What Really Happened in 2009
A lot of the conversation around Obama's 2009 stimulus is based on a misremembering of history and politics.
Much of the coverage of the American Rescue Act and President Biden’s efforts to stop the pandemic have been framed around Obama’s response to the financial crisis in his first year in office. Biden, his aides, and Congressional Democrats frequently cite shortcomings of the 2009 Recovery Act as the reason they are going so big this time around. Astead Herndon of the New York Times recently wrote about the potential complications of this messaging:
The pointed assessments of Mr. Obama’s handling of the 2009 stimulus effort are the closest Democrats have come to grappling with a highly delicate matter in the party: the shortcomings in the legacy of Mr. Obama, one of the most popular figures in the Democratic Party and a powerful voice for bipartisanship in a deeply divided country.
The re-examination has irked some of the former president’s allies but thrilled the party’s progressive wing, which sees Mr. Biden’s more expansive plan as a down payment on his ambitious agenda.
I am an ally of the former President but am not irked by this re-examination1. I don’t dispute the idea that some of Obama’s allies are “irked.” But the fact that the initial response to the Great Recession was insufficient is not news to any of us.
My concern is that much of the conversation about what happened in 2009 lacks historical context and nuance. Everyone now knows that the Recovery Act was too small to meet the challenge, but the reasons why keep getting confused by faulty memories and motivated reasoning. And a misreading of history means that Democrats could draw the wrong lessons. Here’s my attempt to correct the record.
Why Was the Bill Only $800 Billion?
The American Rescue Plan is more than two times the size of the Recovery Act, even though the state of the economy in 2021 is much stronger than it was in 2009.
The narrative being pushed by some is that Team Obama undershot the runaway because we wanted to appear moderate and appeal to Republicans. This is incorrect. The bill didn’t land at $800 billion because of some timidity or centrism.
There were two overriding factors that drove the size of the bill. First, the severity of the fiscal crisis was not yet known. The advance estimate for the Gross Domestic Product in the final quarter of 2008 was -6.8 percent. This was the size of the hole that everyone involved thought needed to be filled. As Obama wrote in his memoir:
And despite the turmoil of the previous months, despite the horrific headlines of early 2009, nobody—not the public, not Congress, not the press, and (as I’d soon discover) not even the experts—really understood just how much worse things were about to get. Government data at the time was showing a severe recession, but not a cataclysmic one … Several weeks after the election, 387 mostly liberal economists had sent a letter to Congress, calling for a robust Keynesian stimulus, they’d put the price tag at $ 300 to $ 400 billion—about half of what we were about to propose, and a good indicator of where even the most alarmist experts had the economy.
We would learn a few years later that the -6.8 number was wrong — very wrong. The economy contracted by 9.8 percent in that quarter. To be fair, there were some on Obama’s economic team — including Christy Romer — who believed the size of the stimulus should be much larger. There were a number of prescient progressives outside of the administration who felt similarly. However, that conversation was short-circuited by the reality of trying to pass the bill through a Congress that was already feeling the political ramifications of President Bush’s 2008 bank bailout.
When Rahm Emanuel threw out the $800 billion number in a now-infamous meeting of President Obama’s economic team, he didn’t get it from the back of an envelope or a poll. It was the number that Congressional leaders told him was the largest package they thought could pass. As Politico reporter Michael Grunwald reported in The New New Deal, his book on the Recovery Act:
“The overall number was getting way too big to manage,” says Begich, who had just been elected and did not want to give a reckless first impression. “The goal was to get a lid on it. We said, under 800, no more, we cannot go above that.”
For more than a decade now, people have argued that Obama could have gotten a larger, more progressive Recovery Act with a different legislative strategy. Maybe that’s correct. It’s impossible to prove a negative, but I think those folks are underselling the political challenges of getting Congress to agree to more than $800 billion. Congress had just been forced at fiscal gunpoint to bail out the Wall Street banks that caused the crisis. The Bush Administration’s Bank Bailout, with a $700 billion price tag, is perhaps the least popular legislation in American history and people were rightfully angry.
The appetite for larger-scale governmental action could not be more different in 2021. Think of it this way: the Recovery Act was twenty points less popular than Obama. The American Rescue Plan is twenty points more popular than (a pretty popular) Biden.
Imagine what the appetite would have been for the American Rescue Plan if Congress had just given nearly a trillion taxpayer dollars to the Coronavirus?
Why did Obama Court Republicans?
He had to.
