Did the Stimulus Work?

Michael Linden – Director for Tax and Budget Policy,  American Progress Posted: 02/17/2012 8:40 am


Three years ago today, President Obama signed the American Recovery and Reinvestment Act. Though, at the time, everyone agreed that the economy was in serious trouble, three years on, the law — better known as the stimulus — has become incredibly controversial. President Obama’s political opponents insist that the stimulus did nothing to help the economy and some even claim that it made things worse. The numbers, and a newly released video, tell a very different story.

In the years before the start of the Great Recession, the US economy was growing, albeit at a much slower pace than it had during the 1990s, and the country was adding jobs at a respectable clip. But that growth was built on a housing bubble and dependent on a deeply rotten financial system. When the bubble popped, and the financial system almost collapsed, the economy took a nosedive.

Take overall gross domestic product, for example. That’s the total measure of all economic activity in the country. In the first half of 2008, GDP stagnated, and then in the second half, it began to contract at an alarming rate. In the 4th quarter of 2008, GDP declined by an astounding 9 percent. As the economy shrank, companies began laying off more and more people, and we began losing jobs left and right. By the time President Obama took office, the economy was in a free-fall. In January 2009, the country lost more jobs in a single month than it had in any month in the previous 60 years.

Then, in February, we enacted the stimulus bill. It was designed to stop the bleeding and turn the economy around by pumping billions of dollars into the economy through things like infrastructure investments, aid to the states, and tax breaks. So what happened after the stimulus started? Did the economy continue its disastrous tumble?

In the second quarter of 2009, the first full quarter after the stimulus passed, the economy did still contract, but at only a 0.7 percent rate, and then began to grow again in the third quarter. Job losses also began to slow down immediately. Before the stimulus, we were losing more and more jobs each mon