February 17th is the second anniversary of the passage of the American Recovery and Reinvestment Act of 2009 (ARRA). I will be back later today to discuss our release of updated estimates of the regional impact of all federal action in the wake of the recession, including the passage of ARRA, but in the meantime, I wanted to share two figures on ARRA.
First, from Alan Blinder and Mark Zandi (PDF) is the composition of ARRA dollars. As you can see, roughly half of ARRA dollars were in the form of tax cuts, and when you add in transfers to persons, items like unemployment compensation, nutritional assistance and additional payments to Social Security recipients, that figure rises to 68%.
The next figure plots out a proxy for incomes generated in the market-based economy—personal income minus transfers—as well as the amount of income that households in Pennsylvania had available to spend after taxes, otherwise known as disposable personal income.
As you can see in the figure, as job losses and cuts in hours of work accelerated in 2008 and early 2009, incomes generated in the market-based economy in Pennsylvania cratered. In contrast, disposable personal income did not decline in 2009 and that was due at least in part to the tax cuts and transfers to persons in ARRA illustrated in the first figure above.
The dashed red line in the figure below assumes that the historic relationship between disposable personal income and personal income minus transfers in Pennsylvania was maintained from 2008 to the end of 2009 and, thus, gives you a rough sense of how important ARRA was in supporting spending in the economy.
In the absence of ARRA, the job losses Pennsylvania would have experienced as people here and around the country cut back their spending would have been substantially higher. Politicians and pundits who claim otherwise are doing so based on crank ideologies, not observable facts.
As you read and hear stories about the ARRA anniversary this weekend, it is also important to remember that the jobs created and saved as tracked at recovery.gov do not track the jobs created and saved by tax cuts and transfers to persons and, thus, miss the impact of the bulk of ARRA spending.