Recovery News

In Wednesday's New York Times, there was an interesting coda to one of our recent Watcher articles: despite receiving large amounts of money from the recently passed state aid bill, school districts are not acting quickly to rehire fired teachers. The worry is next fiscal year might see even larger budget gaps, necessitating another, larger, round of firings. So the school districts would rather save the money, to try to stave off what could be an even worse FY 2011, and in the process, are potentially hamstringing any positive effects of the state aid bill.

Interestingly, this is the same problem facing the nation at a larger level. The future is as uncertain as ever, with many worried about their job security. The American people, as a whole, are guarding against that uncertainty by spending less and saving more. If you're worried you're not going to have a job in six months, you're definitely not going to be going out and buying that new car, or going out to the movies as often. This trend is borne out by looking at the nation's personal savings rate, measured as a share of disposable income, which is currently at its highest level since the early 1990s. In essence, then, the school districts aren't doing anything different than the rest of the nation. Everyone's saving to prepare to a bleak tomorrow.
This lower level of spending, or lower aggregate demand, is what is keep the nation's economy depressed. That's why we need significant federal investment in the economy, through stimulus bills like the Recovery Act, to make up for the lower consumer spending. And that's why we need a second stimulus. Clearly, half-hearted spending bills like the state aid bill are not enough to kick start this economy.

by Karen Weise

The Obama administration is on track to reach a self-imposed stimulus milestone: spending 70 percent of Recovery Act money by the end of September.

The administration set the goal in February, on the first anniversary of the bill. According to our Stimulus Progress Bar that tracks spending, 62 percent of stimulus money has gone out the door, putting $490 billion into the economy. If the administration keeps spending at the same rate it has so far this year -- both in terms of direct spending and tax cuts -- it should easily meet the goal.

Last week, the White House released a blog post addressing criticism that more money hasn't gone out the door. Since two-thirds of stimulus money is tax cuts and unemployment checks -- which have already been allocated -- the post explained that the funds "aren't 'unspent' ... they just haven't been paid out yet." Got that?

Speed has been a priority for the stimulus as the administration tries to counter the highest unemployment rates since the early 1980s. The White House Council of Economic Advisers recently estimated that the stimulus has added 2.5 million to 3.6 million jobs to the economy.

Check out stimulus spending by agency on our interactive Stimulus Progress Bar, and how fast agencies are moving money out the door on our Stimulus Speed Chart.

On this blog, we talk a lot about how great the Recovery Act recipient reports are (these are the reports recipients turn in every quarter explaining what they've done with their Recovery Act funds). Over the past year, we've thrown around words like "groundbreaking" and "historic" to describe how we feel about them. But they aren't perfect. Among other problems, reading the reports can oftentimes leave readers confused about what the project in question actual does, as the main descriptive fields can be anywhere from a few words to lines and lines of text filled with industry jargon.

The Government Accountability Office (GAO) picked up on this in a recent letter to Sen. Mitch McConnell (R-KY) ("letter" is a GAO term for what anyone else would call a report). The GAO letter looks at how Recovery Act information is gathered and displayed. The authors examined the reports, evaluating them to see if they actually helped Recovery Act transparency by conveying pertinent information. The GAO looked for seven things the reports should convey about Recovery Act projects: general purpose, nature of the activity, location, cost, status, desired outcome, and scope. Most of these parameters are actually set out in the Recovery Act itself, or mandated by Office of Management and Budget (OMB) guidance.

In examining some 500 (randomly selected) recipient reports, the GAO found that only about a quarter of the reports "had sufficiently clear and understandable information." About 70 percent of the reports they looked at had at least some information, and seven percent had very little. Specifically, the letter highlighted the narrative fields of the recipient reports, saying that these varied widely in quality, and when reports failed to convey enough information, these descriptive fields were often to blame.

The narrative fields are incredibly important to the overall quality of the reports. Of the seven things the GAO looked for in the reports, four of them, general purpose, nature of the activity, desired outcome, and scope, can only be conveyed through the three main narrative fields, "award description," "project description," and "job creation description." You can't convey these pieces of information through numbers; you need words. It seems like common sense, that descriptive fields need to be descriptive, but reports like the GAO's are useful, since their in-depth studies can confirm or deny what others only speculate about. In this case, the GAO strongly shows that the narrative fields need improvement.

[Side note: if you want to look at some recipient reports to help get a sense of what I'm talking about, and just how bad the descriptive fields can be, check out our Recovery Act tab http://www.fedspending.org/rcv/index.php?reptype=a on fedspending.org. Here is one bad and one good report that the GAO identified in its letter, as a frame of reference.]

Interestingly, some of the news accounts of this report insinuate that these problems are Recovery.gov's fault, which is a bit strange. Recovery.gov, and the Recovery Board, which runs the site, is stuck in this weird situation where they are responsible for the information shown on the website, but have no control over the information they receive through the recipient reports. It is up to OMB, through the guidances it issues, to stipulate what recipients report, and the responsibility of the recipients themselves to report good information. The Recovery Board simply publishes whatever OMB-mandated information the recipients report in, so to blame Recovery.gov for the reports' shortcomings is to basically shoot the messenger.

The real "culprit," if there is one, is OMB and the federal agencies. OMB clearly needs to issue new guidance highlighting the importance of the narrative fields, and the agencies need to push the recipients to provide better entries; the GAO letter recommends both actions in its conclusion, and OMB agreed with the recommendations. Hopefully that means we'll see some new guidance from OMB, highlighting the importance of the narrative field, sometime in the next few months.

