The Recovery Act in Action

So I'm driving along a Pennsylvania highway two weeks ago on my summer vacation, radio blasting, and what do I see but one of those Recovery Act signs, touting a highway project. Jeez, I thought. Can't a guy get away from that stuff for a couple of days!?

Don't worry. I quickly reverted to my economist self and applauded the infrastructure improvement, lecturing my wife and kids on the considerable multiplier effects of such spending (which led to them turning the radio up even louder).

The fact is, what I saw was a small dose of the medicine from the Recovery Act making its way through one of the nation's arteries. And that road project in Pennsylvania is one of out 3,350 highway projects currently underway across the country.

But what about the larger patient, i.e., the macro-economy? What are economic analysts saying about the impact of the Recovery Act thus far?

As I'll show you in a moment, they're saying good things. The Act is having its intended effect of offsetting some--by no means all--of the damage caused by the deepest downturn since the Great Depression. And in tandem with our other interventions in financial and housing markets, it's helped to pull us back from that very dangerous precipice.

As Mark Zandi, a highly respected economist (and former advisor to the McCain campaign) put it in a recent analysis, "The fiscal stimulus is providing the fodder for better sales. Lower payroll tax withholding, checks to Social Security recipients, and more financial help to unemployed workers are buoying household incomes. The cash for clunkers program has juiced up vehicle sales, and the housing tax credit has boosted home sales. It is no coincidence that the recession is ending just when the stimulus is providing its maximum economic benefit." (Emphasis mine).

And other economists agree about the positive effect that the Recovery Act is already having. Moody's Economy.com (where Zandi is Chief Economist), IHS Global Insight, and the Economic Policy Institute all estimate that the Recovery Act has created or saved from 500,000 to 750,000 jobs so far.

The economists at Goldman Sachs think the package added 2.2 percentage points to real GDP growth (annualized) in the second quarter of 2009 and will add 3.3 points in the current quarter. That implies even more jobs saved or created during the current quarter compared to the last one. It also means that were it not for the boost the Recovery Act is giving to the economy right now, GDP would have contracted at a 3.2% rate in the last quarter instead of a 1% rate.

Which raises a really, really important point--and don't even think about turning up the radio. Suppose you were, oh, I don't know ... politically motivated to argue that the Recovery Act wasn't working. You'd probably point to that 1% decline in GDP and say, "How can it be working if the economy is still contracting" Or maybe you'd point to the 247,000 jobs lost last month.

Now, the President has stressed consistently that as far as we're concerned, any degree of economic contraction is too much, and even more importantly, any job losses are too many. But the independent findings cited above make the critical point that if you're only noticing that things are still bad without noticing that they're getting better, you're looking at the wrong benchmarks. The question is not: Are we still in hole? Of course we are; it took years to dig in, and it's going to take a long time to dig out.
The relevant question is: Are we digging out faster thanks to the Recovery Act and our other economic policies? To that question, these independent analysts, and many others, unequivocally answer, "Yes."
Just take a look at some "then and now" indicators:

GDP was tanking earlier this year; it fell much less quickly in the second quarter and the consensus among private forecasters is for real GDP growth to break into positive territory in the current quarter.

We're still losing far too many jobs, but the rate has significantly slowed. The fact is, you don't go from losing upwards of 700K jobs on net per month to adding jobs without passing through a period just like this one, where the loss rate slows.

Home sales and prices are showing stabilizing signs. The sales data, by the way, have gotten a nice boost from our First Time Home Buyers Credit. And consumer confidence is solidly up, too.

Let me be very clear about all this: We are not out of hole yet. It's important to be realistic about what the Recovery Act has and hasn't accomplished thus far. We've pulled the economy back from the brink, provided critical relief to families, communities, and states, and are now beginning to lay the foundation for a stronger, more broadly shared expansion.

But we are not there yet. There are more job losses to come. Key economic indicators may have bottomed out, but they've done so at historically low levels. The economy remains fragile.

But as we slowly climb out of the hole that greeted us when we got here on January 20th, let's also be sure to take note of what's working.

OK...now you can blast the radio.

This post originally appeared on the White House Briefing Room Blog.

