Tuesday, November 17, 2009
Tweet[IWS] CRS: ECONOMIC STIMULUS: ISSUES & POLICIES [10 November 2009]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Economic Stimulus: Issues and Policies
Jane G. Gravelle, Senior Specialist in Economic Policy
Thomas L. Hungerford, Specialist in Public Finance
Marc Labonte, Specialist in Macroeconomic Policy
November 10, 2009
http://opencrs.com/document/R40104/2009-11-10/download/1013/
[full-text, 25 pages]
Summary
The National Bureau of Economic Research (NBER), in December 2008, declared the economy
in recession since December 2007. With the worsening performance of the economy beginning in
September 2008, Congress passed and President Obama signed a much larger stimulus package
composed of spending and tax cuts. The American Recovery and Reinvestment Act of 2009
(ARRA, P.L. 111-5), a $787 billion package with $286 billion in tax cuts and the remainder in
spending, was signed into law on February 17, 2009. It includes spending for infrastructure,
unemployment benefits, and food stamps, revenue sharing with the states, middle class tax cuts,
and business tax cuts.
Also in 2008 and 2009, the government intervened in specific financial markets by providing
financial assistance to troubled firms and enacting legislation granting authority to the Treasury
Department to purchase $700 billion in assets. The broad intervention into the financial markets
was passed to avoid the spread of financial instability into the broader market; but there are
disadvantages, including leaving the government holding large amounts of mortgage debt.
The need for additional fiscal stimulus depends on the state of the economy. Growth rates,
measured by gross domestic product (GDP), after two strong quarters, were 2.1% in the fourth
quarter of 2007, slightly negative in the first quarter of 2008, positive in the second quarter, a
negative 2.7% in the third quarter, and a negative 5.4% in the fourth quarter. The contraction of
GDP continued into 2009, with a decrease by 6.4% in the first quarter and a second quarter fall of
0.7%. However, after four consecutive quarters of decline, 2009 third quarter estimates indicate a
real GDP increase of 3.5%.
The unemployment rate, which rose slightly in the last half of 2007, declined in January and
February of 2008, but began rising in March 2008 and by October 2009 stood at 10.2%, the
highest rate since April 1983. After extensions of, and modifications to, unemployment
compensation in 2008 and early 2009, another extension of unemployment benefits for 14 weeks
in all 50 states was enacted in the Worker, Homeownership, and Business Act (H.R. 3548, P.L.
111-92) and signed into law on November 6, 2009. The new law also offers an additional six
weeks of benefits for laid-off workers in 27 states with high unemployment.
Fiscal policy temporarily stimulates the economy through an increase in the budget deficit, which
leads to an increase in total spending in the economy, either through direct spending by the
government or spending by the recipients of tax cuts or government transfers. There is a
consensus that certain proposals—ones that result in more spending, can be implemented quickly,
and leave no long-term effect on the budget deficit—would increase the benefits and reduce the
costs of fiscal stimulus relative to other proposals. Economists generally agree that spending
proposals are somewhat more stimulative than tax cuts because part of a tax cut may be saved by
the recipients. The most important determinant of the effect on the economy is the stimulus' size.
For instance, the 2008 stimulus package increased the deficit by about 1% of GDP while ARRA is
estimated to increase the budget deficit by about 1.3% in 2009 and an additional 2.2% (or 3.5%
overall) in 2010. The Congressional Budget Office (CBO) projects that ARRA would raise GDP
by a range of 1.4% to 3.8% in 2009 compared with what it otherwise would have been.
This report, which includes research and analysis from Andrew Hanna, will be updated as
legislative and economic events occur.
Contents
Introduction ...............................................................................................................................1
The Current State of the Economy...............................................................................................2
The 2009 Stimulus Package ........................................................................................................5
Preliminary Discussions ........................................................................................................5
House Proposal .....................................................................................................................6
Senate Proposal.....................................................................................................................7
The American Recovery and Reinvestment Act of 2009 ........................................................7
Discussion ............................................................................................................................8
Issues Surrounding Fiscal Stimulus ...........................................................................................10
The Magnitude of a Stimulus ..............................................................................................10
Bang for the Buck ............................................................................................................... 11
Timeliness..........................................................................................................................14
Long-Term Effects ..............................................................................................................16
Should Stimulus be Targeted? .............................................................................................16
Is Additional Fiscal Stimulus Needed? ................................................................................17
Policies Previously Adopted................................................................................................18
Interventions for Financial Firms and Markets...........................................................................19
Tables
Table 1. Zandi's Estimates of the Multiplier Effect for Various Policy Proposals........................14
Table 2. Timing of Past Recessions and Stimulus Legislation ....................................................15
Contacts
Author Contact Information ......................................................................................................22
Acknowledgments ....................................................................................................................22
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Economic Stimulus: Issues and Policies
Jane G. Gravelle, Senior Specialist in Economic Policy
Thomas L. Hungerford, Specialist in Public Finance
Marc Labonte, Specialist in Macroeconomic Policy
November 10, 2009
http://opencrs.com/document/R40104/2009-11-10/download/1013/
[full-text, 25 pages]
Summary
The National Bureau of Economic Research (NBER), in December 2008, declared the economy
in recession since December 2007. With the worsening performance of the economy beginning in
September 2008, Congress passed and President Obama signed a much larger stimulus package
composed of spending and tax cuts. The American Recovery and Reinvestment Act of 2009
(ARRA, P.L. 111-5), a $787 billion package with $286 billion in tax cuts and the remainder in
spending, was signed into law on February 17, 2009. It includes spending for infrastructure,
unemployment benefits, and food stamps, revenue sharing with the states, middle class tax cuts,
and business tax cuts.
