Report | Economic Growth

Down-Payment on Economic Recovery

Briefing Paper #269

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The American Recovery and Reinvestment Act (ARRA) was passed in February 2009 in an attempt to boost the cratering economy. The Recovery Act has performed as advertised — the Congressional Budget Office (CBO 2010) has estimated that the ARRA has raised gross domestic product (GDP) by over $600 billion by April of this year, saved or created up to 4.9 million full-time equivalent jobs, and kept unemployment up to 1.9 percentage points below what it would have been without the ARRA’s passage.

Yet the economy has not fully recovered and a crisis in the labor market persists. While the unemployment rate would have likely reached over 12% without the Recovery Act, even following the Act’s passage it stands today at an unacceptably high 9.7%. This lingering crisis is not a reflection of the effectiveness of the Recovery Act but of the growing magnitude of the crisis it was meant to address; that is, although the Recovery Act performed as advertised, the recession has been much worse than was expected. More help is needed to create jobs.

This brief argues that a clear success of the Recovery Act was the $250 lump-sum payments that went to recipients of Social Security and Supplemental Security Income (SSI) benefits, and that further job-creation efforts should include another such payment. Repeating this $250 payment would not, of course, constitute a sufficient response to the jobs crisis by itself. A response commensurate to the scale of the jobs crisis would be literally at least 20 times larger in simple dollar terms and would include further extensions to unemployment insurance and food stamps, significant fiscal relief to state and local governments, and more public investment projects that resulted in direct job creation.

However, this lump-sum payment to Social Security and SSI beneficiaries should be part of a mix to maximize job creation — it is an effective job creator, and its effects would take hold faster than almost any other aspect of a new recovery package.

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