American Recovery and

Reinvestment Act of 2009

Faisal Ahsan
Microeconomics 2022
Spring 2009
Sabo

The American Recovery and Reinvestment Act of 2009 was signed by President Obama

on February 14th 2009. This colossal $787 billion dollar stimulus package contains both

tax cuts and governmental spending programs and will determine the state of this nation

and determine when this recession will end. Will it end the recession and is the ratio of

tax cuts and governmental spending correct?

 In this research paper I will be discussing the American Recovery and

Reinvestment Act of 2009 that was passed just recently. In the paper I will engage in the

arguments of why we are at this juncture and the events leading up to and causing the

current recession. Furthermore, I will elaborate on the reason of why we are in this crisis.

Also, I am going to talk about the stimulus package in terms of broad details such as the

tax cuts and governmental spending programs. Essentially I am going to explain the

allocation of the immensely enormous $787 billion dollar package and whether it will

work or not [American Recovery and Reinvestment Act of 2009] (Obama, paragraph 1).

The American Recovery and Reinvestment Act of 2009 contains both governmental

spending programs and tax cuts for the middle class. The intricate combination of

reforms encompassed by the American Recovery and Reinvestment Act of 2009 indicate

that the act will terminate the current recession.

On February 14th 2009, President Obama announced that economic recovery in

the United States “Will be measured in years, not months” (Spillius, pg.1). Three days

later the American Recovery and Reinvestment Act of 2009 was signed in Denver,

Colorado embarking on the largest economic undertaking in US history [American

Recovery and Reinvestment Act of 2009] (Obama, paragraph 1). The United States of

America is trillions and trillions of dollars in debt because of the problems created by

humanity; but, will the “stimulus package” bring the economy back to the Clinton years?

On February 17th 2009, President Obama signed the American Recovery and

Reinvestment Act of 2009 into law and emphasized to the nation that the mission was not

accomplished, “Today does not mark the end of our economic troubles, but it does mark

the beginning of the end” (Sahadi, Paragraph 3). The American Recovery and
Reinvestment Act of 2009 stresses five main criteria in order to end this recession: to

preserve, create jobs, and promote economic recovery; to assist those most impacted by

the recession; to provide investments needed to increase economic efficiency by spurring

technological advances in science and in health; to invest in transportation, environmental

protection, and other infrastructure that will provide long-term economic benefits; and to

stabilize State and local governmental budgets, in order to minimize and avoid reductions

in essential services and counterproductive state and local tax increases [National Council

of Nonprofits] (Adams, Slide 3).

Before I begin to indulge in the “stimulus” package and the five criteria that

President Obama and Congress believe will end the recession I believe it is necessary to

recognize how America and the rest of the world arrived at this juncture. While on my

search of why we are in this recession I decided to find out what exactly a recession is. A

recession is a phenomenon of decreasing demand for raw materials, products, and

services. A reduction of a country’s gross domestic product (GDP) for at least two

quarters defines a true recession (Shama, Paragraph 1).

A few of the major events that caused the recession are the liquidity crisis, federal

takeover of Fannie Mae and Freddie Mac, bankruptcy of Lehman Brother, and the root

cause of the financial crisis, the housing bubble [American Recovery and Reinvestment

Act of 2009] ( Obama, Section Causes). The liquidity crisis or the credit crunch is a

reduction in the general availability of loans or a sudden tightening of the conditions

required to obtain a loan from the banks [Credit Crunch] (Bernanke, Paragraph 1).

Essentially banks suddenly stopped or slowed down their lending practices. This could be

due to various reasons. Ultimately, many experts say, the crisis was caused by little
understood, unregulated, insurance-like contracts that are intended to guarantee against

loan defaults [Credit Crunch] (Bernanke, Section Causes). Under President Bush the

takeover of Fannie Mae and Freddie Mac occurred and it placed the companies under

governmental conservatorship. The Treasury secretary, Henry M. Paulson Jr., said

regarding this issuer that “A failure would affect the ability of Americans to get home

loans, auto loans, and other consumer credit and business finance. And a failure would be

harmful to economic growth and job creation” (Labaton, Page 1). The Lehman Brothers

filed for bankruptcy on September 15th 2008, and was the largest bankruptcy in US

history with over $600 billion dollars in assets (Bankruptcy of Lehman Brothers,

Paragraph 1). The impact of this bankruptcy was tremendous because it directly affected

the price of commercial real estate and mortgages. The government-backed companies

own or guarantee $5.4 trillion in mortgage loans — about 45 percent of the nation's total

