The Recovery Act Blog

  • Recovery Act in Action, #3: Tracking the Ripples

    Editor's Note: In case you missed them, read Part 1 and Part 2.

    Throw a rock in a still pond and you will observe many ripples.

    Throw a Recovery Act program in a stagnant economy and you will observe many jobs.

    Therein lies the lesson from our latest entry of the Recovery Act in Action, thanks to some truly thorough journalism by Robert Gavin of the Boston Globe.

    Gavin looked at the ripple effects, or—if you want to be boring—multipliers, from $77 million in Recovery Act contracts awarded to Reveal Imaging Technologies (RIT), a manufacturer of airport security equipment in Bedford, MA.

    RIT reports that thanks to the Recovery Act-funded contracts from the Transportation Security Administration, they’ve added nearly 40 jobs over the past year and they’re still hiring.  They’ve expanded their plant capacity, more than doubling the size of their facility.

    But what Gavin’s article shows is that beyond these direct hiring effects, there’s a lot more upstream and downstream job creation generated by this type of activity.  So far, RIT has subcontracted parts of its Recovery Act projects to 21 other companies in 12 states “that make components or provide services for its advanced scanning machines.”

    For example, an RIT subcontract helped reduce planned layoffs at a firm that assembles conveyor systems.  Same with a machine tool shop, whose “metal cutting machines, silent several months ago, are humming again” thanks largely to another RIT subcontract.

    I spoke to the owner of that machine shop, Jack McGrail.  He told me that most of 2009 was pretty dismal and that if things didn’t improve he was going to have to let some folks go.  Then, in November, the RIT order generated by the Recovery Act came in, and, as Jack said, “it saved me from laying two guys off and I was able to add one more.”

    That’s one type of multiplier effect—the jobs created by firms providing inputs to the final product.  But there’s another type that’s also important: the activity caused when people earn more and go out and spend it.  Gavin picked up this kind of activity too by visiting Rebecca’s Café, a restaurant near RIT that reports a 15% increase in sales since RIT expanded its workforce.

    The evidence around the RIT case supports something economists have known since Keynes taught it to us: the jobs you directly create through government spending at a time of recession are just the tip of the iceberg. 

    Thanks to the Recovery Act, there are hundreds of thousands of teachers in classrooms and police on the beat, construction workers fixing roads, weatherizing and rehabbing buildings, engineers building out the smart grid and planning new high-speed rail lines, and much more.  But as with RIT, for each one of these jobs, there are many others helping to supply materials and services to these firms and workers.

    We’ll be throwing a lot more stones in the water in coming months, and I’ll be sure to keep posted on both the splash and the ripples.

    Jared Bernstein is Chief Economic Advisor to the Vice President

  • 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:

    State Recovery Act Spending and Unemployment Rates

    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

  • Job Creation and the Recovery Act: Getting the Full Picture

    Imagine you were trying to measure the size of an iceberg and you only considered the part above the water.   You’d be missing most of the picture, right?

    That’s much like what happened in this story on the cost of construction jobs created by the Act.  The article considers only the tip of the iceberg, misses what’s going on underneath, and thus gives a huge over-estimate of the cost of creating these jobs.

    Technically, what’s missing here is the multiplier analysis (Keynes would be aghast!).  Think about what it takes to build a road: when a state awards a contract to a road building firm, that firm has to purchase cement and other materials, and those purchases create jobs for producers of raw materials and manufacturers.  They may have to buy or lease heavy construction equipment, supporting upstream jobs at factories.  Hiring an actual crew to build the road is often the last step.

    Interestingly, the story notes that money for construction projects isn’t just spent on direct hires--it pays for equipment and supplies too.   What’s missing is that buying that equipment and supplies also creates jobs.  By leaving out all those indirect jobs, the analysis undercounts the number jobs created by the contract and comes up with a cost per job that is way too high. 

    That problem is compounded by looking at just three months worth of job creation.  About 75 percent of the recipients that reported said that their projects are less than half complete – pointing to future hiring off of those same dollars yet to come as projects ramp up.

    As President Obama has stressed, we need to do much more to help get America get back to work.  But when we’re looking at what we’ve done so far, let’s make sure we’re seeing the full picture.

