The Great Recession under Bush and Obama: Federal Stimulus Effectiveness and Economic Outcomes
Overview
This paper examines the federal stimulus measures implemented by the Bush and Obama administrations during the 2007-2009 Great Recession, analyzing their effectiveness using Keynesian economic models. It compares projected outcomes with actual results, demonstrating that both stimulus packages fell significantly short of their intended goals due to consumer behavior and inadequate state assistance.
What this essay covers
- Bush administration stimulus: Economic Stimulus Act providing rebates, tax reductions, and increased loan limits; analysis of expected vs. actual multiplier effects using Keynesian models
- Obama administration response: American Recovery and Reinvestment Act targeting unemployment reduction; examination of projected job creation versus actual outcomes
- Evaluation of stimulus failure: Poor planning, insufficient state assistance, delayed rather than prevented layoffs, and behavioral factors affecting MPC assumptions
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The Great Recession under Bush and Obama
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The Great Recession under Bush and Obama
To stabilize the economy, the Bush and Obama administrations unleashed a combined total of one trillion dollars of the new federal stimulus on the economy during the 2007 – 2009 Great Recession. The economic Stimulus Act signed into law by the then-President George W. Bush. This legislation provided rebates, reduced taxes, and increased loan limits to enable Americans to own houses (History, 2017). Using the simple Keynesian model and assuming an MPC in the range of 0.8, this plan was supposed to increase aggregate income by $5 trillion. However, when one considers a more realistic mode like ‘Model VII’ with the same assumption that MPC is in the range of 0.8, the magnitude of the government expenditures multiplier is reduced significantly.
The reason for this is that at gaining an extra dollar, the proponents assumed that Americans would spend 0.8 of the dollars. Still, most Americans held onto it because of the fears of the aftermath of the recession. Thus, the aggregate income did not increase as envisioned. Under Obama, the congress resolved to pass the 2009 American Recovery and Reinvestment Act aimed at curbing unemployment at 8% or even lower it to 5% by the end of 2013. However, actual results contradict the figures that had been projected in the plan.