How Should the Stimulus Have Been Different?

That's interesting. I was around the leadership table; I was in the room, and I don't ever remember the speaker making that comment.

I remember it being, you know, we're going to -- we were going to be welcoming, respectful. "The president is coming to talk with the House Republicans at our request. It's an opportunity for us to ask him some questions. Let's have a dialogue about the stimulus. Let's hear what he has to say."

No, that all -- as I remember it, that all came after that meeting.

Right. Well, it was disappointing that the administration was not willing to work with the Republicans on this, on this proposal. We went into it believing that there might be an opportunity to find some common ground. And then it just -- it seemed like it fell apart, that it was more: "This is what I'm proposing. Take it or leave it." And our biggest concern was the debt that we were adding, the amount of spending that would be in that bill, and this approach of just continuing the record borrowing, the record spending, another bailout, rather than really looking at pro-growth policies that we believe would help the free market and the entrepreneurs and encourage that entrepreneurial spirit in America, which is also important to economic growth.

So in the data, the average recession lasts 11 months. Stimulus itself is normally quite controversial, because the typical stimulus takes 18 months to pass and get out the door. And so by the time it is getting out the door, the recession is already over, so it becomes inflationary.

So there was a lot of discussion of how long should we be doing this. And the view was, let's take some of each. So there were some geared for one year, some for two years and some for three years, a 10-year infrastructure program. Truth be told, the president was always for enhancing infrastructure as a business development tool, and most of the economic team totally favored that.

But a 10-year infrastructure program not paid for is not really stimulus because it is not going to be spent until 2016. So again, I think it is a little unfair to portray it that way.

So the important thing is it wasn't really just handed over to Congress. We were working with them day after day. We had very good relationships, both with members of Congress and with the all-important staffs of the various committees.

So I think with the president-elect, very much the call that he made is, you're more likely to get this thing fast and in a bipartisan way, which was something we very much wanted, if we didn't just dictate but worked with them. And virtually all of our big priorities showed up in the final legislation. It was perhaps not as large as we would have liked, but that's because the crucial votes that we needed in the Senate said, "No, we're not going to quite go that way."

But I would certainly argue that the final bill was a very good bill, and it was smart in the sense that one-third of it was tax cuts. Well, that was there because they're fast; they tend to have bipartisan appeal. That's a sensible way to get money into people's pocket. A big chunk of it was aid to people who had been directly hurt, like more supplemental nutrition and unemployment insurance.

And then a piece certainly that we had pushed hard for was aid to state and local governments. We'd been looking at the numbers of how just this recession was taking a terrible toll on state budgets, and they were cutting services just incredibly. And we thought a good way to get money out there fast and in a useful way is to transfer it to state governments. And that's a hard one, because congresspeople tend not to like to just give money to states and say, "You go to do what you think is good with it."

So that was a case where I think the president very much pushed it in that direction.

Yes, probably.

I'm vice chair of the conference, mm-hmm.

You know, he's the new president. This was the first time that many of our members on the Republican side were meeting the president. He was graciously and warmly welcomed by the conference, you know? We were very pleased that he would take the time to come and talk with us about the stimulus. And he spoke extemporaneously about the stimulus. He walked us through it [in] probably 15 or 20 minutes, just his thought process and why he was advocating these policies. And then he opened it up for questions.

And it was really during that Q&A, as the members stepped forward to the mic and asked some pretty, I think, appropriate questions about the amount of money that we were spending, the debt that we'd be taking on and the desire by the Republicans to enact more pro-growth policies and to look at the tax cuts and how we might be able to enact some policies that would encourage the small businesses in this country, because we know that they're the economic engine of America -- that was more the direction that we were wanting to go at that time -- and I don't ever remember him saying, you know, "OK, we'll take a look at that." It was more just defending his proposal as is.

Right. Well, following President Obama's inauguration, we had heard a lot during the inauguration activities as well as during the campaign about him really wanting to be a uniter, not a divider, wanting to work across the aisle to do what was best for America. And I remember the first big issue that we encountered was the stimulus. And President Obama had proposed a $787 billion stimulus. I was new on the leadership team at that time, too.

