Will Obama’s Stimulus Plan Work?

As President Obama gets ready to sign the 2009 American Recovery and Reinvestment Act later today, a common question is, will it work? Of course we won’t know for a while, but my honest non-partisan opinion is “a little bit.” There is little doubt that parts of the bill are positive for our country and the employment situation, whereas others are likely to not do us any good. I think that the extreme views on either side, that this bill will either bring us out of recession or make it far worse, are both unfounded.

In particular, there are some people that insist FDR’s New Deal in the 1930’s prolonged the Great Depression, and only when World War II began did the economy rebound. They use this argument to imply that this stimulus bill (a mini New Deal of sorts) will further cripple our economy. I just wanted to share the chart below with everyone in order to debunk this myth.

Arguing that government spending does not create jobs is pretty silly. You can certainly take the position that government should not do anything (let the market work!), or that we are spending too much money when we are already in debt (to the tune of $10 trillion!), but denying that building a road, or upgrading a power grid, or funding medical research grants will require incremental workers is a pretty strange assertion.

The idea that tax cuts are a better means to create jobs is odd too because giving a tax cut to an unemployed person (who isn’t earning any money) doesn’t really help them very much, and it certainly doesn’t get their job back. An extra $13 per week (or whatever the number is) might help people pay their bills, but it can’t boost demand enough to force companies to need to hire more workers to meet that demand.

All in all, I think this bill is far from perfect and I don’t think it will have the same impact as the New Deal did on our economy. That said, there is no reason to think it won’t have some impact. Probably not enough to return to positive economic growth and falling unemployment anytime soon, but before we can grow again we have to halt the decline and hopefully this bill can contribute to that goal. Everyone should hope it works, whether you supported it or not.

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8 Thoughts on “Will Obama’s Stimulus Plan Work?

  1. Mind explaining that chart? It maps to no data set.

  2. Chad Brand on February 18, 2009 at 10:48 AM said:

    It is U.S. GDP for the period in question, from the US government data. It looks to be the chain-weighted GDP measurement (I didn’t produce the chart personally).

  3. Huge Kid on March 3, 2009 at 3:33 PM said:

    The problem started around 1913 creating a cartel, oh whats it called, ahh yes, the Federal Reserve. Here is an idea: Lets get the richest people around, create a cartel, have it backed by the govt (so people think its good) and control the banking system. Then we can create something called FDIC insurance (again, backed by govt) so that people wont run on the bad banks. Even though FDIC will be waaaaay underfunded and couldnt possibly pay out, we can tell people they will get their money within 100 years. Now banks can leverage themselves 100 to 1 since people will still keep their money with them cause its “backed by the govt”. No worries, if the bank goes to fail, we will just print more money and bail them out. Who cares about inflation, we have been doing this for years!!! “keep that press hot!!!!” We can even sign NAFTA, and also deregulate in order for everyone to have a home, EVEN if they cant afford one!!!!! ( nice work Clinton). He knew Bush would get the blame for it. Also, we can create even more govt jobs, even though the founding fathers didnt ever want the govt to get too big, this way, anyone with a govt job doesnt have to worry about their pensions, insurance or any of that. The govt is supposed to fear the people, not the people fear the govt. At least that is what our founding fathers said. Anyone else feel like they dont have control of their lives? Why does the government always try to CONTROL things. They are soo condescending to think they know whats best for everyone.

    I have a better idea, how about when this mess is all over (surely not now), we take FDIC insurance away, and other socialist programs, allow insurance companies to bid on providing insurance to banks (kind of like they do for our auto, homeowners, etc). This way, banks wont leverage themselves 100 to 1, cause they wont want to pay the higher premiums to do so!!!!! To quote Ben Affleck, Thats it im done!!!!

