The New New Deal

President Obama’s stimulus has been an astonishing, and unrecognized, success, argues Michael Grunwald.

Michael Grunwald

Michael Grunwald

Photograph by David Whitman

Michael Grunwald, a Time magazine correspondent, this week publishes The New New Deal: The Hidden Story of Change in the Obama Era, a gripping account of President Obama’s stimulus bill. Grunwald writes that the stimulus has transformed America—and American politics—in ways that we have failed to recognize. I interviewed him by email about the book.

Slate: What possessed you to write this book?

Grunwald: I fled Washington for the public policy paradise of South Beach while writing my last book, about the Everglades and Florida, so in 2010 I was only vaguely aware of the Beltway consensus that President Obama’s stimulus was an $800 billion joke. But because I write a lot about the environment, I was very aware that the stimulus included about $90 billion for clean energy, which was astonishing, because the feds were only spending a few billion dollars a year before. The stimulus was pouring unprecedented funding into wind, solar, and other renewables; energy efficiency in every form; advanced biofuels; electric vehicles; a smarter grid; cleaner coal; and factories to make all that green stuff in the U.S.

It was clearly a huge deal. And it got me curious about what else was in the stimulus. I remember doing some dogged investigative reporting—OK, a Google search—and learning that the stimulus also launched Race to the Top, which was a real a-ha moment. I knew Race to the Top was a huge deal in the education reform world, but I had no idea it was a stimulus program. It quickly became obvious that the American Recovery and Reinvestment Act (the formal name of the stimulus) was also a huge deal for health care, transportation, scientific research, and the safety net as well as the flailing economy. It was about Reinvestment as well as Recovery, and it was hidden in plain view.

So I decided to do a piece for Time about this untold story. But my editors thought I was nuts. The stimulus was old news. Unemployment was 9 percent; what else was there to say? I actually flew up to New York to make my case. I told my bosses I felt like a reporter in 1938, trying to convince them to do a story on this initiative called “The New Deal.” They looked at me like I was that blogger in The Newsroom pitching his story on Bigfoot. To their credit, though, they eventually let me write an article about how the stimulus was changing America, which led to the book.

In what ways has the stimulus been like and unlike Roosevelt’s New Deal?

The stimulus isn’t the New Deal. But they were both massive exercises in government activism in response to epic economic collapses. And they were both about change. The stimulus was the purest distillation of what Obama meant by “Change we can believe in.” And it’s the essence of Obama-ism—not only the policies, which came straight from his campaign agenda, but his approach to getting them into law, which was more pragmatic and political and messy than his hopey-changey rhetoric had led people to believe. So there was plenty of New, and plenty of Deal.

The Obama team thought a lot about the New Deal while they were putting the stimulus together, but times have changed since the New Deal. The Hoover Dam put 5,000 Americans to work with shovels. A comparable project today would only require a few hundred workers with heavy equipment. Christy Romer, the Depression scholar who led Obama’s Council of Economic Advisers, kept reminding colleagues that the Roosevelt administration hired 4 million Americans in the winter of 1934. At one point she started calling Cabinet departments to see how many employees they could hire with unlimited funds: They’d say oh, a lot, maybe 20,000! So the stimulus didn’t create giant new alphabet agencies like the WPA or CCC. It only created one new agency, a tiny incubator for cutting-edge energy research called ARPA-E.

People forget that the CCC herded unemployed urban youths into militarized rural work camps—often known as “concentration camps,” before that phrase became uncool—for less than a dollar a day. That kind of thing wouldn’t fly today. The New Deal basically created Big Government, but it’s still here. There was no need to re-create Big Government, and no political desire to expand Big Government.

So the stimulus didn’t establish new entitlements like Social Security or deposit insurance, or new federal responsibilities like securities regulation or labor relations, or new workfare programs for the creative class like the Federal Art Project, Federal Music Project, or Federal Writers Project. The New Deal was a barrage of contradictory initiatives enacted and adjusted over several years. The stimulus was one piece of legislation cobbled together and squeezed through Congress during Obama’s first month in office. The New Deal was a journey, an era, an aura. The Recovery Act was just a bill on Capitol Hill.

