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Wednesday, February 22, 2012

Summers, Romer, and the Stimulus Package

More on the evolution of the stimulus package:

The Memo that Larry Summers Didn’t Want Obama to See, by Noam Scheiber: ...Last month,... Ryan Lizza wrote a much-discussed piece in The New Yorker... The piece ... described the stimulus options that Obama’s team—including Larry Summers ... and Christy Romer ... sent him. The options ranged from about $550 billion to just under $900 billion.
Intriguingly, Lizza also noted that Romer “was frustrated that she wasn’t allowed to present an even larger option,” suggesting that ... the memo he obtained ... was far from the whole story. ...
I can fill in ... the narrative—an earlier version of the same memo that includes Romer’s larger option. (A source provided the memo...) In this version of the memo, Romer calculated that it would take an eye-popping $1.7-to-$1.8 trillion to fill the entire hole in the economy...
By clicking on the graphic..., you can examine ... Romer’s version of the memo alongside the final version... What’s striking is that ... the paragraph in which Romer makes the case for $1.7-to-$1.8 trillion has simply vanished.
What happened? When Romer showed Summers her $1.7-to-$1.8 trillion figure..., he dismissed it as impractical. So Romer spent the next day or two coming up with a reasonable compromise: $1.2 trillion..., along with two more limited options: about $600 billion and about $850 billion.
At first, Summers gave her every indication that all three figures would appear in the memo... But less than twenty-four hours before the memo needed to be in Obama’s hands, Summers informed her that he was inclined to strike the $1.2 trillion figure. Though Summers ... believed more stimulus was ... better, he also felt that a $1.2 trillion proposal, to say nothing of $1.8 trillion, would be dead on arrival in Congress. Moreover,... Summers worried that urging more than this amount would stamp him and Romer as oblivious... “People will think we don’t get it.”
Romer was uneasy with this. She felt that $1.2 trillion was itself a pragmatic middle ground. She also believed the president-elect should deeply grasp all the trade-offs he faced... She protested, but ... Summers held firm. ... The final version of the memo ... framed the debate around two basic choices—roughly $600 billion and roughly $850 billion...
Neither the memo nor the meeting would have given Obama reason to suspect this amount was arguably $1 trillion too small. ... Though Obama was never going to propose a $1.8 trillion stimulus, and Congress certainly wasn’t going to pass one, the president may well have felt a greater sense of urgency had he better understood how far he was from the ideal.

With respect to Summer's "People will think we don’t get it" excuse for not even presenting the higher figure, it seems to me their job was to make people get it -- to make them understand why the larger figure was on the list of options.

    Posted by on Wednesday, February 22, 2012 at 12:36 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (65)


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