Testimony | Economic Growth

The Stimulus: two years later

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Economic Policy Institute economist Josh Bivens’ testimony before the Subcommittee for Regulatory Affairs, Committee for Government Oversight,  U.S. House of Representatives

Thank you Chairman Jordan and members of the subcommittee for the opportunity to testify today. I am Josh Bivens, a macroeconomist at the Economic Policy Institute in Washington, D.C. In assessing the economic impact of the American Recovery and Reinvestment Act (ARRA, the Recovery Act henceforth) I’d like to make four arguments today, and they mirror the arguments I’ve made when testifying about its impact in the past.

-First, the Recovery Act was badly needed. The American economy at the end of 2008 and the beginning of 2009 was essentially in free fall and all other policy tools that had been tried had little effect in arresting the decline.

-Second, it worked roughly as advertised. By the middle of 2010 (its period of peak effectiveness) it had created up to 5 million full-time-equivalent jobs and kept the unemployment rate from flirting with 12% at the labor market’s trough. Today, absent the impact of the act the unemployment rate would surely remain in double digits. That said, the economy needed many more jobs than this—the economic crisis that the Recovery Act was meant to address called for much stronger medicine than the act by itself could provide.

-Third, while it was as effective as advertised, it was significantly cheaper than advertised. While the sticker-price of the Recovery Act (estimated at $787 billion when passed and boosted to $862 billion) is often characterized in press accounts as enormous, it was less than half as large as the tax cuts enacted during the 2000s, smaller than the cost of wars in Iraq and Afghanistan, and, most importantly, small relative to the economic shock it was meant to absorb. Further, because it spurred economic activity and tax collections and reduced the need for safety-net spending, its net budgetary impact was likely well below its headline cost.

-Fourth, lessons learned from the passage of the Recovery Act should be heeded: More fiscal support should be provided to prop up the economy and spur a genuine recovery in the jobs market. While the economy today would be worse off if the Recovery Act had not passed, unemployment still sits at 9.0% today, will almost surely rise above 9.5% over the coming year, and will not return to pre-recession levels until several years from now (in 2016, if the Congressional Budget Office forecast is right) unless more fiscal support is provided.

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