But it was a really big bill, 50 percent bigger than the entire New Deal in constant dollars. It included some New Deal-ish programs, like a $7 billion initiative to bring broadband to underserved areas, a modern version of FDR’s rural electrification. It included another $7 billion in incentives for states to modernize and expand the New Deal-era unemployment insurance system, which was created for a workforce of male breadwinners. Its aid to victims of the Great Recession lifted at least 7 million people out of poverty and made 32 million poor people less poor. It built power lines and sewage plants and fire stations, just like the New Deal. It refurbished a lot of New Deal parks and train stations and libraries. And Republicans have trashed the stimulus as a radical exercise in socialism, just as some Republicans—but not all Republicans—trashed the New Deal.

The most significant difference is that the New Deal was wildly popular, while the stimulus has been a political bust. There are many reasons for this, but the most important is that FDR launched the New Deal after the U.S. had suffered through more than two years of depression under Hoover, while Obama launched the stimulus when the economy was nowhere near rock bottom. Everyone knew about the financial earthquake, but the economic tsunami hadn’t yet hit the shore.

The New Deal produced tangible, monumental physical achievements—dams, trails, works of art, buildings. The stimulus produced none of that. There were no new bridges—instead they repaved old ones.  Why? Why didn’t the Obama administration look for physical structures to build and celebrate?

I wouldn’t say “none of that.” The stimulus is producing the world’s largest wind farm, a half dozen of the world’s largest solar arrays, and America’s first refineries for advanced biofuels. It’s creating a battery-manufacturing industry for electric vehicles almost entirely from scratch. It financed net-zero border stations and visitors centers, an eco-friendly new Coast Guard headquarters, a one-of-a-kind “advanced synchrotron light source.” It jump-started three long-awaited mega-projects in Manhattan alone—the Moynihan Station, the Second Avenue Subway, and the Long Island Railroad connection to the East Side—and it would have jump-started that multibillion-dollar rail tunnel to New Jersey as well if Governor Chris Christie hadn’t killed the project.

It didn’t build new dams, because we don’t need new dams, but it did finance the largest dam-removal project in U.S. history to restore salmon flows on the Elwha River. It even distributed $50 million to artists.

But I take your point. Most of the money in the stimulus went to unsexy stuff designed to prevent a depression and ease the pain of the recession: aid to help states avoid drastic cuts in public services and public employees; unemployment benefits, food stamps, and other assistance for victims of the downturn; and tax cuts for 95 percent of American workers. And the money that did flow into public works went more toward fixing stuff that needed fixing—aging pipes, dilapidated train stations, my beloved Everglades—than building new stuff. In its first year, the stimulus financed 22,000 miles of road improvements, and only 230 miles of new roads. There were good reasons for that. Repairs tend to be more shovel-ready than new projects, so they pump money into the economy faster. They also pass the do-no-harm test. (New sprawl roads make all kind of problems worse.) And they are fiscally responsible. Repairing roads reduces maintenance backlogs and future deficits; building roads add to maintenance backlogs and future deficits.

Obama and his team did try to push a few big physical legacy projects. During his transition, he called for a massive nationwide effort to rebuild and retrofit public schools. But Republican Sen. Susan Collins of Maine hated it, and Obama needed her vote to get the stimulus through the Senate, so it got deleted. Obama also wanted to build a smart grid, with digital meters for all Americans (the smart part) and a new national network of high-voltage wires (the grid part). His aides explained that couldn’t happen quickly and didn’t even make sense as a federal project. Instead, the stimulus included about $11 billion of seed money for the smart grid, which has launched a new era for the utility sector but hasn’t really penetrated the national psyche. Finally, the White House slipped $8 billion into the stimulus for high-speed rail, the largest new transportation initiative since the interstates. But Florida’s Republican governor, Rick Scott, killed a bullet train from Tampa to Orlando that was supposed to be the showcase project, and the only other bullet train, connecting San Francisco to Los Angeles in less than three hours, is still decades away from completion. The shovel-readier projects—like improvements that will slice an hour off the Amtrak train from Chicago to St. Louis—won’t produce the oohs and aahs of bullet trains. They’re really higher-speed rail—worthy, but not iconic.

