The devastating effects of the financial crisis continue to be felt by millions of Americans and many are “booing” the stimulus bill, when in fact they should be cheering.
The purpose of the stimulus’ $787 billion in new spending and tax cuts was to keep the economy from spiraling even further out of control by saving and creating 3.5 million jobs over 2 years and helping states with their budget shortfalls. A number of different indicators reveal that the stimulus bill, officially called the American Recovery and Reinvestment Act (ARRA), is doing its job.
Unemployment: Last Hired
In August, nearly 1 in 10 Americans in the labor force were unemployed and prospects for new jobs are not all that promising. This is neither new nor surprising. Historically, unemployment lags behind other indicators of economic recovery and typically does not decline until 6 to 12 months after the economy picks up. The stimulus bill is cushioning the blow of unemployment by creating 2.5 million jobs by the end of 2010 that would otherwise not exist. It is also providing 2.5 million people with extended unemployment benefits through an increase of 1.3 billion per month in unemployment benefit levels. Clearly, the unforgiving job market is hurting many families, but without the stimulus bill it would be much worse.
GDP: Moving on Up
GDP growth is positively correlated with an increased standard of living. As the GDP rises, so do our lives. The non-partisan Congressional Budget Office (CBO) estimated, and others agree, that the stimulus bill added 2-3 and nearly 3 percentage points to GDP growth in the second and third quarters of 2009 respectively. Moreover, GDP is projected to be“1.4 percent to 3.8 percent higher in the fourth quarter of 2009 than it would have been without the stimulus” and similar percentages are expected for the fourth quarter of 2010. This upward trend is the result of the stimulus bill’s success in raising both confidence in the economy and demand, without which GDP, and our lives, would be stagnant.
States face a combined $350 billion in projected budget gaps for the next 2 years. Over the same time period state governments will receive $140 billion from the stimulus bill for Medicaid, education funding, and construction/infrastructure projects. Many states have already used some of these funds to avoid cuts to critical programs and to pay for immediate short-term projects. Virginia, for instance, reversed plans to lay off thousands of school personnel and close mental health facilities, while New York canceled major cuts to senior’s prescription drug benefits and school funding. Additionally, many states are using recovery funds for “shovel ready” projects such as paving and street repairs. These immediate uses of stimulus monies create jobs quickly and raise the demand for goods and services, thereby bolstering state economies.
Deficit: Penny Foolish but Pound Wise
Clearly, both the federal government and the states currently have huge deficits. Yet, failing to enact the stimulus bill would have been penny wise and pound foolish. Although the stimulus funds and tax cuts have increased current deficits significantly, their long term effects are minimal. The stimulus bill will add a mere 3 percent to the federal budget shortfall through 2050. Moreover, while the U.S. will likely face a huge deficit in the coming decades, such budget woes are the result of increasing health care costs—and not the stimulus bill. In sum, the benefits of the stimulus bill far out weigh its costs.
Three Cheers for the Stimulus
The economic crisis was a long-time in the making and will take a long time to undo. The stimulus bill has not only helped to cushion the blow of this recession, but also started us on the path to recovery. Its positive effects are clear and instead of criticizing we should be rejoicing.