Stimulus Bill 1

Stimulus Bill

10 December 2010 English 205 Angi Caster

Stimulus Bill 2 Abstract: The economy is struggling with a period of recession which causes a lot of horrified consequences. Government, led by Mr. President Obama, adopted a Recovery act whichs called stimulus package in order to fight back that bad period of time of the economy. However, there has been a lot of interesting back and forth about this anti-deflating policy: some person is against the stimulus bill because they dont want the government to waste their money to the debt of nation; otherwise, economic professors and experts highly weigh and support it. The paper, written by M, shows the professional views about the stimulus package that people should understand that its existence is necessary.

Pictures from the title page credited to: [Obama Stimulus Plan] Hiptics. Retrieved from http://www.hiptics.com/2009/02/25/presidentobamas-full-address-to-congress-about-economy/ [Poker Stimulus Package] Gambling911. Retrieved from http://www.gambling911.com/poker/world-series-poker-stimulus-special-hit060109.html [The Stimulus package]. Toonpool. Retrieved from http://www.toonpool.com/cartoons/the%20stimulus%20package_34779

Stimulus Bill 3 Introduction: Economic recession is a bone of contention that we, Americans, are eagerly discussing. We are enthusiastic not because its a very interesting topic, but because we are actually in the recession, which caused 936,439 homes lost to foreclosure just in its first year (United State Senator for Connecticut, 2008). According to the statement of Romer (2009), the recession that we are facing was given an unfriendly name, worst since Great Depression. In order to regulate this crisis of the economy, the government of the United States has intervened in the financial system by the act of passing the $787 billion stimulus bill of the new president, Barack Obama. However, Americans seem very opposed to this stimulus package that just gone through by the law on 02/17/2009. Americans should change their adverse perspectives and reactions about president Obamas stimulus bill because this was a right decision at the right time, in the downturn of the economy. Our injured economy is calling out for the healing and rescuing from the government, consequently, the stimulus bill of Mr. President is one of those obligatory interventions that government must do soon or later. Necessarily, we need to seek for the root of how this stimulus package incurs, and logically deflation was that root. The definition of recession is so short,

Stimulus Bill 4 significant economic downturns, but it lasts for a long with a lot of painful consequences: reduces employment, incomes and properties for a huge number of people (Krugman, 2009). Nonetheless, the statistical professional data can only hit the experts and people who major in business. Americans mostly dont pay attention about the data, but they care about fancy words: recession, deflation, and downturn. Therefore, people view recession as a bad time of life once in a while; and during the bad times, saving money is the best thing to do. When people think that way, so they will act and react on the same way; they will spend less and save money as much as they can. Nevertheless, it just makes the economy drench deeper in its hot oil pan. Because the capitalist GDP is built on the sum of G (government spending), I (investment), C (consumer spending), and X (net export), so when you, the citizens spend less, C will go down, which also causes no motivation for producing I; as a result, the national GDP will go down, and the economy by natural self will stew in its own juices (Krugman & Wells, 2009). This is what Krug1man & Wells (2009) call the paradox of the economy; people generally dont know about it and go by common sense. Because of that, Americans, at the moment, need governments intervention the most, which means that only the hand of the government can pull the economy out of water. Lesson from history: The Great Depression of 1929 is an outstanding instance of economic failure that greatly lacked the governments intervention. This depression has still been the worst and longest recession in the history of the United States (Krugman & Wells, 2009). By many contemporary
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Paul Robin Krugman, a professor in the Department of Economics and in the Woodrow Wilson School of Public and International Affairs at Princeton University since 2000. He won the Nobel Prize Committee for explaining the patterns of international trade and the geographic concentration of wealth. Robin Wells is also economic professor at Princeton University, and the wife of economists Paul Robin Krugman.

Stimulus Bill 5 economists views, Government intervention was thought as a feasible factor to cause the economy to worse off, and the government could not do much to bring back the economy (Krugman & Wells, 2009). As reporting by the first quarter of 2009, by putting their paternal hand in, the government kept the rate of employment under 8%. However, Americans are terrified by the rate of 8% unemployment and 2% of GDP falling, but ironically they dont know that during the Great Depression, 1930s, unemployment rate had attained to peak of 25% with the real GDP even deeper than 25% (Romer, 2009). It stands to reason that Americans, who think that they dont need the paternal role of government, are totally wrong, because the government of this country, the United States, was once wrong when their two leaders, presidents Hoover and Roosevelt, thought that he economy should be inborn and self-regulated (Robert, 2009).

