American Recovery and Reinvestment Act of 2009 - Developments Under The Act

Developments Under The Act

The Congressional Budget Office reported in October 2009 the reasons for the changes in the 2008 and 2009 deficits, which were approximately $460 billion and $1.41 trillion, respectively. The CBO estimated that ARRA increased the deficit by $200 billion for 2009, split evenly between tax cuts and additional spending, excluding any feedback effects on the economy.

On February 12, 2010, the Bureau of Labor Statistics, which regularly issues economic reports, published job-loss data on a month-by-month basis since 2000. Organizing for America, a community organizing project of the Democratic National Committee, prepared a chart presenting the BLS data for the period beginning in December 2007. OFA used the chart to argue, "As a result, job losses are a fraction of what they were a year ago, before the Recovery Act began." Others argue that job losses always grow early in a recession and naturally slow down with or without government stimulus spending, and that the OFA chart was mis-leading.

In the primary justification for the stimulus package, the Obama administration and Democratic proponents presented a graph in January 2009 showing the projected unemployment rate with and without the ARRA. The graph showed that if ARRA was not enacted the unemployment rate would exceed 9%; but if ARRA was enacted it would never exceed 8%. After ARRA became law, the actual unemployment rate exceeded 8% in February 2009, exceeded 9% in May 2009, and exceeded 10% in October 2009. The actual unemployment rate was 9.2% in June 2011 when it was projected to be below 7% with the ARRA. However, Democratic partisans claim that this can be accounted for by noting that the actual recession was subsequently revealed to be much worse than any projections at the time when the ARRA was drawn up.

According to a March 2009 Industry Survey of and by the National Association of Business Economists, 70.6% of their economists who had reviewed the fiscal stimulus enacted in February 2009 projected it would have modest to strong impact in shortening the recession, with 29.4% anticipating little or no impact. The aspects of the stimulus expected by the NABE to have the greatest effectiveness were physical infrastructure, unemployment benefits expansion, and personal tax-rate cuts.

One year after the stimulus, several independent macroeconomic firms, including Moody's and IHS Global Insight, estimated that the stimulus saved or created 1.6 to 1.8 million jobs and forecast a total impact of 2.5 million jobs saved by the time the stimulus is completed. The Congressional Budget Office considered these estimates conservative. The CBO estimated according to its model 2.1 million jobs saved in the last quarter of 2009, boosting the economy by up to 3.5 percent and lowering the unemployment rate by up to 2.1 percent. The CBO projected that the package would have an even greater impact in 2010. The CBO also said, "It is impossible to determine how many of the reported jobs would have existed in the absence of the stimulus package." The CBO's report on the first quarter of 2010 showed a continued positive effect, with an employment gain in that quarter of up to 2.8 million and a GDP boost of up to 4.2 percent. On the other hand, economists Timothy Conley of the University of Western Ontario and Bill Dupor of the Ohio State University used state level variation to estimate that while the stimulus created or saved 450 thousand government jobs, it destroyed or forestalled 1 million private sector jobs, thus costing jobs on net. Conley and Dupor's analysis has been criticized for its seemingly statistically irrelevant results. Other researchers have come to significantly more positive conclusions about the bill's effects on jobs. Economist Dan Wilson of the Federal Reserve, who used similar methodology, without the same identified errors, estimates that "ARRA spending created or saved about 2 million jobs in its first year and over 3 million by March 2011."

The CBO also revised its assessment of the long-term impact of the bill. After 2014, the stimulus is estimated to decrease output by zero to 0.2%. The stimulus is not expected to have a negative impact on employment in any period of time.

In 2011, the Department of Commerce revised some of its previous estimates. Economist Dean Baker commented:

he revised data ... showed that the economy was plunging even more rapidly than we had previously recognised in the two quarters following the collapse of Lehman. Yet, the plunge stopped in the second quarter of 2009 — just as the stimulus came on line. This was followed by respectable growth over the next four quarters. Growth then weakened again as the impact of the stimulus began to fade at the end of 2010 and the start of this year. In other words, the growth pattern shown by the revised data sure makes it appear that the stimulus worked. The main problem would seem to be that the stimulus was not big enough and it wasn't left in place long enough to lift the economy to anywhere near potential output.

The Democratic Congressional Campaign Committee established a "Hypocrisy Hall of Fame" to list Republican Representatives who had voted against ARRA but who then sought or took credit for ARRA programs in their districts. As of September 2011, the DCCC was listing 128 House Republicans in this category. Newsweek reported that many of the Republican legislators who publicly argued that the stimulus would not create jobs were writing letters seeking stimulus programs for their districts on the grounds that the spending would create jobs.

The stimulus has been criticized as being too small. In July 2010, a group of 40 prominent economists issued a statement calling for expanded stimulus programs to reduce unemployment. They also challenged the view that the priority should be reducing the deficit: "Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s."

In July 2010, the White House Council of Economic Advisers estimated that the stimulus had "saved or created between 2.5 and 3.6 million jobs as of the second quarter of 2010". At that point, spending outlays under the stimulus totaled $257 billion and tax cuts totaled $223 billion. In July 2011, the White House Council of Economic Advisers estimated that as of the first quarter of 2011, the ARRA raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million. The sum of outlays and tax cuts up to this point was $666 billion. Using a straight mathematical calculation, critics reported that the ARRA cost taxpayers between $185,000 to $278,000 per job that was created, though this computation does not include the permanent infrastructure that resulted.

In August 2010, Republican Senators Tom Coburn and John McCain released a report listing 100 projects it described as the "most wasteful projects" funded by the Act. In total, the projects questioned by the two senators amounted to about $15 billion, or less than 2% of the $862 billion. The two senators did concede that the stimulus has had a positive effect on the economy, though they criticized it for failing to give "the biggest bang for our buck" on the issue of job creation. CNN noted that the two senators' stated objections were brief summaries presenting selective accounts that were unclear, and the journalists pointed out several instances where they created erroneous impressions.

One of the primary purposes and promises of the Act was to launch a large number of "shovel-ready" projects that would generate jobs. However, a sizable number of these projects, most of which pertained to infrastructure, took longer to implement than they had expected by most. This was largely attributed to the regulatory process that is involved in such projects.

Some of the tax incentives in the Act, including those related to the American opportunity tax credit and Earned Income Tax Credit, were extended for a further two years by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

In November 2011 the Congressional Budget Office updated its earlier reports concerning the Act. The CBO stated that "the employment effects began to wane at the end of 2010 and have continued to do so throughout 2011." Nevertheless, in the third quarter of 2011, the CBO estimated that the Act had increased the number of full-time equivalent jobs by 0.5 million to 3.3 million. Section 1513 of the Recovery Act stated that reports on the impact of the act were to be submitted quarterly, however the last report issued occurred for the second quarter of 2011. As of December 2012, 58.6% of Americans are employed.

In 2013, the Reason Foundation conducted a study of the results of the ARRA. Only 23% of 8,381 sampled companies hired new workers and kept all of them when the project was completed. Only 41% of sampled companies hired workers at all. 30% of sampled companies laid off all workers once the government money stopped funding. These results cast doubt on previously stated estimates of job creation numbers, which do not factor those companies that did not retain their workers or hire any at all.