1. The American Recovery and Reinvestment Act of
2009
Matthew Gerak
Kim Christensen
Economics
3/12/14

2. The reasons for the 2008 financial crisis are varied and there exist many differing
viewpoints and opinions. It is generally agreed upon that risky government policies, loose
banking regulations and the failure of various financial institutions are the main causes of the
Great Recession. In presenting this explanation, several specific topics will be covered that
many academics agree are important in explaining the crisis. These topics include: the
macroeconomic policies that relate to the subprime crisis, the subprime crisis itself, the failure
of large banks to mitigate risk, the failure of financial ratings agencies, the fall of real GDP in the
American economy, and the credit and debt crisis.
The stage for the 2007-2008 Financial Crisis was set much earlier on in the late 1990s
and early 2000s. The government made many important policy decisions at this point that
allowed for chances of increased risk in the financial system. Peter J. Wallison, a former general
counsel of the U.S. Treasury and now a fellow at the American Enterprise Institute (AEI) notes
that, “Starting in the late 1990s, the government, as a social policy to boost homeownership,
required Fannie Mae and Freddie Mac to acquire increasing numbers of “affordable” housing
loans.”1An affordable housing loan is made to people who would normally not be in good
enough financial standing to secure a regular mortgage. Another key policy decision of congress
under the guidance of economists and policy advisors such as former Fed Chairman Alan
Greenspan, former Treasury Secretary Robert Rubin, and former Assistant Treasury Lawrence
Summers to allow the massive derivatives market to continue unregulated. There was a highly
publicized battle between the head of the Commodity Futures Trading Commission Brooksley
1 Rahn, Richard W."What Caused the Financial Crisis." Cato Institute. N.p., n.d. Web. 12 Mar. 2014.

3. Born, who pushed for regulation of the derivatives market, and the policy advisors who
eventually quieted Brooksley Born’s opinion and convinced congress to let derivatives continue
unregulated. 2Key derivative products in the housing bubble, as will later be expanded on, were
collateralized debt obligations, which include mortgage-backed securities, and credit default
swaps. CDOs are futures product that investors buy from, for the most part, investment banks
where the value of the security is derived from the future cash flows of a fixed income stream
such as that of a mortgage (MBS) for example, or a car loan. These fixed income products are
packaged together and sold to investors. These two policy decisions by the government
brought in a period of an extraordinary rise in housing prices and excessive leverage by financial
institutions. 3The fact that so many houses were being purchased drove the prices of houses up
132 percent starting from the first quarter of 1997 to the top of the housing bubble in the
second quarter of 2006. 4
The policy of subprime lending coupled with other factors such as low mortgage interest
rates, low short term interest rates, and irrational exuberance led to the record high housing
prices in the bubble. Low mortgage interest rates were caused by foreign investors investing in
mortgage-backed securities through the government-sponsored enterprises Fannie Mae and
Freddie Mac. At the time, mortgage-backed securities were thought to be very low risk. This
was a general sentiment that was propagated by the historical low risk of mortgage default,
ratings agencies such as Moody’s, Standard & Poor and Fitch, and the understanding that these
2 Carney, John. "The Warning:Brooksley Born's Battle With Alan Greenspan, Robert Rubin And Larry Summers."
Business Insider. Business Insider,Inc,21 Oct. 2009.Web. 12 Mar.2014.
3 "The Leverage Ratio." World Bank. N.p., n.d. Web. 11 Mar. 2014.
4 Holt, Jeff. "A Summary of the Primary Causes of the HousingBubble." The Journal of Buisness Inquiry. N.p., n.d.
Web. 11 Mar. 2014.

4. GSEs were government-backed and U.S. banks were regarded as “Too Big to Fail”. Many
investors thought their investments were safe. This influx of foreign savings caused mortgage
interest rates in the U.S. to trend lower than 6 percent, which was lower than anyone had seen
in years. Investors desired these low rates and understandably purchased houses. The short-
term interest rates were completely caused by the Fed. The U.S. had been in a recession after
the bursting of the dot-com bubble in 2001. The Fed pushed the federal funds rate lower in
order to stimulate growth and bring the U.S. out of recession. The low rates increased the use
of adjustable-rate mortgages which allowed homes to be available for more buyers and also
encouraged investors to increase leverage by borrowing at lower short-term rates to increase
future returns. A third reason for the housing bubble is based on the theory of irrational
exuberance. This was first proposed by Richard Schiller, an academic economist who serves at
Yale’s School of Economics and the National Bureau of Economic Research. In his words,
irrational exuberance is “a heightened state of speculative fervor. 5This is present in most
bubbles. Investor sentiment and investor psychology gets involved and can cause people to
make assumptions and take on risk that they normally would not. This affected all facets of the
housing market during the bubble. Regular people that would not normally be able to afford a
house became convinced that they could invest by subprime lenders and the government
encouraging them. Subprime lenders, as the regulation of the mortgage market by the
government was decreased, started to push bad mortgages on unsuspecting buyers because of
the insane profits they were making. These Subprime lenders were not focused on the large
scale effects that their actions were going to cause in the economy. Some of this was predatory
5 Shiller,Robert J. Irrational Exuberance. Princeton, NJ: Princeton UP, 2000.Print.

5. lending as in the case of Countrywide, but most of it was probably due to the culture of the
housing bubble.6 Investment bankers then realized that they could make profits off of the
housing bubble by packaging the mortgages into mortgage-backed securities and collateralized
debt obligations that were traded on the open market. The last extension under irrational
exuberance was the insurance companies, such as AIG, who were profiting by insuring these
debt obligations through credit default swaps. A credit default swap is “a swap designed to
transfer the credit exposure of fixed income products between parties.” 6 In this case, the
investment banks insulated their risk of the MBSs and CDOs by swapping the liability of a
defaulted loan to the insurance companies. This chain of activities that transferred risk from the
housing market to the financial institutions and insurance companies was creating record
profits in the financial industry. It is no wonder that investors, lenders, bankers, credit rating
agencies, and insurance companies were all participating in these risky endeavors. The
government was affected by irrational exuberance in their many policy decisions that lessened
the bank deposit ratios and deregulated to some extent the housing and financial industry. Jeff
Holt explains this phenomenon and its relation the housing bubble perfectly:
This almost universal assumption of rising home prices led the participants who
contributed to the housing bubble to make the decisions that caused the bubble.
Government regulators felt no need to try to control rising home prices, which they did
not recognize as a bubble. Mortgage lenders continued to make increasing numbers of
subprime mortgages and adjustable rate mortgages. These mortgages would continue
to have low default rates if home prices kept rising. Investment Bankers continued to
issue highly leveraged mortgage-backed securities. These securities would continue to
perform well if home prices kept rising. Credit rating agencies continued to give AAA
ratings to securities backed by subprime, adjustable rate mortgages. These ratings,
again, would prove to be accurate if home prices kept rising. Foreign investors
6 "Attorney General Brown Announces Landmark $8.68 Billion Settlement with Countrywide." Home. N.p., n.d.
Web. 12 Mar. 2014.

