Policy Paper: American Recovery and Reinvestment Act

...

Rationale for Public Policy

The stimulus act was passed in direct response to the government’s failings that contributed to the Great Recession. The recession began with the eight trillion dollar housing bubble caused by bank misregulation. The severe decline in consumer confidence that followed aggravated the state of the economy. This eventually caused a collapse in business investment and as a result, millions of jobs were lost. This economic recession has meant that disposable incomes dropped, poverty rose, and people lost health insurance (The Great Recession). The passing of the ARRA into a law was aimed to aid the millions affected by the economic downturn. The rationale behind this policy is based on the Keynesian macroeconomic theory, which “argues that, during recessions, government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration” (Reddish, Wooten, & Dunn, 2013). Economists support this idea of a fiscal stimulus when there is weak aggregate demand and an aggressive monetary policy. Through this perspective, the U.S. government believed that its intervention could help them scientifically manage the economy and stimulate business investments. Although economists claim that it is natural for the market to go through a full economic cycle before coming out of a recession, government intervention is necessary to help turn around the economy because it provides faster and more effective results than without any intervention.

Main Purposes of the Act

The policy’s intended purpose contains the underlying principles of the rationale for creating the law. The main purposes of the ARRA are to:

- Create jobs and save existing ones

- Help those most affected by the economic downturn

- Provide funding and investment for programs that support technological and health advances

- Invest in public goods like construction and public schools

- Stabilize budgets by accounting for state and local tax increases

(Council of Economic Advisers, 2014, pp. 7-8)

Implementation

In implementing the ARRA, surveys were conducted to document the administrative impact of the Recovery Act and report the effectiveness of funds on stimulating employment. In addition to the surveys, websites were created to keep track of ARRA related funds. A notable website is one created by the Recovery Accountability and Transparency Board, which was formed out of the ARRA. It had two goals: to provide transparency with funds related to the act and to prevent and detect fraud, waste, and mismanagement (Recovery Accountability and Transparency Board). These goals are reached by giving quarterly and annual reports to the legislative and executive branches and involve the full cooperation of those involved.

Upon singing the bill, Obama selected Vice President Joe Biden to oversee the implementation of the stimulus act’s provisions. Biden has been responsible for working closely with cabinet members and the nation’s governors to guarantee that the measures stated by the law are carried out efficiently and effectively. The ARRA explains the amount of funds that are to be allocated to each provision and states that the “President and the head of Federal Departments and agencies shall manage and expend the funds available...so as to achieve the purposes” (One Hundred and Eleventh Congress of the United States of America, 2009). In the following subsections, implementation of the ARRA will be discussed with respect to several federal departments.

Department of Education

As President Barack Obama argues, “the countries that out-teach us today will out-compete us tomorrow.” With this assertion, it makes sense that a significant amount of the funds allocated to the ARRA goes to the Department of Education. Almost $100 billion were provided by the stimulus act, which aimed to save the jobs of thousands of educators by spending a lot of this money to avert layoffs. These funds were also used to support states and school districts, fund research, and advance reforms and improvements. In order to do so, the money was used to close the achievement gap and help students from all backgrounds achieve high standards (The American Recovery and Reinvestment Act of 2009: Saving and Creating Jobs and Reforming Education, 2009). Through these long-term investments, there would be a substantial impact on education, helping the nation become more competitive in international markets.

Department of Energy

In response to the Recovery Act, more than $31 billion was given to the Department of Energy to fund projects that would help create jobs through an investment of public goods. The law included strategic clean energy investments that would promote development of low-carbon technologies through production tax credits and loan guarantees (Aldy, 2012, p. 1). Some of these clean energy investments took time, which achieved the ARRA’s goal to invest in long-term growth. The department also helped the development of alternative fuel vehicles by “supporting car battery manufacturing, investing in mass transit and accelerating replacement/retrofits of heavy-duty diesel engines” (Aldy, 2012, p. 7). This helped homeowners and businesses reduce their energy costs.

Department of Agriculture

With respect to the agricultural industry, the Recovery Act provided the Department of Agriculture (USDA) about $28 billion in funding. These funds ensure that farmers continue to contribute to local economies, take steps to build and preserve critical infrastructure in communities across America, and implement new resource conservation measures (Overview of USDA Recovery Act Funds, 2013). To carry out the provisions of the ARRA, the USDA initiated a plan to start two hundred new waste and water system projects in the rural parts of the country. This would provide money to pay for water and waste infrastructure, which would allow rural communities to provide safe and reasonably priced services to local residents.

Department of the Treasury

Under the Recovery Act, the Department of the Treasury has had significant responsibilities. The department has nine programs, which include tax changes and an estimated $150 billion of direct relief