American Recovery and Reinvestment Act (ARRA)

What Is the American Recovery and Reinvestment Act (ARRA)?

The American Recovery and Reinvestment Act of 2009 (ARRA) was a piece of fiscal stimulus legislation passed by the U.S. Congress in response to the Great Recession of 2008. It is all the more commonly known as the "stimulus package of 2009" or simply the "Obama stimulus." The ARRA package included a series of federal government expenditures pointed toward countering the job losses associated with the 2008 recession.

Understanding the American Recovery and Reinvestment Act (ARRA)

The American Recovery and Reinvestment Act (ARRA) was an enormous round of federal spending planned to make new positions and recover jobs lost in the Great Recession of 2008. This government spending was to make up for a slowdown in private investment in that year.

Lawmakers started work on the bill in the months leading up to President Barack Obama's initiation in January 2009. Aides to the approaching president collaborated with individuals from the U.S. Congress, and a streamlined amendments process allowed for section in the House of Representatives on Jan. 28, 2009. The U.S. Senate passed its form on the tenth of February.

Fast-moving conference talks followed, and Democratic congressional leaders ultimately agreed to cut back the bill's spending to attract a handful of Republican votes. The bill's final price tag of $787 billion addressed the largest enemy of recession spending package since World War II. President Obama marked the bill into law on Feb. 17, 2009.

Objectives of the ARRA

Among the primary drives presented by the ARRA were:

• Tax relief for families, including withholding reductions up to $800 per family and a nearly $70 billion extension of the alternative least tax
• More than $120 billion in new spending on infrastructure projects
• Healthcare expansion, including $87 billion in aid to states to help cover additional recession-related Medicaid costs
• More than $100 billion in education spending, including teacher salary support and Head Start programs

Support for the ARRA

Contemporary reactions to the ARRA were originally a mix of positive and negative, mostly predictably falling along partisan lines, yet with a high degree of honest intentions conflict among economists regarding the wisdom and expected results of gigantic fiscal stimulus.

Supporters felt that the stimulus spending was not adequate to draw the national economy out of the recession. Economics teacher and columnist Paul Krugman, in a November 2009 New York Times commentary article, declared the ARRA an early achievement — "working just about the manner in which course reading macroeconomics said it would" — with its only failing being that it didn't go far enough in restoring the U.S. economy.

Krugman contended that the stimulus had helped the economy to begin developing once more, with the gross domestic product (GDP) developing at a faster-than-expected rate at that point; nonetheless, the pace of GDP growth was not sufficiently robust to reverse unemployment in the years to come.

Reactions of the ARRA

Adversaries of the ARRA felt that the gigantic government spending would invariably be inefficient and hampered by regulatory obstacles. In a June 2009 Forbes magazine assessment article, "The $787 Billion Mistake," economist Lee Ohanian contended that the economy was giving early however encouraging indications of recovery without the stimulus making yet taken difference.

Declaring "the economic contentions for ARRA were badly dated and erroneous," he demanded that government incentives to private spending and hiring would demonstrate more powerful than flooding the economy with unearned dollars.

ARRA Effectiveness

Over a decade later, the lack of a conclusive counterfactual scenario makes evaluation of the ARRA difficult. It is impossible to say with precision what bearing the economy would have taken without the ARRA. Probably the most reliable method for doing so is to contrast the alternative economic projections utilized with justify the ARRA to the actual results.

Harvard economist Gregory Mankiw and others did just this by tracking the actual U.S. unemployment rate soon after the Act's section against the rate projected by ARRA defenders at the President's Council of Economic Advisers.

This demonstrated that actual unemployment results under the gigantic stimulus greatly surpassed both the baseline "no-stimulus" scenario and the lower projections that suspected to show the expected benefits of the huge new federal spending. This proposes that the ARRA might have actually dramatically increased unemployment rates and helped delay the economic recovery.

Congress added to ARRA spending in subsequent financial plans, eventually raising the total cost to $831 billion somewhere in the range of 2009 and 2019.

Economic conditions in the U.S. have improved since the 2008 recession, however the post-Great Recession can be best characterized as a L-shaped recovery. Real GDP required four years to recover the losses from the recession and unemployment required nearly eight years to recover.

2020 and early 2021 brought another wave of challenges and another group of huge government stimulus plans as the U.S. government has fought with the impact of the pandemic. The crisis led to a leap in unemployment rates, the closure of numerous small organizations, and a hit to GDP.

The economy started to recover in part due to the impact of major government stimulus packages, including the CARES Act of 2020 and the Consolidated Appropriations Act, 2021.

Highlights

• The American Recovery and Reinvestment Act of 2009 (ARRA) was a fiscal stimulus bill endorsed by President Barack Obama on Feb. 17, 2009, to deal with the Great Recession.
• The Act comprised of $787 billion in spending (later raised to $831 billion) in tax cuts/credits and unemployment benefits for families; it also reserved expenditures for healthcare, infrastructure, and education.
• ARRA was controversial at that point — with supporters and rivals falling mainly into political camps — and its role in ending the Great Recession remains bantered to the current day.

FAQ

What Did the American Recovery and Reinvestment Act Do?

The American Recovery and Reinvestment Act (ARRA) was a stimulus package made in the wake of the Great Recession. The purpose of the act was to stimulate the economy by protecting jobs and making new ones. The act comprised of relief programs in the space of education, infrastructure, healthcare, and that's only the tip of the iceberg.

What Were the Major Components of the ARRA?

The parts of the ARRA were measures to stimulate the U.S. economy during the Great Recession. These measures included tax cuts, loan guarantees, and government spending, zeroing in on financial assistance to families, infrastructure, education, healthcare, renewable energy, and small organizations.

How Did the ARRA Impact Healthcare?

The ARRA impacted healthcare by giving funding associated the recession as well as incentives to hospitals and health professionals in the event that they utilized the electronic health record technology.