6. continued to pour billions of dollars into highly rated mortgage-backed securities. These
securities also would prove to be deserving of their high ratings if home prices kept
rising. Insurance companies continued to sell credit default swaps (a type of insurance
contract) to investors in mortgage-back securities. The insurance companies would face
little liability on these contracts if home prices kept rising. Home buyers continued to
purchase homes (often for speculative purposes) even though the monthly payments
would eventually prove unmanageable. They assumed that they would be able to “flip”
the home for a profit or refinance the loan when the adjustable rate increased. This too
would work if home prices kept rising. 1
Basically, the economy was efficient and all the people responsible for the housing bubble were
gaining large profits under the assumption that home prices would keep rising. This was a
reasonable assumption considering that home prices had not fallen in one year since the Great
Depression.1 Everybody in the process was happy, that is, until the housing market crashed.
Home prices peaked in the second quarter of 2006. After that, it became a downward spiral
that put homeowners on the street and mortgage lenders out of business. The housing market
became saturated. Due to foreclosures and the amount of new homes built, the supply of
homes available was greater than the quantity of homes demanded and this caused prices to
fall. In a normal situation, this would probably hurt the economy due to the halt of
construction, which is an economic indicator that affects GDP and the loss of wealth by
homeowners. 4 The bursting of this bubble, however, had many unpredicted, yet important
effects within the economy. The relation between the previously mentioned stakeholders in the
housing bubble created a doomed situation that kept gaining increasing negative momentum
as the effects of the housing market crash continued to effect investment. For the most part,
this was due to leverage. By the time the subprime crisis hit the investment banks around the
time of the sale of Bear Stearns and bankruptcy of Lehman Brothers near the middle of 2008,
the banks were helpless. Their heavy investments into mortgaged back securities were

7. worthless after the massive amounts of foreclosures became massive losses for banks. The fact
that some companies were leveraged 30 or 40 to 1 increased the losses to the point where
many banks, insurance companies, and lenders could not recover and had to either be bailed
out, bought up, or declare bankruptcy. 3 They spent money that they did not have and when
asset values dropped even a small amount, the institutions were declared to be in a lot of
trouble. This network of banks and other financial institutions discussed has come to be known
as the shadow banking system. It is referring to many investments that were financed
alternatively with short term loans called repurchase agreements that primarily used mortgage-
backed securities as collateral instead of a traditional bank loan. This systemwas financed by
the network of institutions mentioned above, but mostly by the highly leveraged investment
banks. When the mortgage-backed securities went bad, they could not be used to finance
investment and banks raced to dump these toxic assets off their balance sheet in fire sales in
exchange for liquidity. Fire sales usually cause an extreme decrease in asset prices and this
further weakened firm balance sheets due to the losses they incurred. This is a big reason for
the stock market crash in 2008. Investor uncertainty and irrational exuberance also played a
role. Stock prices declined by over 50 percent from October 2007 to March 2009. Banks
become unwilling to lend to each other, fearful of looming bank failure and insolvency,
especially around the time of the Lehman Brothers failure on September 15, 2008. The days
following was the culmination of an extremely uncertain period in the market starting from
around the time Bear Stearns had been sold to J.P. Morgan in March 2008 for $2 per share, a
mere 5 percent of its value a year earlier. Merrill Lynch, Fannie Mae, Freddie Mac, and AIG
were big names among others that either were either sold off or received government relief

8. around this time period. These were some of the world’s largest financial institutions and they
were failing. Liquidity was desired in this time period, but it was hard to acquire. Credit froze up
as banks rushed to deleverage. The ascending interest rates and tightened credit standards
manifested itself in lowered consumption and investment in the economy. Late 2008 is the time
period when GDP took a big hit as there was very little investment happening in the wake of the
Lehman bankruptcy. Real GDP in the U.S. fell by -1.3% in the third quarter of 2008, -5.4%
percent in the fourth quarter of 2008, and -6.4% in the first quarter of 2009. The government
was alarmed and it decided to take major steps to relieve the credit crisis so the economy did
not completely stop. At one point General Electric, a financially healthy company that was not
involved with the housing crisis, was having trouble financing its day-to-day operations because
it could not get credit. This gives one an idea of the scope of this credit crisis.
The government had never experienced a recession of this magnitude before. They knew that
if action was not taken, the American economy could collapse. Key decision makers at this time
period were President George W. Bush, Treasury Secretary Henry Paulson, Fed Chairman Ben
Bernanke, and President of the New York Fed Timothy Geithner. Paulson took action after the
fall of Lehman Brothers, pushing the Troubled Asset Relief Program or TARP through congress.
TARP was implemented in October of 2008 as part of the larger Economic Recovery Act and
forced $700 billion into troubled financial institution, either as capital injections or as a way to
buy subprime mortgage assets. The government also used billions of dollars to bail out the
major financial institutions AIG, Bear Stearns, Fannie Mae, and Freddie Mac. These actions were
highly criticized, but they did successfully stop imminent economic collapse. These were
immediate measures. Afterwards, there were greater and more permanent steps taken to bring

9. the economy out of recession, such as the Economic Recovery Act, FDIC measures, and fiscal
stimulus.
After the worst effects of the crisis hit, everyone wanted to know what had happened.
Many blamed greedy investment bankers or predatory lenders. One factor that many
academics believe played a big role is the more general macroeconomic concept of moral
hazard. Moral hazard encompasses the use of leverage to finance risky investments in the belief
that the creditors will be bailed out by the government. Starting in the Reagan Administration
in the 1980s, financial markets have become increasingly deregulated in one way or another.
The monetary policy leaders at the Fed from back then continuing through to more recent Fed
Chairmen Alan Greenspan and Ben Bernanke tend to influence regulatory and monetary policy
in a way that increases profitability and causes asset bubbles.7 An article, “Gambling with Other
People’s Money” exposes an example of risk taking that was not commonly seen throughout
previous history:
If you think that Uncle Sam will cover your friend’s debts . . . You will worry less and pay
less attention to the risk-taking behavior of your gambler friend. You will not take steps
to restrain reckless risk taking. You will keep making loans even as his bets get riskier.
You will require a relatively low rate of interest for your loans. You will continue to lend
even as your gambler friend becomes more leveraged. 8
7 Mishkin,Frederic S. The Economics of Money, Banking, and Financial Markets. Reading, MA: Addison-Wesley,
1998.Print.
8
Roberts, Russell. "Mercatus Center." Gambling with Other People's Money. N.p., n.d. Web. 12
Mar. 2014.