    Jared Bernstein is Chief Economist to Vice President Biden, 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 thinkUnlike 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 justifiedMany 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.

  • It Doesn’t Get Any Clearer Than This

    When it comes to keeping track of the score in Washington, the non-partisan Congressional Budget Office is commonly considered to be as independent as they come.  As one noted Republican Member of Congress said, CBO “speak[s] the truth to power here in Washington” and does “an important service by telling us the facts.”  As the Recovery Act hit the one-year mark last week, you may have seen some Washington game-playing about its effectiveness.  Well now, once again, the CBO, has spoken.

    There was already a strong consensus that the Recovery Act is working (see this summary), but in case you need any more proof, check out today’s new report from the CBO (pdf).  According to their analysis, the Act has created or saved up to 2.1 million jobs as of the fourth quarter of last year.

    Or take another example: last Friday, Macroeconomic Advisers, a prominent private-sector forecasting firm, posted this entry on their blog about the impact of the Act: “the definitive answer: it works.”  It doesn’t get any clearer than that.

    Mark Zandi, a former economic advisor to John McCain, also recently reviewed the evidence and wrote, “the stimulus did what it was supposed to do: short-circuit the recession and spur recovery.”

    Let’s be clear: we want the world to know the objective, empirical facts about the Recovery Act, most notably that two million folks are on the job because of it.  But we also know that the hole in the job market left by the Great Recession is a lot bigger than that, and I assure you, everyone here is focused on finding the best ideas to make sure that every American who wants to work can find it.   

    Day in and day out, the President consistently stresses the urgent need to build off of the successes of the Recovery Act in bringing the economy back from the brink and moving forward with targeted proposals to jumpstart job creation, and we are working closely with the Democrats and Republicans in the House and Senate to get that done.  The bipartisan vote in the Senate yesterday on their jobs bill is an important step forward, and we’re going to keep at it until the great American job machine is back up and running.

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

  • Recovery Act Working for You

    Yesterday, I had the opportunity to travel to Cincinnati, Ohio for the one year anniversary of the American Recovery and Reinvestment Act of 2009.  While in Cincinnati, I visited the Forest Square development, which is a low-income housing development under construction using $1 million in Recovery Act Tax Credit Assistance (TCAP) funds.  When complete, this project will consist of 21 affordable apartments for Cincinnati’s elderly residents.   

    In early 2009, when the project owner was unable to secure financing, the owner applied to the Ohio Housing Finance Agency (OHFA) for TCAP and Treasury Tax Credit Exchange (TCE) funds, both provided through the Recovery Act, to fill funding gaps.  After OHFA awarded the project $1 million in TCAP funds and a TCE grant of $248,566, the project owner was able to close the financing and begin construction.  Without the Recovery Act, the project owner may not have been able to move forward with the completion of the project.  A total of 70 jobs are currently being created as a result of the project.

    But most importantly, I was able to see firsthand how the Recovery Act has directly impacted many American families.  I had the incredible opportunity to meet a construction worker named Will Straw while touring the project.  Will was hired 5 months ago by the project developer, the Model Group, specifically for the Forest Square project.  With 30 years of construction experience, Will had been unemployed a year and a half before joining the Model Group. He expressed to me how he, his wife and 3 sons are incredibly gratefully that the Recovery Act has enabled him to find work again.

    Since day one, the Recovery Act has been working to address the greatest economic crisis since the Great Depression and lay a new foundation for economic growth.  According to the Congressional Budget Office, the Recovery Act is already responsible for a many as 2.4 million jobs at the end of 2009.  The Recovery Act funded- TCAP program is just one example of how recovery is already happening in communities across the country.  TCAP is restarting stalled construction projects, creating jobs, revitalizing neighborhoods and providing affordable housing for low-income residents throughout the country.  What I saw in Cincinnati yesterday is just one example of the economic recovery America is beginning to experience. 

    Secretary Donovan in Cincinnati

    Secretary Donovan meets construction workers while touring Forest Square, an affordable housing project in Cincinnati under construction as a result of Recovery Act funding. February 18, 2010. (Official White House Photo by Greg Miller)