So during those first days, [there was] a lot of discussion about, OK, so how are we as Republicans going to approach the new administration, and what are our views on the stimulus? And there was a real desire to find a solution, to see if there might be some common ground where we could work together to move something forward. And we decided to invite President Obama to come down and meet with the House Republicans, and "Let's have a discussion about the stimulus." And he accepted our invitation. He came down and met with all the House Republicans.

It didn't go quite as we had expected. The sense that we got really was President Obama saying: "This is my plan. This is my proposal." And instead of really looking for that opportunity to maybe work in a bipartisan fashion or find some ways that he might be able to incorporate some of our ideas, it was really more of President Obama trying to convince us that this was what we needed to do, and that we just needed to support his package.

Then around that same period, there was a meeting down at the White House where the Republicans and the Democrats were again discussing the stimulus, and that was when President Obama let it be known that he had won the election, and that clearly sent the message that, you know, we were in the minority and he was the new president, and he had the majorities in the House and Senate, and [he] really left us with the impression that he was going to do what he wanted to do.

... So, going into 2009, the big debate was about the size of the stimulus. I think it was mid-December. I was not at the meetings with them, but certainly I was aware of the discussions happening.

Where I sit, I'm a little more Keynesian by nature, so I would have liked to have seen north of a trillion, as opposed to the 700 -- I think it was $89 billion, less/plus, only because I know it was called stimulus, but if you look at the $789 billion, you're only maybe talking about one-third was true stimulus. A third was gapping state deficits; a third was unemployment insurance and keeping some state and local employees -- police, fire, teachers -- onboard, so obviously that's critically important, but I'm not sure I would call that stimulus. When I think of stimulus, I think of growth.

And then, if you look at the third that was stimulus, it was really infrastructure, which a lot just doesn't happen overnight. I mean, I think the part of infrastructure, it's like a five-year plan. Some were truly shovel-ready, but as we know some were not shovel-ready. So I would have liked to have maybe separated it out and be a little bigger, but what I hear -- like I said -- I wasn't at the table, is that the idea of getting something with an 8 handle or larger was not going to happen.

Because I just think there wasn't the political wherewithal to do something of that type of size.

I'm not sure at the end. My guess is some people in the administration probably had a little more Keynesian tone to themselves, and some felt like, "You'll just never get this passed," maybe a little more practical approach. I think either way -- I don't know what the exact numbers are, but I think some people quote that it led to north of a million jobs being saved during that time, and it certainly stemmed the tide for state and local municipalities from having to, I would say, even cut to a more austerity budget than they already did. ...

So I think the first thing -- and I'm sure the president will tell voters this time and again -- everything he did was about the average person; it's not about the banks. Even when we were doing things for the banks, it was about the collateral damage, all of the people that would be hurt if the banks went down.

And if you think about the things that he's done, from the Recovery Act to the various extensions of unemployment insurance and the extensions of the payroll tax cut to health care reform to financial regulatory reform, all of those things are designed to help this economy be stronger, more stable, and to create jobs.

So I think the thing that people can rightly say is, "I wish you'd done even more." But [if they] say that what you did was not aimed at job creation and aimed at dealing with the fundamental problem, I think that's deeply wrong. That was always the focus. That was always the thing that he cared most about.

So what is certainly true is the economics team had [what] we often called the four economics principals: the secretary of the treasury; the head of OMB; Larry Summers, the head of the National Economic Council; and the chair of the Council of Economic Advisers. I think what's true is we were all strong personalities, and strong personalities with sometimes very different viewpoints. And I think we didn't hesitate to hash things out in a very forthright manner.

So that's the basic truth. And it's interesting. I mean, it's the way economists naturally tend to interact with one another. I've learned from my academic colleagues in different fields that their seminars aren't nearly as contentious as ours are, where we just don't hesitate when someone's come to your university to represent a paper, to say, "I think that's wrong, and here's why." And I think that was naturally how we tended to interact with one another.