No one remembers this, but the Democrats only had 58 votes in early 2009. Senator Arlen Specter had not yet switched parties, and Al Franken’s election was tied up in the courts. Obama needed at least two Republican Senators to get a bill passed, which meant that “moderate” Republicans like Susan Collins played a role similar to the one Joe Manchin played on the American Rescue Plan. But the problem wasn’t just Republicans. Ideologically and politically, the Democratic Senate of 2009 looked nothing like it does in 2021. There was Ben Nelson from Nebraska, who made Joe Manchin seem like a Democratic Socialist. There was Joe Lieberman, an independent who was on John McCain’s Vice Presidential shortlist. There were two Democratic Senators from West Virginia, Arkansas, and North Dakota. One in Louisiana and Alaska — all of whom feared for their political survival. The median Democratic Senator was more conservative than the median voter and the newly elected President. And we need all of their votes.
Why Didn’t the Democrats Use Budget Reconciliation?
The American Rescue Plan was passed using budget reconciliation and therefore, there was no need to compromise with Republican Senators. That was never on the table in 2009. Knowing what we all know now, there would have been a big push for reconciliation. However, at the time, there was not a majority in the House or the Senate to use such an aggressive legislative weapon so early in the Presidency. Given the politics of the moment, it was 60 Senate votes or bust. And 60 votes meant compromising with Susan Collins, Olympia Snowe, and Arlen Specter. The consequence of that compromise was a smaller bill that was weighted too heavily towards tax cuts. But the consequences of not compromising was not passing a bill at all.
Was the Recovery Act Really So Bad?
No. It was incredibly successful. As Grunwald told Ezra Klein in 2012:
Everything people think they know about the stimulus is wrong. It was called the American Recovery and Reinvestment Act and it did produce a short-term recovery. We dropped 8.9 percent of GDP in Q4 2008. We lost 800,000 jobs in January 2009. We passed the stimulus. And then the next quarter we saw the biggest jobs improvement in 30 years.
The long-term reinvestment part is working. It spent $90 billion for clean energy when we were spending just a few billion a year. It's doubled renewable energy. It's started an electric battery industry from scratch. It jump-started the smart grid. It's bringing our pen-and-paper medical system into the digital age. It's got Race to the Top which is the biggest education program in decades. It's got the biggest middle-class tax cuts since the Reagan era. It prevented seven million people from falling behind the poverty line.
Could it have been bigger and better? Of course. No one disputes that. But it kept the country out of a second Great Depression and led to huge advancements in clean energy and other progressive priorities.
Did the recovery take longer than anyone hoped? Absolutely. But there are a lot of reasons for that. The European financial crisis slowed growth. Gas prices spiked in 2011 and 2012. The Republican-inspired debt ceiling crises in 2011 and 2013 were gigantic setbacks. Most importantly, Republicans took control of the House and blocked every single effort to help the economy from 2011 to 2017.
If anyone had known that the Recovery Act was the last train out of the station for eight years, it would have looked a lot more like the American Rescue Plan.
What’s the Real Lesson of 2009 for 2021 Dems?
No one from Barack Obama to his former aides turned podcasters think the Recovery Act or the other associated actions to stem the financial crisis were perfect. More could have been done to hold Wall Street bankers accountable and help homeowners. All I can say is that we made the best decisions we could with the best intentions with the best available information.
There are a lot of things we would have done differently with the gift of hindsight and better information. Obama writes eloquently in his book about what we did right and wrong at that time.
No one ever enjoys hearing criticism — especially of their life’s work. However, the critiques you hear from the Biden folks are the same critiques that were discussed in countless meetings during the Obama years. In many cases, it is the same people making them. A lot of the Biden team — including Biden — were in the room when the decisions were made in 2009. They know what went right and what didn’t.
None of us can go back in time and do things differently. All we can do is learn from what went wrong and do better this time. Jon Favreau, my Pod Save America co-host, distilled the most important lesson for Democrats in a recent tweet:
And that’s another good lesson for the Biden folks on, say, the filibuster: years from now, Senators Manchin and Sinema won’t be remembered as the people who blocked a progressive agenda. For better or worse, the President gets the blame or credit. So fight hard for it!
Barack Obama has always talked about the presidency as a relay race. At some point, your leg is done. Joe Biden has the baton now. Obama world cheers him on. We want him to build on our successes and learn from our failures. Everything the Biden Administration accomplishes is a validation of the legacy that Barack Obama and Joe Biden built together from 2009 to 2017.
It is incredibly trite, but Harry Truman wasn’t wrong about where the buck stops. There will always be extenuating circumstances, obstinate Senators, and competing priorities, but no one will remember that in a decade. All they will remember is who was sitting behind the desk in the oval-shaped office. It’s on all of us who were there to remind people what really happened and make sure we learn the right lessons.
Although the fact that I am writing this piece may suggest some subconscious irking.