How well did the stimulus work?

David Gura Feb 17, 2014
HTML EMBED:
COPY

How well did the stimulus work?

David Gura Feb 17, 2014
HTML EMBED:
COPY

Five years ago, President Obama signed the American Recovery and Reinvestment Act of 2009 – a $787 billion economic stimulus – into law.

“Now, I don’t want to pretend that today marks the end of our economic problems, nor does it constitute all of what we must do to turn our economy around,” he said. “But today does mark the beginning of the end.”

In 2009, the economy was in bad shape – “more or less in a shambles,” says Alan Blinder, the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University.

Unemployment was over eight percent, and over the next few months, it got worse.

“The economy was in much worse shape at that point than we thought it was at that point,” says Gabriel Chedorow-Reich, a research associate at Harvard University. In 2009, he was a White House economist.

According to Chedorow-Reich, the American Recovery and Reinvestment Act of 2009 had two goals: “To break the recession and get a recovery started.”

The stimulus included aid to states, many of which were cash-strapped; money for major infrastructure projects; tax cuts; and investments in training and education. 

Since 2009, many economists have studied the effects of the stimulus, and many of them have concluded it had a positive effect on the economic recovery. But it is hard to say with any real specificity how much the stimulus helped. Numbers vary widely.

Today, on its five-year anniversary, politicians are arguing over its efficacy again. Blinder says that is because there is no counterfactual. We don’t know what would have happened if we didn’t have the stimulus.

In terms of politics, it’s an overwhelming hurdle that can’t be crossed,” he says.

Critics continue to say the stimulus was too big or too small, and that the government should have allocated that $787 billion more carefully.

President Obama continues to call on Congress to spend more money on infrastructure. He would like lawmakers to create an “infrastructure bank” to fix broken roads and bridges, and to improve and expand IT infrastructure.

The president argues the economy is still weak. Even though it is in better shape than 2009, many Americans are still out of work.  But there are few signs congress would back another stimulus – at least not before the midterm elections.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.