Also in 2008 and 2009, the government intervened in specific financial markets by providing
financial assistance to troubled firms and enacting legislation granting authority to the Treasury
Department to purchase $700 billion in assets. The broad intervention into the financial markets
was passed to avoid the spread of financial instability into the broader market; but there are
disadvantages, including leaving the government holding large amounts of mortgage debt.
The need for additional fiscal stimulus depends on the state of the economy. Growth rates,
measured by gross domestic product (GDP), after two strong quarters, were 2.1% in the fourth
quarter of 2007, slightly negative in the first quarter of 2008, positive in the second quarter, a
negative 2.7% in the third quarter, and a negative 5.4% in the fourth quarter. The contraction of
GDP continued into 2009, with a decrease by 6.4% in the first quarter and a second quarter fall of
0.7%. However, after four consecutive quarters of decline, 2009 third quarter estimates indicate a
real GDP increase of 3.5%.
The unemployment rate, which rose slightly in the last half of 2007, declined in January and
February of 2008, but began rising in March 2008 and by October 2009 stood at 10.2%, the
highest rate since April 1983. After extensions of, and modifications to, unemployment
compensation in 2008 and early 2009, another extension of unemployment benefits for 14 weeks
in all 50 states was enacted in the Worker, Homeownership, and Business Act (H.R. 3548, P.L.
111-92) and signed into law on November 6, 2009. The new law also offers an additional six
weeks of benefits for laid-off workers in 27 states with high unemployment.
Fiscal policy temporarily stimulates the economy through an increase in the budget deficit, which
leads to an increase in total spending in the economy, either through direct spending by the
government or spending by the recipients of tax cuts or government transfers. There is a
consensus that certain proposals—ones that result in more spending, can be implemented quickly,
and leave no long-term effect on the budget deficit—would increase the benefits and reduce the
costs of fiscal stimulus relative to other proposals. Economists generally agree that spending
proposals are somewhat more stimulative than tax cuts because part of a tax cut may be saved by
the recipients. The most important determinant of the effect on the economy is the stimulus' size.
For instance, the 2008 stimulus package increased the deficit by about 1% of GDP while ARRA is
estimated to increase the budget deficit by about 1.3% in 2009 and an additional 2.2% (or 3.5%
overall) in 2010. The Congressional Budget Office (CBO) projects that ARRA would raise GDP
by a range of 1.4% to 3.8% in 2009 compared with what it otherwise would have been.
This report, which includes research and analysis from Andrew Hanna, will be updated as
legislative and economic events occur.
Contents
Introduction ...............................................................................................................................1
The Current State of the Economy...............................................................................................2
The 2009 Stimulus Package ........................................................................................................5
Preliminary Discussions ........................................................................................................5
House Proposal .....................................................................................................................6
Senate Proposal.....................................................................................................................7
The American Recovery and Reinvestment Act of 2009 ........................................................7
Discussion ............................................................................................................................8
Issues Surrounding Fiscal Stimulus ...........................................................................................10
The Magnitude of a Stimulus ..............................................................................................10
Bang for the Buck ............................................................................................................... 11
Timeliness..........................................................................................................................14
Long-Term Effects ..............................................................................................................16
Should Stimulus be Targeted? .............................................................................................16
Is Additional Fiscal Stimulus Needed? ................................................................................17
Policies Previously Adopted................................................................................................18
Interventions for Financial Firms and Markets...........................................................................19
Tables
Table 1. Zandi's Estimates of the Multiplier Effect for Various Policy Proposals........................14
Table 2. Timing of Past Recessions and Stimulus Legislation ....................................................15
Contacts
Author Contact Information ......................................................................................................22
Acknowledgments ....................................................................................................................22
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 8:48 AM