  4. Chad Brand on March 3, 2009 at 3:42 PM said:

    I don’t know… AIG already showed this doesn’t always work. They became the biggest private insurer on earth (by insuring every single product the banks could dream up) and now they can’t pay the losses. The government didn’t want to let all of AIG’s policy holders fail too, so they are essentially giving AIG $200 billion to pay out the claims for them.

  5. Huge Kid on March 3, 2009 at 6:03 PM said:

    I understand, this is not going to work while you have socialist policies in place and the thought of the government bailing out companies. You must let the capitalist market be capitalist. We would have to recover, and then implement regulations that do not allow bailouts of any kind. Yes, banks will still fail in the future, and if their insurance company fails, either tough luck or someone healthy buy them up. This is how a capitalist market should work. In other words, you can’t have a “federal reserve” even exist. We know this is practically impossible with the debts and foreign central banks. Now that we are on a global level, its either join the government, win the lottery, or suffer in the private industry while the CEO’s can continue to pay themselves the big bucks cause they know they will get bailed out. If not, who are they to care, they are set for life.

  6. Huge Kid on March 3, 2009 at 6:04 PM said:

    Get prepared for our country to turn socialist, and for a global government to form. The world will continue to get worse this way, not better. The govt wont admit it though, cause they are happy with their jobs and benefits. They also have complete control of all the people. What are we to do about it?

  7. What the New Deal gave America was relief, but it did not solve the problem, it only prolonged it. It also left America with more debt. When FDR took office in 1933 (Year New Deal was passed.) unemployment was over 24%. In 1935 (Second year New Deal was passed) unemployment was at 18%. In 1939, it was 17.2%. In 1940 (before the War), unemployment was still over 17%. That doesn’t sound like something that worked, after all 17% unemployment is MASSIVE. From 1933 to 1938, unemployment dropped only 7%. When America entered the Second World War in 1942, unemployment began to drop in a rapid pace. In 1943 unemployment had fallen to 1.9%. The Second World War is what got us out of the Depression. It made unemployment go away and it awakened the industrial might of America. It’s not hard to see how WW2 got us out of the Great Depression. With everyone buying, spending, and producing, the economy made a great recovery. With the demand for war supplies high, it forced our nation to be more productive, which lead to us being more prosperous. WW2 got us out, the New Deal did not. All the New Deal left us with was a higher debt and a larger government…

    I think FDR’s own staff members can summarize how badly the New Deal failed, like what Henry Morgenthau, Secretary of Treasury for FDR, said once. He said –

    “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.”

    – Henry Morgenthau, FDR’s Secretary of Treasury… (1941)

    That came from FDR’s own staff member! The numbers don’t lie either. Redistribution of wealth, which is what a stimulus does, does not create wealth or jobs! It only changes who has the money…

    New Deal policies like the National Industry Recovery Act of 1933, instituted “codes” to limit competition in business. Businesses were forced to cut output, so they could maintain high prices and wages. Businessmen who cut prices were cajoled, fined, and sometimes arrested. Fortunately, NIRA was struck down by the Supreme Court in 1935…

    Other polices all did what the NIRA did. A good example is the Agricultural Adjustment Act of 1933. It slashed production to increase and maintain high prices and wages. Other acts made the cost of employment incredibly high, such as the Davis-Bacon Act, or the increase on Social Security, which increased the cost of compensations.

    All of these policies also included high tax hikes, high regulations on business, and increased spending. These policies all lead to high unemployment and an increased burden to families. Many liberals talk about how FDR helped people, but what good is help, when the majority of the nation needed more than help. It needed economic help and recovery, which never came…

  8. Chad Brand on July 10, 2009 at 7:34 AM said:

    Your conclusion completely ignores the chart I provided to prove the point. The chart does not include employment, which I have no doubt was helped tremendously by the war. After all, how many tens of thousands of people were hired to support the war effort? If one defines economic growth as solely joblessness, then you likely have a point. However, GDP is the benchmark for economic growth and that is the metric I have used here to show the New Deal’s effect on the economic in general, rather than one single statistic like unemployment.

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