Jared Bernstein is Chief Economist to Vice President Biden, and Executive Director of the Middle Class Task Force

Comments

[givesflack]

The biggest tax in history didn't do anything to prevent this economic crisis and maybe created it. The private economy shouldn't ever be left alone again and should have a public option that counters every type of industry there is in it. This crisis should have been the end of Wall Street and the nationalizing of banks. What else, well that's a good start. Oh yes, I need a job, and while the private sector has none to offer at least I'm getting unemployment benefits which is government run. But wait, I am not eligible for unemployment because my private sector job was a freelance position with no benefits and didn't pay into unemployment. Because of that I have been living off my credit cards until a job comes along which hasn't for ten months although I'm ready to work as a janitor. How irresponsible of me, I must be since it's my fault I can't get a job right? And I know I will never be able to pay off the cards the same institutions that created this mess, so should I even care to pay them back? Not really since they already own each American thousands of dollars that we'll never get back loans in the trillions they received. What a f-ck-ing mess. Thanks BUSH.

[ChampLessFuzzy]

Thank you, Mr. Bernstein. I look forward to your next ARRA update and summary.

[charmante]

Without the Recovery Act, my unemployment benefits would have run out by the end of July 2009.

Extended unemployment benefits have not only provided a safety net for families who’ve lost their sources of income through no fault of their own, but also has served as a safety net for businesses while saving jobs amid the greatest recession since the 1930's.

Nevertheless, the weak job creation had made it very difficult for the unemployed to re-enter the job market. What are their alternatives once they have exhausted their unemployment benefits? Additionally, some are finding their mortgages far exceed the value of their homes while others feel cheated by financial products such as home loans and credit cards.

Main Street is not overjoyed about this economic recovery because the US, over the past two decades, have been characterized by extreme income inequality, rising poverty levels, rising unemployment.

The elite is doing well and has not lost much thanks to government repeated bailouts paid for thru various impositions on people outside the upper economic strata.

The Obama administration did not create this mess. My hope is that this two track economy one for the top 10% and the other for the bottom 90% is not lost on them.

[TJCole]

And you would lie for a very good reason you're the Vice President's Economic adviser...­!

You guys should have listened to the Brookings Institute.­...

3-4% on Infrastructure who are you kidding...­you guys blew it by not Nationalizing the Banks...th­e major corrupt banks...an­d AIG..!

"Time will tell, just who has fell, and who's been left behind...!­"

Bob Dylan...

[Humanistic]

"It is no coincidence that the recession is ending just when the stimulus is providing its maximum economic benefit."

Nearly a year after the crash? There's no evidence to support this assumption. In fact, one can just as easily assume that the recession is winding down (very slowly) in the upswing of a "natural" cycle. In other words, change was bound to happen, no matter how bad the downturn.

Except for Cash>Clunkers (which was an ephermeral blessing), I think it's more rational to conclude the stimulus has NOT worked, has been rolled out too little too late, and has significantly lacked creativity. It may have buoyed government and education employment somewhat, but it has done little or nothing to improve the general employment situation. What is worse, it has failed to help the most vulnerable people, as state governments have slashed programs for the poor. That situation is bound to get even worse in the months ahead.

[jrmarsh]

Then Obama is not to blame for unemployment?, after all, it's just a naturally occurring cycle right?

[johnashman]

How could it have worked? Imaginary spending may have a placebo effect, but how is this guy concluding maximum economic benefit?

Would the economic advisor to Joe Biden PLEASE take an economics course or two?

[Overtone]

LET’S GENERATE MORE JOBS!

A Human Investment Tax Credit program was designed to create 3 to 6 million new jobs and encourage between 1 to 4 million men and women to become entrepreneurs.

The 2009 Report can be downloaded free at www.aesopinstitute.org

The 1977 job tax credit program, using only a few of the incentives, generated twenty percent of new jobs created that year.

The incentives in the Human Investment Tax Credit program need to be debated. Urge your Representative to discuss this important legislation.

Another path to millions of new jobs is described in the article: 4 Steps to Revive the Auto Industry and the Economy - on the same Aesop Institute website.

It outlines radically new technology that opens surprising paths to cars that need no fossil fuel or recharge. Later, advanced versions can turn cars into power plants, wirelessly able to sell power to the local utility when parked. Imagine the impact!

The science is new and not yet found in textbooks. Skeptics will understandably be legion. But independent laboratory validation, followed by mass production of these new systems, is now on the horizon.

