Vice President Joe Biden was eager to get moving. In office for only a month, the Obama administration had already passed a monumental economic stimulus plan to address the biggest downturn since the Great Depression.
Now, at the first implementation meeting in 2009, Biden — with a smudged Ash Wednesday cross still on his forehead — declared that the stimulus would “literally drop kick us out of the recession.”
Officially called the American Recovery and Reinvestment Act, the $800 billion stimulus was the largest economic recovery program in history. Adjusted for inflation, it was nearly five times more expensive than the Works Progress Administration. It was bigger than the Louisiana Purchase, the Manhattan Project, the moon race and the Marshall Plan.
Economists and nonpartisan forecasting firms estimate that the stimulus created and saved more than 2 million jobs. It generated an unprecedented buzz around clean energy. A relatively small pot of education grants goaded 32 states to enact major reforms, such as tying teacher pay to student performance or lifting caps on charter schools. When the last dime is spent, more than 41,000 miles of roads will be paved, widened and improved; 600,000 low-income homes weatherized; and more than 3,000 rural schools connected to high-speed Internet.
But despite these achievements, the stimulus ultimately failed to do what America expected it to do — bring about a strong, sustainable recovery. The drop kick was shanked.
The stimulus was supposed to work like this: First, a flood of money in tax cuts, food stamps and unemployment checks would get consumers spending. A deluge of education and health-care money would stanch the bleeding in state budgets.
Then, a wave of “shovel-ready” infrastructure projects would kick in, creating new jobs repaving roads and making homes more energy efficient. As the economy got churning again, new investments in wind farms, solar panel factories, electric cars, broadband and high-speed rail would lead America out of the recession and into a 21st century economy competitive with the rest of the world.
But it didn’t happen like that. The White House’s economists, like nearly every forecaster, misread the recession. The state assistance wasn’t enough to plug the budget holes and, in many cases, the school aid merely delayed rather than prevented teacher layoffs. Infrastructure projects took months longer to break ground than the public had been led to believe.
In reporting on the stimulus over three years, I traveled to 15 states, interviewed hundreds of people and read through tens of thousands of government documents and project reports.
What I found is that the stimulus failed to live up to its promise not because it was too small (as those on the left argue) or because Keynesian economics is obsolete (as those on the right argue), but because it was poorly designed. Even advocates for a bigger stimulus need to acknowledge that their argument is really one about design and presentation.
The swing votes in Congress wouldn’t stomach a stimulus over a trillion dollars. So the questions are: Could the administration have sold the stimulus differently or could Congress have designed a more effective stimulus, leaving room for a second, longer-term recovery bill?
INVISIBLE HELPING HAND
One of the biggest problems was that so much of the stimulus was invisible. More than half of the package was in tax cuts and safety net programs.
The largest single item was a $116 billion tax credit for the middle class. Yet rather than handing out checks, as other presidents had done, Obama dribbled it out in paychecks at about $10 a week. The economic team believed that people were more likely to spend it if it felt like an increase in income rather than a bonus.
Perhaps that would have worked if the tax cut had been substantial. But spread out in tiny increments, it did little to overcome the prevailing fear of losing a job, a home and years of retirement savings. Not only did Obama lose the political credit but also the consumer excitement that a large check would have provided.
It was also difficult to imagine the world that might have been if there had been no stimulus. If a teacher was in the classroom, no one gave the administration any credit. Money for Medicaid, unemployment checks and food stamps meant that somewhere down the line, a nurse and a grocery clerk kept their jobs. But it was hard to see the connection.
The administration did little to help, instead showing off infrastructure projects that hadn’t started yet and creating the wrong impression that the stimulus was largely a public-works package.
Even as the stimulus was pumping hundreds of billions of dollars into the economy in its first year, it appeared as if nothing was happening. The jobless rate skyrocketed, easily exceeding the poorly conceived chart Obama’s economic advisers had put together, showing that unemployment would never breach 8%.
MONEY FOR EVERYTHING
Of the parts that were visible, it often seemed that the stimulus was providing money for everything. Instead of investing in a few marquee projects, Congress tried to make the stimulus a cure-all. There was money for every one of society’s ills, from cancer to cogongrass, from ailing infrastructure like bridges and rails to invasive species like Asian carp and Russian olive trees.
And so the stimulus became a collection of amorphous programs, on which critics of all stripes could project their dissatisfaction with government and politics in general. In trying to address nearly every American challenge from education to energy, it absorbed the controversies and battles over how to deal with those issues.
“I’ve always heard that the definition of a giraffe is a racehorse that was assembled by committee,” one Democratic congressional aide told me. “Sometimes, that’s what you end up with when you have a lot of voices working on it.”
As a result, critics seized upon the stimulus for silly-sounding projects: turtle tunnels, electric fish displays and research involving monkeys and cocaine.
While some of the examples may have been overblown, the ability that Republicans had to make the stimulus seem ridiculous exposed a central weakness in its design. With money spread so thinly and going to so many different places, it was difficult for the public to grasp what the stimulus was about. But it was easy for small projects to capture the media coverage day after day and overwhelm the narrative the administration was desperately trying to reclaim.