10. The government has had a reputation for directly bailing out or orchestrating a free market
solution for failing banks such as Continental Illinois, countries such as Mexico, and other
financial institutions such as Long Term Capital Management. 8 This has obviously become a
much bigger problem now. Creditors have smartened up and realized, like in the above quote,
that “Uncle Sam” will make sure they receive 100 cents on the dollar for basically every loss
they could have possibly incurred. A staggering statistic; “Between 1979 and 1989, 1,100
commercial banks failed. Out of all of their deposits, 99.7 percent, insured or uninsured, were
reimbursed by policy decisions.” 8That means that there is no risk when larger organizations
invest large sums of money. Taking the risk out of markets will systemically cause investors to
make bad investments, while they receive the low fed funds rate instead of receiving a higher
interest rate that should be given on a riskier investment. It essentially causes institutions to
“gamble with other people’s money” as they become careless with their investments. The
current systemis one that preaches a privatization of gains and socialization of losses. This
statement means that when companies, or more specifically investment banks, make a good
investment, the profit is all theirs; but when these same banks completely destroy themselves
financially, the government and taxpayers must pay. This can be plainly seen through the
historical examples stated above or the more recent 2008 examples of the nationalization of
the government-sponsored enterprises – Fannie Mae and Freddie Mac or the bailout of Bear
Stearns, AIG, and many other financial institutions. The problem of moral hazard is mostly
government created. It does not make sense to say that people and bankers have become
greedier over time. It seems that they were allowed and even encouraged by the government

11. and others around them to leverage themselves up and continue to make increasingly risky
investments. This was a process that took years.
The Stimulus Package
In a direct effort to counter the Great Recession, President Barack Obama signed the
American Recovery and Reinvestment Act of 2009 into law on February 17, 2009. The bill called
for a stimulus package of 787 billion dollars to instigate activity within our economy. The goals
were to create jobs and save existing ones, jumpstart current economic activity and long-term
growth, and provide accountability and reports for where all the money was going.9 The money
was going to be used for direct tax cuts for millions of working families and businesses, funding
for entitlement programs to directly benefit the public, and funding for legal contracts, grants,
and loans. 2
An important aspect of the stimulus package was the evident focus on keeping
transparency in the use of the allocations. This would then decrease corruption and keep the
public informed and aware concerning exactly how the government was using the money. The
government set up a board, The Recovery Board, with one trustee and eleven general
inspectors to enforce the accountability of the money. Their job was to make sure the money
was being distributed in a fair manner, being used for authorized purposes to prevent fraud,
and that it was used in the most efficient manner to cut out waste of allocations and time. The
board needed to make sure that the money was being used with respect to legal laws and
9 "Recovery.gov." The Recovery Website. N.p., n.d. Web. 11 Mar. 2014.

12. administrative constraints. The board was open to receiving public opinions on the use of the
stimulus package:
From February 2009 to August 31, 2013, the Inspectors General have reported 4,388
complaints of wrongdoing associated with ARRA funds to the Recovery Board.
· 1,625 have triggered open investigations
· 1,097 cases were closed without action
In that time, the Inspectors General have also completed 2,975 reviews of activity
involving ARRA funds, many of which have resulted in recommendations to the
agencies for improving the management of these funds. 9
The board accepted public opinions and viewpoints about how the money was being used. The
fact that the government was making sure that they were open to public opinion demonstrates
transparency in the whole act. Reports were released to the public to inform them of the
specific details of where the money was being used:
Entities receiving ARRA awards (”recipients”) are required to report quarterly on the
awards. The reports include data on award amounts, funds received and
spent, descriptions of the projects, jobs funded in the quarter, and the completion
status of the projects. All the recipient funding data is cumulative; however, the job
numbers are the one quarter only. Recipient data is updated on the 30th of January,
April, July, and October. 9
These reports directly supported the idea of transparency in the allocations. Every last dollar
was reported and nothing was held back from the public. Our ability to see where the money
was going gives us direct knowledge of the Act and increases the value of the public opinion. A
lot of legislation doesn’t have a board backing it with a main goal of providing the public with
the specificities and details of that piece of legislation. This may cause uncertainty in public
opinion and lead to a lack of trust in the government.

13. Fiscal Policy
Fiscal policy was used via the American Recovery Act, along with monetary policy
carried out by the Fed. Fiscal policy mainly focuses around altering taxation and government
spending to either raise or decrease economic activity depending on the state of the economy
at the time. If the economy was in a recession, like it was in 2009, the government would give
tax cuts and increase spending to stimulate the economy. If the economy is typically stable or
booming, the government could keep taxes the same or raise them and decrease their
expenditure and use it to pay off national debts. The economy would not be in need of a
“jumpstart”. There are multiple effects in the economy caused by altering taxes and
government expenditure:
· A change in aggregate demand
· An ability to alter output depending on AD
· Allocations in the private and public sectors
· Distribution of income 10
Automatic stabilizers are a form of fiscal policy that take effect depending on the stability of the
economy. For example, unemployment benefits provide struggling citizens with extra money to
use to help stimulate our economy. Also, taxes (income, sales, corporate) generally fall during a
10 Fiscal Policy." : The Concise Encyclopedia of Economics. N.p., n.d. Web. 12 Mar. 2014.

14. recession due to the progressive nature of our economy’s income tax system. Basically, there is
a positive correlation between incomes and tax rates for households and businesses. As
incomes rise, tax rates also rise and as incomes fall, tax rates tend to fall. Automatic stabilizers
kick in on a cyclical schedule. These programs and changes in tax rates come into effect
depending on the state of the economy. They do not need to be directly implemented through
legislation at that specific time. This is a type of fiscal policy that naturally exists due to the
varying stability in the economy at any given time.
Monetary policy deals with the amount of money being supplied and the rate at which it
is being supplied. The Federal Reserve is our central banking system and it was created in 1913
due to instability caused by the banking system at that time, specifically the banking panic of
1907.2 The Federal Reserve is the medium in which monetary policy is prescribed. The Federal
Reserve’s three main goals are to:
· Maximize employment
· Stabilize prices
· Induce moderate long-term interest rates 11
The Fed is able to reach the previous three goals using three tools, the discount rate, open-
market operations, and reserve requirements:
The Fed cannot directly control inflation, output, or employment, nor can it set long-
term interest rates. It affects these vital economic variables indirectly, mainly through
11 "Federal Reserve Education." Federal Reserve Education. N.p., n.d. Web. 11 Mar. 2014.

