Episode 139: Economic Stimulus

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Welcome to our new episode of This is Democracy. "This week we're going to examine a question that's at the forefront of our news in the future of our society and draws on a long history. Economic stimulus packages in American history. How have they been used in the past by the federal government? What have we learned? And how will that history inform the experience of the most recent economic stimulus package, the 1.9 trillion dollar package passed by President Biden and the Democrats in the House and the Senate."

We're joined today by a good friend and one of the foremost historians of precisely these issues, Julian Zelizer. Good morning, Julian. How are you today?

I'm doing well, thanks for having me. It's great to be on the show again.

It's wonderful to have you on, Julian.

Julian Zelizer is one of the leading experts of modern American political history, particularly the influence and role of Congress in American history. He's the Malcolm Stevenson Forbes, class of 1941, professor of history and public affairs at Princeton University. He's the author and editor of 19 books on American political history. Whenever I say that, I feel like I'm woefully insufficient. Among his many important books that I recommend to everyone, still one of my favorites, his first book, Taxing America: Wilbur D. Mills, Congress and the State, 1945 to 1975, explains how Congress does appropriations, which is very relevant to what we're talking about today. The Fierce Urgency of Now: Lyndon Johnson, Congress and the Battle for the Great Society. We'll discuss this a little bit today. Lyndon Johnson's congressional programs, and particularly his efforts to alleviate poverty and inequality in American society. Fault Lines: A History of the United States since 1974, which was co-authored with historian Kevin Cruz. And most recently, a book I encourage everyone to read, Burning Down the House: Newt Gingrich, the Fall of a Speaker, and the Rise of the New Republican Party. Julian discussed that book with us on this podcast a few months ago.

Julian, we're gonna get right into it, beginning with Zachary's scene-setting poem, of course. Zachary, what's the title of your poem today?

Until Suddenly We Could See.

Well, let's see.

I can almost see the shore from here. Our raft is tattered and the remains of our luxury hang ironically halfway in the sea. Just like twelve years ago, we tried to make money flow radiant from the bathtub faucet and see through rock in the homes that had been built so we could glow in the dark. But from here, I can almost see tomorrow, and I long for it like the rest of my generation, as we stand up on the ragged pieces of driftwood and try to see our fate on the hiding horizon. Just like twelve years ago, we lay down on the cold ground and stared up at the ceiling, replaying our childhoods and our yesterdays in the imperfections of the stucco. And I can almost see it in my memory of that day, how chilling it was to see the dark waters envelop the globe, the sea unfolding like a blanket over the land. Just like twelve years ago, we could smell the prosperity at the end of our ordeal, and it made us jump so thick and yet invisible. And we covered our noses with our own hands before click. Someone with foresight found the light switch with their hands fumbling on the black wall, and we were blind, all still blind as the lights came back on, until suddenly, many months later, we could see.

I love the imagery, Zachary. What is your poem about?

My poem is really about the similarities between my experience post-COVID and during the COVID crisis, and right after the 2008-2009 financial crisis. And it's really about the emotional experience of those two events, but also the irony of those two events occurring amidst so much prosperity in our country.

Well, that's great. I think that's a perfect spot to turn to Julian. Julian, everyone has watched how difficult it was to get this economic stimulus package passed. Historically, why are these so difficult? I mean, the United States is a prosperous society. The federal government prints the money. Why is it so difficult to get a stimulus package during a time of difficulty?

Well, some of it is the traditional opposition to expanding government doesn't dissipate even in times of crisis. And you'll have various parts of the political spectrum, conservatives in Congress, parts of the business community, which still believe that even in a depression, even in a pandemic, it's better not to increase the obligations of government. It's better not to expand the reach of what Washington does. And maybe most importantly, it's important not to set up a situation where tax hikes are likely inevitable. And so the opposition, believe it or not, will kick in even in the most desperate of times.

And historically, have those objections proven accurate? Is there a reason for business groups and others to appropriately fear that a stimulus package will hurt them in the long term?

I think there's pretty good evidence now, if you look back at the record, that government interventions help. And in many ways, business should be ecstatic about this kind of intervention. It's only government that can save us in times like these.

