The effectiveness of President Barack Obama's 2009 American Recovery and Reinvestment Act, intended to increase employment throughout the nation, varied greatly between different types of spending, according to a recent study conducted by Dartmouth economics professors James Feyrer and Bruce Sacerdote. The study "Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Readjustment and Recovery Act," published by the National Bureau of Economic Research this month found that support for low-income households and spending on infrastructure were more instrumental in stimulating the economy than educational grants to specific states.
In the study, Sacerdote and Feyrer examined how employment changed relative to the amount of stimulus money each state received, and evaluated the timing of the spending to determine how effectively it led to job creation, Sacerdote said.
The results of the stimulus plan were more modest than people anticipated, according to Sacerdote.
"The program is neither as horrible as people feared nor as great as people had hoped in terms of generating employment," he said.
Programs that involved transfer payments to low-income households including initiatives like Medicare and those providing food stamps and rental assistance were the most successful, according to Sacerdote.
The second most productive governmental measure was funding infrastructure creation, Sacerdote said.
"Department of Transportation and Department of Energy projects are fairly effective at creating employment," he said.
Block grants awarded to states, municipalities and school districts appeared to have no effect on job creation, Feyrer said.
"Our theory is that the school districts did not alter their behavior," Feyrer said. "They were happy to get the money but they did not use that money to hire teachers."
It is more beneficial to give money "to super low-income folks who are destined to spend it" instead of providing such funding to school districts or other wealthier entities that can afford to delay their spending, Sacerdote said.
Municipalities likely used the money to borrow less and to avoid raising taxes, Sacerdote said.
"This is a good thing per se but it doesn't generate employment the way building a road does," he said.
Sacerdote said that before conducting the recent study, he was skeptical of Obama's stimulus plan because the national employment rate "did not improve dramatically and rapidly." He said his research convinced him that although the spending did not necessarily generate employment, it was still effective.
"The money was not simply burned in a furnace," he said. "It shifted responsibility from one level of government to another. It wasn't necessarily a disaster."
Feyrer said he did not have particularly strong views before beginning the study but encountered some unexpected results.
"I was surprised that the transfers to municipalities were not positive," he said.
Feyrer said he hopes their research will influence the debate regarding federal stimulus spending both in the past and in the future.
"We were a bit frustrated by how static the discussion of the stimulus had become," Feyrer said. "And that's largely due to the fact that a lot of the evaluation of the stimulus was based on models of the economy before the stimulus rather than data from what happened after."
No single study can explain the precise results of the stimulus, according to Sacerdote.
"Hopefully in the long run we'll be one brick in the wall to lead people to rethink how we do stimulus spending," Sacerdote said. "Our study will lead to other studies which will lead to greater understanding."