Your subtitle is: “The Hidden Story of Change in the Obama Era.” Why hidden? What are the great hidden accomplishments?

There are two reasons this story has been hidden, one understandable, one less so. First, the stimulus was supposed to create jobs at a time when jobs were vanishing at a terrifying rate. Nonpartisan economists agree that it helped stop the free fall; job losses peaked the month before it passed, and the economy dramatically improved once it kicked into gear. But even after the dramatic improvements, the unemployment rate was still sky-high and rising; an economy can do a lot better than losing 800,000 jobs a month without doing well. Ultimately, the stimulus was a 2.5 million-job solution to an 8 million-job problem.

And the Obama transition team put out a tragically dumb forecast suggesting it would keep the unemployment rate below 8 percent. In fairness, the situation was deteriorating far faster than people realized; the government had announced a growth rate of -4 percent in the fourth quarter of 2008, which is hideous, but that was later revised to -9 percent, which is way beyond hideous. Unemployment actually topped 8 percent the month the stimulus passed, which obviously wasn’t the fault of the stimulus. Recoveries after financial cataclysms are always ugly. But when you spend $800 billion on an economic recovery package, and the recovery stinks, people don’t tend to look past that.

That said, the national media should have tried to look past that, but it didn’t, because the national media sucks at covering public policy. The stimulus included $27 billion to computerize our pen-and-paper health care system, which should reduce redundant tests, dangerous drug interactions, and fatalities caused by doctors with chicken-scratch handwriting. It doubled our renewable power generation; it increased solar installations over 600 percent; it essentially launched our transition to a low-carbon economy. It provided a new model for government spending—with unprecedented transparency, unprecedented scrutiny, and unprecedented competition for the cash. Experts predicted that as much as 5 percent of it would be lost to fraud, but so far, investigators have documented less than $10 million in losses, about 0.001 percent. Despite all the controversy over the lack of shovel-ready projects, the Obama administration has met every spending deadline, and it’s kept costs so far under budget that it’s been able to finance over 3,000 additional projects with the savings. But the media coverage of the stimulus was almost exclusively gotcha stuff, usually without a real gotcha. And when the media did notice long-term investments in the stimulus, like Race to the Top or clean-energy research, it rarely mentioned the stimulus connection.

Except, of course, when it was noticing Solyndra. After a year of screaming headlines about crony capitalism and shady deals, even Republican investigators have admitted there’s no evidence of any political interference or other wrongdoing. A slew of independent reviews—including one led by John McCain’s finance chairman—have concluded that the clean-energy loan program is working well. Everyone knew that some of its loans would go bad. But the Solyndra scandal—which isn’t even a scandal—is probably the best-known product of the stimulus.

The complaint from the left about the stimulus has long been: It was too small. According to your reporting, that’s an unrealistic claim. Why?

Well, it was too small. More aid to states would have prevented more layoffs of public employees. More infrastructure projects would have put more unemployed laborers to work. More tax cuts would have put more money into the hands of consumers. What my reporting shows is that the disillusionment addicts of the left are wrong to blame President Obama for the size of the stimulus.

People forget that after Lehman Bros. collapsed in September 2008, Democrats couldn’t even get 60 votes in the Senate for a $50 billion stimulus; in fact, two Democrats voted against it. The $800 billion stimulus was over four times larger than Obama’s campaign proposal in October 2008. It was over twice as large as the package that 387 liberal economists urged Congress to pass in late November. It’s only in retrospect that $800 billion seems wimpy. And Obama couldn’t have gotten a dime more through the Senate. The three moderate Republicans who voted yes—Collins, Olympia Snowe, and Arlen Specter—all insisted they wouldn’t support anything over $800 billion. So did at least a half-dozen centrist Democrats, like Mark Begich of Alaska, Ben Nelson of Nebraska, and Blanche Lincoln of Arkansas. Byron Dorgan of North Dakota wanted a bigger stimulus, but he was in the room during the negotiations, and he told me: There was absolutely no way to make that happen.