Fractional Hydrogen, one of these scientific breakthroughs, was recently validated by Rowan University in connection with technology developed by a competitor. Other laboratories will doubtless reproduce the experiments.

As they prove their potential, these new technologies will change most of what is presently believed about energy. To learn more: www.chavaenergy.com Look under the heading: HOW?

[kburlz]

The haters would be complaining just the same if unemployment were 15%, the DOW was at 4000, the economy was still shedding 700,000 jobs a month, and GDP was declining at 10% a quarter. Even if the economy were growing right now, they would say it wasn't fast enough. The recovery is going faster than expected and Obama doesn't get enough credit.

There is a lot to be excited about in the substance of the stimulus too. It's not just highway projects. We are laying the groundwork for a modern powergrid that wil phase in the use of wind energy, and laying the tracks for high-speed rail.

[wanttruth]

Good post.

[Rule Of Law]

What recovery? The one propping up the zombie bank?

There will be no recovery in this country until there are jobs and an industrial base to support them. All those numbers are just that--numbers, meant to act as PR for programs that have yet to help main street. Yesterday's article said less than 6% of homeowners have been helped under any of the bailout programs so far, yet the Wall Street banks posted record income.

Same old same old...

[CupOJoe]

I have been unemployed for quite some time, and have been using the time I've had to take a course in IT at the local branch of Chicago's City College. Because I am indigent, scholarships have paid for pretty much all of it. That wasn't Recovery Act money, that was something Chicago has been doing for a long time.

But even my certificate would have been almost meaningless in this job market if it weren't for the Recovery Act. Through it, grant money was approved and I will soon be starting work as a teacher for the City Colleges, making more money than I have ever made before in my entire life.

RA money has been slow to trickle down to where it's needed because it has to go through several layers of state and local bureaucracies, many of which aren't really sure what they need to do with it, or even how to tap into it, having never gotten such a windfall before.

But I am grateful, because it will, like such programs are supposed to, make an immediate impact in my life. I have a future now, something I didn't have a couple of years ago.

[THORYOU]

In the bay area all i see is just one recovery act and that is at the SFO.

[sharonsj]

I live in Pennsylvania. Everywhere I drive I see road projects. But to my mind the only beneficiary is the PA dept of transportation. So what if I have a smoother road to drive on? I still can't afford to go anywhere.

Unemployment is really 16%. At least a third of home sales are foreclosures; most homes being bought are for under $150,000 and I'm not sure who is buying anyway. (More speculators?) Amid talk of deflation (which is economist speak for lack of credit), we actually have inflation for all basic needs. Most people I know either can't find a decent job or live paycheck to paycheck.

Any talk of recovery, when we're on the verge of meltdowns in commercial real estate and adjustable rate mortgages, more outsourcing and layoffs, and rising taxes to offset states in the red, is not only premature but misleading. One last rant: were it not for the TARP bailout, the wars in Iraq and Afghanistan, and our disgusting military budget, the government could have given all of us health care.

[KHAAANNN]

Let me rephrase this for all of our readers;
"ME, ME, ME, ME, ME, ME, ME, ME"
There.
One more thing about your "last rant"; NO Government "Gives" it's citizens ANYTHING. The Citizens have to DEMAND it and FORCE the Government, kicking and screaming, to acquiesce to their demands.

[jag97PC]

True, and right now the Left is forming a proletariat movement to move us toward socialism.

[den1953]

People don't care about the banks,stock market,or the Washington elite that includes Democrats,­Republican­s,Independ­ents,what they care about is how there going to pay bills,stay in there homes yes whether they rent or own,food,and last hope to God they or there family members don't get sick. What we need is to start making things again in America for Americans and not one American i can say with no doubt care about China or India what they do care about those two countries is to stop them from taking or jobs!

[betrayed1]

Jared, I hope you are reading all of these comments, as well as Arianna's post this morning. When the President wants to know why his poll numbers keep declining and why he isn't getting the benefit of 'improvements" in the economy, this is why. People are no longer willing to use the stock market as a barometer of the economy or the nation as a hole. Too many people understand that the rising stock marrket is simply a function of the massive liquidity thrown at it by the FED, combined with the massive subsidization of the large banks. If you want to turn Obama's poll numbers around (or Biden's, for that matter), stop proping up the banks. Make them pay for the all the hidden subsidies. When the public sees the SEC fine GE and Bank of America millions for lying about billions, they no it is a slap on the wrist and that the fix is in. Cosmetic action will not be enough. Start making the banks pay, and people will have more confidence that you are acting in their interests, as opposed to your friends and cronies on Wall Street.

