The Recovery Act Blog

Hitting the Target

This morning, economist Edward Glaeser wrote a blog post over at the NYT charging that Recovery Act spending isn’t going where it’s needed most.  Based on a subset of Recovery Act spending, he claims that per capita spending in a state is actually negatively correlated with the state’s unemployment rate – in other words, the higher the unemployment rate in the state, the less money it gets per person.

He’s wrong about that.  Not only does he leave out a major chunk of Recovery Act spending, but the chunk he leaves out includes the programs that are targeted most directly at unemployment.   When you put those data back in, as we do below, you get a correct sense of the extent to which the Act is effectively targeting people and places that need help.

Glaeser’s blog post is based on data reported by direct recipients of Recovery Act, which only covers certain programs—those in which the Recovery Act makes a grant or gives a contract or loan to an entity that will perform a project, like fixing a bridge.

But the chunk he leaves out includes payments that go straight to individuals in need.   Since his targeting measure is unemployment, the most important omission here is the increased Unemployment Insurance payments that the Recovery Act provided – tens of billions of dollars of aid that have provided a crucial lifeline to more than 20 million unemployed workers during this downturn.  

He also leaves out major aid to states through the Medicaid system, which has helped prevent layoffs of teachers and other public servants across the country – and which, by the way, was distributed based on a formula that explicitly considers a state’s unemployment rate (such data are publicly available here).

Lo and behold, when you actually look at the entire Recovery Act, the negative correlation Professor Glaeser complains about disappears.   This is, of course, no surprise – if you leave out the Recovery Act programs that are targeted at economic hardship, the Recovery Act will look to be poorly targeted.  And by the way, these programs account for over $120 billion in funds put to work so far, so we’re not talking small change here.

Here is the very different picture you get when you  look at these targeted programs  – expanded unemployment insurance, aid to states through the Medicaid system, food stamps, emergency grants to the Temporary Assistance for Needy family system, job training, and youth summer employment:

And then there’s another side of this story.   As the figure shows, the programs that are targeted at unemployment are doing their job.  But not every program in the Recovery Act is intended to send money the states with the highest unemployment rates. 

In fact, that’s why the package is called the American Recovery and Reinvestment Act – it’s designed not just to get aid to those who need it most, but to make investments that will help lay the foundation for robust, sustainable growth in the future.

The Recovery Act cannot meet the vision of the President and Vice President if we were to limit it solely to projects in states with higher than average unemployment.   Throughout the country, it must make key investments in infrastructure, including not just roads and bridges but transit, high-speed rail, broadband, clean energy, and the smart grid.  And even when it comes to good, old-fashioned roads and bridges, those investments have to be made where they’re needed, not just wherever unemployment is the highest. 

Glaeser raises perfectly valid and important points about making sure our investment decisions are smart ones, not driven by politics or outdated formulas.  And that’s what we’re trying to do here.  When it comes to both recovery and reinvestment, the Act is hitting the target.

Jared Bernstein is Chief Economic Advisor to the Vice President, and Executive Director of the Middle Class Task Force

Newspapers Nationwide Join the Consensus Applauding the Recovery Act

As the Recovery Act crossed the one year mark, newspaper editorial boards across the country took a good, hard look at the program and weighed in on its impact.  From the St. Petersburg Times’ evaluation that “One year later, stimulus shows results in Florida” to the Philadelphia Inquirer’s verdict that “the stimulus rescued America,” consensus is growing that the Recovery Act has pulled us back from the brink of economic disaster and is working to create jobs and drive economic growth.  These editorials join a growing chorus of independent experts who say the Recovery Act is already responsible for as many as 2.1 million jobs nationwide and provide a look at how the Recovery Act is at work in communities across the country.  

Here is what they had to say:

FL – St. Petersburg Times - One year later, stimulus shows results in Florida: The reality is the bleak economic picture in the Sunshine State would look a lot darker without the federal money.  The tale is in the numbers, even if there are disputes over the precise figures.  Without the federal help, the state would have been forced to lay off thousands of teachers and would be facing an even deeper budget crisis…  In the Tampa Bay area, the impact of the stimulus money will be felt for decades. Construction on more U.S. 19 overpasses already is under way in North Pinellas, and in Hillsborough a connector between Interstate 4 and the Lee Roy Selmon Crosstown Expressway will help business at the Port of Tampa and create thousands of jobs.  The stimulus money earmarked for high-speed rail between Tampa and Orlando will jump-start a project that could help transform the economy for an entire region. 

