Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

So serious were the rumblings and so painful were the memories of the Clinton era that in May 2009 Obama asked budget director Orszag to prepare a contingency plan.24 The budget director’s response was drastic. In the case of a bond market panic, the administration should severely hike taxes. The report was intended to be for the eyes of the president only. When Rahm Emanuel leaked it to Summers it provoked a towering fury. Summers threatened to resign and demanded that in the future he must have complete control of all economic policy input to the president. For all his rumpled, academic persona, Summers had a keen eye for power and could sense a new agenda of fiscal consolidation forming within the administration. This was a threat to his personal position. But it also violated his instincts as a “new Keynesian” economist. Summers might have censored Romer’s stimulus proposal, but he did not believe in the power of the “confidence fairies.”25 To be talking about budget cuts in the early summer of 2009, when the United States was about to hit the trough of the most severe recession since the early 1930s, was wildly premature. If confidence was the issue, the best way to restore it was to engineer a solid recovery.

Oof orszag