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Obama's Biggest Mistake

David Obey recalls the stimulus debate:

The problem for Obama, he wasn’t as lucky as Roosevelt, because when Obama took over we were still in the middle of a free fall. So his Treasury people came in and his other economic people came in and said "Hey, we need a package of $1.4 trillion." We started sending suggestions down to OMB waiting for a call back. After two and a half weeks, we started getting feedback. We put together a package that by then the target had been trimmed to $1.2 trillion. And then [White House Chief of Staff] Rahm Emanuel said to me, "Geez, do you really think we can afford to come in with a package that big, isn’t it going to scare people?" I said, "Rahm, you will need that shock value so that people understand just how serious this problem is." They wanted to hold it to less than $1 trillion. Then [Pennsylvania Senator Arlen] Specter and the two crown princesses from Maine [Sens. Olympia Snowe and Susan Collins] took it down to less than $800 billion. Spread over two and a half years, that’s a hell of a lot of money, but spread over two and a half years in an economy this large, it doesn’t have a lot of fiscal power.

Here is the one domestic policy area where I think the left critique of the Obama administration has some weight. The argument is that moderates were bound to pare down the size of the stimulus no matter what. If you wanted $1.4 trillion, you needed to ask for $1.8 trillion. Instead, the administration figured that Congress would add its own pet projects and the size would go up.

To be sure, there's a strong counterargument. It's possible the moderates really were fixated on the $1 trillion barrier, and any larger proposal might have simply gone down in flames. That, of course, would have been a catastrophe: an economic meltdown and a political flameout that might have crippled Obama's entire agenda out of the gate. The counter to the counter argument is that Obama was maximally positioned to play political hardball: He could have insisted that a $1.4 trillion stimulus was what he needed to fight the recession, and threatened to blame Republicans who stopped it for abetting mass unemployment. That would have been a risky play. But given the social and political costs of mass unemployment, it was probably worth taking a chance to push the stimulus number as high as it could go.