CBO reports ARRA results peaked a year ago
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The Congressional Budget Office has released a report on the estimated impact of the American Recovery and Reinvestment Act (ARRA) on Employment and Economic Output from July 2011 through September 2011.
The report stated that ARRA’s "long-run impact on the economy stems primarily from the resulting increase in government debt.
"To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital.
"In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates."
According to CBO’s estimates, the provisions that potentially add to long-term output account for between one-fifth and one-quarter of ARRA’s budgetary cost. ARRA’s long-run effect on output also depends on whether it permanently changed people’s saving or their ability or willingness to work.
For example, to the extent that ARRA reduced long-term unemployment during the 2009–11 period, it might improve participation in the labor force, employment, and productivity in later years. However, CBO’s estimates of the long-term effects of ARRA do not incorporate any effects of that sort.
The reduction in GDP is therefore estimated to be reflected in lower wages rather than less employment, as workers will be slightly less productive because the capital stock will be slightly smaller.
In February 2009, U.S. lawmakers enacted the American Recovery and Reinvestment Act (ARRA).
According to the CBO report, the effects of ARRA on output peaked in the first half of 2010 and have since diminished.
The effects of ARRA on employment are estimated to lag slightly behind the effects on output; CBO estimates that the employment effects began to wane at the end of 2010
and have continued to do so throughout 2011.
The full report can be read online at: http://www.cbo.gov/doc.cfm?index=12564.[[In-content Ad]]
The report stated that ARRA’s "long-run impact on the economy stems primarily from the resulting increase in government debt.
"To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital.
"In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates."
According to CBO’s estimates, the provisions that potentially add to long-term output account for between one-fifth and one-quarter of ARRA’s budgetary cost. ARRA’s long-run effect on output also depends on whether it permanently changed people’s saving or their ability or willingness to work.
For example, to the extent that ARRA reduced long-term unemployment during the 2009–11 period, it might improve participation in the labor force, employment, and productivity in later years. However, CBO’s estimates of the long-term effects of ARRA do not incorporate any effects of that sort.
The reduction in GDP is therefore estimated to be reflected in lower wages rather than less employment, as workers will be slightly less productive because the capital stock will be slightly smaller.
In February 2009, U.S. lawmakers enacted the American Recovery and Reinvestment Act (ARRA).
According to the CBO report, the effects of ARRA on output peaked in the first half of 2010 and have since diminished.
The effects of ARRA on employment are estimated to lag slightly behind the effects on output; CBO estimates that the employment effects began to wane at the end of 2010
and have continued to do so throughout 2011.
The full report can be read online at: http://www.cbo.gov/doc.cfm?index=12564.[[In-content Ad]]