So obviously, if you go to the 1930s, without the huge intervention of the New Deal, the economy would not have stabilized, it would not have started to move toward a path of recovery, which takes a long time.But the government foundation is essential. And more recently, in 2009, after the financial markets collapsed, and after the economy was in a deep recession, President Obama is able to push through a stimulus plan that's very much on President Biden's mind today, that by all accounts, helped us out of a terrible state, lowered unemployment, led to an economic boom, and was the foundation, again, of the good times that we were able to experience.

I want us to come back to the Obama package soon. But I think it's good to start with the New Deal, which you mentioned. What have we learned about the positive effects that came out of the New Deal? And maybe you want to take us also into the Great Society as well. What have we learned historically that we should know today when we discuss these issues?

Well, most important, the stability of the 1930s, for example, with a banking system that was literally imploding when the President took office, without the measures that the President Roosevelt took to ensure deposits, for example, that system was on the brink of collapse.

And then over the course of the 1930s, there's just many initiatives, more than we can go through, in the course of a question on a show, from federal subsidies to the agricultural sector, to electrification programs, to very importantly, public jobs and public works programs, which start to create the conditions for economic recovery.

And that will culminate in World War Two and all the spending that takes place during the early 1940s.

The Great Society is different in that economic times are pretty good. And the whole premise of Lyndon Johnson's Great Society in the 1960s was that when the economy was growing, and when income was rising, there was no reason not to use a moment like that to address many problems which had been ignored, whether you're talking about entrenched poverty in this country, or the struggles of elderly Americans, who had no health insurance, and often were living in an incredibly vulnerable state, based on the health that they had or didn't have. And so that was less of a stimulus. But again, a very important economic intervention that stabilized key parts of American society, like the health insurance that older Americans now have.

And so what, what were the elements of FDR and Lyndon Johnson's efforts that allowed them to succeed against the opposition that you described so well before? This is one of the things you've written about in such detail, Julian, how did these two men get through what you defined as the traditional opposition to these kinds of programs?

Yeah, it's a good question. And I think different for both of them. I think, in the 1930s, we're looking at a number of important factors. One is just the total complete crisis that the nation was in did create conditions of desperation that undercut some of the opposition. It was harder to oppose the government helping when after four years of President Hoover, it was clear that government assistance was needed. And I think the electorate was certainly in a place where it was easier for FDR to make the appeal. And I think the electorate was certainly in a place where it was easier for FDR to make the appeal.

FDR took those conditions and he moved aggressively, boldly, and didn't hesitate to put forward a pretty big agenda over the first few years. And I think his leadership was obviously important from what he put forward to the way he spoke to the nation. And finally, don't forget that Democrats had control of Congress. And so you had united government. And even though Democrats were deeply divided between Southern Democrats and liberal Northern Democrats, they found ways, often at the expense of African Americans, to create relative party unity over many of the key programs.

Lyndon Johnson faced a different situation. And I'd say what was most important for him were two factors. One was the civil rights movement, which before he came into office, it just created an atmosphere where a status quo that did nothing on race and on other issues was no longer acceptable. And they put pressure from the bottom up in ways that made the conservatives feel as if they were on the defensive. And after 1964, LBJ is reelected against Barry Goldwater in a landslide election.

Democrats have huge majorities on Capitol Hill with the balance of the Democratic Party shifting from conservatives to liberals. And in 1965, it was just very hard for Republicans to say no anymore and very hard for Southern Democrats to stand in the way of these liberal majorities. So the window opens for Johnson for about a year, year and a half, where he can push through lots of programs.

And obviously, Julian, in the Obama administration knew this history. And so it would be it seems to me it's a good idea to turn to their program at this point. When when President Obama came into office in 2008, 2009, during the Great Recession, how did he use that history to define and pursue his stimulus package?

Well, I think it was two histories that were influencing Obama in 2009. One was he is someone and was someone who was very cognizant of the importance of those interventions. He was not hesitant or torn up about the idea that government was essential as the economy was plummeting when he took office. Even before he was president, he had been very important to helping President Bush push through his stimulus package in 2008, which many Republicans opposed. But the candidate Obama giving support to that already indicated he understood that government mattered. He understood his New Deal history. He understood his Great Society history. And he very much came from that tradition.