15. its control over the federal funds rate. All depository institutions, including banks, credit
unions, and thrifts, are required to hold minimum reserve balances in accounts at
Federal Reserve Banks. The federal funds rate is the interest these institutions charge
one another for overnight loans of reserves, balances that are sometimes needed to
meet minimum requirements. Fed monetary policy actions alter the supply of reserves
in the banking system. When more reserves are available in the banking system, the
federal funds rate goes lower, reflecting an excess of supply over demand. In this way,
the Fed is able to keep the federal funds rate close to its target. Changes in the federal
funds rate are intended to cause changes in other short-term interest rates. Indirectly,
the federal funds rate also affects long-term interest rates, the total amount of money
and credit in the economy, and ultimately, employment, output, and inflation.11
“Tight” or “contractionary” monetary policy is used to raise the federal funds rate in order to
keep inflation stabilized. “Expansionary” or “accommodative” monetary policy is used to lower
the federal funds rate in order to combat a recession.
The Cato Institute’s Viewpoint
The Cato Institute is a public policy research organization that was founded in
1977.12The name originated from a series of letters called Cato’s letters:
A series of essays published in 18th- century England that presented a vision of society
free from excessive government power. Those essays inspired the architects of the
American Revolution. And the simple, timeless principles of that revolution — individual
liberty, limited government, and free markets – turn out to be even more powerful in
today’s world of global markets and unprecedented access to information than
Jefferson or Madison could have imagined. Social and economic freedom is not just the
best policy for a free people; it is the indispensable framework for the future.12
The principles of that revolution -individual liberty, limited government, and free markets- are
central to the themes of Cato Institute’s research. Cato’s researchers do a wide range of studies
surrounding policy issues. “The mission of the Cato Institute is to originate, disseminate, and
12 "About Cato." Cato Institute. N.p., n.d. Web. 12 Mar. 2014.

16. increase understanding of public policies based on the principles of individual liberty, limited
government, free markets, and peace. Our vision is to create free, open, and civil societies
founded on libertarian principles.”12 They try to focus on exposing the fact that they are an
independent think-tank that does not take influence from any specific political parties,
originations, or outside influences. They want to convey information to the public with a clear
conscience and do not let anything sway the truth of this information. The Cato Institute is
entirely privately funded. It receives eighty percent of its funding through tax deductible
contributions from individuals and the other twenty percent from foundations, corporations,
and profits from sales of its own books and publications. (Cato Organization footnote)
The Cato Institute was openly critical of the American Recovery and Reinvestment Act of
2009. Their stance towards the stimulus package was consistently evident throughout their
publications in the years following the ARRA. Throughout multiple articles, the Cato Institute
has criticized the ARRA and has showed that they are against the idea of increasing government
spending. The Obama administration turned to a lot of different economists to figure out the
specific details of the ARRA. The administration needed to take a wide range of opinions into
consideration and figure out the best possible prescription they could take to try and aid the
struggling economy. The Cato Institute published an article in The New York Times saying that
government spending was not going to work and this article was signed by over 200
economists, including three Nobel Prize winners.13 According to the Cato Institute, this letter
should have given the Obama administration a sense of the unanimity among credible
13 Young, Andrew T. "Why in the World Are We All Keynesian Again?" Cato Insitute. N.p., n.d. Web. 11 Mar. 2014.

17. academic economists. Instead, they looked past the message this article tried to send and went
with a large stimulus package. This stimulus package was based on a “multiequation
macroeconomic forecasting model, one in-consistent with the best practice of modern
macroeconomics.”5The Obama administration completely disregarded the works of Robert
Lucas, who is a Noble Prize winner in Economic Sciences and an economics professor at the
University of Chicago. 14 Robert Lucas’s work devalued the use of macroeconomic models for
policy prescription.
In, “Why in the World Are We All Keynesians Again? The Flimsy Case for Stimulus
Spending” Andrew Young states that there is no consensus that fiscal spending is at all
effective.5 This article focuses on the fiscal multiplier. The fiscal multiplier reveals how much
private spending will result from a specific economic stimulus. If the multiplier is above one,
then one dollar in government stimulus will result in more than one dollar in private spending.
If the multiplier is below one, then one dollar in government stimulus will result in less than one
dollar in private spending. The marginal propensity to expend is the amount of money that will
be spent instead of saved from one more dollar of income. This can be plugged into the
following equation to figure out how much resulting stimulus will come from government aid
(the fiscal multiplier):
14 "University of Chicago:Department of Economics." University of Chicago Department of Economics. N.p., n.d.
Web. 12 Mar. 2014.

18. The Marginal Propensity to Expend is typically high: “Most U.S. citizens spend more than
80 percent of the income that they receive. U.S. personal savings rates are actually quite low,
so the marginal propensity to expend is likely to be quite high.” 13 In reality, if the Marginal
propensity to expend is .8, then the resulting fiscal multiplier should be five. Typically in the
U.S., the fiscal multiplier doesn’t exceed two. 13 This would in turn mean that the Marginal
Propensity to Expend would be .5 and that would mean that there were large faults in the
spending stream. In conclusion, there must be other factors that create decreases in levels of
investments and personal expenditures, and the Keynesian Model for the fiscal multiplier has
other variables that need to be added to this simple equation.13
The Ricardian Equivalence can possibly be used as one explanation for why the fiscal
multiplier is so low. It was put forth by Robert Barro in the 1970’s. 13 It revolves around the
thought that people realize that we are going to eventually have to pay out of our own pockets
in tax dollars for any kind of raise in government spending. This government spending is
originally used to increase the aggregate demand through the multiplier. The only problem,
according to the Ricardian Equivalence, is that rational tax payers take this growing government
debt into consideration. These tax payers start saving the money from their increased income
and in the end, the “responsibility” for this government stimulus ends up canceling out the
original intended effects of it. Robert Barro didn’t think the fiscal multiplier was actually at zero
following the ARRA, but his most appropriate idea had placed it at around .4 to .6.13This means
that for every dollar the government was spending, the result was only a forty to sixty cent
raise in aggregate demand. Basically, this means that the stimulus package was completely

