The New New Deal
The hidden story of how the Obama stimulus — the American Recovery and Reinvestment Act — has changed America for the better.
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“Just about everything people think they know about the stimulus is wrong,” says Michael Grunwald, senior national correspondent for Time magazine, referring to the American Recovery and Reinvestment Act. Signed into law in February 2009, the $800 billion stimulus aimed to not only repair a broken economy but also to modernize — even revolutionize — this country’s approach to energy, health care, transportation and taxation, issues that American politicians had long been unwilling or unable to take on.
Unfortunately for President Barack Obama, the American Recovery and Reinvestment Act was marketed as a measure to prevent high unemployment, yet high unemployment happened anyway, because the economy he inherited was in worse shape than anyone realized at the time. So Americans mocked the bill, despite the fact that it prevented the United States from falling into a Depression and soon got the economy moving back in the right direction.
“It was oversold as a short-term economic fix, undersold as a long-term catalyst for change, and fumbled as a political football,” explains Grunwald in the introduction to his book “The New New Deal” (Simon & Schuster), a thoughtful and exhaustive analysis of why the stimulus has been misunderstood and how it has positioned America for the future. In the following Failure interview, Grunwald explains why the stimulus has been perceived as a failure, why it should be viewed as a modern spin on the New Deal, and why there has been virtually zero fraud associated with the spending of the stimulus money.
You’ve described the book as “a revisionist history of the Obama stimulus.” How so?
The official narrative is that it was a gigantic failure — $800 billion worth of levitating trains to Disneyland, honeybee insurance, and Mob museums, and all kinds of nonsense that did not create jobs and did not help the economy. What I’ve tried to show is that the bill in fact did jump start the recovery, and although it has turned out to be a tepid recovery, that is a hell of a lot better than no recovery. There was this massive reinvestment that really is transforming the way we do energy, health care, education, transportation, and even the way the government spends money. It had the largest middle class tax cut since Reagan, the largest infrastructure investment since Eisenhower, and the largest research investments ever.
Why is the stimulus commonly considered to be a failure?
The first reason is sort of unsatisfying, but it is the most important. It was a jobs bill passed when jobs were hemorrhaging. GDP crashed nine percent in the fourth quarter of 2008, and we were losing 800,000 jobs a month. The stimulus passed and then we had the best improvement in employment in thirty years. We went from free fall to modest growth. The problem is that we continued to lose jobs for another year. It was unavoidable and there was no stimulus that could have changed that. I quote Larry Summers in the book talking about how Franklin D. Roosevelt (FDR) was lucky. There had already been three years of Depression under Hoover, [and] everybody knew it was Hoover’s Depression. When Obama took over things were just beginning to fall apart. Unemployment continued to rise and there was no way a jobs bill was going to be popular at a time when unemployment was running up to double digits. The financial earthquake had hit but the economic tsunami hadn’t yet hit the shore.
That said, the Republicans did an amazing job of distorting what was in the bill and making it sound like $800 billion worth of pork. They made a very cynical but ultimately shrewd decision that they weren’t going to try to fight on the substance. They weren’t going to try to move it towards something more to their liking. They were just going to make it sound like big spending, big government, and a big mess. And they did a really good job at that.
The Democrats — instead of defending it — mostly focused on their own quibbles: ‘It’s not big enough,’ or ‘It’s too big,’ or ‘It’s got too many tax cuts,’ or ‘not enough tax cuts.’ So Democrats didn’t provide a lot of cover. And Obama [and his team] really had trouble with the message. By the time they figured out what they were going to do — and finally got the bill to pass through the ugly sausage making — then it was on to bailing out the auto industry and doing health care.
Finally, the media screwed up the coverage as badly as they screwed up the run-up to the war in Iraq. You have national reporters who are not really interested in public policy. They did ‘He said, she said’ stories. And you have this Washington narrative — this incredible groupthink — that when the economy is bad that the president is an idiot and everything he does is stupid. Put all those together — plus the fact that Republicans continued to talk about porkulus and the “failed-stimulus” — and the narrative was not going to be challenged.