The inside graphical circle stands for the data that collected from Great Depression. The outside one is for Current Deflation.

GDP fell employment

unemployment employment GDP fell

unemployment

Source: Course of Economy Hinges on Fight over Stimulus and Lessons from the great depression for economic recovery in 2009.
Great Depression Current Recession GDP fell Unemployment rate 25% 25% 2% 8%

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Policies to Combat Depression: The interventions of the government to recover the economy are called expansionary fiscal policy. According to the book Macroeconomics, Krugman & Wells (2009) indicate two types of fiscal policies: one is focusing on tax, and one is focusing on government transferring and purchasing for goods and services. During deflation, cutting tax is important, because it gives people extra money to spend, so consumer spending will naturally go up (Krugman & Wells, 2009). For example, if I spend $100 on my math book that means the bookstore will receive $100 in revenue. This revenue will be spent on the cost of reselling the book and the salaries for cashiers, guides, managers, and so on. The cashiers, guides, and managers will spend the money to serve their needs in the restaurants, grocery stores, and gas stations that they might go to. In addition, the expense that the bookstore has to pay for the book becomes the income of the distributors, and obviously this money will be spent also. Therefore, the money that the government is giving out to people from cutting tax will affect GDP multiple times. Cutting tax during the deflation is the right thing to do. In contract, President Hoover showed his lack of economic knowledge when he decided to raise tariff to balance the budget, during the recession, but no one could afford it; as the result, the economic downturn was exacerbating (Robert, 2009). However, the policy cannot stimulate the economy thoroughly and completely by itself. Everything has its pros and cons, and the disadvantage of this tax cutting policy when it goes alone is that the money will not be largely multiplied when people, especially those unemployed, dont want to spend it, but save it (Krugman & Wells, 2009). The precise spending

Stimulus Bill 7 rate cannot be attested or confirmed by any excellent accountant and taxpayer (In the red: Addressing, 2008). This tax cutting policy will be good, if the use of it is for right victims with a wise tactic. It partially explains why Bushs tax cutting strategy was not successful in order to pump back the economy. Why? Firstly, the tax cuts attempted to help the wrong victims. President Bushs tax cut policy seems to give the one percent wealthiest Americans most of the benefit: a family which yearly earns $1 million, receives back 6 percent income, while a family with $40,000 to $75,000 year-income only receives around 2.5 extra percent from the tax cuts (Democratic Policy Committee, 2007). Secondly, he failed to encourage people to spend their money from the additional benefit, because people were afraid of losing their jobs. Since Herbert Hoovers years, Bushs presidential period has been the worst overall job creation period (Democratic Policy Committee, 2007). During the time, the growth of population monthly required 150,000 new jobs, but he was not able to create half of them; hence, it led unemployment rate to expand by 11.9 percent (Democratic Policy Committee, 2007). Thus the question of how to stimulate people to spend their money will be answered if the issue of how to save and create more jobs is solved. To encourage people, the second policy seems to do a better job, and it is all about government spending, which is symbolized as G on GDP calculations. Also doing the same job as the tax cut policy, this policy adds one extra turn to GDP when the term G was used first to distribute the money out to many necessary and specific fields of life- infrastructure, clean energy, education and healthcare, before people can spend it (Krugman & Wells 2009). One more additional advantage of this policy is to keep people from getting axe and fire in the fields that the government spends the money on, but to pull unemployment on other related fields back to the labor force when the economy is gradually back on its feet (Krugman & Wells, 2009). For

Stimulus Bill 8 instance, the government spends 1 million on bridge and road construction, and employees from this industrial field will be guaranteed jobs and incomes; furthermore, cement and iron industries will need workers in order to produce needed materials for construction. Therefore, one time spending of government will create multiple types of jobs. Of course people will spend a lot more, because the fear of losing jobs doesnt exist anymore. On the other side of a coin, to spend this bill, the government has to run a deficit, which will be attached to national debt (Evslin, 2010). According to Krugman & Well (2009) however, the government is supposed to run deficit when the economic decline occurs. By only viewing budget deficit as national debt, people are missing the two major concepts of budget balance and budget surplus. Budget balance- savings by government is evaluated by the sum of tax revenue with the negative spending of goods and services and government transfers. Its demonstrated by the equation: S (government) = T- G- Tr From that calculation, budget deficit term occurs when budget balance is negative, and in contrast, budget surplus term occurs when budget balance is positive. Its so important to understand that it is normal for budget deficit to happen. The economy always has tendencies of jumping between expansion and contraction periods. In

