Since his exit from the Obama administration, Larry Summers has parroted the party line that the administration would have loved a larger stimulus but it was just practically i.e., politically infeasible. This line that the administration was united in accepting the need for a larger stimulus was always questionable given Christina Romer’s portrayal of conflicts within the economic team; but now there is more to back up the suspicion that there were opposing views on the size and Larry Summers (as is almost always the case) prevailed with his support of a smaller package. Paul Krugman parses through Ryan Lizza’s report on Summers’s memo to Obama:
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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.
Instead, the memo argues that a bigger stimulus would be counterproductive in economic terms, because of the â€œmarket reactionâ€. That is, Summers et al were afraid of the invisible bond vigilantes.
And to the extent that there is a political judgment, itâ€™s all in the opposite direction: if the stimulus is too big, weâ€™ll have trouble scaling it back, but if itâ€™s too small, we can always go back to Congress for more.