Did the American Recovery and Reinvestment Act of 2009 work? Some experts say no.
Did The Economic Stimulus Create Jobs?
In February 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted. The law contained approximately $787 billion in economic stimulus consisting of new government expenditures and some tax incentives. It was a response to the serious challenges facing the U.S. economy as a direct result of the crisis in the financial sector. The logic beyond the law relied on Keynesian economic theory which states that government expenditures should be used to offset weakness in the private sector. So if consumers and companies aren’t buying from each other, the government should soften the blow to the overall economy by using its checkbook (or in our case its credit card).
The main purpose of the law was to stimulate job growth. When unemployment and underemployment are high, consumers cut back on spending. Whether it’s due to a reduction in income or to the fear of potentially losing a job, consumers spend less. Companies that sell to consumers sell less. They buy less from their suppliers. Both types of companies reduce employment to reflect the new lower sales reality. As consumers and businesses earn less they also pay less in taxes. This impacts federal, state and local government tax revenues. It’s a vicious cycle that must be broken. The key step is to stimulate employment.
The debate over whether or not ARRA was an effective means to stimulate jobs could hardly have been more divisive. Ideological as well as practical differences divided the country. The final vote passing the bill reflected this division. Almost two and a half years have passed since that vote.
Where are we today? Did ARRA deliver as promised?
According to Timothy Conley from the Department of Economics at the University of Western Ontario and Bill Dupor from the Department of Economics at The Ohio State University, the answer is no. Their recent study analyzed the number of jobs “created or saved” across states as a result of the government expenditures portion (not the tax incentive portion) of ARRA. According to their study, the ARRA created or saved 450,000 government-sector jobs but it also destroyed or forestalled one million private-sector jobs.
