The American Recovery and Reinvestment Act of 2009

The American Recovery and Reinvestment Act of 2009 (ARRA, The Recovery Act) is an unprecedented response to the financial crisis or the Great Recession resulting from the bursting of the housing bubble in the United States. Under the circumstances of panic and uncertainty, an urgently important document was passed, providing revolutionary measures to overcome the crisis. Nevertheless, the procedure of adoption of ARRA and the influence of this legislation on the U.S. economy have been sparkling lively debates over the issue since 2009. Many researchers argue that the above-mentioned legislation has had detrimental consequences for the United States. Nevertheless, the opposite point of view establishing a positive effect of ARRA seems to be more reasonable. The American Recovery and Reinvestment Act of 2009 has reanimated the stalling U.S. economy and caused the country’s economic growth.

BRIEF DESCRIPTION OF ARRA

The American Recovery and Reinvestment Act of 2009 (ARRA), otherwise known as the economic stimulus package, is Keynesian attempt to spur economic growth and job creation as a response to the economic crisis. The purpose of the law is to provide “supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization” (American Recovery and Reinvestment Act 1). The active institutional participants involved in ARRA’s creation and implementation were the Congress, the U.S. House of Representatives and President Obama.

The history of ARRA’s adoption was extremely controversial. The severe debates had been held before the bill was signed into law by President Obama on February 17, 2009. The Senate suggested its variant of the legislation in January, 2009. Supporting this bill, Democrats could not reach consent for nearly $300 billion tax provisions. Therefore, this legislation was passed only after one year. Republicans did not support it absolutely and refused to vote for the bill (Harlin 5). Nevertheless, President Obama called to act swiftly to return Americans the opportunity to work, and The American Recovery and Reinvestment Act was passed. However, lively disputes as for its legitimacy have been arising since 2009 (Harlin 4).

The American Recovery and Reinvestment Act was performed in several steps. The first issue included the allocation of funds into federal agencies to provide certain programs. The second step provided authorization of spending on different programs in each state. The third point suggested spending on individual programs. All the information about the activities of the funds was announced on the Treasury Department’s website (Orr and Sporn 4). In fact, 50 percent of the stimulus package provided the development of the Departments of Labor, Health and Human Services and Education (Orr and Sporn 4).

ECONOMIC ADVANTAGES OF ARRA

Many researches highlight that “The American Recovery and Reinvestment Act of 2009 (ARRA) is the boldest countercyclical fiscal expansion in American history” (Romer 1). It mainly concerns government spending and tax provision. Its costs are approximately $840 billion, including $540 billion in spending and $300 billion in tax cuts. In fact, the major part of the ARRA’s budgetary influence (approximately 90 persent) was implemeted by the beginning of 2012. The number of spending categories in ARRA has a great range. ARRA supports social programs, unemployed and disabled categories of the U.S. citizens, and funds infrastructure investment (Orr and Sporn 1). To overcome the crisis, ARRA initiated promotion of over 250 individual federal programs (Posner et al. 5).

In fact, this law was implemented during the period when U.S real gross domestic product was decreasing at an annual rate of more than 6 per cent. Moreover, employment in the country was contracting by approximately 750,000 jobs per month (Posner et al. 1).

The economic benefits of ARRA were impressive. According to the recipients’ reports, the American Recovery and Reinvestment Act promoted the creation of approximately 682,000 full-time-equivalent jobs. Realizing the necessity of a more detailed analysis than the recipients’ reports, the Congressional Budget Office made the entire analysis of the economic effects of ARRA in order to form an idea of ARRA’s entire influence on employment. Accordingly, the Congressional Budget Office evaluated ARRA’s influence on U.S. employment and economic growth by means of various mathematical models. The consequences of ARRA’s implementation are the following: an increase in real gross domestic product by 4.2 percent, a decrease of the unemployment rate by 1.5 percent, a rise in the amount of employed individuals by 2.8 million and the growing number of full-time-equivalent jobs by 4.1 million. In fact, the major part of full-time-equivalent jobs (about two-third) was in education (Page 2-3). Viewing the U.S. educational system as a national primary issue, ARRA directed $77 million to education-related programs (Folsom). Inside Health and Human Services, ARRA allocated about one-third of funds to Medicaid. The rest of money was provided to various programs for children and investment in health information technology. The Recovery Act contributed to the increase of Medicaid funding (Orr and Sporn 4).

