Why was the Recovery Act passed?

Well, the Recovery Act was passed about a month after President Obama took office because at that point the economy was shedding about 700,000 to 800,000 jobs each month. The economic crisis that had been caused by the collapse of the housing bubble and the mismanagement of the economy over the Bush era had come home to roost, and over the year preceding the Recovery Act, the federal government, Congress, and the Federal Reserve had already taken extraordinary measures to try to shore up the financial markets and get the economy back on track. But now—at the time, back in early 2009, it was clear that those actions—while important and they had helped the economy in terms of lowering the interest rate and trying to keep the credit markets functioning—it was clear that this recession was having a significant impact on the jobs market and that fiscal policy, that is, government spending, was really our only hope in terms of boosting the economy and trying to stop the hemorrhaging of job losses.

What were its major accomplishments?

Well, the Recovery Act was an enormous accomplishment just getting it passed through Congress. It was the largest stimulus package ever enacted and it has had the effect of not only stopping the tide of rising joblessness in the months after it was enacted, but also leading our economy toward creating jobs. We've now created jobs in the private sector every month for nearly a year and it appears that the labor market is, while not fully healed and certainly the unemployment rate has not come down enough, at least we are moving in the right direction. The reversal in terms of job losses after the Recovery Act was passed was sharp and dramatic. So we went from losing jobs at a pace of about 20,000 per day through, over the next six to nine months, moving into very much smaller job losses and then again eventually into creating jobs. We've also seen the economy grow overall so that, because of the Recovery Act, because of the dollars that it pumped into the economy, firms started investing, although again not enough yet, but they've started investing and we've seen the economy grow for many quarters at this point.

What lessons can we take away from the act going forward?

Well, I think we can take two clear lessons from the act. First of all, it worked. We saw that once the Recovery Act, once those dollars started going into the economy, we saw the economy grow, we saw job creation—stopped losing as many jobs, and now we've seen job creation—on that count, this act has been enormously effective. On the other hand, what we can take from it is that it wasn't enough to get the economy where we would like it to be. Unemployment is still at 9 percent and we've seen, although it's led to economic growth and led to job creation, it hasn't been vast enough. A key reason why it wasn't as effective as we would like it to have been is that, while it sounds like the Recovery Act was a lot of money—$800 billion—a lot of those dollars weren't actually being spent in the most efficient way in terms of providing economic stimulus. About a third of those dollars were tax cuts, which are the least efficient way of boosting spending in the economy. And in fact, of those tax cuts, a big chunk of them were tax cuts that would have probably gone into effect anyway. So that's not necessarily new money; it's money that many actors in the economy were already counting on. And another factor in why it wasn't as effective as we would have liked to have seen is that, because of the decline in revenues, states and localities have been cutting back on their budgets, actually contracting their sectors even as the federal government was spending more. So a lot of those federal dollars are actually just replacing state dollars. So I think that big second lesson is we needed more and we needed to create that political space to make sure that we're continuing to boost the economy to see the kind of job creation that we need to get back to.