The Permanent News About the 2009 Stimulus Bill

Also: time to more-or-less set in stone the explainer about the 2009 stimulus bill–the ARRA, the Recovery Act:

What about the 2009 stimulus package, anyway?

Ah. The 2009 Recovery Act. Christie Romer’s original calculations suggested we needed a fiscal stimulus program of $1.8 trillion over three years, even with all of the banking-support and monetary policy moves the Treasury and the Federal Reserve were making. Her forecasts–like almost every forecast in December and January 2009–were optimistic. We needed not $1.8 trillion over three years, but rather more like $4 trillion over 5 years (which could be pruned back or offset by tighter monetary policy if recovery came rapidly.

The judgment of the National Economic Council–Larry Summers–however, was that the NEC could not show up with a recommended stimulus program even as large as $1.8 trillion. Obama’s inner circle and his political advisors would reject that as non-serious. So Christie Romer proposed a $900 billion three-year stimulus to close half of the gap between where the economyy was projected to be and where it ought to be, and hoped Obama would do the math. He didn’t.

Then the Recovery Act had to shrink in order to get over the 60-vote filibuster hurdle in the Senate. The three Republicans willing to vote for it–plus about ten Democrats–required that they be seen to be fiscally responsible, and thus to be cutting whatever Obama sent up to Capitol Hill. They did not have views themselves as to how large the program should be. They just wanted to be seen as cutting what Obama had originally proposed.

Thus we wound up with a $600-billion two-and-a-half-year program.

That program was, roughly, one-third infrastructure, one-third direct aid to states, and one-third tax cuts and cyclical benefit expansions. That seemed a reasonable division of what turned out, in retrospect, to be a much too-small and much too-brief pot of money.