A “sensitive and confidential memo” written by White House economist Larry Summers shows that Team Obama made campaign promises and liberal causes célèbres the top qualifiers for the dispersal of Stimulus dollars. Journalist Ryan Lizza was given access to that memo, along with hundreds of pages of internal White House documents as part of the research behind a lengthy piece recently published in The New Yorker – “The Obama Memos: Barack Obama, Post-Partisan, Meets Washington Gridlock.”
James Pethokoukis, writing for the American Enterprise Blog, pored through the entire Summers memo (which is available for download) and discovered a number of interesting (yet unsurprising) things, specifically:
- Campaign commitments (read: payoffs to loyal constituents) and green energy programs were made top priority items as Stimulus funds were dispersed
- Obama’s economics team realized that his programs were much more costly than his campaign had claimed, and that his promises to reform and streamline existing programs would save far less money than advertised. They were also worried about the impact of his new programs on deficit spending. Still, the team plowed ahead with the Stimulus program without coming up with strategies to address any of these other problems.
- The economic team’s assumptions about the severity of the recession, and the most likely pace of economic recovery, were grossly wrong. (This is also discussed in another excellent article recently published in The Guardian.) In the Administration’s defense, they obviously had no way of knowing how big a drag the Obamacare bill would be on hiring.
- Another idea proposed by the economic team (but thankfully never implemented) was to introduce legislation that would allow courts to re-write mortgage loans for underwater mortgagees. The team also acknowledged that a great deal of the destruction caused by the financial and real estate market meltdowns could have been avoided if government regulators had simply enforced the laws that were already on the books.
- An IPAB (Independent Payment Advisory Board) or similar executive-level “health board,” which Sarah Palin deemed a ‘death panel,’ had always been part of the overall health care reform plan of the Obama Administration. The Summers Memo admits that the government would have to struggle with “making tough decisions on the long-term budget” as it became more and more responsible for health care.
As I have previously contended, when stimulus is corrupted by politics and becomes little more than government subsidies for the pet projects and policy goals of the ruling party, it is doomed to fail. Obviously the Obama Administration made no attempt to identify areas within the economy where consumers would most likely increase spending if more products or services were made readily available at a more competitive price – that’s how you are supposed to allocate STIMULUS dollars.
True ‘stimulus’ money is spent with the specific purpose of incentivizing private investment (more employees, more production/warehousing facilities, etc.) and, through the increased availability of desired products and services, spurring consumer spending. The resulting increase in economic output causes a corresponding increase in earnings and therefore an increase in tax revenue, which is then used to recoup the money spent on the stimulus. At least, that’s how it’s supposed to work in theory.
If you don’t follow the formula for stimulus, or your layouts do not spur additional growth or spending (either public or private) beyond routine necessities, then you do not have a stimulus. All you have is a massively expensive subsidy program, financed by debt, with no forseeable way to sustain the subsidized activities once the subsidies run out.
In other words, you have Obamanomics. Nice going, Mr. Summers.