What Is the American Recovery and Reinvestment Act (ARRA)?
The American Recovery and Reinvestment Act of 2009 (ARRA) was a piece of fiscal stimulus legislation 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 simply the "Obama stimulus." The ARRA package included a series of federal government expenditures aimed at countering the job losses associated with the 2008 recession.
- The American Recovery and Reinvestment Act of 2009 (ARRA) was a fiscal stimulus bill signed by President Barack Obama on February 17, 2009, to deal with the Great Recession.
- The Act consisted of $787 billion in spending (later raised to $831 billion) in tax cuts/credits and unemployment benefits for families; it also earmarked expenditures for healthcare, infrastructure, and education.
- ARRA was controversial at the time—with supporters and opponents falling mainly into political camps—and its role in ending the Great Recession remains debated to the present day.
Understanding the American Recovery and Reinvestment Act
The American Recovery and Reinvestment Act (ARRA) was a massive round of federal spending intended to create new jobs and recover jobs lost in the Great Recession of 2008. This government spending was to compensate for a slowdown in private investment in that year.
Lawmakers began work on the bill in the months leading up to President Barack 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 bill's 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.
Congress added to ARRA spending in subsequent budgets, eventually raising the total cost to $831 billion between 2009 and 2019.
Objectives of the American Recovery and Reinvestment Act
Among the primary initiatives introduced by the ARRA were:
- Tax relief for families, including withholding reductions up to $800 per family and a nearly $70 billion extension of the alternative minimum tax
- Over $120 billion in new spending on infrastructure projects
- Healthcare expansion, including $87 billion in aid to states to help cover additional recession-related Medicaid costs
- Over $100 billion in education spending, including teacher salary support and Head Start programs
Pros and Cons of the American Recovery and Reinvestment Act
Contemporary reactions to the ARRA were originally a mix of positive and negative, mostly predictably falling along partisan lines, but with a high degree of good-faith disagreement among economists as to the wisdom and expected results of massive fiscal stimulus.
Supporters felt that the stimulus spending was not sufficient to draw the national economy out of the recession. Economics professor and columnist Paul Krugman, in a November 2009 New York Times op-ed article, declared the ARRA an early success—"working just about the way textbook macroeconomics said it would"—with its only failing being that it did not go far enough in reviving the U.S. economy. Krugman argued that the stimulus had helped the economy to start growing again, with the gross domestic product (GDP) growing at a faster-than-expected rate at the time. However, the pace of GDP growth was not robust enough to reverse unemployment 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, "The $787 Billion Mistake," economist Lee Ohanian argued that the economy was showing early but promising signs of recovery without the stimulus having yet taken effect. Asserting "the economic arguments for ARRA were badly dated and erroneous," he insisted that government incentives to private spending and hiring would prove more powerful than flooding the economy with unearned dollars.
More than a decade later, the lack of a conclusive counterfactual scenario makes evaluation of the ARRA difficult. It is impossible to say with precision what direction the economy would have taken without the ARRA. Probably the most reliable way to do so is to compare the alternative economic projections used to justify the ARRA to the actual results.
Harvard economist Gregory Mankiw and others did just this by tracking the actual U.S. unemployment rate in the months following the Act’s passage against the rate projected by ARRA proponents at the President’s Council of Economic Advisers. This demonstrated that actual unemployment results under the massive stimulus greatly exceeded both the baseline “no-stimulus” scenario and the lower projections that purported to show the expected benefits of the massive new federal spending. This suggests that the ARRA may have actually dramatically increased unemployment rates and helped delay the economic recovery.
Economic conditions in the U.S. have improved since the 2008 recession, but the post-Great Recession can be best characterized as an L-shaped recovery. Real GDP took four years to recover the losses from the recession and unemployment took nearly eight years to recover.
2020 and early 2021 brought a new wave of challenges and a new group of massive government stimulus plans as the U.S. government has contended with the impact of the pandemic. The crisis led to a jump in unemployment rates, the closure of many small businesses, and a hit to GDP. But the economy has begun to recover, as of the first quarter of 2021, in part due to the impact of major government stimulus packages, including the CARES Act of 2020, and the Consolidated Appropriations Act, 2021.