So it wasn't a surprise in 2009, when he instantly moved forward with the American Recovery and Reinvestment Act. But the other history that was on his mind was the polarized America history. And obviously, he was very aware of that. He became a national figure in 2004, making a speech at the Boston Democratic Convention, saying we didn't have to be a red and blue America and that we could be a United States of America instead. And I think there was a tension in 2009, between his understanding that government was essential, another round of stimulus to get us out of the crisis, but also knowing very well that Washington was an incredibly divided place and Republicans were not particularly eager to support him. And yet he wanted to find a way to get them to support him to break through the fault lines. And I think that tension really shaped how he approached his stimulus.

So let's talk about that a little bit. The stimulus package that the Congress passed and President Obama signed in 2009, which, as you said, is foremost on President Biden's mind these days, because President Biden was, in a sense, the person put in charge of implementing this package. It's an $800 billion package in comparison to $1.9 trillion for the current package. So it's much smaller, less than half the size. Was the size, the smaller size, was that a function of the effort to build bipartisanship by President Obama?

That's exactly right. There were many people in the administration, economists like Christine Romer, and there were also pundits and economists who write on the op-ed pages like Paul Krugman, who argued that you really needed a stimulus at that point, closer to $1.8 trillion, closer to the number actually that we just saw with the American Rescue Plan. But President Obama and some of his other advisors were really hesitant. They thought that was a number that wasn't a bad number in terms of helping the economy, although some economists like Larry Summers thought it was too much. But it was also a number that would never get Republican support.

And President Obama was very determined to make this bipartisan and to find a way to get Republicans to sign on. And so he lowers the number to the, initially it's kind of the $600 to $800 billion range, which is obviously a lot of money. It's a huge number, but it wasn't nearly enough in terms of what was necessary to stimulate the economy, but President Obama sides with the lower number. And he's hoping that by doing that, he's going to be able to persuade Republicans, particularly in the Senate, to sign on. And many liberals are not happy with this. They believe that this is going to circumvent a full and quick recovery, and that he will end up pushing for something that's controversial anyway, without getting the benefits of a kind of Big Bang stimulus.

But as I'm sure many of our listeners remember, the forthcoming years of the Obama administration were certainly rife with partisanship, particularly in Congress. What happened? Why did these efforts at bipartisanship in many ways fail?

Well, I think in many ways, you don't even have to add that they did fail. I mean, the stimulus plan does end up getting the support of three Republicans in the Senate, Senators Collins, Snow and Specter. But that's hardly really evidence of bipartisanship. And those numbers, those small numbers would diminish over the years.

I think the fact was that Republicans were in a place already by 2009, where there was no appetite for compromising with the president. Ideologically, I think the party had moved as a whole to the right so much that they weren't going to accept any significant government intervention other than a handful of Republicans. And I think strategically, Senator McConnell, Mitch McConnell, made it very clear that obstruction was the game plan, and that they weren't going to let this president secure any victories so that they could set up a better situation for winning control of Congress and defeating him.

And there was a story the same in the House that David Obie, who is the head of the Appropriations Committee from Wisconsin, approached Jerry Lewis of the Republican Party, trying to secure his support on the bill. And Lewis was very honest and said that he had orders not to cooperate. And this is something that was repeated in many different interviews and histories that we have of the period.

So I think Obama was very optimistic, overly optimistic, that he could break through to a Republican Party that had no interest in ever working with him. And the criticism is, of Obama, that he kept doing that, and he kept undercutting his own programs in an effort that was never going to work and didn't end up with the kind of legislation that he might have had he just focused on his own party.

So before we move on to maybe talk about the effects of the stimulus package in 2009 a little bit more, I just want to ask, what are the policy precedents and maybe historical background that informed these Republican positions beyond just the political expediency? Is there a historical precedent that they see as a better response to an economic crisis?

Well, I think Republicans in general, certainly since Ronald Reagan was president in 1981, have focused on supply side tax cuts and a combination of that and deregulation as the best path forward to getting markets to work well.

And so in 1981, when we're also in pretty bad economic times, trying to crawl our way out of the 1970s, Reagan's major initiative is a supply side tax cut that basically provides the best benefit to upper income Americans and businesses with the idea that by doing that, you ultimately stimulate the entire economy and the benefits would trickle down to everyone else. President Bush, George W. Bush, did the same both in 2001. And then again, when we were in the middle of war in 2003.