I think for the most part there was a lot of mutual respect. It sometimes broke down, or sometimes people were mad, and sometimes it did feel like things weren't working quite well. I think the big picture is, for the most part we were incredibly successful, that we got through a lot of important policies, everything from health care reform to financial regulatory reform to the Recovery Act.

I think a time when it did feel somewhat dysfunctional was the fall of 2009. So we'd gotten through the worst. We'd done some extraordinary measures. But the figuring out what more needed to be done there in the fall of 2009 I think was not one of our better episodes, that there was a disagreement about should we do more stimulus? Should we do immediate deficit reduction? I'd say we'd all agree we need to do long-term deficit reduction, and we were all enthusiastic about setting up the bipartisan fiscal commission.

But that question of right then, do we push for another stimulus or do we start to immediately worry about the deficit, that one where we were kind of at loggerheads and we just kept fighting about it in front of the president --

And I remember one time when I think an interviewer said, "So do you ever lose your cool?," and he said, "Why, yes, I lost my cool yesterday with the economics team, where I finally just said: 'OK, I'm tired of hearing this time after time. I'm going to go away now.'"

So I think that was a time when we should have gotten our act together better. I think we did not serve him as well as we should have. I obviously wish we had done a very aggressive, another round of stimulus. And I wish I'd convinced everybody on the team and we could be a united front telling the president this is what needed to be done. I think we didn't necessarily do that as much as we should have, and that didn't serve him well.

Mm-hmm.

Mm-hmm.

I think the important thing, again, if you think about the turnaround in the American economy -- so think about the end of 2008, beginning of 2009, real GDP [gross domestic product] is falling at just an amazing rate. In the fourth quarter of 2008, it fell at almost a 9 percent annual rate. That's just a huge decline. And by the third quarter, the fall of 2009, it's actually growing again. So that's just an amazing turnaround, and I think policy played a huge part in that. Things like the Recovery Act really were a big part of why we turned the corner.

Even so, one of the big debates in the fall of 2009 is, don't we need to do more fiscal stimulus; that we'd done the Recovery Act, it was sensible at the time, but then things turned out worse than we had anticipated, and even with the fact that we were starting to grow again, the unemployment rate was still terribly high. So we were having a very active discussion of other job-creation measures.

I think perhaps. I mean, a natural way that an economist approaches a problem is to say, here's where I think the economy is going; this is what we need to deal with the problem. And if we're wrong, if it turns out the economy is headed in a much worse direction than we thought, then you'll go back to Congress, and you'll get another shot of aid for the economy.

And that, in an ideal world, has got to be the sensible way to do it, to say, let me make my best guess. Let's do what we think is right now, and if it's not enough or if it's too much, we can reoptimize.

And I certainly did not count on the kind of opposition that would come to more stimulus. I think that the usual presumption is, if you go to Congress, they're always happy to pass a tax cut or to pass more infrastructure and things. So that had certainly been the norm.

So this idea that we all should have known that we only got one shot, that certainly isn't what's been true in history. I mean, it is the case that that was very much the problem here, that when you go back and you say, "Well, what we did with the Recovery Act was good. It was helpful. It helped to turn the economy around, and it turned out the situation was worse than we thought it was, so we need more," Congress says: "Forget it. Obviously the fiscal stimulus didn't work; that's why you're coming back. So you can't have more." And that is deeply unfortunate.

I was.

Well, not really, in the sense that I was certainly fighting for this. Larry Summers was actually on my side as well. And actually, even though the president was -- we got some moderately or certainly better news that fall, the president was behind that. I remember he gave a speech at the Brookings Institution there in December that was basically calling for more aid to state and local governments, more extended unemployment insurance, some more infrastructure spending, a job credit for firms that actually hire people.

So a lot of the things that I had been pushing for he endorsed. They then kind of -- most of them did not come to fruition. Or they came to fruition in a much more watered-down form.

But I do think that that was -- the president -- nobody was sitting on their laurels. We were delighted to see things starting to turn the corner, but you have to remember, the unemployment rate was still 10 percent or above there in the fall of 2009, so we were in no sense saying, "Oh, problem's over, right?" The problem was still front and center in trying to think about how do we make more progress in bringing that down.