The American Recovery and Reinvestment Act of 2009, An Analysis

As the closing bell rang on 2008 and America looked forward at 2009, one thing was clear. Though America had just voted for political change, it was apparent that the country was even hungrier for economic change. By then, even the layperson was familiar with the chain of events leading to the current economic downturn. Cheap credit earlier in the decade led to the overextension of homebuyers, who were allowed their chance at the American Dream with very little inquiry into whether they could handle the resulting mortgage payments. This, in turn, led to the increasing development and trade of complex mortgage-based financial instruments that were supposed to alleviate risk, but instead served to compound issues when homebuyers were unable to make mortgage payments. The end result was the downfall of some of Wall Street’s most storied names, the government engineered take-outs of others, and the near collapse of the financial system. These events were followed by government bail-outs of auto manufacturers and others resulting in one of the heaviest periods of governmental intervention in business in recent memory. This predictably led to accusations of a socialized economy by some and a belief that the government had not gone far enough by others. However, pundits on both sides of the political spectrum agreed that action was needed, and ideology was quickly put aside in favor of calls for quick action by many as President Obama spent his first few weeks in the White House. One of the results was the federal stimulus package of February, known properly as the ‘‘American Recovery and Reinvestment Act of 2009.’’ There are some rather strong protectionist measures within the legislation that do not favor foreign business or trade. These include Section 1605, or the infamous ‘Buy American’ clause. This makes it a priority to utilize U.S. produced iron, steel and manufactured goods in projects funded by the act. There are also provisions such as Section 1611 limiting corporations which are receiving federal funding to hiring American workers. Additionally, there are clauses dealing with subsidies from everything from farmers to fishermen. There are also many provisions that will not prove very impactful upon business, such as education spending, which, despite its long-term benefits, will do little to help business in the near term. It is also difficult to see anyone but niche businesses benefitting from items such as $165 million for wildlife refuge and fish hatcheries management. However, despite many such clauses which always seem to occur in documents born out of compromise, there are some particular areas of interest for businesses both domestically and abroad. For example, provisions embracing the White House agenda for utilization of green technology are prevalent throughout the bill, which should be a welcome theme for alternative energy businesses. For example, there are tax breaks for companies involved in green technology research. Additionally, nearly $5 billion is being allocated for the conversion of government buildings to green facilities and $2 billion is slotted in for grants for manufacturers of advanced batteries. All in all, the bill provides over $16 billion in allocation money specifically for ‘energy efficiency and renewable energy.’ In addition to energy, healthcare is another area of focus in the legislation, with the ‘‘Health Information Technology for Economic and Clinical Health Act,’’ or HITECH, section of the bill focused on providing subsidies to companies engaged in developing technology that will assist the healthcare profession with updating critical functions such as record keeping and data management systems. This is perhaps a nod to the increasing age of America and the demographic shift the country is undergoing due to the baby boom. Another area of opportunity is the defense sector, where nearly $1.5 billion is being allocated for the U.S. Army, over $1 billion was written in for the Air Force, and nearly $800 million will be available to the marines and navy, respectively. Another $1 billion is being made available to all branches for research and energy efficient investment in facilities. However, the largest area of investment in the bill is in infrastructure, providing tremendous opportunities for construction supply companies and raw materials producers. Showing a preference for quick start activities, or those which can be embarked upon quickly to provide the most economic benefit, the bill has some very notable figures in this section. In addition to $100 million being invested in qualified shipyards, there is a $2.5 billion commitment to improving broadband access in the country. Further, the law has $4.5 in allocations to energy grid modernization, $8 billion available to develop an intercity high speed rail system, and a truly eye-popping $27.5 billion available for repair and construction of rail and port infrastructure. Despite opportunities existing in the bill in specific areas, such as healthcare technology, energy, defense, broadband and construction, more hope exists for business in the stimulating impact the legislation could have on the overall economy. Indeed, this is the great hope of the administration; that, with increased government spending, jobs will be created, consumers will begin to spend once again, production will increase, and finally that this will combine to produce positive growth numbers for the country. Supporting the case for job creation, there are tax breaks for small business owners, incentives for hiring unemployed veterans, and numerous allocations for worker assistance programs. Among these include $1.25 billion to states for dislocated worker training programs, and an additional nearly $4 billion for other training programs. There are also provisions for farmers, communities, and individuals adversely impacted by trade. [1] There is little doubt that job creation and the resulting spending, production and overall growth are important individual goals within the economy. Certainly the statistics paint a bleak picture; the Bureau of Economic Analysis recently released its GDP estimate for the first quarter, and output decreased by an annual rate of 5.5%.[2] Additionally, the Bureau of Labor Statistics announced that the unemployment rate was at 9.5% in June, by far the highest number that has been posted in a decade where the jobless rate managed to stay below 6.0% even in the aftermath of 9/11.[3] And, after record imports and exports in 2008, The Bureau of Economic Analysis reported that May 2009 total exports were down over 20% YOY, while total imports decreased by an even more dramatic 31% YOY.[4] However, despite the clear need for change to occur in the economy, there was, and still is, considerable debate about the impact that the stimulus plan will have. Much of its presumed benefit will come in the form of aforementioned job creation, which will hypothetically spur consumption, and thus, the overall economy. This line of reasoning is best described as Keynesian, after the 20th century economist John Maynard Keynes. Keynes was the greatest proponent of the idea that governmental spending could even out the peaks and valleys of an economy, and his ideas had great support among many, including Roosevelt, during the Great Depression. However, many economists believe that these ideas are outdated and have been proven wrong. Going even further, many believe that the results will ultimately prove to be no more than a drop in the bucket compared to the increasing national debt, currency, and interest rate problems that governmental spending both implies and results in. Even proponents question the timeliness of the bill, its size, and its short term impact. For example, many provisions are open until 2013, resulting in a questionable impact this year or next. And, many construction projects take considerable time to get underway. For example, Bruce Bartlett, a former Treasury Department economist, recently wrote in The Financial Times that only 11% of discretionary spending on highways, mass transit and energy efficiency will be spent by the end of September.[5] And, according to www.recovery.gov, only $56 billion of nearly $158 billion allocated to various government agencies had been paid out as of June 26. Despite concerns, the goal of the stimulus package to protect and create jobs, if accomplished, is currently the brightest hope for business both domestically and abroad in what is otherwise a very difficult global economic environment. The American consumer is one of the main drivers of global growth, and if the stimulus package succeeds, more American consumers will be spending money on products from both the U.S. and its trade partners. However, despite the truly astronomical numbers being discussed by pundits, the government and the press, any success will likely take time to occur. In the meantime, businesses will need to focus to seek out opportunities in the specific areas the government is targeting, and may need to be patient while waiting for consumers to return to their normal spending habits. [1] See generally the ‘‘American Recovery and Reinvestment Act of 2009’’ H.R. 1, 2009 [2] accessed 24 July 2009 [3] accessed 24 July 2009 [4] accessed 24 July 2009 [5] Bruce Bartlett, ‘We do not need a second stimulus plan’ <http://www.ft.com/cms/s/0/e0569d42-6995-11de-bc9f-00144feabdc0.html> accessed 24 July 2009