Stimulus Bill 9 between the line, the two periods repeat happening frequently. Each period embeds to a significant policy that government should take actions: expansionary fiscal policy, in which increases government spending for government purchases of goods and services and government transfers, and reduce taxes, to a contracting economy; contractionary fiscal policy, in which decreases government spending, and higher taxes, to an expanding economy (Krugman & Wells, 2009). In certainty, expansionary policy subjects to budget deficit, and contractionary policy subjects to budget surplus (Krugman & Wells, 2009). Comprehensively, during recessions, the federal budget has almost always been pursuing deficits, and gaining national debt (Krugman & Wells, 2009). Nevertheless, those debts will be paid off and balanced out in the future by budget surplus that created from the coming expanding terms (Krugman & Wells, 2009). The government has a duty to prevent the economy going from a recession to a depression by creating a reasonable amount of money to spend, and use it wisely. A depression professor, Christina Romer, has suggested, after Mr. president election, that $800 billion is a reasonable amount that the US government has to spent in order to defrost the ice-covered economy, and hidden it from digging into another 1930s depression (Grunwald, 2010). Evslin (2010) positively thinks that it will be good news if the government can wisely cultivate most part of the bill. Despite objections from voters, stimulus bill is playing its role well, and showing a promising outcome (Grunwald, 2010). The Current Stimulus Package and Its Promises: Mr. Presidents stimulus package has brought to the economy credible and potential promises. Overall, to

Stimulus Bill 10 recover the damaged economy, during the recession, our government really needs to use both of the policies. Accordingly, by investing in infrastructure, education, science, healthy, and energy efficiency, Mr. Obamas stimulus package will be focusing on both governments spending and tax cuts; $787 billion dollars will be spent to create jobs, support the unemployed, and relief states budget burdens (Obey, 2009). Evslin (2010) highly consents with what the stimulus bill is targeting on, especially, on the infrastructural field. His perspective shows that this act will bring a long-term benefit, which people will have durable jobs (Evslin, 2010). This stimulus bill will save 3 or 4 million people from going unemployed; 2.3 million American citizens will be kept out of poverty, and 3.8 million students will have opportunities to obtain higher education (Obey, 2009). It is not impromptu data, but it was logically planned. On the side of antipoverty, The Earned Income Tax Credit will increase a new range for married couples and also help low-income families (Smeeding, 2009). In this tax system, the income level is being lowered so that people can claim refunds of their childs tax credit (Smeeding, 2009). In addition, Making Work Pay, a refundable tax credit, will be an even bigger help to antipoverty (Smeeding, 2009). Diverse in coverage, it will help the poor and rich 6.2 percent of income offsets a portion of taxes for those with incomes below $75,000 and couples with incomes below $150,000 (Smeeding, 2009). Unlike Bush tax cuts, Barrack Obama is focusing on a bigger picture, the majority of the United States; and this right step will make the United States different, but different in a good way. Fortunately 95% of the American workers were being covered by the tax cuts in 2009, but sadly so few people know it (The White House, 2010).

Stimulus Bill 11 In the view of Mr. President, the only key to unlock the door of poverty is education (Smeeding, 2009). Obama shows his regard to the educational field by the act of subsidizing $100 billion for education; over half of the fund, $54 billion was used to help many lives of many community schools that collapsed by housing crisis (Smeeding, 2009). Attention was put on how to resolve the problem of school dropout; the low income student, the largest group of dropout will be abetted more with the $500 enlargement of Pell Grant, which is the government program that aids citizens who want to achieve a higher education (Obey, 2009). Barrack Obama is encouraging all Americans to achieve 13 years of education, because he thinks that any certain can lead to a national failing, and the name for the game is to be back one of the world greatest and eminent nations in academic achievement by 2020 (Smeeding, 2009). Looking back to the past, before Mr. President raised his hand up and took his commitment, our country was losing 750,000 jobs monthly (The White House, 2010). Additionally, at the time, the economy itself diminished at 6% annual rate (The White House, 2010). Nevertheless, after the fourth quarter of 2009, the enacted stimulus bill has gradually brought the recent US back with the estimate of 1.5 million creating jobs (Executive Office of the President, 2009), and Real GDP that climbed up at a rate of 5.7% (Romer, 2010). Contently, we are walking on the positive direction, when the rate of unemployment went down from 9.9% in April to 9.7% in May, 2010 (Alaska Department, 2010); and it kept going down 9.5% in this past June (Ohio Department, 2010). Its so obvious

