So, Is It Working? An Assessment of the American Recovery and Reinvestment Act at the Five-Month Mark

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Christina D. Romer
Chair, Council of Economic Advisers
Statement before the Economic Club of Washington D.C., August 6, 2009

INTRODUCTION

A couple of weeks ago, we hit the five-month anniversary of the American Recovery and Reinvestment Act. The Recovery Act provided $787 billion of tax cuts and government spending, or roughly 5 percent of GDP, making it the boldest countercyclical fiscal stimulus in American history. It was a central piece of the Administration’s wide-ranging program to rescue the American economy from the worst recession since the Great Depression, and to build a foundation for a stronger, more durable prosperity.

Over the spring and summer, there has been a lot of chatter about what the Recovery Act was doing and how well it was working. I would like to spend some time this morning presenting a clear-eyed assessment of what it has accomplished and what we can expect going forward. This week is a natural time for such an assessment, coming on the heels of the last Friday’s GDP report. This report gave us our first look at overall economic performance in the second quarter of this year, and a clearer sense of the depth of the recession over the previous five quarters.

In an unusually whimsical moment, I sent in as the title of my talk, "So, Is It Working?" Though it may destroy some of the suspense, I thought that given the provocative title, I should probably get straight to the answer: Absolutely.  The Recovery Act, together with the actions taken by the Treasury and the Federal Reserve to stabilize financial markets and the housing sector, is helping to slow the decline and change the trajectory of the economy.  It is providing a crucial lift to aggregate demand at a time when the economy needs it most. And, we anticipate that the effects will build through the end of this year and the beginning of the next.

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