What is the American Recovery And Reinvestment Act

The American Recovery and Reinvestment Act of 2009 is a law passed by the U.S. Congress in response to the Great Recession of 2008. It is more commonly known as the stimulus package of 2009 or the Obama stimulus. The package included a series of federal government expenditures aimed at countering the job losses associated with the 2008 recession.

BREAKING DOWN American Recovery And Reinvestment Act

The American Recovery and Reinvestment Act (ARRA) called for a massive round of federal spending designed to create new jobs and recover jobs lost in the Great Recession of 2008. This government spending was intended to compensate for a slowdown in private investment in that year. Lawmakers began work on the bill months leading up to President Barrack Obama's inauguration in January 2009. Aides to the incoming president collaborated with members of the U.S. Congress, and a streamlined amendments process allowed for passage in the House of Representatives on January 28, 2009. The U.S. Senate passed its version on the 10th of February.

Fast-moving conference negotiations followed, and Democratic congressional leaders ultimately agreed to cut back the bill's spending in order to attract a handful of Republican votes. The final price tag of $787 billion represented the largest anti-recession spending package since World War II. President Obama signed the bill into law on February 17, 2009. 

Objectives of the American Recovery and Reinvestment Act 

Among the initiatives contained with ARRA:

  • Tax relief for families, including withholding reductions uo to $800 per family and a $70 billion extension of the alternative minimum tax.
  • Over $80 billion in infrastructure projects.
  • Health care expansion, including $87 in aid to states to help cover additional recession-related Medicare costs.
  • Over $100 billion in education spending, including teacher salary support and Head Start programs. 

Opinions on the Efficacy of the American Recovery and Reinvestment Act

Reactions to the ARRA were originally a mix of positive and negative and were predictably along partisan lines. Supporters felt that the stimulus spending was not sufficient to draw the national economy out of the recession. Paul Krugman, in a November 2009 New York Times op-ed, declared the ARRA an early success with its only failure being that it did not go far enough in reviving the U.S. economy. Krugman argued that the stimulus had helped reverse unemployment but was not robust enough to fuel further growth of gross domestic product in the years to come.

Opponents of the ARRA felt that the massive government spending would invariably be inefficient and hampered by bureaucratic obstacles. In a June 2009 Forbes magazine opinion article, economist Lee Ohanion argued that the economy was showing early but promising signs of recovery without the stimulus having yet taken effect. Ohanion asserted that governmental incentives to private spending and hiring would prove more powerful than flooding the economy with unearned dollars.

The lack of a conclusive counterfactual scenario makes evaluation of the ARRA difficult. It is impossible to say with certainty what direction the economy would have taken without the ARRA. Economic conditions have undoubtedly improved since the 2008 recession, but reasonable arguments can be made both in favor of and against ARRA's role in that recovery. This is especially true when the political background for the ARRA is taken into account.