Some progressives admit that Obama couldn’t have gotten more stimulus during his first month in office but complain that he never pushed for more stimulus after the Recovery Act passed. That’s just wrong. He never stopped pushing behind the scenes and ended up getting another $700 billion worth in 2009 and 2010, even though Republicans were trying to obstruct him at every turn. They were even marching in lockstep against unemployment benefits and small-business tax cuts that they had always supported in the past. So Obama did well to get what he got.

This is an adulatory story about the Obama administration, depicting a subtle, engaged, brilliant president working for the long-term good of the nation, surrounded by brilliant, self-sacrificing scientists and thinkers who are looking for sweeping change, and opposed by venal, selfish, viciously partisan Republicans willing to sacrifice the health of the nation for political gain. That’s a portrait that will surely delight Democrats and irritate Republicans. Why should the average reader trust it? Why shouldn’t they see this as partisan hackwork in the service of the Obama re-election campaign?

Wow! Maybe you’re so accustomed to reading breathless tell-alls about the fumbling, bumbling hacks in the White House—by right-wingers, left-wingers, and even Obama supporters who basically approve of his agenda but want to show how independent and tough-minded they are—that my story sounds adulatory. The guy doesn’t walk on water. I write about his missteps and miscalculations as well as his achievements, and I reveal a lot of internal dissension on his team.

That said, I realize The New New Deal tells a story that, for the most part, Obama lovers are going to like and Obama haters on the left and the right are going to hate. I’d say that readers shouldn’t see this as partisan hackwork because I’m not a partisan hack. I’ve been a reporter for 20 years, and my reporting is accurate. In case people are curious, I’m a registered independent, socially liberal, otherwise pretty unpredictable. I voted for Obama in 2008, but I voted for Charlie Crist for governor over a generic Democrat in 2006, back when he was a rising Republican star. I do tend to be a contrarian. I think I was the first non-oil-stooge to write that the BP spill was not that awful an ecological disaster. But I was just following my reporting; I know a lot of scientists in Louisiana, and I got to see a lot of persuasive data. I feel the same way about the stimulus; the data tell a very different story than the prevailing narrative.

I don’t think my book portrays the Republicans as “vicious,” but I do show—thanks to a lot of in-depth interviews with GOP sources—how they plotted to obstruct Obama before he even took office. I show how the stimulus was chock full of stuff they claimed to support until Jan. 20, 2009—not just things like health IT and the smart grid and energy efficiency and scientific research, but the very idea of Keynesian stimulus. Every presidential candidate in 2008 proposed a stimulus package, and Mitt Romney’s was the largest. So I do spend a fair amount of time chronicling Republican stimulus hypocrisies. (Readers might enjoy the backstory of Sen. Judd Gregg’s short-lived nomination to be Obama’s commerce secretary.) In general, I’d have to say my reporting backs up the Norm Ornstein-Thomas Mann thesis that the Republicans have gone off the policy deep end—denying global warming, denying Keynesian economics (except when it comes to business tax cuts and defense spending!), trashing Obama’s government takeover of health care and also his Medicare cuts, drumming stimulus supporters like Crist and Specter out of the party. Then again, one Republican who comes off pretty well is Mark Sanford, a rare voice of honest small-government conservatism in the party. (He also says some pretty surprising things about his trip down the Appalachian Trail.)

I think there ought to be a great debate about the stimulus and its interventions in various sectors of the economy. But we haven’t had that debate. We’ve debated a bizarro-world stimulus that does not exist. And I think that’s true about Obama, too. I don’t think he comes across as “brilliant.” I think he comes across as a pragmatic left-of-center technocrat who wasn’t interested in pursuing lost causes, but basically tried to do what he said he would do during the campaign. He wasn’t a policy entrepreneur with new policy ideas, but he did his best to get 60 votes for old policy ideas that made sense, and then pushed his administration to put them into action as cleanly and competently as possible. And I did a lot of reporting in the bowels of the bureaucracy and around the country to show how change has been playing out.

