> Summers brought a third argument to the debate, one that
> echoed his advice to Bill Clinton sixteen years earlier,
> when his Administration was facing persistent budget
> deficits that Summers believed were suppressing economic
> growth. He, like Romer, was guided by an understanding
> that in financial crises the risk of doing too little is
> greater than doing too much. He believed that filling the
> output gap through deficit spending was important, but
> that a package that was too large could potentially shift
> fears from the current crisis to the long-term budget
> deficit, which would have an unwelcome effect on the
> bond market.
Yes, this is exactly the smoking gun: Summers, guided by thoughts of the quasi-political (afterall, the Bond Market doesn't lose elections) issues of deficits in the 90s (IMHO the wrong timeframe to consider), thought $900B would be enough.
Alas, he was wrong.
Summers was not Obama's political advisor; he was his economic advisor.
If you really believe that Obama made a *political* decision given input from his *economic* advisor, we have much bigger problems.
(back to Michael):
> It looks to me like fear of opposition accounts for all of it.
Fear of the Bond Market (if we can even believe that this is "fear" and not overt "friendliness") is not at issue here; Wojtek was directing his attention to Congress. And it doesn't even begin to explain why, when the stimulus was seen clearly to be too small -- and the Bond Market didn't even twitch -- that there was no followup. Krugman paints this well: they believe to this day (or at least three weeks ago, that's what Obama said on The Daily Show) that it was enough, there was no need for Plan B.
/jordan