FACT SHEET: Seven Years Ago, the American Recovery and Reinvestment Act Helped Bring Our Economy Back from the Brink of a Second Great Depression
This month marks the seven-year anniversary of the American Recovery and Reinvestment Act (Recovery Act). The President signed the Recovery Act into law on February 17, 2009—less than a month after taking office—as our economy teetered on the brink of a second Great Depression. In fact, by a number of measures, the economy was collapsing as fast or faster in late 2008 and early 2009 than it was when the Depression began. But the Recovery Act and the Federal government’s broader response to the crisis helped ensure that the U.S. economy not only climbed out of the crisis but emerged stronger than before—an historic turnaround in part attributable to what the Recovery Act did to restart near-term growth and build a new foundation for long-term economic strength.
By the beginning of 2016, the U.S. economy had completed the best two years of job growth since the 1990s and the fastest two-year drop in the unemployment rate in three decades. Each month we continue to extend the longest streak of job growth on record, with 14 million private-sector jobs created over 71 straight months of job growth. Moreover, wage growth has strengthened to its fastest pace since the financial crisis over the last six months. Seven years after the Recovery Act was passed, it is important to look back at the bold actions the President and many other policymakers took to support our economy.
By many measures, economic conditions at the outset of the financial crisis were collapsing faster than the onset of the Great Depression.
- U.S. households’ net worth declined by even more in the first year of the recent recession than during the Depression, as the crisis in 2008 erased $13 trillion of wealth from the U.S. economy—more than five times the rate of loss seen at the onset of the Depression.
- Similarly, the U.S. stock market declined by nearly 50 percent from its pre-crisis peak by the time the President took office, outpacing the market crash over the same period during the Great Depression.
- The rapid collapse of home prices, employment, and output in 2008 also matched or exceeded those in the first year of the Depression.
But the different policy choices we made led to very different outcomes. The economy began to rebound in 2009, returning us to a path of robust and sustained growth.
- After the unemployment rate peaked at 10 percent in 2009, we have since cut it in half, with the rate dropping below 5 percent in January—the fastest pace of decline in thirty years and nearly the fastest since World War II.
- Economic output per person recovered to pre-crisis levels just four years after the height of the crisis. By contrast, the recovery following the height of the Great Depression took 11 years.
- The United States was one of the first advanced economies in the world to emerge from the crisis and recover its pre-crisis economic output.
Leading outside analysts agree that the Recovery Act created millions of jobs and substantially boosted economic output, supporting the economy at a crucial moment.
- Recent analysis by Moody’s Analytics’ Mark Zandi and Princeton’s Alan Blinder found that the Recovery Act raised U.S. GDP by over 3 percent—or roughly $500 billion—in 2010 alone, lowering the unemployment rate by 1.4 percentage points that year. From 2009 to 2014, this raised employment by almost 6 million job-years (years of full-time equivalent employment).
- A broad range of other private-sector analysts, including Macroeconomic Advisers, have concluded that the Recovery Act increased U.S. GDP by between 2 and 3.4 percent in 2010 alone.
- The nonpartisan Congressional Budget Office (CBO), similarly, has estimated that the Recovery Act raised U.S. GDP by between roughly 1 to 4 percent in 2010 alone. CBO’s analysis indicates that the Recovery Act lowered the unemployment rate that year by as much as 1.8 percentage points.
Analysis by the Council of Economic Advisers (CEA) suggests that the Recovery Act created or supported millions of jobs, provided a substantial boost to economic growth, and delivered a significant “bang-for-the-buck” for every dollar spent.
- Consistent with outside estimates, CEA estimates the boost to the economy from the Recovery Act generated almost 6 million job-years (years of full-time equivalent employment) through the end of 2013, raising employment by more than 2.3 million in 2010 alone.
- CEA estimates that GDP was 2.4 percent higher in 2010 than it would have been in the absence of the Recovery Act.
- Each dollar of the Recovery Act increased total economic output cumulatively by more than $1.30 between 2009 and 2013, reflecting ripple effects as the recovery measures passed through to—and helped stabilize—the broader economy.
- Based solely on market incomes, the poverty rate would have risen 4.5 percentage points from 2007 to 2010. However, after taking into account federal programs like the Earned Income Tax Credit, the Child Tax Credit, and nutrition assistance, the poverty rate rose just 0.5 percentage points. Without the Recovery Act’s boost to household incomes, the poverty rate in 2010 would have risen an additional 1.7 percentage points—which translates into about 5.3 million additional people that would have slipped into poverty.
While shoring up our economy in the short run, the Recovery Act also took significant steps critical to supporting long-term growth.
- These policies included major investments and tax incentives to support clean energy, education reforms catalyzed by the Race to the Top program, innovative infrastructure projects funded through TIGER grants, expansions to Pell Grants and the creation of the American Opportunity Tax Credit to make college more affordable, investments in electronic medical records to improve health care, and tax relief to boost incomes for working and middle-class families.
- These investments in the Recovery Act will support our economy for decades to come by raising productivity growth, and many of the programs created by and policy changes adopted through the Recovery Act have been extended, enhanced, or made permanent since.
Furthermore, this historic recovery was achieved as part of a comprehensive response that cut the deficit in the medium and long run and offered an unprecedented degree of transparency.
- In the years following passage of the Recovery Act, the Administration paired additional near-term support for the economy with medium- and long-term deficit reduction. These measures alongside stronger growth—in part driven by the Recovery Act—helped drive annual budget deficits down by nearly three-fourths, with the fastest pace of deficit reduction since the period following World War II.
- Even in isolation, the Recovery Act had at most a minimal impact on the long-run debt, adding less than 0.1 percentage points to the 75-year fiscal gap. Research from Harvard and the University of California-Berkeley, as well as from the IMF, suggests that it may have actually reduced debt as a share of the economy by restoring growth.
- The Recovery Act established an independent accountability board and required recipients to account regularly for their use of funds. This commitment to transparency ensured that rates of waste, fraud, and abuse were kept remarkably low.
The President also signed into law over a dozen additional fiscal measures following the Recovery Act to continue to boost job creation and support middle-class and working families.
- In the four years following the Recovery Act, the President signed into law over a dozen fiscal measures that extended key features of the Act and provided new sources of support.
- These measures included a temporary payroll tax cut for 160 million working Americans, additional extensions to the Emergency Unemployment Compensation program, expanded business tax incentives, small business tax cuts, and funding to protect teachers’ jobs.
- These additional fiscal measures provided a total of nearly $700 billion of additional support to the economy in the first four years of the Administration. When added to the support from the Recovery Act, the total fiscal support for the economy from 2009 to 2012 exceeded $1.4 trillion.
- Combining the effects of the Recovery Act and the additional fiscal measures that followed, the cumulative gain in employment was about 9 million job-years (years of full-time equivalent employment) through the end of 2012 relative to a world in which the Recovery Act and these other policies were not in place.