The American Recovery and Reinvestment Act of 2009 was intended to stimulate the U.S. economy by injecting $787 billion in spending and tax cuts.
The distribution of $787 billion was;
$89.4 billion - education training, aid and employment services
$32.7 billion - transportation projects
$25.0 billion - infrastructure projects
$22.4 billion - energy
$12.3 billion - housing
The CBO (Congressional Budget Office) predicts that the multiplier of ARRA is (focusing on GDP);
Calendar year average2009 2010 2011 2012 2013 | Low estimate0.4 0.7 0.4 0.1 0.1 | High estimate1.8 4.1 2.3 0.8 0.4 |
"CBO used evidence from models and historical relation- ships to determine estimated “multipliers” for each of several categories of spending and tax provisions in ARRA." There are few categories; unemployment, employment, full-time equivalent employment but I focused on GDP since I think it directly measures the how well the economy is doing. CBO has low and high estimated values of multiplier because it is very difficult to measure the multiplier precisely. However, the trends of each value are the same, the value is the highest in 2010 and it tends to decrease after 2010 which is a year after the ARRA is designed. The same trend is applied to employment and full-time equivalent (from the data) whereas unemployment has reverse value to it since they are in a mutual relationship.
What is the evidence for what really happened ?
It does seem successful at the start but the multiplier has significantly decreased over the 5 years. I think the economy might go back to the point where it was before the ARRA since the ARRA was not very successful in long term. I think any investment can only help for a short period of time but not in long term. When the investment is run out, many people will be unemployed again, consumption will fall which leads aggregate demand to decrease, GDP will decline and the economy will slow down again. I do not think the economy will get better truly if the foundation of the economy is not changed by the government.
Bibliography
http://www.epi.org/blog/recovery-act-evidence-success-three-year-anniversary/
http://www.cbo.gov/sites/default/files/cbofiles/attachments/02-22-ARRA.pdfhttp://www.canadainternational.gc.ca/sell2usgov-vendreaugouvusa/procurement-marches/ARRA.aspx?lang=eng
What is the evidence for what really happened ?
- In the second quarter of 2009 GDP declined at a much slower pace (0.7 percent), and growth resumed in the third quarter
- Job losses slowed dramatically throughout 2009 and the economy started adding jobs in early 2010
- Private sector layoffs, which had peaked in Feb. 2009, began a rapid decline and returned to pre-recession levels by early Feb. 2010.
It does seem successful at the start but the multiplier has significantly decreased over the 5 years. I think the economy might go back to the point where it was before the ARRA since the ARRA was not very successful in long term. I think any investment can only help for a short period of time but not in long term. When the investment is run out, many people will be unemployed again, consumption will fall which leads aggregate demand to decrease, GDP will decline and the economy will slow down again. I do not think the economy will get better truly if the foundation of the economy is not changed by the government.
Bibliography
http://www.epi.org/blog/recovery-act-evidence-success-three-year-anniversary/
http://www.cbo.gov/sites/default/files/cbofiles/attachments/02-22-ARRA.pdfhttp://www.canadainternational.gc.ca/sell2usgov-vendreaugouvusa/procurement-marches/ARRA.aspx?lang=eng