Measuring the Effects of ARRA
According to the Council of Economic Advisors’ (CEA) quarterly report on the continuing effects of the American Recovery and Reinvestment Act (ARRA) (see our analysis of ARRA here), the magnitude of the fiscal stimulus and its positive effect on the U.S. economy have been increasing substantially in the first half of 2010 (from $108 billion in Q1 of 2010 to $116 billion in Q2). CEA estimates that the 2009 stimulus has boosted GDP by 2.7 percent and raised employment by 2.5 million jobs since February 2009, relative to what would have occured absent the stimulus.
According to CEA, ARRA has spent $480 billion and using numbers from Stimulus.org, about $260 billion of that is spending and $220 billion is tax cuts. The amounts are further broken down into several tax and spending categories on the website.
The CEA uses two different methodologies to estimate ARRA's impact. One model they use estimates the impact on the economy based on the multiplier effects of different provisions. This methodology produces the GDP and employment numbers that you see above. The other methodology they use constructs a "statistical baseline" of what the economy would be like without the stimulus, and then measures and compares it to actual economic performance. Using this approach, they estimate a GDP boost of 3.2 percent and an employment boost of 3.5 million jobs. However, this approach doesn't account for many other factors that could affect the economy, such as unusually tight credit, loose monetary policy, TARP, and state fiscal contraction. CEA notes that it is impossible to say whether this approach understates or overstates ARRA's impact.
CEA and CBO Estimates of ARRA's Economic Impact
|Measure||2009 Q2||2009 Q3||2009 Q4||2010 Q1||2010 Q2|
|CBO GDP Increase||0.9 - 1.5%||1.3 - 2.7%||1.5 - 3.5%||1.7 - 4.2%||1.7 - 4.6%|
|CBO Employment Increase (millions)||0.3 - 0.5||0.7 - 1.3||1.0 - 2.1||1.2 - 2.8||1.4 - 3.4|
|CEA GDP Increase (multiplier model)||0.8%||1.7%||2.1%||2.5%||2.7%|
|CEA Employment Increase (millions)||0.4||1.1||1.7||2.2||2.5|
Note: CBO has not released an estimate for the second quarter yet. The numbers in the table are estimates from the 2010 first quarter report.
The CEA numbers fall within the range of CBO's low and high estimates. For GDP, the CEA estimates are towards the low end of CBO's range and for employment they are towards the high end.
This quarterly report focused on the impact of the public infrastructure investment provisions in the ARRA, and the effect they are having on the American economy. The ARRA included appropriations for $320 billion in "public investment outlays" on projects like highway improvements, improved public transit, and electrical grids (Stimulus.org shows a narrower $140 billion category that represents just infrastructure spending, and a $76 billion category for corporate tax cuts). To date, CEA finds that two thirds of these funds have been obligated and a quarter have been outlaid—spending which is estimated to have saved or created 800,000 jobs as of Q2 of 2010 and to have in turn impacted private sector spending significantly due to tax breaks and other leveraging.
Although the CEA acknowledges that it can be tricky to measure exactly how a policy has impacted macroeconomic trends, they do maintain that the results of their analysis are “strong enough and clear enough [to be] confident that the basic conclusions are solid.” So far, the ARRA seems to be having a positive effect on our economy -- but how much effect it has had is very hard to know.
To track ARRA spending and all other actions the federal government has taken to support the economy, visit Stimulus.org.