CBO Update on the Economic Effects of ARRA
Yesterday, CBO released an update on the effects of the American Recovery and Reinvestment Act of 2009 (ARRA) on employment and economic output in the second quarter of 2011. (They also released their updated Budget and Economic Outlook, click here to read CRFB’s analysis.) Enacted in 2009 as an effort to stimulate the economy, ARRA's legislation requires CBO to regularly report on its effects. The table below shows CBO's latest estimates of ARRA's effects (given in ranges) for the second quarter of 2011, as compared to what CBO estimates would have occurred if ARRA had not been enacted.
CBO Estimates of ARRA's Economic Impact from April 2011 - June 2011
|Real GDP Increase||0.8% to 2.5%|
|Unemployment Rate Decrease||0.5% to 1.6%|
|Employment Number Increase||1.0 to 2.9 million|
|Increase in Full-Time-Equivalent Jobs||1.4 to 4.0 million|
|Budget Deficit Increase (2009-2019)||$825 billion|
Yesterday's analysis slightly lowered CBO's estimate of the legislation's impact on budget deficits, as CBO's May update estimated that ARRA would increase budget deficits by $830 billion. The report also stated that ARRA's effects on employment began weakening at the end of 2010 and continued to weaken throughout 2011. CBO's projections, however, have ARRA raising real GDP in 2012 by 0.3 to 0.8 percent and increasing employment numbers by 0.4 million to 1.1 million.
In a related post over on Ezra Klein's blog, Dylan Matthews looks at nine different studies conducted to determine ARRA's effects on employment and economic output. He found that six studies reported that the stimulus "had a significant, positive effect on employment and growth," while three claimed that "the effect was either quite small or impossible to detect." Matthews looks at the methodologies behind the studies, including yesterday's CBO report.
CBO's estimates are calculated using different "multipliers" for each category of ARRA's provisions, which are meant to represent the direct and indirect effects on the nation's output of every dollar spent implementing a certain policy. So, CBO applies the provision's multiplier to the total amount spent on that provision to estimate its overall impact. CBO's report acknowledges potential problems with their method, such as disagreement among economists about the economic models used to calculate multipliers. Another approach could estimate a policy's indirect effects on output differently, thus changing the conclusions of the study.