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CBO Report Shows Stimulus Plan Had Positive Effects On Economy

August 30, 2010

Hand of a businessman inserting coin into a piggy bankThe Obama administration's economic stimulus plan, known as the American Recovery and Reinvestment Act (ARRA), had some positive economic impact, reported The Hill.

In a report by the Congressional Budget Office (CBO), it was estimated that ARRA increased the number of employed Americans by between 1.4 million and 3.3 million and lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points in the second quarter of 2010. Furthermore, the stimulus plan raised the gross domestic product by between 1.7 percent and 4.5 percent.

The Wall Street Journal reported that Vice President Joe Biden said in a statement that the CBO report confirmed that the "Recovery Act is working to rescue the economy from eight years of failed economic policy and rebuild it even stronger than before".

The CBO report was also a small boost for President Obama and Democrats, stated The Hill, as they have faced strong opposition from Republican leaders who argued that the stimulus plan failed to keep unemployment rates around or below nine percent and has contributed to deficits of approximately $1.4 trillion in 2009 and this year. Indeed, CBO and the Joint Committee on Taxation initially estimated that ARRA would increase budget deficits by $787 billion between fiscal years 2009 and 2019. Now, however, it was estimated that over the 10 year period, the total impact will be slightly higher at $814 billion. Republicans have leveraged the stimulus in their election year case against Democratic leaders.

Despite some gains, however, the report stated that impact will be smaller in the coming quarters. CBO noted that "the effects of ARRA on output are expected to gradually diminish during the second half of 2010 and beyond". Furthermore, the effects of the stimulus on employment and unemployment are expected to wane gradually in 2011 and after.

The report noted that although CBO analyzed data on output and employment since ARRA's enactment, the overall economic effects cannot be fully determined because "isolating the effects would require knowing what path the economy would have taken in the absence of the law". Because that cannot be observed, noted CBO in its report, "the new data adds only limited information about ARRA's impact".


Compiled by Heidi M. Agustin

Sources:

"CBO finds stimulus boosted economy," thehill.com, August 24, 2010, Walter Alarkon

"Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output From April 2010 Through June 2010," cbo.gov, August 2010, Congressional Budget Office

"Stimulus Boosted Jobs in 2nd Quarter, CBO Says," online.wsj.com, August 24, 2010, Jared A. Favole

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