19. counteractive. The government was spending money that was resulting with an even worse
outcome.
“Crowding out” is a term that can also be used to define another problem with
government stimulus. This term goes hand in hand with the Ricardian Equivalence but deals
with interest rates instead of taxation:
When the federal government pursues spending in excess of its current tax revenues, it
has to turn to financial markets and compete with private borrowers for funds. The
increased demand for funds will, all else equal, put upward pressure on interest rates,
making borrowing more costly. By raising the cost to private borrowers—both
individuals and businesses—government deficit spending tends to crowd out private
investment expenditures and consumption expenditures that are sensitive to interest
rates.13
The government is raising the interest rate by borrowing money and this leads to a direct
decrease in private investment. Private saving carries an inverse relationship to private
investment. The return on savings will be much higher, so people tend to put their money in
the bank. This also leads to a decrease in private expenditure. 13
The next problem that I am going to focus on revolves around specific “slack” within
different regions of the country. The “Great Recession” was an evident time of economic
struggling throughout the country yet some areas were slacking worse than others. The
standard textbook model of the Keynesian function relays that fiscal stimulation is perceived as
a shift of aggregate demand along the short-run aggregate supply (SRAS)
(Curve:http://www.harpercollege.edu/mhealy/eco212i/lectures/ch12-18.htm) Site

20. The short-run aggregate supply curve relays a firm’s willingness to produce goods and services
at a specific price. 13As the economy reaches full employment, the slope of the curve increases
and approaches vertical. 13 This means that when the economy is operating at full employment,
an increase in aggregate demand will result in inflation instead of higher production. When the
slope of the curve is much flatter, this means that there is slack in terms of production and
labor. The following assumption is that an increase in aggregate demand will work efficiently in
the sense that it will raise the levels of production. If we take the previous Keynesian model
into consideration, it should have given considerable reasoning as to where the allocations of
the ARRA should have gone. The recession didn’t affect all the regions of our country equally.
Some areas were struggling worse than others. The allocations should have gone to areas with
the lowest levels of production based of the principle of “slack”. The allocations also failed to
go out to areas with high levels of MPS. This means that the money was not being put into
places where it had the highest chance of being spent. One of the major indicators of which
states landed higher allocations depended on their previous grants from the government.13This
means that areas that typically received large amounts of federal funds before the ARRA
tended to receive large allocations from the ARRA. The conclusion that the Cato Institute draws
from the three previous facets of reasoning for funding is that the money did not go out to the
correct areas. The truth of the matter is that the allocations from the ARRA may have been
dispersed based a little too heavily on political reasons when they should have been based off
of the concrete laws or reasoning that I focused on previously.

21. One of the main arguments in favor of the ARRA is that the stimulus helped the economy
from going farther down into a worse recession and possibly heading into a depression. Young’s
article states, “Fiscal stimulus may get us a period of weak growth and employment in exchange
for one where we plunge into a deep depression.”13 Basically, the ARRA kept the economy at a
standstill during a period of such blunt downfall. The main problem with this argument may
simply be put as one of timing, statistics, and fluctuating opinions. The stimulus package resulted
directly from the need to fix the economy; it came as a result of certain macroeconomic variables
and this would be considered as an exogenous event. 13 The fact that it came as a result of these
variables makes it hard to distinguish its resulting effects on these variables. The combination of
time and statistics also makes it very difficult to tell what the effects of the ARRA are. Specifically,
these macroeconomic variables change course over time for multiple ambiguous reasons and
collecting a specific set of data cannot surely pinpoint these reasons. Yes, there are major
economic indicators that can give us very valuable information about the ups and downs
throughout the economy, but these are a given. Economists often need to look deep into highly
precise cause and effects, and this can be extremely difficult when adding the factors of time and
statistics. Different economic opinions, outlooks, and political backgrounds often add to the
difficulty of pinpointing concrete reasoning for certain permutations in macroeconomic variables.
As I stated in the previous paragraph, political power may have had a heavy effect on the way
government officials interpreted the economy before the ARRA and even after it. For example,
economist A can look ata fallin GDP and givecertain reasoning while the economist sitting across
the table will look at this same fall in GDP and give a completely different reason for it.

22. One major problem with statistical information is what economists like to call shocks.
“Economists refer to such changes as shocks since they arise from outside of the specific system
of variables that one wants to analyze. Tracing out the effects of such shocks to government
spending is the ideal way to estimate the government spending multiplier. But identifying such
shocks is easier said than done.” 13 Countercyclical policy is put into effect when economic
stimulus is used to stimulate an economy that is heading in the opposite direction.
Countercyclical policy has an inverse relationship the natural tendency of the current economic
cycle. Countercyclical policy and shocks both have an exogenous relationship to the business
cycle.This previous statement sums up why it is sohard to efficiently study the economy and find
“clean” macroeconomic variables that unmistakably allow us to prescribe the “problem” in our
economy.
The Economic Policy Institute’s Viewpoint
The Economic Policy Institute is a non-partisan, non-profit think tank that was created in
1986 to extend economic policy to include the needs of low and middle income workers. 15
“EPI believes every working person deserves a good job with fair pay, affordable health
care, and retirement security. To achieve this goal, EPI conducts research and analysis on
the economic status of working America. EPI proposes public policies that protect and
improve the economic conditions of low- and middle-income workers and assesses
policies with respect to how they affect those workers.”
15 Bivens, Josh."Public Investment: The Next New Thing for Growth." Economic Policy Institute. N.p., n.d. Web. 11
Mar. 2014.

23. The EPI is an economic think-tank with a specific focus on the lower and middle working
class. The Economic Policy is generally regarded as the first institute to specifically conduct
research pertaining to those classes. They have done a lot of research surrounding the great
recession and the vast effects it has had on these classes. The EPI is highly approved of and
credited by a largenumber of economic policy makers and academic economists. Their works are
published in prestigious academic journals and used throughout national media and state
research organizations. Their works reflect originalacademic thoughts, ideas,and arguments that
have been directly supported through research done by their renowned staff.
“Our team includes the best minds in economics and other disciplines. Our broad
network of researchers and scholars has made EPI the authoritative source on the
economic well-being of working Americans. EPI’s staff includes nine Ph.D.-level
economists, and a number of other experts with advanced degrees in Sociology, Public
Policy, and Law. Our staff also includes ten policy analysts and research assistants, and a
full communications and outreach staff.” 15
This staff is given immediate credit due specifically to their scholarly backgrounds. The EPI
focuses on giving generally liberal economic insight into various different sectors ranging
throughout microeconomic and macroeconomic variables. They look into education, taxes,
healthcare, international trade, globalization, immigration, jobs, wages, regulation, retirement,
to name a few. They start off by analyzing the lower and middle classes and then work on
formulating policy prescriptions based on this research.15
The EPI has had mixed reviews about the ARRA but they stand in support of the major
theme behind it: public investment. The ARRA was interpreted to have positive effects, as
opposed to the Cato Institute’s viewpoints, yet the major issue they have with ARRA is that it was
too small in size and it was spanned too short of a period of time. The EPI does feel as if the ARRA