Stimulus Bill 12 to aware that this stimulus bill is not a snap decision, but a solution that we need for our slumping economy. In Republicans perspective, the recovery act of Mr. President is just an unsuccessful plan in order to fix the unemployment rate and release the government debt (Grundward, 2010). Whereas, the indicated amount of money that subjects to the stimulus package, in the view of liberals, wasnt big enough (Grundward, 2010). In certainty, the successful record of the stimulus doesnt apply to American citizens and residents (Galston, 2010). By ignoring how worse the economy should get into without the stimulus, people indicate and judge the bill as a failure, because of its slow working that links to the recovery of global economic crisis and urban financial recession (Galston, 2010). Although public views are against the stimulus, it has already been working properly and showing high potential outcomes to the economic. Ego and Individualism: From all the information, we can clearly see this stimulus bill is going on the right track, but why do people keep blaming his decision now? And why do Americans seem so frustrated and irritated when the government spends money to help them out? Culture is a main factor that can form peoples perspectives and attitudes, and America is the culture of individualism. Individualist cultures give people a self-centered environment, so people of these cultures indicate themselves as self-regulators and self-controllers who are able to end up with positive consequences (Plug, 2009). Therefore, Americans naturally want to walk themselves through the storm, and those individualists feel that the role of the government is unnecessary and worthless. Moreover, Plug (2009) shows that people of these cultures imbed themselves in the self-respected and immunity pressure, in which each individual is different, particular and special

Stimulus Bill 13 from others; and they always thought in term of I or my first. People adverse to the stimulus bill mostly think that government is using my money, which I was working to death to earn it. Therefore, by common sense, most of them are death wrong in the view of economics and the purpose of the stimulus package. Comparison with Japan: Beside the US, Japan, the second wealthiest country in the world, also highly weighs expansionary fiscal policy as a way of anti-deflating. Following along with the period of bubble economy in 1980s, economic recession started entrenching the whole country of Japan in 1990s with a huge consumer and investment spending depreciation (Krugman & Wells, 2009). Accordingly, the contemporary damaged economy of Japan was depending so much on government purchases of goods and services (Krugman & Wells, 2009). The stimulus bill was created with a major focus on the realism of infrastructure in order to bump back aggregate demand (Krugman & Wells, 2009). Japanese government on that particular field spent $300 billion, while $180 was only spent in the US at the time (Krugman & Wells, 2009). Additionally, economic experts and professors, in extension, indicate that spend as the only main factors that helped Japan to avoid a similar Great Depression in Japan, keep them away from further depressed (Krugman & Wells, 2009). Thus, stimulus package is not an unproven, unknowledgeable, unnecessary, and weird decision, because the acknowledging from Japan just gives a huge credibility to the bill. Conclusion: Economists have learned an enormous lesson from the Great Depression, that during the downturn of the economy, the government plays the highest role of keeping track and regulating

Stimulus Bill 14 the economy. Secondly, there are two types of fiscal policies that the government can do to recover the recession: tax cuts and government spending. As many facts were shown above, we can barely see that Obama has a very good understanding about the economy, and he is the person we really want. Although economic conceptions and statistics are supporting Mr. President, he still needs the most important agreements, and support, which is from his people. Through the speech in 2008, the coming of the new president was regarded as hope of a person who can stand up and resolve many fiscal issues (In the red: Addressing the, 2008). The majority of Americans havent keep trust in the Recovery Act and its capacity (Hayes, 2010). Our common sense is blocking our insight, so we really need to put it away by changing our objective and bias points of view about Obama and his stimulus package. We cannot hold off and wait for another moment to pass by, because ceasing and idling will never be the way of solving problems. Instead of being poles apart, lets make a big difference together in the United States, because one individuals effort cannot make a change, but many individuals effort combined can.

