The New New Deal

by Grunwald, Michael

  The Recovery Act certainly wasn’t perfect. It was the product of an imperfect legislative process, authored and implemented by imperfect human beings. It was oversold as a short-term economic fix, undersold as a long-term catalyst for change, and fumbled as a political football. It didn’t create full employment. And its critics inflated the failure of a stimulus-funded solar manufacturer called Solyndra into a classic Washington pseudo-scandal.

  I worked for nine years in Washington as a national reporter for The Washington Post, mostly writing critical stories about dysfunctional government agencies. I was familiar with the city’s groupthink, the way its media narratives can harden into conventional wisdom. But I didn’t live in Washington anymore, so I didn’t swim in circles where suggesting that the stimulus was anything but a joke was a sign of credulity and cluelessness. And I still wrote about domestic policy, so I knew that the Recovery Act was more than the honeybee insurance, contraception subsidies, and other porky-sounding line items that got so much airtime on TV. It seemed like a big deal—actually, a collection of big deals. I didn’t know if it was a good deal, but it reminded me of the New Deal, a mammoth government effort aimed at short-term Recovery and long-term Reinvestment.

  I spent two years researching the stimulus, and I found that it is a new New Deal. Much of the Recovery Act’s impact has been less obvious than the original New Deal’s, but it’s just as real.

  “Bigger!”

  Nostalgic liberals complain that the Recovery Act pales in comparison to the New Deal. It didn’t create giant armies of new government workers in alphabet agencies like the WPA, CCC, and TVA; ARPA-E is its only new federal agency, with a staff smaller than a Major League Baseball roster. It didn’t establish new entitlements like Social Security and deposit insurance, or new federal responsibilities like securities regulation and labor relations. It didn’t set up workfare programs for the creative class like the Federal Theatre Project, Federal Music Project, or Federal Art Project. (Obama aides grumble that it could have used a new Federal Writers Project to churn out better pro-stimulus propaganda.) And it didn’t raise taxes; it reduced taxes for the vast majority of American workers, although few of them noticed.

  Obama and his aides thought a lot about the New Deal while assembling the Recovery Act, but in some ways it’s an apples-to-bicycle comparison. While President Franklin D. Roosevelt forged the New Deal through a barrage of sometimes contradictory initiatives enacted and adjusted over several years, the stimulus was a single piece of legislation cobbled together and squeezed through Congress before most of Obama’s appointees were even nominated. The New Deal was a journey, an era, an aura. The Recovery Act was just a bill on Capitol Hill.

  But it was an astonishingly big bill. In constant dollars, it was more than 50 percent bigger than the entire New Deal, twice as big as the Louisiana Purchase and Marshall Plan combined. As multibillion-dollar line items were being erased and inserted with casual keystrokes, Obama aides who had served under President Bill Clinton occasionally paused to recall their futile push for a mere $19 billion stimulus that had seemed impossibly huge in 1993, or their vicious internal battles over a few million bucks for beloved programs that suddenly seemed too trivial to discuss. And the Recovery Act’s initial estimate of $787 billion turned out to be too low; the official price tag would eventually climb to $831 billion.11 After a live microphone caught Biden accurately calling Obama’s health reforms “a big fucking deal,” I suggested to his chief of staff, Ron Klain, that the stimulus was just as big.

  “Bigger!” Klain replied.

  Biden’s boast about the Recovery Act building tomorrow was accurate, too. It was the biggest and most transformative energy bill in U.S. history, financing unprecedented government investments in a smarter grid; cleaner coal; energy efficiency in every imaginable form; “green-collar” job training; electric vehicles and the infrastructure to support them; advanced biofuels and the refineries to brew them; renewable power from the sun, the wind, and the heat below the earth; and factories to manufacture all that green stuff in the United States.

  That’s a lot of new precedents.