Image by Flickr user Lower Columbia College used under a Creative Commons license.

If there's one thing Republicans and Democrats can agree on, it's that the economy has seen better days. Indeed, looking at various employment statistics, it's hard for anyone to express optimism about the nation's economic condition. The national unemployment rate is 9.5 percent, and the number of workers unemployed for 27 or more weeks is at an historic high. The nation's present economic state has provided ammunition to critics who argue that the Recovery Act, the $787 billion package designed to stimulate the economy, has failed. The current economic situation has prompted calls from others for a second stimulus.

The breadth and depth of this recession (or at least its effects, since the recession officially ended months ago) are far worse than originally thought. During the Obama administration's transition into the presidency, its economic team famously predicted that the highest unemployment would rise would be 9 percent. Therefore, the need for the Recovery Act was predicated on the notion that unemployment would not go higher than 9 percent, and that without stimulus, the unemployment rate would still be as high as 7 percent in 2011.
Unfortunately, the unemployment rate went beyond 9 percent. It eventually peaked at 10 percent and has slowly come down to its current level, though some of that decline can be attributed to discouraged persons dropping out of the job market altogether. Future unemployment predictions don't provide a much brighter picture. A recent report by the International Monetary Fund (IMF) projects unemployment in 2011 to stay above 9 percent, and the president's budget predicts unemployment will be 9.2 percent in 2011. The president's budget also gloomily predicts unemployment will not fall below 7 percent until 2014.
The economy's rough state does not mean that the Recovery Act failed, however. Rather, the high unemployment rate and continued general economic malaise shows that the economy was in worse shape than anyone could have imagined in the beginning. In fact, the Recovery Act has worked rather well. Both independent government agencies and third-party analysts have released many reports showing how the stimulus has helped bolster the economy, adding millions of jobs and boosting the nation's GDP. Yes, the economy is not doing well, but without the Recovery Act, it would be even worse off.
The problem is that the Recovery Act was not large enough. According to Ryan Lizza in an October 2009 New Yorker article, Obama's economic advisors, led by Christina Romer, recommended a much larger stimulus package, at least $1.2 trillion dollars, to help fill what was then predicted to be a $2 trillion hole in the nation's GDP. But because Congress was seen as unwilling to back a package of that size, "there was no serious discussion to going above a trillion dollars," as one Obama aide noted. Thus, thanks largely to political calculations, the administration supported a scaled-back version, which eventually came out to be $787 billion (and which is now worth roughly $862 billion, thanks to rising costs of various kinds), and which was only designed to prevent the nation's economy from outright collapse, not bring it out of recession as soon as possible.
Most of the current stimulus funds have already been obligated by federal agencies, and most of the funds will be paid out over the course of the coming year. In other words, the Recovery Act is beginning to run down, and its ability to pull the nation out of its economic slump is waning. With both the IMF and the White House forecasting 9 percent unemployment through 2011, the recession's effects are clearly going to be staying with us well past the effective end of the Recovery Act.
Since the economy is still struggling – in spite of everything that the underfunded Recovery Act has been able to accomplish – the nation needs a second stimulus. Another infusion of at least several hundred billion dollars will both alleviate the impact of the recession – through aid to the unemployed and support to the states – and help kick-start the economy. The nation is recovering, as demonstrated by rising GDP and falling unemployment, but it is not improving fast enough. States and local governments are still slashing spending and laying off workers, noticeably slowing the national recovery. A significant increase in the right type of federal spending can offset these cuts and further accelerate the economic upturn.
The second stimulus should not follow the blueprint of the first Recovery Act. About one-third of the Recovery Act was comprised of tax cuts, which, while helpful from a political standpoint, do not help the economy nearly as much as other forms of spending, at least in terms of having a multiplier effect. Of course, that's not to say that Congress should completely ignore the original stimulus' architecture: the act's prioritization of infrastructure projects, of reinvesting in the nation, was a good one, and should be repeated in the second stimulus.
In other words, Congress should immediately pass legislation to extend unemployment insurance to those out of work. That should be followed by a targeted bill that provides aid to states and spends additional funds on infrastructure projects.
Fiscal hawks argue that this prescription is absurd, since the nation is burdened with high deficits. They will agree to pass extended unemployment insurance but only if it is paid for by cutting other spending – exactly the wrong strategy at this time. These lawmakers raise the specter of ever-increasing debt levels, sky-high interest payments, and declining investor confidence, and they point to the ongoing fiscal crisis in Greece as a warning of what could happen to the United States. But these arguments fundamentally misstate the current economic environment.
Deficits are only problematic when potential lenders to the federal government are concerned by the prospect of government default. The concern is shown by subsequent demand for higher interest rates, which also makes it expensive for the government to borrow. In Greece, as investors began to doubt the nation's ability, or desire, to pay back its debt, the country slipped into a debt crisis. However, market data show no signs that investors think the U.S. is on the brink of default. Rates on 10-year Treasury notes are still low, and more importantly, stable. We are not even close to a Greece-like situation, as investors are clearly showing. If our nation's leaders believe it is necessary to take on more debt, there will most certainly be buyers.
Moreover, now is not the time for deficit reduction. It is far more important to get the economy back on track. Potentially having to pay larger interest payments in the future is certainly worth alleviating the very real current effects of the recession and helping get the nation back on its fiscal feet. The sooner the unemployment rate drops, the sooner the economy can begin to grow again and the sooner the nation's tax revenues will rebound, helping to bring down deficits in a self-correcting manner.

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