24. had done good things when it was being carried out. They support the thought that public
spending is going to needed to be used continuously to fully carry the economy out of the
recession and back to a fully level state.
The EPI examines capital to be a nation’s greatest representation of wealth: “America’s
stock of human and physical capital, public and private, can be thought of as the most tangible
representation of the nation’s wealth.”715They then draw the following assumption that public
investment carries immense importance in the sense that it enhances specific sectors in our
economy such as education and infrastructure that eventually lead to a higher expectations,
productivity, and living standards. The conclusion is that public investment has a positive
correlation with the ongoing state of our nation’s economy. Private investment is also important
in these sectors yet the major difference is that public investment contributes to a wider range
of beneficiaries than private investment usually does. 7The EPI strongly reinforces the thought
that public investment has a strong correlation to the jobs markets and that it also contributes
to long-term productivity growth. They feel that this tradition of thought has faded in the past
couple decades due to a large increase in productivity growth that was attributed to an increase
in the private sector spending on information and communications technology (ICT) equipment.
15 Basically, public knowledge has lost the vision that the EPI feels should be so central to the
focus of our policy prescription.
“As of March 2012 the unemployment rate stood at 8.2 percent and had been at or above
this level since February 2009. Further, the pace of economic growth dropped to just above 1.7
percent for 2011, a rate far below the 3.0 percent GDP growth of 2010 and a pace that is unlikely

25. to put sustained downward pressure on unemployment rates.”15 The EPI views this economic
contraction to root from the same major problem that arose throughout the Great Recession;
the nation was simply not spending enough to keep employment up. Automatic stabilizers and
falling interest rates were not able to effect spending in the way they were supposed to due to
the resulting contraction in spending from the eight trillion dollar housing bubble burst.15This
goes to show that when the ARRA came into the picture, it gave a somewhat appropriate long
needed boost for spending: “The Recovery Act added roughly 3 million jobs at its peak and kept
the unemployment rate about 1.5 percentage points below where it otherwise would have
peaked.”15 The only problem is that this had immediate positive effects directly after it was
enacted but what was going to happen after these effects winded down. The result would be a
“fiscal drag” in growth. This fiscal drag has come in and out of play in the years following the
ARRA due in result to fluctuating stimulations of the economy. For example, “New stimulative
measures passed by Congress at the end of 2010—a payroll tax cut, extension of unemployment
benefits, and more generous provisions for businesses to expense investments for tax
purposes—somewhat compensated for the drop off.”15Spending would result in macroeconomic
stimulation to our economy without largely affecting other economic activity. If this debt-
financed spending could continue without large increases inthe interest rate, then private sector
investment might actually be crowed out because studies show that a large motivator for private
investment is the current state of the economy. 15 Most macroeconomic models and forecasts
show that public investment in infrastructure is also extremely crucial in the sense that it
positively affects other public investment sectors due simply to the fact that businesses and
investors always look for areas with attractive infrastructure.

26. Public Investment strongly affects the jobs market, yet it also has major effects on long-
term productivity growth. The EPI supports this claim through statistical information on our
economy over specific fluctuating periods in the past sixty years:
“Between 1947 and 1973—when growth in the real (inflation-adjusted) stock of public
capital averaged 4.5 percent—productivity growth averaged more than 2.6 percent. But
between 1973 and 1995, when growth in the real public capital stock fell nearly in half,
to 2.3 percent, productivity growth slowed to just 1.6 percent.” 15
Thesestatistics strongly support the connection between public capitaland productivity growth.
As I stated before, in the second half of the 1990’s, the productivity growth rose back to a similar
rate that was occurring in the 1947-1973 period. 15 This was not related to public investing but
rather the information and communications technology equipment sectors. After this increase in
these sectors started to slow down, during the years leading up to the recession, throughout the
2003-2007, productivity growth fell. The reaction from the EPI is that the country needs to try to
make the correct adjustments to try and keep the productivity growth up. The economy could
hope for a boost from new private investment sectors, like the ones in the late 1990’s, yet this is
highly unlikely. 15 The most reliable way, looking at strong statistical representations, is to
increase public investments.
It is looking as if the nation is going to heading into a period of complete opposition to
the whole purpose of the ARRA and this does not seemto sit well in the EPI’s eyes:
“Policy debates today are dominated by claims that the U.S. budget deficit needs to be
substantially reduced. For example, the deal resolving the debate over raising the debt
limit in August 2011 will result in substantial reductions in government spending
beginning in 2013—a time when the unemployment rate still is forecast to be above 8
percent. Given that the U.S. economy is operating far below potential, and is likely to do

27. so for years to come absent aggressive policy measures to boost it, such rapid fiscal
contraction is extremely unwise.”15
Thesereductions in government spending will likelyresult in reductions in public investment. The
common viewpoint and economic justification for cutting the debt spending is seen as illogical
according to the EPI. The common viewpoint is that if an economy is stabilized, cutting budget
deficits should cause the interest rate to fall because the public and private sector are no longer
in competition for loanable funds.15This drop in the interest rate will then allow for an increase
in private investment and this is where the increase in productivity comes from. The main
problem with this outlook is that our country is not operating at full employment and private
investment is not being crowded out because the excess resources in our economy also eliminate
the competition between the public and private sector for loans. 15The EPI defends this argument
against the common viewpoint by stating that the process of crowding out has been absent due
to the fact that interest rates have actually dropped while budget deficits have increased since
the beginning of the recession. 15 The conclusion is that budget deficits caused by public
investment are not bad for the economy specifically during a time of recession and that public
investment needs to be focused on more than private investment. The EPI feels as ifthe economy
is being misinterpreted in the sense that economists largely correlate economic boosts with
private sector decisions when the focus should really be on the public sector. This thesis is largely
supported by work done by Federal Reserve economist David Aschauer and nationally renowned
economist Alicia Munnel, who later became Undersecretary of Treasury. Their work showed that
the rate of return on public capital was much higher than that of private capital. 15

28. Another smaller benefit of putting focus on the public sector is greater wealth equality.
There have been very credible papers, such as, “The Effects of Infrastructure Development on
Growth and Income Distribution”, by Cesar Calderon and Luis Serven, that show that countries
with higher public capital tend to have greater levels of income equality.15 This makes sense due
to the fact that public capital is generally spread among a wider range of people. Private capital
is mostly embedded in the wealthiest people in the country. Common economic statistics show
that the wealthiest people in our country compose most of the private investment sector. The
evident conclusion is that higher rates of income equality are always good for the economy.
One last focus of public investment is that its effects cannot always be easily converted
into measurable mathematical representation. For example, investments in cleaner air and
water may have positive effects on the economy but they these benefits for our economy do
not show up in cash incomes.15
The EPI strongly supports the idea that the ARRA was simply too small to fully pull our
economy out of the Great Recession and back into level economic standing. They feel that this
may be the result of the fact that the argument against fiscal stimulus was just starting to come
into play at the wrong time:
Ironically, as regards timing, the case against discretionary fiscal stabilizations seems to
have won greatest agreement among policymakers and economists just as the
argument was losing much of its force. Between 1947 and 1990, recessions were indeed
quite short and recoveries tended to follow rapidly after business cycle troughs.
However, beginning in 1981, it has taken progressively longer for recoveries to generate
anything close to full resource utilization. Thus, the last three recessions – even those

