Obama’s Own Advisers Rejected His Stimulus Plan

Senior economic advisers to Barack Obama, the then US president-elect, turned away from a supersized fiscal stimulus because they doubted its practicality, according to a December 2008 internal memo.

The 57-page memo from Lawrence Summers, then the incoming director of the economic bureaucracy in the White House, lays out the thinking of the Obama administration in unprecedented detail. The memo was obtained by The New Yorker magazine.

Mr Summers told the president that it would be hard to spend more than $300bn on government investment and anything above that would have to come from transfers to the states and tax cuts. He also said that a giant stimulus of more than $1,000bn aimed at rapidly reducing the unemployment rate “would likely not accomplish the goal because of the impact it would have on markets”.

The memo sheds new light on a long-running controversy about whether the 2009 stimulus – which became the $787bn American Recovery and Reinvestment Act – failed to keep unemployment below 9 per cent because it was too small. It suggests that Mr Obama’s economic advisers recognised that the economy needed a bigger boost, but did not think they could design one and feared a backlash from bond markets.

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