The New Yorker has obtained a 57 page “memo” written by Larry Summers in December 2008.
Summers, a very well-known Harvard economist, former Clinton administration Secretary of the Treasury, and President of Harvard University, was part of Obama’s transition team before becoming the White House’s most trusted economic advisor.
And the memo says …
Mr Summers told the president that it would be hard to spend more than $300bn on government investment and anything above that would have to come from transfers to the states and tax cuts. He also said that a giant stimulus of more than $1,000bn aimed at rapidly reducing the unemployment rate “would likely not accomplish the goal because of the impact it would have on markets”.
… It suggests that Mr Obama’s economic advisers recognised that the economy needed a bigger boost, but did not think they could design one and feared a backlash from bond markets.
“While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilise the macroeconomy,” Mr Summers wrote. “To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses.”
This is confirmation of what has been broadly suspected: that the final $800 billion stimulus package was mostly political pork barrel to reward loyal constituents.
That supposition has been a topic of discussion in ECON 3020 every spring semester since the Obama administration took office.