29. with a relatively mild depth (like in 2001) – only saw full recovery of employment years
after the official recession ended.16
This quote shows that is has been taking longer and longer to carry our country out of
recession. The argument that is being proposed by the EPI points to the reasoning behind these
statistics. Something must be going on to cause this process to linger. The EPI would argue that
the reason behind this is the dwindling support in favor of increasing fiscal stimulus. These
recessions were usually fixed on average with greater expaniasory fiscal policy. The Great
recession had “sharply contractionary” fiscal policy compared to historical averages, with a
particular focus on state and local expenditures. 16 The comparison that stands out the most is
with the recession of the early 1980’s: “The output gap at the trough of the early 1980s
recession was actually larger than that at the trough of the Great Recession, yet two years
following that trough 80 percent of the output gap had been erased. In contrast, four years
after the trough of the Great Recession less than 20 percent of the output gap has been
erased.”16 Basically, put in a common analogy, the hole was deeper in the 1980’s, yet the
country climbed much farther out in much less time. Also, adding to the disturbing nature of
this comparison, monetary policy was much more influential on the economy at the time,
considering the federal funds rate could be lowered by up to ten percentage points.16 In the
past decade, the federal funds rate has not moved more than five percentage points down at
any time. 16In turn, if monetary policy was even more influential on our economy in that time
period than it is now, this can only mean that fiscal policy is needed now more than ever. This
is not the case: “Real government spending four years into recovery is approximately 15
16 Bivens, Josh."The Great Debate: How Academic Economists and Policymakers Wrongly Abandoned Fiscal
Policy."Economic Policy Institute. N.p., n.d. Web. 11 Mar. 2014.

30. percent below what it would be had it just it matched average government spending patterns
in prior recoveries” 16Fiscal stimulus should not be something new to our country. There have
been a lot of claims amongst economists that the spending in the ARRA was absurd and
unnecessary. The truth of the matter is that perception may have truly gotten the best of our
policy prescribers. This veil of thought, against fiscal policy, has formed and the EPI argues that
there is not significant statistical reasoning to support it. Instead, the country should try to
escape this problem the same way it has in the past. There is no point in straying away from the
solution that has proved successful multiple times in recent history.
Throughout this essay, I have proposed two different, yet very credible economic
viewpoints on the ARRA. The Economic Policy institute supports the purpose of ARRA and
thinks that it needed larger allocations that should spanned over a longer period of time. On
the other hand, the Cato Institute completely disagrees with the ARRA and feels as if its effects
on the economy were not nearly reflective of the eight hundred billion dollars used within the
package. I have given an overview on the central themes behind each viewpoint. I am now
going to use a couple different reports to expose the opposing viewpoint and then follow with
different reports to support my viewpoint. I agree with the EPI and feel that the ARRA gave the
economy a sufficient boost but it could have been larger to give our economy the full boost
needed to properly take us out of the Great Recession.
The first two sources are going to be used to directly pinpoint how the Obama
Administration predicts effects of the ARRA for a short period of time after it was enacted. The
shorter time periods allow for more precise correlations between causes and effects.

31. Throughout the whole span of the allocations of the ARRA, one could look at numerous changes
in variables and come up with multiple reasons for these changes. If this time period is cut
down in the length, the credibility of the reasoning may increase.
The Congressional Budget Office is a nonpartisan economic reporting center for our
government:
Since its founding in 1974, the Congressional Budget Office (CBO) has produced
independent analyses of budgetary and economic issues to support the Congressional
budget process. The agency is strictly nonpartisan and conducts objective, impartial
analysis, which is evident in each of the dozens of reports and hundreds of cost
estimates that its economists and policy analysts produce each year. All CBO employees
are appointed solely on the basis of professional competence, without regard to
political affiliation. CBO does not make policy recommendations, and each report and
cost estimate discloses the agency’s assumptions and methodologies. All of CBO’s
products apart from informal cost estimates for legislation being developed privately by
Members of Congress or their staffs are available to the Congress and the public on
CBO’s website.”17
The CBO is similar to the economic think tanks I have talked about previously, yet there are
some outlining differences. The CBO does not provide policy prescriptions. The institutes I
talked about previously have specific viewpoints about how the government should react to
our economy. The CBO strictly gives mostly statistical and numerical reports on economic
indicators, variables, and policy prescriptions. They do not take any stances but they do focus
on explaining how they got their results.
The report, “Estimated Impact of the American Recovery and Reinvestment Act on
Employment and Economic Output from January 2010 Through March 2010”, specifically
17 "Congressional Budget Office." (CBO). N.p., n.d. Web. 12 Mar. 2014.

32. focuses on this first quarter of 2010 but smaller reports like this one reveal larger, consistent
on-going trends within the effects of the ARRA. The CBO report relays the fact that changes in
employment and economic multipliers on outputs of expenditure and tax breaks cannot
properly be estimated using solely reports from the government’s recovery website so they
need to add in certain aspects that I will expand on shortly. The report focuses on two specific
ways to estimate the effects of the ARRA: using reported recipient reports (often faulty) and
economic models and historical data. The second way gives a more accurate and logical
depiction of the first way. In reality, one can go to the Recovery website and find the specific
statistics reported for the ARRA. The only problem is that these statistics have external factors
that also affect them. The ARRA is not the only working form of policy prescription within our
economy throughout this time period so one needs to add multiple factors into the picture to
try and correctly portray the situation. This is what the CBO has done. The first quarter funded
approximately 700,000 jobs, according to the Recovery Website. 1 The only problem is that this
report may not have accurately depicted the true effects of the ARRA on employment for four
different reasons:
· some of the reported jobs might have existed in the absence of the stimulus package,
with employees working on the same activities or other activities
· the reports filed by recipients measure only the jobs created by employers who
received ARRA funding directly or by their immediate subcontractors (so-called primary
and secondary recipients), not by lower-level subcontractors
· the reports do not attempt to measure the number of jobs that may have been created
or retained indirectly, as greater income for recipients and their employees boosted
demand for products and services

