Let's Give the Stimulus Its Due

It saved the economy, but that isn't always acknowledged.
July 2017
President Barack Obama delivers remarks at the groundbreaking of a road project funded by the American Recovery and Reinvestment Act, Friday, June 18, 2010, in Columbus, Ohio. (AP Photo/Amy Sancetta)
Peter Harkness
By Peter Harkness  |  Founder, Publisher Emeritus

If the chaos surrounding the first few months of President Trump leaves you confused and perhaps depressed, it may be worthwhile recalling the first-year adventures of his predecessor -- who, like Trump, entered office leading a one-party government.

Barack Obama was inaugurated eight years ago amidst the worst economic crisis since the Great Depression. The economy was in free-fall, financial markets were tanking, unemployment was skyrocketing and banks were going bankrupt.

The start of the Obama administration was stunning and very different from Trump’s early days. Even before Obama had had time to choose a cabinet, much less form a complete government, his White House managed to push through Congress the massive and complex stimulus program called the American Recovery and Reinvestment Act, appropriating almost $800 billion -- more than 5 percent of the nation’s GDP -- to fund more than 200 grant programs and 50 tax expenditure subsidies. Almost overnight, the federal government had mobilized an unprecedented combination of resources and enhanced authority to confront the economic crisis.

Congress was polarized. Not one Republican voted for the stimulus measure in the House, and only three did so in the Senate. What’s more, there was no bureaucracy in place to administer it.

How Washington, in partnership with states, cities, counties, nonprofits and the private sector, was able to craft an effective program and make it work within two years is a story that needs to be recalled, not just in academic journals or in that sliver of the media that covers government in detail, but by the educated public. Still, to tell it well, academia must lead the way, because it has the interest, the knowledge and, more than any other public source these days, the credibility.

The academics have already begun taking the measure of Obama’s first presidential days. Most impressively, there is a new book called Governing Under Stress: The Implementation of Obama’s Economic Stimulus Program. Its authors, Paul Posner, Tim Conlan and Priscilla Regan, are all on the faculty at George Mason University and are all experienced in the executive and legislative branches of government.

The authors conclude that because Obama didn’t yet have his cabinet in place, the Recovery Act had to be administered using a new and different model, and that this may have been a blessing. “In lieu of traditional political and bureaucratic leadership,” Posner, Conlan and Regan assert, “the Obama team resorted to nontraditional leadership strategies.”

Federal inspectors general were appointed to the Recovery and Transition Board to provide oversight of resources across the diverse range of recipients. Decentralized governing tools and strategies such as tax expenditures and block grants were used to give businesses and state and local governments a sense that they were partners in the undertaking.    

The involvement of the states and localities was critical, but it was difficult to organize because, as the authors point out, “Washington has stripped away its institutions of intergovernmental expertise and collaboration,” such as intergovernmental management in the Office of Management and Budget, the intergovernmental relations subcommittees in Congress and forums like the Advisory Commission on Intergovernmental Relations. So the administration was “forced to improvise by creating ad hoc consultation strategies, featuring weekly calls among top staff members to federal and state leaders and periodic meetings among intergovernmental principals.”

It was made even more complicated by the fact that the political paralysis infecting Washington had spread into many of the states. “Taking the states as they found them,” the authors assert, “the administration was forced to design workarounds to compensate for those states that opted out of such Recovery Act initiatives as high-speed rail, extended unemployment insurance and Race to the Top education grants.”

In the end, though, states and localities were spared a lot of pain. They received nearly half the program’s funding, and by some estimates the Recovery Act saved the states from cutting their budgets by 40 percent to cope with massive deficits. Most of the state and local funding was flexible, which is what it needed to be successful.

Ironically, the decentralized structure that helped the stimulus succeed economically caused it to be more or less a failure politically. No single leader or agency could take credit, since the effort was spread so widely. “Such a decentralized program was vulnerable to fragmented loyalties across levels of government and and public ambiguity,” the authors write. “How could the public tote up credits and debits for accomplishments?”

Indeed, they could not, which is sad, because the accomplishment was unquestionable. The U.S. emerged from the Great Recession ahead of other developed countries in large part because of the Recovery Act and the way it was administered.

Warren Buffett, the billionaire capitalist, delivered a pungent assessment: “Well, Uncle Sam, you delivered,” Buffett wrote in a 2010 New York Times op-ed. “People will always second-guess your specific decisions; you can always count on that. But just as there is fog of war, there is fog of panic -- and, overall, your actions were remarkably effective.”

Peter Harkness
Peter Harkness | Founder, Publisher Emeritus | pharkness@governing.com