He realized too late that "there's no such thing as shovel-ready projects" when it comes to public works.
Now here's the start of the very next paragraph:
Most of all, he has learned that, for all his anti-Washington rhetoric, he has to play by Washington rules if he wants to win in Washington. It is not enough to be supremely sure that he is right if no one else agrees with him. "Given how much stuff was coming at us," Obama told me, "we probably spent much more time trying to get the policy right than trying to get the politics right. There is probably a perverse pride in my administration -- and I take responsibility for this; this was blowing from the top -- that we were going to do the right thing, even if short-term it was unpopular.
Notice the almost contradiction? Obama admits there's no such thing as a "shovel-ready project" even though a huge part of the argument for the 2009 increase in domestic spending was that it would go to "shovel-ready projects." And then he says that his administration "spent much more time trying to get the policy right than trying to get the politics right."
Of course, it's not literally a contradiction. He could have spent time trying to get the policy right and still not realized that there's no such thing as a shovel-ready project. But it wouldn't have been much time. He would only have had to ask people in the business of spending money on highways, etc. to know that there was no such thing. So his pride was perverse, but not in the way he means it.
What this episode illustrates, like George W. Bush's failure to do due diligence before invading Iraq, is how little information government typically gets before it makes huge decisions with huge implications. If you're looking for a great example of a negative externality, an act, remember, that comes about because the decision maker doesn't bear a large percent of the cost of his decision, look no further than Bush's Iraq invasion or Obama's "stimulus" package.