33. · the recipients’ reports cover only certain appropriations made in ARRA, which
encompass about one-sixth of the total amount spent by the government or conveyed
through tax reductions in ARRA during the first 18
The CBO's main source for economic effects relevant to the ARRA is based off of specific
economic models and historical data:
"CBO’s assessment is that different elements of ARRA (such as particular types of tax
cuts, transfer payments, and government purchases) have different effects on economic
output per dollar of higher spending or lower tax receipts. Multiplying estimates of
those per-dollar effects by the dollar amounts of each element of the ARRA yields an
estimate of the law's total impact on output."10
To correctly depict the effects on employment, the CBO looks at the unemployment
rate and the participation in the labor force. 18 The multiplier effect is a key term used to figure
out the output that comes from certain aspects of the stimulus package. The way to correctly
estimate these multipliers is mainly based on economic modeling and data that revolves around
a direct relation between the stimulus and its effects. The CBO tries to correctly find
these multipliers by looking at first-round effects within our economy. 18 Basically, they are
trying to separately look at each tax cut or allocation package and its immediate effect on
someone's expenditure habits. For example, if most tax cuts in a certain town cause
these beneficiaries to put this extra tax money in the bank, the following assumption is that this
tax cut did not lead to a rise in consumption. Obviously this is a simple example but the goal is
for them to get as precise as possible and extract direct cause and effect multipliers. This sort of
aligns with the thought that I presented previously about such a short spanning report carrying
greater meanings about the overall effect of the whole stimulus plan. The economic sector is
18 "Estimated Impactof the American Recovery and Reinvestment Act on Employment and Economic Output from
January 2010 Through March 2010." CBO. N.p., n.d. Web. 11 Mar. 2014.

34. very large but if one were to look at extremely small samples and do this over and over again,
they can eventually get an accurate summary.
The three main forms used to extract results from the ARRA came from macroeconomic
forecasting models, general-equilibrium models, and direct extrapolations of past data. 18
Macroeconomic forecasting models largely depend on specific assumptions made between the
connections of certain variables in the economy. The CBO report used models from two firms,
Macroeconomic Advisers and Global Insight, as well as using the FRB-US model from the
Federal Reserve. 10These models revolve around effects of aggregate demand on actual output
in the short run. In result to the previous statement, Macroeconomic forecasting models tend
to usually show positive effects from prescription policies that are directly focused on raising
aggregate demand. In opposition, General equilibrium models tend to lead to smaller outcomes
from government stimulus packages like the ARRA. 18General assumptions behind these models
tend lean towards complete rationality behind working class people. For example, these models
predict that one can efficiently predict their wages now and for the rest of their life and how
much they will spend and save at these times throughout their life. The other major
assumption, one that was expanded on previously in this essay, deals with the fact that people
will tend to start saving money from tax cuts now to pay off the higher government budget
debts that result from these tax cuts. The General Equilibrium Models’ uses are considered to
be less valuable in the eyes of the CBO: “CBO has incorporated the results of that research into
its view of the effects of government policies. However, the research results appear to be too
dependent on particular assumptions for CBO to rely on them heavily.”10Direct extrapolations
of the past data are models based off of results from similar policy prescriptions of the

35. government in the past. One of the major problems underlying this format is that results will
change largely based off the time period looked at and the specific estimation strategies used.10
This theme has been expanded on previously and aligns with one of the major problems with
predicting effects of the ARRA. The following charts depict ARRA’s effects on the economy:

36. 18
The Council of Economic Advisers is an agency within the government’s executive office
used to estimate effects of policy prescriptions and provide economic advice to the government
on the formulation of domestic and international policy. 19This agency is very similar to the
research organizations presented previously yet the major underlying difference is that it is
19 "Council of Economic Advisers." The White House. The White House, n.d. Web. 12 Mar.2014.

37. central to the government instead of private. The government elects the officials to represent
this council.
The report, “The Economic Impact of the American Recovery and Reinvestment Act of
2009: Fourth Quarterly Report” 19, is based off of the quarter following the previous CBO
report. This report directly correlates the change from declination in our national economy to
overall acceleration towards recovery with the ARRA’s effects:
 Following implementation of the ARRA, the trajectory of the economy changed
dramatically. Real GDP began to grow steadily starting in the third quarter of
2009 and private payroll employment has increased by nearly 600,000 since its low
point in December 2009.
 The two CEA methods of estimating the impact of the fiscal stimulus suggest that the
ARRA has raised the level of GDP as of the second quarter of 2010, relative to what it
otherwise would have been, by between 2.7and 3.2 percent. These estimates are very
similar to those of a wide range of other analysts, including the Congressional Budget
Office.
 The CEA estimates that as of the second quarter of 2010, the ARRA has raised
employment relative to what it otherwise would have been by between 2.5 and
3.6million.These estimates are broadly consistent with the direct recipient reporting
data available for 2010:Q 19
The previous statements are based off of two approaches: the first revolves around the
behavior of real GDP and employment; while the latter revolves around economic modeling
that is very consistent to the CBO report’s models. The followingchartscame directlyfromthis
fourthquarterlyreportandtheyreveal the evidenteffectsthatthe ARRA had on oureonomy:

39. 19

40. The overall conclusion that is made is mainly based off of the economic reports from the
government. I feel as if the government has highly credited information and they have logically
explained how they came to their results. Their work can be understood by the common
population, with little to no economic background. The opposing viewpoints may argue that
these results could possibly stem with political themes in mind. Economists that argued against
the ARRA, for example, any of the 200 hundred people that signed the Cato Institute’s Petition
against the 2009 Obama Stimulus Plan, would probably say that these government reports are
carefully formed in an effort to depict that the Obama Administration made the correct choice
in policy prescription. I truly feel as if every article or presentation of results can be interpreted
to have a political background to it, whether the argument is specifically trying to defend this
political theme or it just naturally defends it through the formation of the results. Mostly every
report on the results of the ARRA can be argued through an opposing viewpoint. It is a vast
topic that ranges through different sections of economic thought. As I have repeatedly
mentioned, correctly estimating the ever lasting effects of the ARRA is basically impossible. We
simply do not know the direction of the economy without the ARRA and we cannot surely
relate every cause of it with its effect. I want to try and present my final argument focusing on
the most credible economic statistics that I could find. I feel that credible statistics are the base
for a strong argument.
In this closing argument, I stand by the theme that the American Recovery and
Reinvestment Act of 2009, that was signed into law on February 17, 2009 by Barack Obama,
was too fiscally too small, which also means that it spanned too short of a time period. I have
defended this argument by looking at main macroeconomic variables such as, gross domestic

41. product and the unemployment rate. I agree with the underlining themes presented
throughout the Economic Policy Institute’s argument, such as the effects of public sector
investment on higher expectations, productivity, and living standards. The ARRA has been
critically dissected to the most precise degree by economists of every possible political
background. I feel that I have strongly dissuaded these opposing viewpoints using the most
credible economic reports that I could possibly find.

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