And I think this is the preference for Republicans. And I think this is part of why President Obama structured around a lot of his plan around tax cuts. It was actually heavier on tax cuts than on direct spending, again, to the consternation of many liberals. But part of that was an attempt to appeal, Zachary, to what you're talking about, this preference for tax cuts. But it turned out when it was in a democratic package, that wasn't enough.

It seems, Julian, we have enough of a historical record, especially the last 20 years with the Reagan tax cuts, the Obama stimulus, the tax cuts of George W. Bush before Obama and the tax cuts of Donald Trump to assess, does direct spending work better to stimulate the economy or tax cuts work better?

Well, look, I'm not an economist and I can't give you as good of an answer as some of the best would. But I think the evidence is that direct spending has just had very beneficial effects on boosting us out of these times. And I think the record is much muddier with the tax cuts, with just using tax cuts as a mechanism.

And I think if you take the 1930s, if you take the 2010, 11, 12 period over time and some other benchmark moments, it's pretty clear that a big dose of government spending is often just what the economy needs. And often it pays off in that it leads to increased tax revenue and helps alleviate some of the fiscal burden of government. And I don't think the record is quite as clear that supply side tax cuts have that kind of effect.

And so with that context, do you see the Biden plan targeting direct spending in the right places, right places defined as places that will contribute to economic recovery for communities and for areas of the economy that have suffered, particularly during the COVID crisis?

I think so. I mean, the complicating part about this stimulus relief package is we're still in the pandemic and we're not out of it. And ultimately, this isn't about a recession or depression that happened because of the economic cycle. And then you have a debate, tax cuts versus spending. It's a moment of economic fragility that is being caused by the pandemic and that pandemic isn't over.

So I think, and this is why a lot of Republicans actually not on Capitol Hill, but in the electorate support the bill, the money is probably being targeted in the right places. It's a combination of relief for states and local government. It's money for the vaccination program and it's money to families through the child tax credit or the direct payment. Families that have really been struggling since March of 2020 to make it through this state that we're in.

The problem is the pandemic isn't over and the signs are good. The vaccine program is picking up steam, but all you have to do to get worried is to look overseas at somewhere like Italy and now France and see the kinds of challenges that still lay ahead. So the big question is, does this stimulus work if the pandemic doesn't continue to dissipate? If it gets worse, if it gets worse in certain pockets of the economy, will the targeted spending be enough? And that's just an unknown. And it will play a big role, I think, in determining the political future of President Biden and the Democratic Party going into the midterms.

And what about the argument that's made that it's just too much money?

Well, it's a legitimate argument and it's not always a partisan argument. I mean, there were some Democrats for sure who thought it was too much.

But I think the lesson that Biden learned from Obama's package, which over time proved very effective, but it was much slower than they thought, was that if you're going to do this, if you're going to take the political heat for pushing a big intervention like this, go big, that ultimately going big is still safer.

If the economy is roaring, money will come into the Treasury. That's the important thing to remember because tax revenue goes up. And that ultimately, I think President Biden thought it was the best bet. And even the chair of the Federal Reserve, Jerome Powell, who is not his appointee, wasn't worried about going too big on this, given the state that we're in. So I think that's why those arguments won out. But it's a concern that's out there.

What's the Biden political strategy moving into 2022? I think it's pretty clear that the Democrats have in many ways a popular mandate to do this kind of very important economic work. But at the same time, they have a very, very tight margin in Congress.

Yeah, they have a miserable outlook for the midterms. And I'm sure Ron Klain, chief of staff, and many of the Biden team are well aware of this. Their margins are as narrow as can be. In the House, they're certainly narrower than they were hoping for. Because of redistricting, Republicans are in a pretty good position to do well in the House. So somehow, Biden has to use his window between now and the midterms to do as much as he can, and hope that there's a way to defy political nature, so to speak. Remember, midterms almost always go poorly for the administration, those first midterms.

So I think the strategy, the only bet that could change this, I think, is if this American Rescue Plan works, combined with the vaccine rollout, helping us avoid the state that Italy's in right now, and actually getting us back to normal.