  The stimulus was also the biggest and most transformative education reform bill since the Great Society. It was a big and transformative health care bill, too, laying the foundation for Obama’s even bigger and more transformative reforms a year later. It included America’s biggest foray into industrial policy since FDR, biggest expansion of antipoverty initiatives since Lyndon Johnson, biggest middle-class tax cut since Ronald Reagan, and biggest infusion of research money ever. It authorized a high-speed passenger rail network, the biggest new transportation initiative since the interstate highways, and extended our existing high-speed Internet network to underserved communities, a modern twist on the New Deal’s rural electrification. It updated the New Deal–era unemployment insurance system and launched new approaches to preventing homelessness, financing infrastructure projects, and managing stormwater in eco-friendly ways. And it’s blasting the money into the economy with unprecedented transparency and oversight.

  “We probably did more in that one bill than the Clinton administration did in eight years,” says one adviser to Clinton and Obama.

  Critics often argue that while the New Deal left behind iconic monuments—the Hoover Dam, Skyline Drive, Fort Knox—the stimulus will leave a mundane legacy of sewage plants, repaved potholes, and state employees who would have been laid off without it. Even the Recovery Act’s architects feared that like Winston Churchill’s pudding, it lacked a theme. In reality, it’s creating its own icons: zero-energy border stations, state-of-the-art battery factories, an eco-friendly Coast Guard headquarters on a Washington hillside, a one-of-a-kind “advanced synchrotron light source” in a New York lab. It’s also restoring old icons: the Brooklyn Bridge and the Bay Bridge, the imperiled Everglades and the dammed-up Elwha River, Seattle’s Pike Place Market and the Staten Island ferry terminal. But its main legacy, like the New Deal’s, will be change.

  That is also its main theme.

  No, it’s not the New Deal. Obama is not a classic New Deal liberal, and while he shares some of Roosevelt’s traits—self-assurance bordering on egomania, a Harvard pedigree, an even keel, an allergy to ideologues—he’s not the second coming of FDR. He didn’t grow up rich and he didn’t battle polio. He doesn’t welcome the hatred of the elite and he hasn’t forged a unique bond with the masses. He doesn’t share Roosevelt’s mistrust of credentialed experts, and he takes his campaign promises much more seriously than FDR did.

  But the Recovery Act did update the New Deal for a new era. It was Obama’s one shot to spend boatloads of money pursuing his vision, a major down payment on his agenda of curbing fossil fuel dependence and carbon emissions, modernizing health care and education, making the tax code more progressive and government more effective, and building a sustainable, competitive twenty-first-century economy. It’s what he meant by “reinvent the economy to seize the future.”

  For starters, the stimulus did provide stimulus.

  The Recovery Act injected an emergency shot of fiscal adrenaline into an economy that was hemorrhaging over 700,000 jobs a month. The leading independent economic forecasters—firms like Macroeconomic Advisers, Moody’s Economy.com, IHS Global Insight, J.P. Morgan Chase, and Goldman Sachs, as well as the nonpartisan Congressional Budget Office—all agree that the stimulus helped stop the bleeding, averting a second depression and ending a brutal recession.12 The Recovery Act wasn’t the only government intervention that helped stabilize the patient. The Federal Reserve’s emergency support for the financial sector, Obama’s unpopular rescue of the auto industry, and the even less popular Wall Street bailout that began under Bush all helped keep the economy afloat. But on the job loss graphs from the Great Recession, the low point came right before stimulus dollars started flowing.13 Then the situation slowly began to improve.

  The Recovery Act followed the crisis response manual of the late British economist John Mayna
rd Keynes, the godfather of fiscal stimulus. Keynes urged policymakers—including Roosevelt, who didn’t listen too carefully—to “prime the pump” during downturns, to pour gobs of public money into their economies when private money was in hiding. The idea was to halt the classic death spiral where businesses facing weak demand lay off workers, which further weakens demand as laid-off workers stop spending, which leads to further layoffs and weaker demand. That’s the nightmare Obama inherited after his inaugural parade. Credit was frozen, consumer confidence the lowest ever recorded. The economy was shrinking at an unheard-of 8.9 percent rate, although no one knew the numbers were that horrific at the time.14

  “It was obvious that the economy was going to hell,” recalls Berkeley economist Christina Romer, the first chair of Obama’s Council of Economic Advisers and coauthor of the infamous 8 percent unemployment report. “The question was the degree to which the economy was going to hell.” Obama’s team seriously underestimated that degree.

