Stimulus Presentation

Transcription

1 Stimulus Presentation The 2009 American Recovery and Reinvestment Act Matthew Reddish Eric Wooten Chris Dunn 116

2 Generally, what is a stimulus? A package of economic measures put together by the government to stimulate a floundering economy. The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending. 1 The global recession of led to unprecedented stimulus packages being unveiled by governments around the world. In the United States, the $787-billion stimulus package dubbed the American Recovery and Reinvestment Act of 2009 contained a huge array of tax breaks and spending projects aimed at vigorous job creation and a swift revival of the U.S. economy

3 What was the American stimulus package? To respond to the Great Recession, the primary objective for ARRA was to save and create jobs immediately. Secondary objectives were to provide temporary relief programs for those most impacted by the recession and invest in infrastructure, education, health, and renewable energy. The approximate cost of the economic stimulus package was estimated to be $787 billion at the time of passage, later revised to $831 billion between 2009 and The Act included direct spending in infrastructure, education, health, and energy, federal tax incentives, and expansion of unemployment benefits and other social welfare provisions. 2 CBO Report Feb

4 The rationale for ARRA was from Keynesian macroeconomic theory, which argues that, during recessions, the government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration. Shortly after the law was passed, however, Keynesian economist and Nobel laureate Paul Krugman while supportive of the law, criticized the law for being too weak because it did not "even cover one third of the (spending) gap". 3 o John Maynard Keynes argued that market economies can get stuck in a deep rut and that only large infusions of government stimulus can revive growth. He posited that high unemployment in the Great Depression was due to sticky wages and other market problems that prevented the return of full-employment equilibrium. 4 3 Nobel Laureate Paul Krugman: Too Little Stimulus in Stimulus Plan

5 The Numbers 5 The Act specifies that 37% of the package is to be devoted to tax incentives equaling $288 billion $144 billion, or 18%, is allocated to state and local fiscal relief (more than 90% of the state aid is going to Medicaid and education). The remaining 45%, or $357 billion, is allocated to federal spending programs such as transportation, communication, waste water and sewer infrastructure improvements; energy efficiency upgrades in private and federal buildings; extension of federal unemployment benefits; and scientific research programs. 5 "Summary: American Revovery and Reinvestment". U.S. House of Representatives Committee on Appropriations. February 13, 2009.Archived from the original on February 16, Retrieved February 17,

6 Economist Reactions - The American Recovery and Reinvestment Act of 2009 was based on the Keynesian Macroeconomic Theory which argues that during recessions, government should offset the decrease in private spending with an increase in public spending. o Keynesian economist Paul Krugman criticized the American Recovery and Reinvestment Act because it was too weak and did not even cover one third of the spending gap. - Many well-known and respected economists favored a large economic stimulus to counter the economic downturn. o Included National Economic Council director Larry Summers Nobel Prize in Economic Sciences winners Joseph Stiglitz and Paul Krugman 616

7 - Many economist thought the stimulus was too small including Paul Krugman o Believed political considerations to garner support from republicans was the cause of the Stimulus being too small Economists took out an ad in the NY Times and Wall Street Journal o Denied that a stimulus was needed to jumpstart the economy Stated To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth. 716

8 - Different (200) economists sent letter to Congress o Stated in favor of the stimulus o Proposes important investments that can start to overcome the nation s damaging loss of jobs o Would put the U.S. back onto a sustainable longterm-growth path - Both letters signed by several Nobel Memorial Laureates - HIS Global, Insight, Moddy s and Macroeconomic Advisers all published reports that showed without the American Recovery and Reinvestment Act of 2009 the economy would have been worse off 816

9 Did it work? That depends upon which theory of economics you believe in: Keynesian (Capitalism Lite): (1) It worked, but it would have worked better if Republicans didn t stop the President from going all in because they hate the poor and the President so much. (2) It worked, but we need to have another stimulus, so it will really work. But that won t happen because the Republicans hate the poor and the President. (3) If it did nothing else it made the President appear proactive, pushed money to our political allies in various sectors of the economy. 916

10 Did it work? That depends upon which theory of economics you believe in: Chicago School (Capitalism or Death!): (1) Hell no, it didn t work! Tax cuts for the super-rich would have worked better; but the President hates America (2) No, it didn t work. But it may have had some less than poisonous effects on the economy. (3) At least our friends got bailed out by W. But the ARRA was Crony Capitalism at its worst. 1016

11 Make up your own mind. (Or, just read the reports that reinforce your current world view) Washington Post Survey of the Surveys: Forbes: stimulus-program/ Freakonomics: Financial Times: The White House: df Do not go to expecting current information! 1116

12 It is all about curves and modeling what would have happened if. 1216

13 This is the curve that cuts throughh the noise. Data extracted on: September 10, 2013 (11:05:03 PM) Labor Force Statistics from the Current Population Survey Series Id: LNS Seasonally Adjusted Series title: (Seas) Employment-Population Ratio Type of data: Percent or rate Age: 16 years and over Labor force Status: Em mployment-population ratio 1316

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15 Notes: CBO s January 2009 baseline projection of potential gross domestic product (GDP) is set as a reference point. The projection of actual GDP without the effects of the American Recovery and Reinvestment Act of 2009 (ARRA) is CBO s January 2009 estimate, as presented in The Budget and Economic Outlook: Fiscal Years The projections of actual GDP with the effects of ARRA incorporated (the high and low estimates) reflect a range of assumptions. 1.Estimated Macroeconomic Impacts of the American Recovery and Reinvestment Act of 2009 March 2, 2009 Letter to the Honorable Charles E. Grassley 1516

16 Q. Did the Stimulus Work? A. It all depends on your beliefs 1616