1. News & Issues
You can opt-out at any time. Please refer to our privacy policy for contact information.

Pros and Cons of Obama's Stimulus Package

By

Pros and Cons of Obama's Stimulus Package

Photo of Grand Canyon trail repair by volunteers aided by stimulus funds: John Moore/Getty Images

President Obama's stimulus package, the American Recovery and Investment Act of 2009, was passed by Congress on February 13, 2009 and signed into law by the President four days later. No House Republicans and only three Senate Republicans voted for the bill.

Obama's $787 billion stimulus package is a consortium of thousands of federal tax reductions, and expenditures on infrastructure, education, health care, energy and other projects.

This stimulus package was to jumpstart the U.S. economy out of recession mainly by generating two to three million new jobs and replacing decreased consumer spending.

(See specific Pros and Cons at page two of this article.)

Stimulus Spending: Keynesian Economic Theory

The concept that an economy would be boosted if the government spent large sums of borrowed money was first set forth by John Maynard Keynes (1883-1946), a British economist.

Per Wikipedia, "In the 1930s, Keynes spearheaded a revolution in economic thinking, overturning the older ideas... that held that free markets would automatically provide full employment as long as workers were flexible in their wage demands.

... During the 1950s and 1960s, the success of Keynesian economics was so resounding that almost all capitalist governments adopted its policy recommendations."

The 1970s: Free-Market Economic Theory

Keynesian economics theory receded from public use with the advent of free-market thinking which postulated that the merket works optimally when without government inteference of any kind.

Led by U.S. economist Milton Friedman, 1976 Nobel Economics Prize recipient, free-market economics evolved into a political movement under President Ronald Reagan who famously declared, "Government is not the solution to our problems. Government is the problem."

2008 Failure of Free-Market Economics

Absence of adequate U.S. government monitoring of the economy is blamed by most parties for the 2008 U.S. and worldwide recession.

Keynesian economist Paul Krugman, 2008 Nobel Economics Prize recipient, wrote in November 2008: "The key to Keynes’s contribution was his realization that liquidity preference — the desire of individuals to hold liquid monetary assets — can lead to situations in which effective demand isn’t enough to employ all the economy’s resources."

In other words, per Krugman, human self-interest (i.e. greed)occasionally must be prodded by government to facilitate a healthy economy.

Latest Developments

In July 2009, many Democrats, including some presidential advisors, believe that $787 billion was too small to bolster the economy, as evidenced by the continuing U.S. economic slump.

Labor Secretary Hilda Solis admitted on July 8, 2009 about the economy, "Nobody is happy, and the president and I feel very strongly that we have to do everything we can to create jobs."

Dozens of respected economists, including Paul Krugman, told the White House that an effective stimulus must be at least $2 trillion, in order to replace the drop in consumer and governmental spending.

President Obama, however, aspired for "bipartisan support," so the White House compromised by adding Republican-urged tax breaks. And hundreds of billions in desperately-sought state aid and other programs were chopped from the final $787 billion stimulus package.

Unemployment Continues to Climb

Unemployment has continued to climb at an alarming rate, despite passage of the $787 billion economic stimulus package. Explains The Australian News: "... only six months ago Obama was telling Americans that unemployment, then at 7.2%, could be held to a peak of 8% this year if Congress passed his $US787 billion stimulus package.

"Congress duly obliged and unemployment has galloped ahead ever since. Most economists now believe the 10% mark will be reached before the year is out.

"... Obama's jobless prediction would be out of whack by more than four million jobs. As it stands now, he has miscalculated by about 2.6 million jobs."

Slow to Spend Stimulus Funds

The Obama administration has stumbled in rapidly circulating stimulus funds back into the economy. Per all reports, as of the end of June 2009, only about 7% of approved funds have spent.

Investment analyst Rutledge Capital observes, "In spite of all the talk we have seen about shovel ready projects, not much of the money has actually made its way into the economy yet..."

Economist Bruce Bartlett explained in The Daily Beast on July 8, 2009, "In a recent briefing, CBO director Doug Elmendorf estimated that only 24 percent of all the stimulus funds will have been spent by September 30.

" And 61 percent of that will go to low-impact income transfers; only 39 percent is for high-impact spending on highways, mass transit, energy efficiency, et al. By September 30, only 11 percent of all the funds allocated to such programs will be spent."

Background

President Obama's stimulus package of $787 billion includes:

Infrastructure - Total: $80.9 billion, including:

  • $51.2 billion for roads, bridges, railways, sewers, public transportation
  • $29.5 billion for government facilities and vehicle fleets
  • $15 billion for other projects, including $7.2 billion for public broadband, wireless Internet access, $750 million to the National Park Service, $650 million to the Forest Service, and $515 million for wildfire prevention.
Education- Total: $90.9 billion, including:
  • $44.5 billion to local school districts to prevent layoffs and cutbacks, with flexibility to use the funds for school modernization and repair
  • $15.6 billion to increase Pell Grants from $4,731 to $5,350
  • $13 billion for low-income public schoolchildren
  • $12.2 billion for IDEA special education
  • $300 million for increased teacher salaries
Health Care- Total: $147.7 billion, including:
  • $86.6 billion for Medicaid
  • $24.7 billion to provide a 65% subsidy of COBRA healthcare premiums for the unemployed
  • $19 billion for health information technology
  • $10 billion for health research, National Institutes of Health facilities
  • $1.3 billion for medical care for military members, families
  • $1 billion for the Veterans Health Administration
  • $2 billion for Community Health Centers
Energy- Total: $61.3 billion, including
  • $11 billion funding for an electric smart grid
  • $6.3 billion for state, local governments to invest in energy efficiencies
  • $6 billion for renewable energy, electric transmission technologies loan guarantees
  • $6 billion for the cleanup of radioactive waste from nuclear power plants
  • $5 billion for weatherizing modest-income homes
  • $4.5 billion to modernize the U.S. electrical grid
  • $2 billion for manufacture of advanced car battery systems
  • $400 million for electric vehicle technologies
Housing- Total: $12.7 billion, including:
  • $4 billion to HUD for repairing, modernizing public housing
  • $2.25 billion in tax credits for financing low-income housing construction
  • $2 billion to help communities purchase and repair foreclosed housing
  • $1.5 billion for rental assistance and housing relocation
Scientific Research - Total: $8.9 billion, including:
  • $3 billion to the National Science Foundation
  • $2 billion to the United States Department of Energy
  • $1.3 billion for university research facilities
  • $1 billion to NASA
SOURCE: American Recovery and Reinvestment Act of 2009 BY Wikipedia
  1. About.com
  2. News & Issues
  3. Liberal Politics
  4. Economics & Taxes
  5. Obama Stimulus Package Pros and Cons - Pros and Cons of Obama's Stimulus Package

©2014 About.com. All rights reserved.