  Nevertheless, the Recovery Act airlifted record amounts of Keynesian stimulus out of the Treasury to resuscitate demand: tax breaks for businesses and families to get cash circulating again; bailouts of every state to avert layoffs of teachers, police officers, and other public employees; one-time handouts to seniors, veterans, and the disabled; generous expansions of unemployment benefits, food stamps, health insurance, and other assistance for struggling families. The stimulus also put people to work directly with over 100,000 projects to upgrade roads, bridges, subways, water pipes, sewer plants, bus stations, fire stations, the Joseph R. Biden Jr. Railroad Station in Wilmington, Delaware, federal buildings, Grand Canyon National Park, trails, libraries, courthouses, the “national stream gauge network,” hospitals, Ellis Island, seaports, airports, dams, locks, levees, Indian reservations, fish hatcheries, coral reefs, passport offices, military bases, veterans cemeteries, historically black colleges, particle accelerators, and much more.

  Today, those independent analysts believe the Recovery Act came close to achieving its goal of saving or creating at least 3 million jobs in the short term.15 The concept of “saving or creating” has inspired a lot of sarcasm—Obama joked after his annual Thanksgiving pardon that he had just saved or created four turkeys—but it simply means that close to 3 million more people would have been unemployed without the Recovery Act.

  Unfortunately, the housing and banking apocalypse that preceded it wiped out about eight million jobs, so it didn’t come close to filling the entire hole. Unemployment soared to double digits while it was still kicking into gear. State and local governments offset much of its impact with anti-Keynesian austerity, raising taxes, slashing spending, and sucking money back out of the economy. Still, the CBO and the private forecasters concluded that at its height, the Recovery Act increased output over 2 percent, the difference between growth and contraction.16 It also helped balance every state budget, sparing public jobs and public services from the chopping block; many Republican governors attacked it as out-of-control spending, but all of them took its cash. It made a painful time less painful, helping millions of victims of the Great Recession keep food on their tables and roofs over their heads. And the Chicken Littles who warned that a $787 billion fiscal stimulus would lead to runaway inflation or exorbitant interest rates were wrong. Inflation remained extremely low, interest rates historically low. The stimulus didn’t end America’s very real pain, but then again, the New Deal didn’t end the Depression. World War II ended the Depression.

  Political critics have seized on that historical fact to try to discredit Obama’s stimulus, ignoring the more salient facts that Roosevelt’s commitment to stimulus was sporadic, the New Deal’s stimulus did reduce unemployment when it was in effect, and World War II was the mother of all stimulus programs. But facts have not driven the debate. Republicans have stuck to their failed-stimulus message with impressive discipline. They’ve argued that government simply can’t create jobs, often while attending ribbon cuttings for job-creating stimulus projects in their districts; that government shouldn’t help private companies, often while writing letters seeking stimulus funds for firms in their states; and that government can only create government jobs, even though all of America’s post-stimulus job growth has been in the private sector. They’ve argued that Keynes was wrong about stimulus, except when it comes to high-end tax cuts, military spending, and other stimulus they like. They’ve portrayed the Recovery Act as larded with earmarks, when it was the first modern spending bill with no earmarks, and riddled with fraud, when investigators have been amazed by the lack of fraud.

  It’s been a brilliant strategy, and it planted the seeds for the Republican comeback.

  “The stimulus was an Alamo moment for us, but we stuck together and made it out alive,” says Republican congressman Tom Cole of Oklahoma. “Now ‘stimulus’ is a dirty word.”

  He’s right. A colossal package of tax breaks and spending goodies that were almost all popular individually has become toxic collectively, as if the proper response to the crisis would have been a stiff upper lip, as if Herbert Hoover had it right the first time. Obama has struggled to explain the counterintuitive Keynesian insight that government needs to loosen its belt when families and businesses are tightening theirs. He has also struggled to make the counterintuitive political case that things would have been even lousier without the Recovery Act. It’s true, but his slogan wasn’t Yes We Can Keep Things From Getting Even Lousier. He didn’t promise to create a somewhat-less-weak middle class. He always made it sound like the problems he inherited from Bush were kinetic problems, not thermodynamic problems.

