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The Stimulus Secret Obama Doesn't Want You to Know

Politics / Economic Stimulus Feb 24, 2012 - 05:58 AM GMT

By: Money_Morning

Politics

Best Financial Markets Analysis ArticleDavid Zeiler writes: As he campaigns for re-election, U.S. President Barack Obama wants voters to believe his 2009 stimulus package played a key role in the economic recovery.

But while the American Reinvestment and Recovery Act (ARRA) did indeed help many people by spreading more than $787 billion around the country, it fell short of its goal of stimulating an economic recovery.


That's because about two-thirds of the stimulus package either went to debt reduction or into people's savings accounts. Neither boosts the economy.

That's the perspective - with some exaggeration for effect - you'll hear from Republicans during the presidential campaign.

"At the signing of the 'stimulus' three years ago, President Obama said he wanted to be held accountable for the results of his spending binge," House Speaker John Boehner said last week. "Today, there's no denying the fact that his 'stimulus' policies not only failed, they made things worse."

President Obama will need to shift the focus to ARRA's benefits. It did put a lot of money into the hands of millions of people through the tax rebates and extra entitlement spending on Medicare and unemployment benefits. And he can fall back on his mantra that the stimulus package kept the crisis from getting worse.

"Most economists - almost every economist - will tell you that had we not put [ARRA] in place we could've tipped into a great depression," President Obama recently told ABC News.

And yet that's not quite the same thing as jumpstarting the economy.

"Ultimately the stimulus did not live up to the promise of what the American public expected it to do, and that's bring about a strong, sustainable recovery," Michael Grabell, author of a new book on ARRA, "Money Well Spent?" told The Daily Ticker.

A Massive Stimulus Package
One would think the sheer size of the stimulus package would have done more than just keep things from getting worse.

"In raw dollars, inflation adjusted, the stimulus comes out as the biggest - bigger than the moon race, the [Works Progress Administration], the Louisiana Purchase, the Manhattan Project," Grabell told The Fiscal Times.

The U.S. Economic Stimulus Secret Obama Doesn't Want You to Know

But only about a third of the ARRA money went to the sort of infrastructure projects - roads, bridges, airports - that directly stimulate the economy.

Instead, the bulk of the stimulus was spent on refunds to taxpayers and aid to help state governments balance their budgets. While not exactly wasted, that money did almost nothing to revive the economy.

Take the $209 billion sent to the states, approximately a quarter of ARRA. According to a study last year by the Hoover Institution, $139 billion of that was used by the states to reduce their own borrowing.

The rest of the ARRA money given to the states, about $70 billion, went to health and welfare grants.

Almost none of that money was used to increase government purchases - the best way to achieve economic stimulus.

"The policy choice of allocating a large component of ARRA grants to transfer payments, like Medicaid, which provide less "bang for the buck,' if any at all, than to infrastructure and other similar expenditures seriously impaired any overall stimulus," the Hoover Institution report said.

Rebates Aren't Stimulus

Surprisingly, the $237 billion in tax relief and incentives for individuals also failed to stimulate economic growth. Fearful about their own financial situation, most people either used the extra money to pay down personal debt or added it to savings.

ARRA designated less than $300 billion for New Deal-like infrastructure projects, the sort of things that come to mind when you hear the word "stimulus." And many of those projects, far from being "shovel-ready," required months or years of planning before they could begin.

It's no wonder the U.S. economy is still struggling three years after the bill became law.

President Obama will be held accountable in November for what he promised ARRA would do back in January 2009 regarding an economic recovery that has yet to materialize.

And you can bet Republicans will trumpet the shortcomings of the stimulus package at every opportunity.

"The stimulus is really the lens through which we [will] judge the administration's policies and programs," Grabell told the Daily Ticker.

Source http://moneymorning.com/2012/02/24/the-stimulus-secret-obama-doesnt-want-you-to-know/

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