I tried to tell the story as fairly and honestly as I could. But I didn’t try to be balanced for the sake of balance. When politicians were full of shit, I tried to point that out.

Can you explain why so many local Republican officials and organizations traditionally aligned with the GOP (like the Chamber of Commerce) supported the stimulus, while the national party was united against it?

The top priority for many local Republican politicians and Republican-leaning business organizations was avoiding a depression. They saw that the Obama stimulus wasn’t radical leftism; it was textbook countercyclical stimulus. Republicans had called for $300 billion worth of tax cuts, and that’s exactly what it had. Republican governors like Crist, Arnold Schwarzenegger of California, Jodi Rell of Connecticut, Jim Douglas of Vermont, and Jon Hunstman of Utah understood that its aid to states—over $160 billion worth—would prevent massive cutbacks of public services and massive layoffs of public employees. As the lobbyist for the Chamber of Commerce told me: When you sit where I sit, you don’t want to see an epic collapse of aggregate demand. Depressions are bad for business. I also tell a fun story of a Democratic aide screaming and cursing at some business lobbyists, warning that they’d get nothing from the Democratic Congress if they couldn’t support an economic recovery bill during an economic emergency.

But the top priority for Washington Republicans was denying Obama bipartisan victories, so that they could come back from political oblivion. There’s a lot of fun fly-on-the-wall stuff in the book about meetings where Eric Cantor, Mitch McConnell, and other GOP leaders made this case—and on-the-record quotes from former GOP congressmen like Mike Castle, George Voinovich, and Specter complaining about it. McConnell often reminded his caucus about the 1984 election. Everyone remembers it as the 49-state Reagan landslide, Morning in America; people forget that only one Republican challenger ousted a Democratic incumbent that year. (It was McConnell, so he remembers.) His point was that there was nothing to be gained by going along with Obama. If the recovery plan worked and the economy boomed, Republicans would get re-elected even if they had voted against Obama. But if the economy was still struggling in 2010, Republicans could make a comeback if they stuck together.

Did the Republican opposition ruin Keynesian stimulus for the indefinite future?

I doubt it. The opposition is mostly opportunistic. One of the Republican alternatives to the stimulus in the House was a $715 billion plan that included far more highway construction than Obama’s. Almost the entire GOP conference supported it. And Republicans still defend business tax cuts and defense spending in Keynesian terms, even though they’re generally mediocre as Keynesian stimulus. I suspect that if Mitt Romney wins the election, the Republican opposition to fiscal stimulus will vanish, along with their rhetorical commitment to reining in budget deficits.

Why was the GOP’s message of opposition so much more effective than the administration’s message of spending? Was Obama’s failure fundamentally a communications failure, as Ed Rendell told you?

I don’t claim to be an expert in political strategy and messaging. I tried to tell the story and let readers decide for themselves where the politics went wrong. But I’ll make a few observations. First, the Obama team’s Recovery Act message was highly nuanced. It was short-term jobs along with long-term investments. It was tax cuts along with spending. It was the biggest domestic spending bill in history, but it was also just a first step toward normalcy. The economy needed fiscal stimulus in the short term but fiscal responsibility in the long term.

The Republican message was much simpler: No.

Republicans were also maniacally disciplined about repeating that message. During the stimulus debate, Democrats used most of their airtime quibbling with Obama’s specifics, which helped confirm the GOP message that the stimulus was a porky big-government mess. And once it passed, Obama and the Democrats moved on to other business, like health care, financial reform, and so on. The Republicans never moved on. Their message—big spending, big government, big mess—never changed.