[jag97PC]

Good point...

In addition, get rid of government waste to fund new reforms and programs. Fix the waste first, then we can talk about further taxtion.

Really people... if they collect more taxes, then fix the waste, do you really think the politicians will give us our money back?

[VotingPresent]

Speaking of benchmarks, why did unemployment go to 9.5% when you promised that with the stimulus program it would not go above 8%?

[xlntcat]

If you expect any economist to give an absolutely accurate prediction particularly in an unprecedented economic crisis, then you are going to be disappointed. They do not have crystal balls and it is rare indeed and based on pure luck, when any economists renders a percentage prediction that happens to be precise. As with most inexact sciences, predictions fall within a margin in error. Just so you will be expecting it, most forecasters believe that unemployment will exceed 10% prior to decline. There is a difference in a "promise" which no ecnomists would be foolish enoungh to make and a prediction.

[AnotherMcIntosh]

These numbers, of course, do not reflect actual unemployment.

Even with their "official" governmental numbers, the unemployment rate is exceeding Obama's announced expectations.

Ultimately, as unemployment compensation runs out for some of the unemployed, this may ultimately show that "official" unemployment has gone down or not increased further, but those without the ability to collect unemployment compensation will still be unemployed.

[kburlz]

But it's the same measurement of unemployment they have always used, meaning we are still less than the unemployment of '82 and still less than half the climax of the Great Depression. It's no small feat that unemployment has leveled off so fast.

[harveyr2]

Your bias is disturbing. Our congressman and president approved the largest pork bill in the history of this country. If they really cared about the people, the spending would have been front-end loaded, instead less than 20% of the money has been spent.

Recessions come and recessions go. To assert that any action that this administration took changed the direction of the "recovery" is pure fiction that can not be proven nor dis-proven.

[xlntcat]

What do you consider a "pork" bill? The president has all "pork" that congress tried to inject into the stiumulus removed When you go decades neglecting this country's infrastructure while spending bilions to build infrastucture in third world nations then you are going to pay consequences like bridge collapses, contaminated water lines, collapse sewer lines, and dangerous highway deterioration. I'd much rather spend money here than thousands of miles from here. Believing that the stiumulus should have been top loaded is total failure to accept the extent of the financial collapse and the unlikelyhood that rebound will occur in less that 2 years. The stiumulus was built on a concensus of economists across the spectrum. There were those who argued that it needed to be much larger which could still prove accurate but isn't relavant because a much larger bill would have not passed congress. No economists even in February was foolish enough to put their reputation on the line of front loading the stimulus which could have contributed to a second economic crash.

[wanttruth]

Well said.

[kburlz]

Not to mention all the fraud that would have been likely if too much money was thrown out at the beginning.

[betrayed1]

There was no concensus of all economists. This is the point that defenders of the stimulas package keep missing. The economists that got it right were not consulted about the stimulus package, and have been ignored by Obama.T he economists that actually had the foresight to see the crash before it came, those that warned agaisnt the crash, recognized that the problem was too much leverage and debt in the system. You don't get out of a debt driven recission by getting into more debt. When a crack addict is detoxing, do you help ease their pain by giving them more crack?

You can argue about the merits of individual projects in the stimulus plan. Some of them are very worthwhile, imo. But the so called recovery is an illusion. It is not sustainable, it is just borrowing from future demand, and will have to be paid for down the road.

[ChampLessFuzzy]

Very well said, xlntcat. Thank you.

[jrmarsh]

1/3 tax cuts that's pretty front loaded I'd say.

The Federal Government has procurement guidelines, that is the biggest factor in the slow initial pace of releasing the funds.

It should ramp up well within time for oh, I'd say 2010.

[mjtaylor22]

hey harvey Bush let the bottom fall out, obama is trying to keep the nation afloat so that the private sector can get bk on its feet and contribute to additional employemnt.

[overd0g1]

Either that , or *you're* looking at the wrong benchmarks. Of course, we'll all look only at the benchmarks that support our predetermined positions.