  As a kid rambling around Scranton, Pennsylvania, when Biden would break an arm or dislocate a hip, his mother would say: Joey, it could’ve been worse. You could’ve broken both legs. You could’ve crushed your skull. As the White House point man on the Recovery Act, Biden felt like he was recycling his mom’s talking points, trying to persuade America to feel grateful its injuries weren’t fatal. It’s hard to get credit for averting a catastrophe, because once catastrophe is averted, people focus more on the pain they’re feeling than the worse pain they might have felt in a hypothetical no-action case.

  “One thing they never taught us in grad school was how to sell Keynesian stimulus,” says Biden’s former chief economist, Jared Bernstein, the other coauthor of the overoptimistic unemployment report. “‘It Would’ve Been Even Worse Without Us’ is just a fruitless message.”

  In any case, the ferocious debate over the short-term Recovery has obscured the long-term Reinvestment.

  ARPA-E didn’t create any jobs in 2009, except for Majumdar’s and his team’s, and it didn’t create many after that. But the stimulus was only partly about stimulus. It was also about metamorphosis. ARPA-E amounted to just 0.05 percent of the Recovery Act—a new Manhattan Project in a rounding error—and most of its breakthroughs won’t produce results for years. But it’s emblematic of the law’s assault on the status quo. MIT professor Don Sadoway, a mad scientist in a bolo tie, has a radical vision of a liquid battery the size of a tractor-trailer that could store electricity for entire neighborhoods, so that renewable power could run our refrigerators when the sun isn’t shining and the wind isn’t blowing. He’s got a prototype the size of a shot glass; his $7 million ARPA-E grant is helping him scale up to the size of a hockey puck and then a pizza box. Sadoway snorted when I asked how many jobs his grant had created: “If this works, I’ll create a million jobs!”

  Republicans have howled that many stimulus projects have little to do with short-term stimulus—and they’re right. There was nothing “shovel-ready” about bullet trains designed to connect Los Angeles to San Francisco in under three hours, broadband cables designed to bring rural towns into the wired world, electronic health records designed to drag medical bureaucracy out of the leeches era, smart dishwashers designed to run when electricity is cheapest, automated factories that will manufacture electric trucks in Indiana instead of China, the first U.S. testing fac
ility for wind turbine blades as long as football fields, or research into a new generation of “space taxis” that might replace NASA’s shuttle someday. But these are the kind of long-term investments—more than one sixth of the stimulus—that Obama chief of staff Rahm Emanuel had in mind when he said “you never want a serious crisis to go to waste.” The Recovery Act is also financing the world’s largest wind farm in Oregon and the world’s most powerful X-ray laser in California. It’s funding the largest photovoltaic solar array, largest solar thermal plant, and largest effort to install solar panels on commercial rooftops.

  None of those projects was shovel-ready, either, but they were all deemed shovel-worthy.

  The Recovery Act’s most important long-term changes aimed to jump-start our shift to clean energy, reducing our carbon footprint, our electric bills, our vulnerability to oil shocks, and our subservience to petro-dictators while seeding green new industries. The stimulus converted Chu’s cobwebbed department into the world’s largest clean-tech investment fund. Overall, it pumped about $90 billion into green energy, when the United States previously spent a few billion a year.

  The scale is almost unimaginable. Secretary Chu’s Office of Energy Efficiency and Renewable Energy, which had a $1.2 billion budget, got a $16.4 billion infusion. New Jersey’s state energy program received a 9,500 percent funding increase. The Recovery Act will also triple the smart meters in homes, quadruple the hybrids in the federal fleet, and expand electric vehicle charging stations forty-fold. It’s creating an advanced battery industry almost entirely from scratch, increasing the U.S. share of global capacity from 1 percent when Obama took office to about 40 percent in 2015. Yes, Solyndra failed, but thousands of other green stimulus investments haven’t.