American Recovery From the Great Recession

Officially beginning in December of 2007 and lasting until June of 2009, the Great Recession dropped a bomb on our nation's economy. Consumer spending and business investment were severely cut back. Unemployment rates skyrocketed and the labor market lost 8.4 million jobs. In order to combat this economic decline, Obama signed the American Recovery and Reinvestment Act of 2009 (February 17, 2009). The purpose of the expansionary policy was to combat this massive job loss and included tax credit for individuals and families that applied (usually three children or more). From an individual standpoint, the Act also included homebuyer credit, energy incentives, small social security payouts, reduced health insurance premiums, and increased tax-free unemployment benefits. Additionally, the Act helped students and their families to pay their higher education expenses. Businesses are far more likely to hire students with higher education.

Theoretically, such an act would hope to provide more jobs to the failing economy, along with reducing the already substantial layoff rate. A fiscal policy such as this also helps to reduce inflation by increasing money supply and putting emphasis on domestic spending. It encourages citizens to continue investing in businesses and to maintain customary consumer spending trends. These economic stimuli increased government spending in order to reboot financial drawbacks. "Work Opportunity Tax Credit" was introduced to the Act, expanding credit and encouraging businesses to hire more veterans and disconnected youth.

In the long run, when citizens are paying more for the same goods they used to buy, it can cause unrest. People may demand higher wages at their job, while the government continues to hand out tax cuts and refunds to qualified citizens. This can be a slippery slope from a political standpoint. The government needs to allow their citizens to continue consuming and investing, but all these breaks/refunds could cause the government itself to lose money. It takes great care to maintain balance. Individual states who faced larger budget deficits were awarded fiscal relief by the Act, and the employment rates in these states rose. Even so, the balance was not quite maintained, and although the Act served to pull us out of the recession, our nation's deficit has still increased due to the rise in private spending.
However, the Act succeeded in increasing financial investment from the public in the short-term. GDP rose slightly, and there were 1 million new U.S. jobs created by the second quarter. Although, years after the Act was put into place, further political development has led to a sharp decrease in public spending of all kinds. Additionally, the neglect or misuse of potential U.S. resources remains an issue, namely the potential for public labor. Still, tax breaks and refunds gave citizens more money to spend, easing some of the stress of their daily lives. Aggregate demand increased, and money supply grew significantly.


References:

https://www.irs.gov/uac/The-American-Recovery-and-Reinvestment-Act-of-2009:-Information-Center

http://www.epi.org/publication/short-long-term-impacts-infrastructure-investments/