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Illustrations: [Its all about me]. Retrieved from http://mypieceoftail.com/Not%20so%20Bad%20Boy%20Designspaypal.html90 [Health]. Retrieved from http://www.walletpop.com/specials/smartmoney/the-stimulus-packagewhats-in-it-for-you/ [Foreclosure]. Retrieved from http://www.walletpop.com/specials/smartmoney/the-stimuluspackage-whats-in-it-for-you/ [Infrastructure]. Retrieved from http://www.wfrc.org/cms/image_library/ImageLibrary/Infrastructure/3/med/Infrastructure _-_Davis_County__1_.htm [Infrastructure development]. Retrieved from http://www.atlantainfra.com/infrastructure.html [Education]. Retrieved from http://www.cies.us/newsletter/sept%2008/El-Ghali.htm [Unemployment]. Retrieved from http://www.worldcorrespondents.com/no-tier-5-extension-for99ers-unemployment-benefits-extension-subject-to-amendments/8814963

References: Alaska Department of Labor and Work Force Development. (2010, July) Alaska economic trends. http://www.labor.alaska.gov/research/trends/jul10art3.pdf Democratic Policy Committee. (2007, December 21) Middle-class life under Bush: less affordable and less secure. Retrieved from http://dpc.senate.gov/dpcdoc.cfm?doc_name=fs-110-1-219

Stimulus Bill 16 Executive Office of the President and Council of Economic Advisers. (2009, May) Estimates of job creation from the American recovery and reinvestment act of 2009. Retrieved from http://www.whitehouse.gov/administration/eop/cea/Estimate-of-Job-Creation/ Evslin, T. (2010, March 10) Was the economic stimulus bill a good idea? [web log post]. Retrieved from http://recovery.vermont.gov/blog/mar10 Hayes, F.S. (2010) The Tea Parties and the Future of Liberty. Imprimis. July/Aug 2010. Retrieved from http://www.hillsdale.edu/news/imprimis.asp Galston, W. (2010, November 04). President Barack Obamas first two years: policy accomplishments, political difficulties. Retrieved from http://www.brookings.edu/papers/2010/1104_obama_galston.aspx

Grunwald, M. (2010). How the Stimulus Is Changing America. Time, 176(10), 30-35. Retrieved from Academic Search Complete database. In the red: Addressing the nations financial challenges (S. Hrg. 110-724), U.S Senate, 110th Cong.(2008). Jon, H. (2010, July 27) Course of economy hinges on fight over stimulus. Wall Street Journal (Eastern Edition), p. A.1. Retrieved August 2, 2010, from Wall Street Journal. (Document ID: 2092133891). Krugman, P. & Wells, R. (2009) Macroeconomics. Princeton University: Worth Pub. (2010).

Stimulus Bill 17 Obey, D.(2009 Jan, 26) American Recovery and Reinvestment Act of 2009- Conference Report. Retrieved from http://www.themiddleclass.org/bill/american-recovery-and-reinvestmentact-2009-conference-report?gclid=CNWjpuq6mqMCFQYBbAod03wZvQ Ohio Department of Job and Family Service. (2010, July 16) For immediate release. Retrieved from http://ifs.ohio.gov/releases/unemp/201007/unemppressrelease.asp Pflug, J. (2009) Folk theories of Happiness: A cross-cultural comparison of conceptions of happiness in Germany and South Africa. Social Indicators Research, 92(3), 551-563. Retrieved July 19, 2010, from Platinum Periodicals. Readers rate U.S. presidents (2009, January 25) San Francisco Chronicle, p.G.5 Retrieved August 2, 2010, from ProQuest Newsstand. (Document ID: 1632097181). Robert, C.J. (2009, February 22) Economic stimulus: This action undermines market forces. Spartanburg Herald- Journal. Retrieved August 2, 2010, from ProQuest Newsstand. (Document ID: 1649107601). Romer, C. (2009, March 9) Lessons from the Great Depression for economic recovery in 2009. Retrieved from http://www.brookings.edu/events/2009/0309_lessons.aspx Romer, C.(2010, January 29) On the advance estimate of GDP for the fourth quarter of 2009 [web log post]. Retrieved from http://www.whitehouse.gov/blog/2010/01/29/advanceestimate-gdp-fourth-quarter-2009 Smeeding, T. (2009) President Obama and antipoverty policy: What does the stimulus bill do to fight poverty, educate citizens, and improve public health? Retrieved from University of

Stimulus Bill 18 Wisconsin-Madison, Institute for Research on Poverty Web site: http://www.irp.wisc.edu/publications/fastfocus/pdfs/FF2-2009.pdf The White House Office of the Press Secretary. (2010, June 30) Remarks by the president at a town hall meeting on the economy in Racine, Wisconsin. Retrieved from http://www.whitehouse.gov/the-press-office/remarks-president-a-town-hall-meetingeconomy-racine-wisconsin United States Senator for Connecticut. (2008) Dodd seeks bankruptcy protection for foreclosures. Retrieved from http://dodd.senate.gov/?q=node/4636

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