How does the American Recovery and Reinvestment Act compare to the New Deal, and why is it a “New New Deal”?
Well, it’s not another New Deal. FDR hired millions of people for federal government jobs. The stimulus created one tiny agency, ARPA-E [Advanced Research Projects Agency-Energy], with maybe a couple dozen employees. The stimulus didn’t create new entitlements like Social Security. It didn’t create big government, because FDR had already done that. And that’s not what Obama is about.
But both were a gigantic infusion of Keynesian stimulus. Yet the Obama stimulus was even bigger in inflation-adjusted money than the entire New Deal. The New Deal was dozens of bills over several years. The Obama stimulus was just one bill — passed before most of his aides knew where the bathrooms were in the West Wing.
And with the New Deal we think of icons like the Triborough Bridge, Fort Knox, and Skyline Drive. The Obama projects are very different: America’s largest wind project, and a half-dozen of the world’s largest solar projects, for example. So different kinds of legacy projects, but what they have in common is change.
When Obama ran for president in 2008 people didn’t pay attention to his policy agenda because it wasn’t as interesting as his race or his crazy pastor, but he had ambitious plans to overhaul education, energy, healthcare, and the way the economy is structured. The Recovery Act was an incredibly large down payment on those plans. We had been spending a few billion dollars a year on clean energy and suddenly this poured in $90 billion. It launched this clean energy revolution which has doubled renewable energy and jump-started the smart grid. And there have been incredible investments in energy efficiency and advanced biofuels and electric vehicles. A new battery industry was created out of thin air, all that in addition to wind and solar and geothermal.
Then in education you have Race to the Top, which is changing the way we do education. Forty states changed their laws just to be able to apply for Race to the Top. In health care it laid the groundwork for Obamacare. The biggest part was health information technology, which is going to completely transform medicine in this country. Plus huge investments in high speed rail, broadband, and homelessness prevention, as well as reform of the New Deal system of unemployment insurance. These are things that could change the way government works in the future and change the direction of American policy.
How much fraud has been associated with the American Recovery and Reinvestment Act?
To hear Republicans talk about it, it’s porkulus and a waste of money. When everyone was first talking about the stimulus, one of the arguments against it was that we could expect to lose five to seven percent to fraud. But they poured about a billion dollars into oversight, and it has been, by far, the most scrutinized money in the history of federal spending. Long story short is that only about 0.001% has been lost to documented fraud — maybe $10 million. It has turned out to be really, really clean because there were lots and lots of eyes on this money. Earl Devaney, who broke the Jack Abramoff scandal and caught those oil executives sleeping with the oil regulators under Bush, said he is flabbergasted by how clean it’s been.
One thing you realize is that the people who put this together were rabid about making sure this money wasn’t pissed away. There was a real intense effort to make sure it was spent as wisely as possible. And there were no earmarks, which was unprecedented.
What about Solyndra?
I write a lot [in the book] about Solyndra, probably the most famous stimulus project. Solyndra was a failure, but failure is not always a scandal. Solyndra has been described as Obama crony capitalism. In fact, it was a bipartisan program that President Bush signed into law. The Bush Administration chose Solyndra out of 140 companies to get the first loan. Solyndra wasn’t fly-by-night. It had raised a billion dollars in private capital and was the sexiest company in Silicon Valley. It had this incredibly innovative technology and one of the reasons it was able to get the loan is that it had to put up some of its own money as well, which it did. It built its factory on time and on budget. But the price of silicon crashed, so solar got cheap and Solyndra’s business model was based on solar being somewhat expensive. It turned out to be a disaster for Solyndra, but it’s been fantastic for solar. Solar has increased more than a thousand percent in the United States since the stimulus. In fact, while Solyndra and Abound Solar failed, SolarCity has gone public. And the stimulus has financed the largest distributed solar project in the world, Project Amp, which is putting solar panels on hundreds of commercial rooftops.
What else has the American Recovery and Reinvestment Act changed?
It changed the way the government spends money and made it more transparent and accountable. So now if you want government money you have to prove that your project makes sense and advances government priorities. That was a radical notion for the federal government but I think it’s worked pretty well.