(Duhigg, pg 1). Reckless lending led to cuts in interest rate and ultimately this financial

crisis. All of these events and more led to the root cause of the financial crisis, the

housing bubble crash. Along with the cuts in interest rates lenders fueled buyers and

entrusted them, even ones with bad credit, with loans and this reckless lending made

home prices drop and led to an upheaval of homes being foreclosed [Real Estate Bubble]

(Donaldson, pg 1). These are the events that led to the recession and are the causes of it.

Furthermore now that we know how we got in this recession it is easier to understand if

the stimulus package can restore and promote economic recovery.

Many conservatives are strong advocates of tax cuts. On the other hand many

liberals are active supporters of governmental spending programs. Obama’s stimulus

package specifies for 37% to be devoted to tax cuts and 45% to federal and social
programs (Fox, Pg.1). Obama being a Democrat is a strong supporter of governmental

spending programs and thusly this stimulus package shows.

In the American Recovery and Reinvestment Act of 2009 tax cuts are going

straight in the hands of consumers. The stimulus package sets aside $116 billion dollars

worth of tax credit. In other words workers will receive $400 dollars and couples will

receive $800 dollars from Obama’s stimulus package [American Recovery and

Reinvestment Act of 2009] (Obama, Section Provisions). A child tax credit of $1000

dollars more will also be given to families even those not able to pay income taxes

[American Recovery and Reinvestment Act of 2009] (Obama, Section Provisions). The

American Recovery and Reinvestment Act of 2009 also has incentives. Homeowners can

receive housing credit for making their home more energy efficient, installing energy-

efficient windows, doors, furnaces and air conditioners. [American Recovery and

Reinvestment Act of 2009] (Obama, Section Provisions). Furthermore there is a

reduction of sales tax for car buyers. The act also includes homebuyer credit for those

who purchase a home in 2009 can receive $8000 dollars in refundable credit [American

Recovery and Reinvestment Act of 2009] (Obama, Section Provisions). These are just a

few of the tax cuts implemented in the stimulus package. All of these focus on putting

money in the hands of consumers, they urge consumers to go out and purchase homes

and cars and it provides an incentive to go out and do this. Money is going back into the

hands of consumers so we can spend this money and revive the economy. Proponents of

tax cuts and tax credit, mostly liberals, believe that Americans will not go out and spend

this money and instead pay off their debt. If consumers do not go out and purchase cars,

homes, televisions, etc and instead pay off their debt on their credit how does this
economy recover? If you have a member in your family who has been laid off and instead

this family saves money or spends it on more crucial needs then what? This economy is

driven by consumer’s spending money and the flow of cash and if consumers aren’t

spending do all these tax cuts even do anything?

Public-Works projects are strongly supported by liberals because they believe that

it will create jobs and cut the unemployment rate substantially and put Americans back to

work which will then leave money in their pockets to go buy goods and services. The

American Recovery and Reinvestment Act of 2009 “Will create between 3.3 million and

4.1 million jobs over the next two years,” says Christina Romer, chair of the White House

Council of Economic Advisors [Public Works Project] (Romer, Sec Overview). The

stimulus package contains $357 billion dollars which is going to governmental spending

programs. Economists estimate that 1 billion dollars in construction spending creates

between 14,000 and 47,000 jobs, so a $75 billion dollar increase for infrastructure should

support more then a 1 million jobs in areas such as manufacturing, retail sales, scientific

and technical jobs, administration and waste management [Public Works Project]

(Obama, Sec Overview paragraph 4). This creation of jobs will put millions of Americans

to work, stabilize the economy, and will redefine how we live in the future. America will

have new roads, transportation systems, new bridges, etc., governmental spending

programs are not spending programs but instead are investments for the future. The other

side of this issue is that it will cost a considerable amount of money and will leave our

children and grandchildren in debt and will also take a few years for the creation of jobs.

