Will Obama’s Stimulus Plan Work?

As President Obama gets ready to sign the 2009 American Recovery and Reinvestment Act later today, a common question is, will it work? Of course we won’t know for a while, but my honest non-partisan opinion is “a little bit.” There is little doubt that parts of the bill are positive for our country and the employment situation, whereas others are likely to not do us any good. I think that the extreme views on either side, that this bill will either bring us out of recession or make it far worse, are both unfounded.

In particular, there are some people that insist FDR’s New Deal in the 1930’s prolonged the Great Depression, and only when World War II began did the economy rebound. They use this argument to imply that this stimulus bill (a mini New Deal of sorts) will further cripple our economy. I just wanted to share the chart below with everyone in order to debunk this myth.

Arguing that government spending does not create jobs is pretty silly. You can certainly take the position that government should not do anything (let the market work!), or that we are spending too much money when we are already in debt (to the tune of $10 trillion!), but denying that building a road, or upgrading a power grid, or funding medical research grants will require incremental workers is a pretty strange assertion.

The idea that tax cuts are a better means to create jobs is odd too because giving a tax cut to an unemployed person (who isn’t earning any money) doesn’t really help them very much, and it certainly doesn’t get their job back. An extra $13 per week (or whatever the number is) might help people pay their bills, but it can’t boost demand enough to force companies to need to hire more workers to meet that demand.

All in all, I think this bill is far from perfect and I don’t think it will have the same impact as the New Deal did on our economy. That said, there is no reason to think it won’t have some impact. Probably not enough to return to positive economic growth and falling unemployment anytime soon, but before we can grow again we have to halt the decline and hopefully this bill can contribute to that goal. Everyone should hope it works, whether you supported it or not.