The debate over the 2009 stimulus gets some fresh fodder. But the alternative, doing nothing, would have been a disaster.
When Amtrak switches its trains from the historic and scenic route beside the Tacoma narrows to a faster cutoff south, it will represent completion of one of the last projects of the Great Recession stimulus. The American Recovery and Reinvestment Act (ARRA) of 2009 pumped $831 billion into the nation’s reeling economy.
From a macroeconomic level, it succeeded. Along with help from the Federal Reserve, this fiscal stimulus kept the severe contraction from becoming a depression. Most studies show it worked. ARRA saved or created an average 1.6 million jobs in the first four years after passage, kept millions out of poverty and raised economic output.
Still, Republicans complained it was a failure (many of them opposed any stimulus). Combined with a weak defense of it by Democrats, this helped the GOP take the House in 2010.
A paper circulated his week by National Bureau of Economic Research gives added depth to understanding the effects of the stimulus. Written by Mario Crucini of Vanderbilt University and Nam Vu of Miami University, it examines data at the county and ZIP Code level. The question: Did the stimulus help those most in need?
The answers aren’t straightforward. ARRA benefited poor Republican-majority counties above their historic trend of government disbursements, while similar Democrat-majority counties didn’t do so well. For counties that received at least $1 per capita in aid, at least a 13 percent offset in income loss was documented. Still, 71 percent of counties received no funds at all. Benefits gravitated toward the middle quintile of income. They were widely dispersed geographically.
At the risk of simplifying a very wonkish paper, their conclusion seems to be the stimulus kind of worked, based on their parameters (such as spreading the burden of loss and recovery), but also had many failings. The economists conceded that more research is needed.
Since the Great Depression, we’ve known that in a downturn, the federal government must step in with spending (fiscal stimulus) to make up for falling demand. This was long a view of both parties. The Great Recession confronted the nation with a demand hole it hadn’t seen since the early 1930s.
ARRA had its flaws. For one thing, it was too small and most spending was intended to go out the door fast. Democrats in the congressional majority were trying not to add too much to the deficit, and President Obama was desperately seeking common ground with Republicans. GOP governors in Wisconsin and Florida actually refused job-creating rail projects. While the aid made a critical difference in avoiding a depression, parts were less effective for various reasons. For one thing, much of the money had to fill desperate gaps in state and local coffers.
One of the most effective measures never happened: Force the banks to forgive every middle-class and lower-wage mortgage. The banksters were going to get away with causing the crisis. They could have at least given something in return.
Today’s Econ Haiku:
Still going but it’s slowing
It’s our new needle