Auditors were the next category enjoying the positive influence of ARRA. Federal auditors were provided with augmented funding. To illustrate, “Inspectors General were given $245 million in additional funds, the GAO was enlarged by $25 million, RAT received $84 million” (Posner, et al. 18).

Analyzing the benefits of The American Recovery and Reinvestment Act of 2009, researchers focus on investing into renewable energy branches of industry that received approximately $30 billion. The U.S. Department of Energy (DOE) received approximately $54 million “to support energy efficiency and renewable energy projects in Nevada, Rhode Island, Vermont, and Wisconsin” ($54 Million).

The next positive point is that ARRA is considered to be the biggest middle-class tax cut in history. ARRA decreased federal income taxes. The Joint Committee on Taxation declared that these costs were $232 billion (Posner 9).

All these measures were temporarily, but they supported the shaky US economy in a proper way.

DRAWBACKS OF ARRA

Many researchers severely criticize The Recovery Act. First, they consider ARRA “unconstitutional on both delegation and separation grounds” (Herlin 26). The explanation of their point of view is in the procedure of ARRA’s adoption. The Senate proposed the initial version of the legislation on January 6, 2009. Herlin stresses that this event took place 20 days before the House suggested its original version. The researcher draws attention to the fact that the U.S. House of Representatives has the entire right to originate all the appropriations. Therefore, the reputation of Congress was destroyed (26). Analyzing the document, Herlin notes that the U.S. Constitution does not give Congress the right to stimulate job growth and economic recovery. Second, all the advantages provided by ARRA were demolished completely by tax revenue. Third, ARRA delegates executive agencies the authority to dispose money. Therefore, this legislative act violates the non-delegation doctrine and the doctrine of separation of powers (28).

The next issue is incorrect calculations. The Stimulus package created approximately 700, 000 full-time equivalent jobs during the first quarter of 2010 (Page 2). Nevertheless, this information does not provide an accurate estimate of ARRA’s influence on employment in the USA. The first reason is that the above-mentioned jobs might have existed without the stimulus package which was very expensive. The second reason is that the records written by recipients do not provide reliable information. In fact, they point only the jobs created by employers who got ARRA money directly or by their immediate subcontractors. It suggests that reports filed by lower-level subcontractors would reflect the real state of affairs. The third reason is that the respondents did not write the amount of jobs they might create or keep indirectly. The fourth point is that the received information includes only specific appropriations made by the Recovery Act. It does not include approximately one-sixth of the entire government spending. The data do not show the influence of other provisions of the stimulus package, including tax cuts, transfer payments comprising unemployment insurance tools, on people (Page 2).

According to reports of CBO, ARRA created 900,000 and kept approximately 4.7 million jobs. Nevertheless, PEW Survey report declared that 41 percent of U.S. citizens criticize The American Recovery and Reinvestment Act of 2009, while only 37 percent of respondents support the legislation. Moreover, a CNN poll informed that approximately three quarters of the respondents were disappointed with the law (Posner, et al.27).

So, the opponents state that ARRA has profound disadvantages that overweigh its benefits.

Analysis of the impact of the American Recovery and Reinvestment Act of 2009 is an extremely controversial thing. On the one hand, there are negative consequences of this legislation, such as extremely large cost of spending and complicated procedure of its adoption. Moreover, some researchers state that the information regarding ARRA’s results is miscalculated, and ARRA has failed. Nevertheless, the opposite point of view seems to be more reasonable. The legislation was adopted in the period of financial crisis when quick, risky and wise decisions were required. Despite its drawbacks, ARRA became an unprecedented response to the Great Recession, promoting the revival of the U.S. economy.