself, Charlie Cook of the National Journal: “The administration’s initial response, the much-maligned economic-stimulus package, was far too modest and unfocused.”
Cook is a rational analyst, so it is striking that he is able to advance an argument that is, on its face, nothing short of demented. The idea that the 2009 stimulus, which cost $840 billion, could have been less “modest” and more “focused” does violence to the facts of very recent American history and to the arugments made for the stimulus by its advocates at the time.
Even at its “far too modest” size, the stimulus was, by leagues, the costliest such effort in American history. Its astounding price tag was justified during the debate over its passage by the fact that there was a genuine economic emergency that had to be addressed. And the mere fact of addressing it with enormous public resources was, we were told, enough to do the trick almost on its own. The central point of taking emergency measures, we were told, was precisely not to focus them but to cause them to wash over the economy as a whole.
How many times during that emergency were we reminded of the supposed wisdom of John Maynard Keynes, who wrote in 1930 that it was enough to employ a man to perform any task at hand to create the conditions for macroeconomic growth? Simply “to dig holes in the ground,” Keynes wrote, “paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.” This is the famous “multiplier effect” we also heard so much about, according to which $1 in government spending would blossom into $3 of value for the entire economy. In effect, we were told by the most enthusiastic believers in the magic of the multiplier effect, that for $840 billion in spending, we’d get more than $2 trillion in economic activity.
It’s also important to remember that the stimulus wasn’t the first bite at the apple. It followed the $700 billion Troubled Assets Relief Program, itself a proposal of unprecedented size and scope, which was brought into being in September 2008. TARP’s managers did what they thought was necessary to save the American and world economies from collapse, but the dishonesty in the execution—using the money for purposes other than the removal of the “troubled assets” for which the program was named—had created an unprecedented level of grassroots distrust of Washington’s economic policies, and not only within the GOP. Leftist populists like Matt Taibbi of Rolling Stone made the most violent possible cases against the crony capitalism that seemed to be on display with Treasury Secretary Hank Paulson favoring his own former firm, Goldman Sachs, above all others as the crisis progressed.
The point here is that in the reckoning of the public, $700 billion in taxpayer dollars had already been spent to right the economy. The notion that Congress could have passed a stimulus bill twice the size of the one that did—Paul Krugman’s idea—was then and is now preposterous. Obama’s stimulus was as large as it could possibly have been, and the parlous results indicate it was vastly larger than it should have been.
The growing consensus is that Obama’s economic policies have failed, and precisely in the ways that those skeptical of the stimulus predicted. The most expensive government intervention into the economy in this country’s history proved to have negligible macroeconomic impact. (UPDATE: A friend points out that if one adds together all the efforts taken by the administration to stimulate the economy directly, the number is not $840 billion but something like $2.1 trillion.) This fact should force supporters of the stimulus to acknowledge that the problem was not with the stimulus as it was implemented, but with the very idea of stimulus itself. And they just can’t.