The New New Deal by Michael Grunwald Page A

grab a greased pig. In August, Greenstein reported that states had sliced $50 billion from their budgets to close their fiscal gaps. By October, he was warning that the states already faced $100 billion in new shortfalls. “Everything was going downhill so fast,” recalls Lew, whose employer, Citigroup, was itself clinging to life. “It was so hard for our thinking to keep up with events.” Lew spoke regularly with Summers, whose acerbic pessimism unnerved him.
    “It really made an impression on me how Larry was getting more and more worried as he saw more and more data,” Lew says.
    That was the unsettling backdrop for the team’s key meeting, an October 17 briefing for the advisory board in a Manhattan law office. In a logistical email, Steiner emphasized that the goal was not to relitigate the Rubin-Reich debates of the 1990s. “We are explicitly NOT making recommendations on matters such as how to prioritize between deficit reduction and investment,” he wrote. “We believe that the new President, Vice President and their team will make these choices.” Steiner warned that to prevent leaks, there would be no paper distributed: “With my apologies for stating what I am sure is obvious, the content of this meeting and the fact that it is occurring are both strictly confidential.” He added: “This effort is independent of the Obama campaign and the materials presented should not be construed as reflecting the campaign’s positions.”
    That was a useful disclaimer, because Lew’s presentation didn’t reflect the campaign’s positions. Three days after Obama proposed his $175 billion stimulus plan, Lew suggested that as much as $300 billion might be needed. With credit markets seized up, consumers tapped out, businesses retrenching, and state and local governments staggering, it wasn’t clear where else a jump start could come from. The Fed had already taken the obvious steps to try to jolt the economy withmonetary policy, cutting interest rates almost to zero. Financially led recessions were always brutal, and this one looked like the worst since the Depression.
    “People were like: Shit. That’s a big number,” Podesta recalls. “But it was looking cataclysmic out there. Nobody was saying: Oh, we won’t need that much.”
    The group briefly discussed whether 2008 had anything in common with 1993, when Clinton decided to focus on deficit reduction, and the consensus was: Not much. “Every single person in that room agreed that in the long term, you had to get the deficit under control, but every single person also agreed that first there had to be a huge stimulus package,” another participant recalls. Greenstein did startle the room by projecting a trillion-dollar deficit for 2009, more than twice the latest CBO forecast, and Reich worried aloud that such gigantic shortfalls would cripple Obama’s long-term agenda. But nobody argued against short-term stimulus. Even the fervent deficit hawks accepted that a depression or a protracted recession would shrivel tax revenues and create more red ink than a hefty stimulus ever could.
    Sure, there was always a possibility that stimulus would overheat the economy once it was in recovery, but that sounded like a fabulous problem to have. In an economy without demand, Depression-style deflation was a much bigger risk than inflation. As Summers argued, it would be much safer to err on the side of too much stimulus than not enough. If the fiscal boost overcaffeinated the economy, the Fed could always raise rates to mellow it out. The first priority, everyone agreed, should be averting a cataclysm.
    A week later, a Goldman Sachs report called for anywhere from $300 billion to $500 billion worth of stimulus. 89 A week after that, conservative Harvard economist Martin Feldstein, a top Reagan adviser, endorsed a $300 billion package in a Washington Post column. 90
    In those days, it didn’t take long for the unthinkable to look inevitable.
    T he shadow team was