American Recovery and Reinvestment Act (ARRA): Objectives and FAQs

What Is the American Recovery and Reinvestment Act (ARRA)?

The American Recovery and Reinvestment Act of 2009 (ARRA) was fiscal stimulus legislation passed by the U.S. Congress to alleviate the Great Recession of 2008. It is more commonly known as the stimulus package of 2009 or simply the Obama stimulus.

The ARRA package included a wide range of federal spending initiatives aimed at jump-starting the economy, creating new jobs, keeping small businesses open, and relieving the tax burden on working families during the economic crisis.

Understanding the American Recovery and Reinvestment Act (ARRA)

The American Recovery and Reinvestment Act (ARRA) was a massive injection of federal spending into the economy, intended to create new jobs and restore jobs lost in the Great Recession of 2008.

The government spending was intended to compensate for a slowdown in private investment in that year.

Lawmakers began work on the bill in the months leading up to President Barack Obama's inauguration in January 2009. Aides to the incoming president collaborated with members of the U.S. Congress, and a streamlined amendments process allowed for its passage in the House of Representatives on Jan. 28, 2009. The U.S. Senate passed its version on Feb. 10, 2009.

Fast-moving conference negotiations followed, and Democratic congressional leaders ultimately agreed to cut back the bill's spending in order to attract a handful of Republican votes. The bill's final price tag of $787 billion represented the largest anti-recession spending package since World War II.

President Barack Obama signed the bill into law on Feb. 17, 2009.

Components of the ARRA

The point of the ARRA was to boost the economy by pouring money into it, but the money was targeted to sectors that were widely seen as needing improvement. They included infrastructure, healthcare, education, and tax relief. Here's how the spending broke down.

Public Infrastructure, $85 Billion

This component targeted local projects that had languished from lack of funding, from replacing crumbling bridges to expanding mass transit.

The federal government sought state and local bids for money for "shovel-ready" projects in order to get the money out the door and into local communities as fast as possible. President Obama himself later acknowledged that "there's no such thing as shovel-ready projects."

Healthcare, $138 Billion

There's at least one aspect of this component that anyone can see anytime they go to a doctor: The ARRA required hospitals and doctors to computerize their patient records, and paid them to get it done.

Much of the healthcare portion of the bill went to extending medical insurance to laid-off workers and compensating states for additional Medicaid costs.

Education, $108 Billion

The biggest single item in educational assistance, about $53.6 billion, went to states and local school districts to underwrite teacher salaries and educational programs. There also was additional spending on the Head Start preschool program and on special education programs.

The maximum for Pell Grants was increased, to $5,350 in 2009 and $5,550 in 2010. Pell Grants are federal scholarships for lower-income college students.

Tax Relief and Other Benefits, $260 billion

Tax relief for families including withholding reductions of up to $400 for individuals and $800 per family and a nearly $70 billion extension of the alternative minimum tax.

There also were stimulus checks for Social Security and veterans benefit recipients and easier access to the child tax credit for the working poor.

First-time homebuyers were incentivized with an $8,000 tax credit.

Support for the ARRA

Contemporary reactions to the ARRA were originally a mix of positive and negative, falling predictably along partisan lines. There also was disagreement among economists as to the wisdom and expected results of fiscal stimulus.

Some supporters felt that the stimulus spending, massive as it was, still was not sufficient to draw the national economy out of the recession. Economics professor and columnist Paul Krugman, in a November 2009 New York Times op-ed article, declared the ARRA an early success—"working just about the way textbook macroeconomics said it would." Its only failing, he said, was that it did not go far enough in reviving the U.S. economy.

Krugman argued that the stimulus had helped the economy to start expanding again, with the gross domestic product (GDP) growing at a faster-than-expected rate at the time. However, the pace of GDP growth was not robust enough to reverse unemployment in the years to come.

Criticisms of the ARRA

Opponents of the ARRA argued that massive government spending is invariably inefficient and hampered by bureaucratic obstacles.

In a June 2009 Forbes magazine opinion article, "The $787 Billion Mistake," economist Lee Ohanian argued that the economy was showing early but promising signs of recovery even though the stimulus programs had not yet taken effect.

Asserting that "the economic arguments for ARRA were badly dated and erroneous," he insisted that government incentives to private spending and hiring would prove more powerful than flooding the economy with unearned dollars.

ARRA Effectiveness

More than a decade later, the lack of a counterfactual scenario makes the evaluation of the ARRA measures difficult. It is impossible to say with precision what would have happened without the ARRA.

One way to consider its effectiveness is to compare the alternative economic projections used to justify the ARRA to the actual results.  

Harvard economist Gregory Mankiw and others did just this by tracking the actual U.S. unemployment rate in the months following the act’s passage against the rate projected by ARRA proponents at the President’s Council of Economic Advisers.

This demonstrated that actual unemployment results under the massive stimulus greatly exceeded both the baseline “no-stimulus” scenario and the lower projections that purported to show the expected benefits of the massive new federal spending.

This suggests that the ARRA may have actually dramatically increased unemployment rates and helped to delay the economic recovery.

Economic conditions in the U.S. improved after the 2008 recession, but the post-Great Recession can be best characterized as an L-shaped recovery. Real GDP took four years to recover the losses from the recession. Unemployment took nearly eight years to recover.

The years 2020 and early 2021 brought a new wave of challenges and a new group of massive government stimulus plans as the U.S. government contended with the impact of the pandemic. That crisis led to a jump in unemployment rates, the closure of many small businesses, and a hit to GDP.

The economy began to recover in part due to the impact of major government stimulus packages, including the CARES Act of 2020 and the Consolidated Appropriations Act, of 2021.

The Bottom Line

The American Recovery and Reinvestment Act was legislation passed in response to the Great Recession of 2008. It was intended to stem the job losses associated with that recessionary period using a package of economic stimulus measures such as tax cuts, government spending, and targeted financial assistance. Its final cost was $831 billion.

To this day, the act's effectiveness has been difficult to gauge as there is no point of comparison. We'll never know what would have happened to the American economy if the ARRA had not been passed.