SHOVELS AND RED TAPE
Obama billed the stimulus as a program that would “immediately jumpstart job creation” with “shovel-ready” projects to rebuild “our crumbling infrastructure.” Such rhetoric conjured New Deal images of blue-collar workers heading out to the heartland with sledgehammers and pickaxes over their shoulders.
Indeed, minutes after the president signed the bill, sparks flew on a rusty Depression-era truss bridge in Tuscumbia, Mo., as construction crews went to work on the nation’s first stimulus project.
But other projects were more like the bridge over the Conodoguinet Creek in central Pennsylvania, which Biden had highlighted, but which was delayed to avoid detouring school buses that depended on the bridge for their routes.
The timing of the stimulus was poor to bring about the flood of construction projects everyone expected in the first year. States had to advertise the project to allow contractors to submit bids. They needed to review those bids and sign the contracts.
Then, they had to go back to the US Department of Transportation for the final OK.
The red tape had noble intentions. But it also delayed the program’s impact and may have even prevented more workers from being hired. Some projects in public housing, waterworks and home insulation remained paralyzed for six months to a year as short-staffed agencies reviewed Buy American waiver requests and calculated prevailing wages for weatherization work in every county in America.
In Michigan, human services officials estimated that 90% of the homes in line for weatherization work would need a historic preservation review. But as of late fall 2009, the office responsible had only two employees.
Public transit advocates expected a windfall for bus companies like New Flyer in St. Cloud, Minn. But the transit money took longer to get out the door because every grant had to be reviewed by the Labor Department to ensure that it wouldn’t have a negative impact on transit unions. And when the Chicago Transit Authority postponed an order because it couldn’t secure state funding, New Flyer announced that it would lay off employees rather than hire more.
By the end of July 2009, only 20% of highway projects had started, according to DOT data. More and more, it appeared that what “shovel ready” really meant was ready for politicians to pose with a shovel for a photo op.
RUSHED INVESTMENTS
One of the little-appreciated aspects of the stimulus is that it was about much more than reining in the Great Recession. It was also about laying the groundwork for a new economy. The second part of the bill’s name, “reinvestment,” was intended to steer federal money toward long-term projects like clean energy, electric cars and high-speed rail — things that will probably take decades to achieve.
In this way, the stimulus was supposed to be a down payment. But all of these investments were predicated on the administration’s optimism that the public would continue to support Obama’s plans — and that Congress would pass comprehensive energy and infrastructure bills.
A fundamental argument I heard again and again was that Americans would come to embrace bullet trains as soon as they saw one up and running. This almost-platitude makes it all the more perplexing why the DOT repeated the flaw of other stimulus program and spread the $8 billion fund out like peanut butter.
In all, 31 states had received high-speed rail money in some form or another. Iowa, for example, received $17 million to install track switches in the Ottumwa district.
The Northeast Corridor, which made the most sense, was virtually shut out of the stimulus grants initially.
The urban-planning coalition America 2050 ranked the best routes for high-speed rail. Five of the top six city pairs were in the Northeast Corridor. The Florida corridor, from Tampa to Orlando to Miami, was ranked 100th. Tampa to Orlando, where the administration planned the first bullet train, wasn’t even considered. Ultimately, that money was rejected by Florida’s governor.
Then, because the stimulus required states to begin construction by 2012, federal railroad officials insisted California build its first segment in the sparsely populated San Joaquin Valley. The high-speed rail authority wouldn’t even run trains on it until it connected to a major urban center. Critics quickly dubbed it the “train to nowhere.”
As much damage as the Solyndra scandal and the rejection of high-speed rail money did, solar panels and bullet trains are not inherently wasteful ideas. But the administration vastly underestimated the political danger the stimulus package would have on those investments.
AUDACITY
TO AUSTERITY
Things could have been different.
The incoming administration could have led more from the outset to ensure the stimulus was quicker, more targeted and written with Republican support. The president and his aides could have tackled criticism head-on instead of letting it fester.
In explaining the stagnant economy, President Obama has said that the recovery was trammeled by the European debt crisis, rising gas prices and the impact of the Japanese earthquake on the supply chain. But if the stimulus had been designed to generate more thrust on the front end, the American economy might have been in stronger shape to withstand these headwinds.
Others say that businesses are scared stiff with uncertainty and a lack of confidence. It might not be this way if the president and congressional leaders had focused on long-term infrastructure and energy bills instead of health-care reform. Health care was one of the few growing sectors during the recession. And by setting Congress down one of the most divisive policy paths, the administration was left with an atmosphere in which everything the president proposed, including ideas that Republicans supported in the past, were now considered radical and corrosive.
The stimulus money wasn’t enough to transform American infrastructure, the education system or the energy sector. But it was just enough for Republicans to be able to say, “We tried that already.”
Despite the historic investments in the stimulus, there seems little chance landmark bills to continue the programs will pass. Left with only a down payment on his major initiatives, Obama now faces a tough election and may end up like many of the homeowners who ran out of money during the Great Recession.
(Getty Images)
Michael Grabell is a reporter for ProPublica and author of “Money Well Spent? The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History” (PublicAffairs), out this week.