There’s a lot of reporting about messaging in this book. It was a topic of hot debate inside the White House, on the Hill, and everywhere else. But I will say that I think people tend to overstate its importance. I’m not sure what kind of message would have worked when unemployment was hovering around double digits. I tell a story about how Obama set up White House interviews with all the major anchors to sell the stimulus—a chance to tell his story to the American people through Katie Couric and Anderson Cooper!—but all the questions were about Tom Daschle withdrawing his Cabinet nomination that morning because of unpaid taxes. I suppose you could make the case that was a turning point, but I really don’t think so. And I’m skeptical of Rendell’s idea that the Democratic Party’s Great Communicator suddenly became a lousy communicator once he took office. I think Obama and his team made more than their share of communications mistakes—I especially think he should have focused his message more on long-term transformation than short-term economic revival, and some of his aides agree with me—but I don’t see how better communications would have changed the story of 2010.

 When will Americans be able to look out and recognize measurable, wonderful gains from the stimulus?

Well, we’re already able. For example, 95 percent of us received Making Work Pay tax cuts of up to $800 a year for a family. But they were dribbled out through reduced withholding, because behavioral economics suggests that we’re less likely to spend money when it arrives in a big chunk, so fewer than 10 percent of us noticed them. The backstory of that decision will make Obama supporters cringe.

Similarly, anyone who received expanded unemployment benefits or food stamps or Cobra subsidies or Pell Grants in 2009 or 2010 benefited from the stimulus. The stimulus saved more than 300,000 education jobs, and preserved over $100 billion worth of health services for the poor. We’re already using more clean energy and less energy overall because of the stimulus; the electric vehicle industry is here because of the stimulus; the domestically manufactured content of U.S. wind turbines has increased from 20 percent to 60 percent because of the stimulus. There are over 100,000 stimulus projects that have upgraded our parks, subways, hospitals, food pantries, and so forth. On our last vacation my family visited Ketchikan, Alaska, where the stimulus upgraded the nature center. It was a very nice nature center.

Also: The stimulus helped prevent a depression, and as Romer says in the book, depressions really, really suck. They create horrible human suffering, and horrible deficits, too. The economy is quite lousy, but it really could’ve been a lot lousier.

The stimulus will produce more good stuff in the future. By 2015, almost all of us will have an electronic medical record because of the stimulus. The stimulus is also pouring $1 billion into desperately needed “comparative effectiveness research” that will help doctors and patients learn what kind of treatments actually work. There’s billions more for data-driven education reforms—Investments in Innovation and School Improvement Grants as well as Race to the Top—that will seek to scale up promising approaches in public schools. And the most exciting changes will transform the way we generate and consume energy. For example, a company called Envia Systems that got a grant from ARPA-E—a modern version of the Manhattan Project—has already developed the world’s most powerful lithium-ion battery, which could slice $5,000 off the price of the next Chevy Volt.

Will Americans associate any of this change with the 2009 stimulus? I doubt it. Maybe they will if my book becomes a runaway best-seller.

Would President Romney roll back these programs or A) is it too late and the money is spent? or B) would he actually support them as president because they are fundamentally valuable programs?

During the 2010 campaign, Republicans vowed to cancel all unspent stimulus funds if they took back Congress. They took back the House, but they didn’t take back one dime of stimulus money. Romney also says he’ll cancel unspent stimulus funds, but there aren’t many left to cancel—at this point, mostly health IT, high-speed rail, and some clean-energy dollars—and I’d bet they’ll all eventually get spent.

That said, Romney and the Republicans can make sure that much of the stimulus legacy ends with the stimulus. Romney wants to shut down the tax credit for wind power, which could virtually shut down the industry. High-speed rail could die on the vine. Romney has said nice things about ARPA-E—even though it “picks winners and losers”—and as governor he supported health IT and other stimulus-friendly policies, so maybe he’d keep them as president. I wouldn’t bet on that, though.

There’s a reason most of Romney’s ads feature the stimulus (a caricature of the stimulus, but still). He’s running against the idea that government can produce positive change, and the stimulus was the ultimate test of that idea. Maybe he’ll change his mind if he wins—he’s obviously changed his mind before—but presidents tend to try to keep their campaign promises. Obama certainly did.