Ryan Lizza’s new article on policy making in the Obama administration is out in the latest edition of The New Yorker. One of the documents the piece rests on is a December 2008 policy memo from Larry Summers, the former director of the National Economic Council, to President Obama on the size and composition of the stimulus; Mr. Ryan shared it with me to get my take, and some of what I said is reflected in his article.

The key thing I took away from the memo is that it does not read at all like the current story the administration gives for the inadequate size of the stimulus, which is that they knew it should be larger but had to face political reality.

(The memo is available at NewYorker.com.)

Instead, the memo argues that a bigger stimulus would be counterproductive in economic terms, because of the “market reaction.” That is, Mr. Summers et al were afraid of the invisible bond vigilantes.

And to the extent that there is a political judgment here, it’s all in the opposite direction: if the stimulus is too big, we’ll have trouble scaling it back, but if it’s too small, we can always go back to Congress for more. That was deeply naïve — and I said so in real time.

Now, you can still argue that politics made a bigger stimulus impossible. But that was not at all the argument being made within the administration at the time. I’m not going to harp on this; it’s all water under the bridge, and none of the original team are even there at this point. Plus Mr. Obama has definitely toughened up — as Mr. Ryan also documents. 

So consider this a footnote to the story of what went wrong.

Jared Bernstein on the Memo

Mr. Bernstein, an economist and senior fellow at the Center on Budget and Policy Priorities, makes the best case for arguing that Mr. Summers wasn’t really worrying about the invisible bond vigilantes. That’s still not how I read it, but again, it’s water under the bridge.  One problem with interpreting the memo is that it does read like an imperfectly fused merge of stuff from several people; I told Mr. Lizza that I felt like someone doing textual analysis of the Bible, trying to identify which passages came from author S, which from author O, which from author R. The ones I agree with most look like R; the ones I dislike probably came from O.