EPI News

Proof that the Recovery Act worked

One year ago this week, President Obama signed the American Recovery and Reinvestment Act, committing $787 billion to create jobs and jumpstart the ailing U.S. economy. Today the evidence is overwhelming that the Recovery Act saved jobs, created more jobs, and marked the turning point in reversing the severe damage created by Bush-era economic policies. While EPI continues to call for more aggressive policy action to create additional jobs, it used the occasion of the one-year anniversary of the Recovery Act to review the past year of progress.

A stark before-and-after picture
EPI Vice President Ross Eisenbrey tracked monthly job loss data from the start of the recession until today.chart The chart he assembled shows the most severe months of job loss occurred in the months immediately preceding the Recovery Act taking effect, when more than 700,000 jobs were being lost each month. The injection of Recovery Act investments into the economy brought an immediate and sustained reduction in monthly job loss tallies, he showed.

EPI President Lawrence Mishel made the same argument during a debate on PBS NewsHour, where he stressed that that monthly job losses were down to about 35,000 by the end of 2009. “This wasn’t by accident,” he said. Mishel added that the reason the jobs crisis remains severe is that “we were in a really deep hole.” With unemployment projected to be around 8% two years from now – an unusually high level that was never even reached during the past two recessions – Mishel said we actually need to do much more to create jobs.

“All administrations – Republican or Democrat – in a recession tend to run deficits,” Mishel said. “We have a huge deficit because we have a huge recession. A lot of people are out of work and are not paying taxes.”

Economist Josh Bivens said that GDP data, like job loss data, offered more compelling evidence of the positive impact of the Recovery Act. During a podcast interview with The Nation editor Christopher Hayes, Bivens said that GDP patterns presented “a stark before-and-after picture.” During the last quarter of 2008 and the first quarter of 2009, GDP contracted at a 6% annual rate, the worst six-month decline on record. By contrast, in the second quarter of 2009, which included significant Recovery Act spending, GDP contracted by less than 1%. It has grown each quarter since then.

Hayes said Bivens offered “as clear an explanation of the effects of the Recovery Act as I’ve heard.” Asked about the weakness of the Recovery Act, Bivens replied, “It goes away too quickly.” Most Recovery Act spending will be completed by the middle of this year, a time when unemployment is projected to be near 10% and the country will still need 10 million additional jobs to return to pre-recession levels of employment.

Not all job creation efforts are created equal
This great need for more jobs means that any job creation effort adopted must be large enough for the magnitude of the current problem. Unfortunately, the job creation tax credit recently proposed by Senators Chuck Schumer and Orrin Hatch is insufficient. In an opinion piece published on EPI.org, W.E. Upjohn Institute economist Timothy Bartik argued that the Schumer-Hatch proposal has “several questionable design details.” Bartik said that the proposal attempts to avoid some of the steep costs of tax credits for new hires, in part by limiting the credits to workers who have been unemployed for at least 60 days, and applying the credits only through 2010. “If we want to effectively encourage job growth through a tax credit, we need a program that tightly targets that goal with a large enough tax credit to affect employers’ hiring decisions,” Bartik wrote.

Evaluating teachers: Is pay for performance the answer?
EPI Research Associate Richard Rothstein took part in a PBS roundtable discussion about the best ways to compensate teachers, and explained the many problems with relying too heavily on test scores. While teaching is a highly complex endeavor, he said, standardized tests “only test some of the things teachers are doing.” In addition to teaching academic skills, educators are also expected to impart social skills and help prepare students for the work force, he stressed.

 “If you hold teachers accountable only for some of the things that they do, you set up a system where there are incentives to abandon other things,” said Rothstein, who also explores alternative teacher pay systems in EPI’s 2009 book Teachers, Performance Pay, and Accountability. During the PBS interview, Rothstein said that the answer was not to abandon all teacher evaluation, but “to improve the way we evaluate, and abandon the obsession that we’ve had with defining teachers’ competence solely on the basis of test scores.”

EPI in the news
In an opinion piece published in USA Today, economist and EPI board member Julianne Malveaux said it was time to get serious about creating jobs. She cited EPI data showing that the country needs to create 400,000 jobs per month to return to pre-recession levels of employment. The Los Angeles Times cited EPI data on the impact of the Recovery Act on the labor market, including the projection that without stimulus investments, unemployment would now be above 11%, rather than 9.7%. Fox Business quoted Josh Bivens discussing the roots of the federal deficit, and showing how the much of the growth in the current deficit can be traced to poorly-targeted Bush-era tax cuts, and the recession itself, which drove down tax revenues while driving up safety net spending as millions of people lost their jobs. The Atlantic quoted economist Heidi Shierholz projecting that if the recovery follows the same basic path as the last two economic recoveries, unemployment will stand around 8% in 2014.

 “We haven’t seen anything like this before: a really deep recession combined with a really extended period, maybe as much as eight years, all told, of highly elevated unemployment,” Shierholz said. “We’re about to see a big national experiment on stress.”

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