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Obama Administration and the 111th U.S. Congress took immediate action.
In December 2008, the President-Elect and the transition team proposed the
overall scope and elements of what they called the American Recovery and
Reinvestment Act. Just days after the President’s inauguration, on January
26, 2009, House Appropriations Committee Chair David Obey introduced
H.R. 1 with the same name on the floor of the U.S. House of Representatives.
The legislation passed the House and Senate soon afterwards. By February
13, both houses of Congress agreed to a compromise measure, which the
President signed into law on February 17, 2009.
The Recovery Act
In early 2008, before the Nation realized the full extent of the economic
challenge, fiscal expansion policy was guided by the “3T’s” advocated
by Summers (2007), Sperling (2007), and Elmendorf and Furman (2008):
timely, targeted, and temporary. By the end of 2008, however, it was clear
that the recession had turned into a major financial crisis and that a new
approach was needed, what Former Treasury Secretary Lawrence Summers
called “speedy, substantial, and sustained.”5
Several principles guided the new Administration’s policymaking.
First, the fiscal effort was to be implemented speedily, unlike previous
incoming presidents’ economic programs, which were generally not passed
until they were six months or more into office. Second, it should be substantial,
given the very large scope of the economic problem. Finally, it should
be a sustained effort that would not only have significant spend-out over the
first two years, but would continue some temporary support thereafter. The
new approach would require a mix of instruments, with some being faster
to spend-out, such as tax cuts and other temporary assistance that put cash
in the hands of households who immediately needed it. Other components
would be more lagged but have larger cumulative countercyclical impacts
and greater longer-run benefits, such as investments in infrastructure and
innovation. In all cases, however, the measures would end and would not
have long-term impacts on the Federal Government’s primary budget
deficit.6
Goals of the Recovery Act. Overall, this approach was embodied in the
stated goals of the Recovery Act, as written into the legislation:
(1) To preserve and create jobs and promote economic recovery;
(2) To assist those most impacted by the recession;
(3) To provide investments needed to increase economic efficiency by
spurring technological advances in science and health;
5 Speech at the Wall Street Journal CEO Council conference in Washington, DC, Nov 19, 2008.
6 The primary deficit excludes interest payments on the national debt.
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