Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Part of the answer is that the transition team did not fully grasp the scale of the tsunami that was descending on the US economy. From preparatory documents circulated within the transition team in early January 2009, we know that the worst-case scenario envisioned by Obama’s staff was for unemployment to reach 9 percent with no stimulus.14 In fact, even with the largest government-spending program in American history, unemployment topped 10.5 percent. But despite this underestimate, it is clear that the top macroeconomists in the Obama transition team did, in fact, realize that the stimulus ought to be bigger. On December 16, 2008, Christina Romer submitted a report intended for the president-elect arguing that to close the “output gap” by the first quarter of 2011 would require a discretionary stimulus of $1.7–1.8 trillion. Romer’s modeling was conventional. Her figures were sound. Her proposal was a trillion dollars larger than the figure the Obama team ultimately pushed through Congress. What decided the issue was politics, or rather the self-censorship of the economics team in the name of politics. Second-guessing the attitude of Chief of Staff Rahm Emanuel and his political operatives, Larry Summers, as head of the National Economic Council, was convinced that he and Romer would lose all credibility if they suggested anything even close to the figure she thought necessary. The results of Romer’s calculation were, Summers quipped, “nonplanetary.” He did not want to j...