KS- The Wichita Eagle - Hatred of stimulus bill misplaced:  Obama administration officials are fanning out across the country to raise awareness about the impact of the federal stimulus bill, which became law a year ago today. Based on a new CNN poll, they have their work cut out.  Only one-quarter of Americans think the federal stimulus plan has helped the middle class, and only one-third think it helped low-income Americans. Meanwhile, 74 percent think that at least half the stimulus spending has been wasted.  Such perceptions are understandable, given the struggles families are facing and the stimulus bill's failure to reduce the unemployment rate. But they don't match what was actually in the bill.  The largest item in the stimulus package was a workers' tax cut worth $116 billion. According to the CNN poll, 70 percent of the public support the tax cuts in the bill.  The second and fourth largest items in the package were aid to states for Medicaid ($87.1 billion) and education and other essential services ($53.6 billion). Imagine how much worse state budget problems would be without this federal help.  The third largest item ($69.8 billion) prevented middle-income Americans from having to pay alternative minimum taxes. Other large items include: $35.8 billion to extend unemployment benefits; $27.5 billion for road and bridge construction; $25.1 billion for extending COBRA health insurance to unemployed workers and their families; $20.9 billion for food assistance to low-income Americans; $14.8 billion for an expanded child tax credit; $14.4 billion for aid to seniors and disabled veterans.  All total, these items account for about 60 percent of stimulus spending.  Is this wasted money?  Most of the remaining stimulus spending was for business tax cuts, college Pell Grants, and projects such as upgrading the electricity grid and public transit systems. According to the CNN poll, 80 percent of Americans support the infrastructure investments. 

MD - Baltimore Sun - The stimulus: More successful than you think:  Unlike the Bush administration's stimulus programs, in which the treasury sent checks to taxpayers that were largely saved or used to pay down debt, the Obama stimulus tax cuts came gradually in the form of reduced payroll tax deductions designed to make sure more of it was spent.  And the program isn't done.  The spending that will come next is weighted toward infrastructure, both physical and digital, that will not only put people to work now but will also pay lasting dividends.  According to The Washington Post, just $31 billion that was allocated for road construction, expansion of broadband service, energy efficiency, high speed rail, smart grid upgrades, electronic health records and other projects has been spent.  That leaves nearly $200 billion yet to come.  The stimulus has not single-handedly returned the economy to growth and prosperity. But it has helped stave off what many feared little more than a year ago might turn into a full-fledged depression, and it still has more punch left.  It may not have been perfect, but it was certainly not a mistake.

MA – Boston Globe – A Fact: Stimulus created jobs - The numbers are in, and there can no longer be any doubt that President Obama’s stimulus bill, passed just over a year ago, helped pull America from the brink of economic catastrophe, in part by creating millions of jobs that would not otherwise have existed.  All of the major economic research firms that have studied the stimulus’ effect have come to this conclusion….  Joblessness is still sky-high, of course, and the United States is by no means out of the woods economically.  It’s understandable that Americans whose situations haven’t been visibly improved by the bill want to rail against it and outsized government spending, and the stimulus certainly wasn’t without its flaws.  Still, though, it’s ridiculous to deny, as many have, that adding 2.5 million jobs was a poor use of government funds, or that the bill’s other features, which ranged from expanded COBRA health benefits for laid-off workers to money to forestall layoffs of teachers, firefighters, and police officers, helped many Americans to stay on their feet.  Stimulus opponents, often motivated by strictly ideological or political concerns, have repeatedly claimed that the bill didn’t create a single job that the economy wouldn’t have created anyway. This isn’t true, and it should be beyond the bounds of political debate to claim it.

NH – Concord Monitor – Stimulus program is easily justified:  Many people have come to believe that the money spent so far under the $787 billion federal stimulus program was wasted.  The truth is that things would have been much worse without the American Recovery and Reinvestment Act.  The unemployment rate, currently down to 9.7 percent, would have been higher.  The president's Council of Economic Advisers says that it could have hit 11.2 percent if the spending hadn't created and, more notably, saved jobs. But direct job creation and preservation was only part of the stimulus package.  Some 40 percent of the money was used to cut taxes for workers. If that money was wasted, it wasn't wasted by Congress or Washington bureaucrats, but by people who got the extra money. But they didn't waste it, either. They spent it on things like food, gas and mortgage payments….  People are angry about the federal bailout of the financial industry, angry about the bailout of the auto industry, and angry about the money paid to or extorted by members of Congress in exchange for their support. But anger at the stimulus program is unjustified….  The stimulus program could have been better and should have been bigger. But it's doing a decent job of keeping the economy afloat until it can swim again and people employed who would otherwise need assistance.