Although the American Recovery and Reinvestment Act of 2009 as a whole is

more of a macroeconomic point of view the success of small businesses has a direct
correlation with microeconomics. Microeconomics is s a branch

of economics that studies how individuals, households and firms and

some states make decisions to allocate limited resources, typically in

markets where goods or services are being bought and sold

[Microeconomics] (Stone, Paragraph 1). Tax cuts being allocated to

small businesses will help them achieve their maximum supply and

demand. Governmental spending programs will create jobs for small

businesses too and this will in turn aid the suffering economy.

In this research paper I discussed the American Recovery and Reinvestment Act

of 2009 that was passed just recently. In the paper I engaged in the arguments of why we

are at this juncture and the events that lead up to and caused the current recession.

Furthermore I elaborated on the reason of why we are in this crisis. Also I talked about

the stimulus package in terms of broad details such as the tax cuts and governmental

spending programs. The intricate combination of reforms encompassed by the American

Recovery and Reinvestment Act of 2009 indicate that the act will terminate the current

recession. Two topics that I would like to pursue in the future are the amount of time that

the Recovery and Reinvestment Act of 2009 will take in order for the recession to be over

and how governmental spending affected the Great Depression.

 Bibliography

"American Recovery and Reinvestment Act of 2009 - Wikipedia, the free encyclopedia."

Wikipedia, the free encyclopedia. Obama, Paragraph 1

25 Apr. 2009

<http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act>.

"Bankruptcy of Lehman Brothers - Wikipedia, the free encyclopedia." Wikipedia, the

free encyclopedia.

25 Apr. 2009 Obama Section Causes

<http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers>.

"Credit crunch - Wikipedia, the free encyclopedia." Wikipedia, the free encyclopedia.

25 Apr. 2009 Obama, Section Causes

<http://en.wikipedia.org/wiki/Credit_crunch>.

Duhigg, Charles. "The Reckoning - Pressured to Take More Risk, Fannie Reached

Tipping Point - Series - NYTimes.com." The New York Times - Breaking News,

World News & Multimedia. 25 Apr. 2009

<http://www.nytimes.com/2008/10/05/business/05fannie.html>.

Fox, Justin. "Will Obama's Stimulus Package Work? - TIME." Breaking News, Analysis,

Politics, Blogs, News Photos, Video, Tech Reviews - TIME.com.

25 Apr. 2009

<http://www.time.com/time/nation/article/0,8599,1870575,00.html>.
Labaton, Stephan. "In Rescue to Stabilize Lending, U.S. Takes Over Mortgage Finance

Titans - NYTimes.com." The New York Times - Breaking News, World News &

Multimedia. 25 Apr. 2009

<http://www.nytimes.com/2008/09/08/business/08fannie.html?_r=1>.

"Marketing Strategies during Recession: A Comparison of Small and Large Firms."

Questia Online Library.

25 Apr. 2009

<http://www.questia.com/googleScholar.qst?docId=5000224551>. Smith, Paragraph 4

"Microeconomics - Wikipedia, the free encyclopedia." Wikipedia, the free encyclopedia.

25 Apr. 2009

<http://en.wikipedia.org/wiki/Microeconomics>. Stone, Paragraph 1

National Council of Nonprofits. "American Recovery and Reinvestment Act of 2009."

American Recovery and Reinvestment Act of 2009. 25 Apr. 2009

<www.scribd.com/doc/12922956/American-Recovery-and-Reinvestment-Act-of-

2009-Grant-Application-Information-Tips-and-Thoughts->.>. Adams, Slide 3

"Public Works Project." Public Works Project. 25 Apr. 2009 <0-

library.cqpress.com.skyline.cudenver.edu/cqresearcher/document.php?

id=cqresrre2009022000&type=hitlist&num=5>. Obama, Section Causes Par. 3

"Real estate bubble - Wikipedia, the free encyclopedia." Wikipedia, the free

encyclopedia. 25 Apr. 2009 Obama, Section Paragraph 5(Causes)

<http://en.wikipedia.org/wiki/Housing_bubble>.

Sahadi, Jeanne. "Stimulus: How to measure success - Feb. 17, 2009 ." Business,
financial, personal finance news - CNNMoney.com. 25 Apr. 2009

<http://money.cnn.com/2009/02/17/news/economy/obama_stimulus_meas_succe

ss/index.htm>. Sahadi, Paragraph 3