Essays: American Recovery and Reinvestment Act of 2009

Policy Analysis

Comparing 2009 and 2010 data, we can conclude that though the negative processes in the U.S. economy did not stop, they slowed down a bit. For instance, the U.S. GDP grew by 4.7%, industrial output volumes increased. The analysis of Barack Obama’s anti-crisis program demonstrates that it was based on allocations to stimulate the consumer demand through nonrecurrent relief measures, expenditures on job creation and supporting major banks and corporations which found themselves in front of the threat of bankruptcy (Wyatt, 2009).

Obama’s anti-crisis policy has managed to reduce the development rates of the crisis, and even led to some economic growth, but simultaneously, the high level of state allocations has increased the budget deficit, i.e. by solving one problem, created another one. When all the stimulus governmental spending is considered, they forced the budget deficit make about $ 2 trillion by the beginning of 2011 (Durant, 2011). Thus, currently, except for the problems related to the economic crisis, the U.S. administration faced a new problem – reduction of the budget deficit.

In general, Obama’s plan represents, on the one hand, a set of short-term incentives for economic recovery, whose effectiveness for job creation and renewal of stable economic growth is very unobvious, but on the other hand, as the Republicans insist, it is the long-term program for the transformation of the country in compliance with the canons of left-liberal ideology. At the same time, as it is pointed out by the critics of the plan, the Act contains 90% of social policy and only 10% of economic policy, which places in question its primary purpose – stimulation of the economic growth. The ideological coloring of the plan which is expressed in a number of expenditures determined rather by the political than economic expediency, also calls for the active opposition. Obama’s plan factually masks the old-established politically-motivated fiscal priorities of the Democrats which are now served out as the plan for rescuing the economy (Wyatt, 2009).

Having read the plan, any analyst gets a feeling that the Democrats think that any new spending, no matter what it is directed for, will have a stimulating effect on the economy. Thus, for instance, according to the adopted act, ACORN, a public organization suspected in the involvement in the falsification of the election results in some states, will receive its share of total funding. However, it is not clear how the stimulation of ACORN will help stimulate the economic growth. A share of funds is also directed to the Ministry of Agriculture for some doubtful projects; tens of millions is to be spent on family planning program; $ 400 million will be invested in the fight against global warming; another $ 198 million will be obtained by Filipino veterans of World War II. Still, these are just some examples of financial appetites of the Democrats (Miller, Vandome, & McBrewster, 2010).

According to the ideology of the plan of the Democrats, the stimulation of the economy should be grounded on the fact that the money are to be, above all, transferred to those who are most in need, because they will spend it immediately, i.e. return it back into the economy, instead of hiding it on their bank accounts, while rich people are seen as those who will start saving money in this case. The latter are more intended to accumulation, especially in times tough for the economy. Therefore, it is meaningless to lower the taxes for the wealthy and the taxes on investment, as the rich class will anyway prefer to wait it out. And if the money is hidden under the mattress, this is equivalent to the fact that they are withdrawn from the economy.

But that is not the only possible scenario. The opposite viewpoint is that the wealthy class will keep the money in the bank or invest in the production or creation of new enterprises, i.e. ultimately, will contribute to the creation of new workplaces, or the activity of the stock market. In contrast, the poor will spend money on consumption of cheap imported goods; which means that as a result the money will go back to China and Japan (Howsen, & Lile, 2011).

There is no single opinion in relation to the expenditures on infrastructure. The thing is that all infrastructure projects have a relatively large time lag, after which they begin to affect the economy. Roads, bridges, schools and hospitals must be built. In addition, numerous researches on the efficiency of infrastructure projects adopted after the World War II come to the conclusion that such programs bring at best minor benefits in spite of the huge financial resources spent on their realization (Wyatt, 2009). Hoover and Roosevelt implemented ambitious programs in terms of infrastructure after the stock market collapse in 1929. But in nine years the unemployment in the United States was still over 17%. Expansion of infrastructure expenditures can lead to a growth of immigration, not having thus a large impact on unemployment. One out of seven (or 15%) workers employed in construction in the United States are an illegal immigrant.

The problems may also come from the other side. A quick recovery of the economy may be prevented not by inefficient public investment but by tax increases. After signing the bill on stimulating the economy the U.S. President promised to reduce the federal deficit by 2012, that is, by the end of his term. Barack Obama suggested the reduction of the government spending from 26% to 22% of GDP. However, the reduction of the budget deficit was assumed primarily at the expense of raising taxes. And raising taxes during a recession is the first step to ensure its prolongation (Wyatt, 2009). This happened in American history several times, including the case during the Great Depression. In such a situation it is better to do nothing than to withdraw capital from the market by raising the tax burden. But Obama’s advisers insist that the economic crisis should not prevent the execution of the pre-election promises. The top marginal tax rate will be increased from 35% to 39.6% for persons with the annual income of $ 250,000, the capital gains tax will increase from 15% to 20%, which, is even less than Obama proposed at the debates in the spring of 2008. Capital gains tax is very important for the growth of investment. President Bush lowered the tax in the middle of the last recession in order to stimulate investment in the economy.

Increasing the tax on profits from investments, in turn, guarantees that the economy will receive less investment exactly at a time when they are needed most (Miller, Vandome, & McBrewster, 2010). Jobs are created by the investors who dare to take risks. If the reward for risk becomes low enough, they prefer to invest their money in a more attractive place, and not to create business in their own country (Durant, 2011). Currently, it is exactly what is happening.

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