If you imagine a fall and winter, where the economy's doing pretty well, unemployment is low, you have a lot of growth, and some of the sectors of the economy really hurt by COVID are rebounding. Combined with the normalcy we all hope to have, and that ranges from not fearing these massive death rates anymore, to families being able to get together, to children being able to go to school, to the simple pleasures of just eating in a restaurant inside, and not fearing that something catastrophic will happen. If all that is happening by, say, next winter, you could imagine these midterms might not continue to follow traditional patterns, and that Americans would feel pretty good about the administration and the political status quo. And I think that's the bet that Biden is making. And it's where good policy and good politics occasionally work in the same way.

That's exactly where my mind was going, my hopes were going, Julian. And I think that's an appropriate place for us to ask our closing question. Roosevelt, in particular, and to some extent Lyndon Johnson, if we take the Vietnam War out of things, which of course we really can't do, but certainly Franklin Roosevelt establishes a new consensus in American politics, to the point where Republicans have to start supporting New Deal policies because they're so popular. Is that a possibility?

Can we see Biden playing that kind of role, not necessarily as a Roosevelt, but as a shepherd for a new consensus around some of these policies aimed at addressing economic inequality, aimed at addressing communities that have been left behind, aimed at addressing our healthcare deficiencies in our country?

It's tough. Because of the state of the Republican Party, it's not simply that we're a polarized country. It's, as we've discussed, the Republican Party has moved very, very far to the right in the last few decades. And Republican leaders are not in a place where they're willing to join a consensus of the sort that you're talking about. And I think as we've seen during the pandemic, there are many Americans who refuse to wear a face mask as a political stand, who are not going to be eager to say, I'm persuaded by what the Democrats have done, and let's make this a new foundation for American life.

So it's tough. I think the way that it can happen isn't through persuasion. It isn't through President Biden being able, through fireside chats or televised addresses, to convince Republicans to think in a different way. It's only if the case is made by government policy itself. It's kind of like Medicare, which was controversial when it started. It was hated by a lot of people in the Republican Party and the medical community but ultimately within a decade of its creation in 1965, lots of Americans, red and blue, love the program and had no interest in ever letting it go because they saw what it could do. And they saw how it could heal some of the problems American families faced.

And so the way you might get some sort of consensus, not a consensus. But an acceptance is if the package that went through today, combined with the role of government in public health because of the pandemic, start to create more support in Red America, not just blue America, for the value of government in dealing with the personal challenges we face, you might see expanded support. And that’s maybe why a lot of Republican voters, at least now say they’re fine with the American Rescue Plan. They like it, but it’s going to be really tough. We’re in a place as we have all seen in recent months, where creating a consensus in this country is probably the most difficult challenge that we face.

It’s a very persuasive argument you make Julian, but as you and I know as historians, also, we do go through these cycles, and at some point the cycle does have to turn back. But when it does, who knows? Who knows? It does seem as if this might be a moment for that. Zachary, as as a young person watching all of this, do you do you share the hope that I have and that I think Julian has, Julian’s cautious hope, about the role of government being rebuilt in the minds of many citizens? Or where do you see things going?

I think that in many ways, government already has been the higher position of government has already in many ways been restored in the minds of young people by the Biden administration, or at least partially. But I think the issue is that there are so many restrictions being put in place now to prevent those very people from voting. And so I think, yes, that we need to convince people through good policy, that that’s the only way that that the Biden administration and future administrations that seek to help the American economy can convince the public. But we also need to open our democracy to more and more people instead of restricting it.

Well, that’s I think, a crucial point. And I’m sure Julian would agree that that voting rights are at the center of any effort to rebuild any kind of consensus in American politics. We discussed this, of course, in a prior episode with Sean Theriault on the filibuster. Which is, of course, a key element in Congress restricting voting rights legislation right now. Julian, thank you so much for joining us today. You’ve given us the kind of historical context only you can, and we really appreciate you taking the time.

Thanks so much for having me. It's great to talk to both of you

And Zachary. Thank you for your poem, as always and for your insights and most of all, thank you to our listeners. Thank you for joining us for this week of This Is Democracy.

Yeah. Yeah. This podcast is produced by the Liberal Arts IT s Development Studio and the College of Liberal Arts at the University of Texas at Austin. The music in this episode was written and recorded by Harris Komotini. Stay tuned for a new episode every week. You can find This Is Democracy on Apple Podcasts, Spotify, and Stitcher. See you next time.