Economic Stimulus: Issues and Policies

Recent policies have sought to contain damages spilling over from housing and financial markets to the broader economy, including monetary policy, which is the responsibility of the Federal Reserve, and fiscal policy, including a tax cut in February 2008 of 150 billion and two extensions of unemployment compensation in June and November of 2008. In 2008 and early 2009, the government intervened in specific financial markets, including financial assistance to troubled firms and legislation granting authority to the Treasury Department to purchase 700 billion in assets. The broad intervention into the financial markets has been passed to avoid the spread of financial instability into the broader market but there are disadvantages, including leaving the government holding large amounts of mortgage debt. With the worsening performance of the economy beginning in September 2008, Congress passed and President Obama signed a much larger stimulus package composed of spending and tax cuts. The American Recovery and Reinvestment Act of 2009 ARRA, P.L. 111-5, a 787 billion package with 286 billion in tax cuts and the remainder in spending, was signed into law on February 17, 2009. It includes spending for infrastructure, unemployment benefits, and food stamps, revenue sharing with the states, middle class tax cuts, and business tax cuts.