Ted Kaufman - United States Senator for Delaware

Sen. Kaufman Discusses How Recovery Act is Working

June 23, 2010

Mr. President, I rise today to remind my colleagues that the Recovery Act has worked and is still working. It has been almost a year and a half since I took office and since President Obama was sworn in. Remember, we came into office in the midst of the worst economic crisis since the Great Depression. Our financial system was collapsing. We had already lost millions of jobs and were losing millions more at a truly frightening pace.

We had roughly a $2 trillion hole in our economy, and instead of a surplus of $710 billion that was projected in 2001 for 2009, we wound up with a $1.6 trillion deficit.

Remember back in 2001 when the Bush administration came in? One of the problems was our surpluses were growing too fast. We had projected a $5 trillion surplus through 2009.

What did we end up with? We ended up with $5 trillion in deficits during that period, a $10 trillion turnaround. In 2009 where we had projected a surplus of $710 billion, we ended up with a $1.6 trillion deficit.

Fortunately, the Recovery Act brought us back from the precipice of disaster. It saved us from another full-blown depression and allowed us to rebuild our economy and add jobs.

The nonpartisan Congressional Budget Office just recently completed an analysis that demonstrated what a big impact the Recovery Act has had. The CBO, nonpartisan CBO, indicated that in the first quarter of this year, the Recovery Act accounted for anywhere between 1.8 million and 4.1 million more jobs, 2 to 4 million jobs. I would call that a success.

The CBO also told us unemployment was .7 percent to 1 1/2 percent lower because of the Recovery Act. Our gross domestic product was 1.7 percent to 4.2 percent higher. The CBO is not the only one telling us this story. The Conference Board reported the latest version of its Leading Economic Index. The chart I have shows this index since last January, since the President and I took office. This is when we passed the Recovery Act.

As my colleagues can see, it bottomed out in March 2009, shortly after passage of the Recovery Act, and has been steadily climbing ever since. Other major economic indicators tell a similar story. Take the Dow Jones Industrial Average. Now, take the Dow Jones Industrial Average as a guide to the health of our financial markets.

This chart shows that shortly after passing the Recovery Act, the markets hit bottom with the Dow at 6,547 on March 9, 2009. I wonder what happened in March that caused the Dow Jones to go up like this? The Dow since then has risen dramatically, rising above 11,000 a couple of months ago, and even remaining above 10,000 amidst recent market turmoil.

Take a look at this chart. Let's throw the last chart up here again. In March 2009, we passed the Recovery Act, and guess what happened. The Dow Jones average takes off. March 2009, guess what. We passed the Recovery Act and the major economic indicators take off. Let's look at another one.

How about the Purchasing Managers Index, a leading indicator of business confidence. Any score over 50 means the businesses around the country believe conditions are better than they were the previous month, and we are headed in the right direction.

Take a look at this chart. Oh, my goodness. Guess what. Early 2009, we are crashing. Now we are up. I wonder what happened during March 2009 to cause this Purchasing Managers Index to go up. Why all of a sudden did businesses around the country believe conditions were getting better? I wonder what that was all about?

Let's look at another chart. Let's look at gross domestic product, one of the very best indicators of our health. From 2007 to the first quarter of 2010 it tells the same story: Things started getting better after the Recovery Act was passed.

Here is the first quarter of 2009. Oh, my goodness, look at this. Going straight down. We get to the first quarter of 2009, straight up.

Either this is one of the truly great coincidences of our time, or the Recovery Act turned this economy around. The key point, as we have said all along, is not the economy, but it is jobs. So let's take a look at jobs.

The most recent unemployment report indicated that we added 431,000 jobs last month. Unemployment is still too high, much too high. Without our efforts to help the economy, most notably the Recovery Act, it would be even higher still.

Take a look at this chart. Here we are, folks. March 2009. What happened in March? I wonder what happened in March 2009. I wonder why jobs went from losing 753,000, which is what we lost in March of last year, to gaining 431,000 in May. I wonder. What could have happened to these charts?

We know the unfortunate thing about this is the economy is coming back, and the economy is coming back because of the Recovery Act. But we know from past experience that job growth lags behind economic recovery, and this chart shows how long that took from previous postwar recessions.

The problem is not that the Recovery Act did not work. It worked and the economy came back. The problem is, if you look back--and we knew this at the time--if you go back to 1949 where the jobs lagged by 5 months, or you go back to more recent history, November 2001, where jobs lagged 22 months, the problem is not that the Recovery Act did not work, the problem is the time it takes from when the economy comes back until jobs come back. That is not hard to explain.

Businesses need to use up their existing capacity and they need to feel confident in the economic climate before they start expanding again. That just makes sense. The process can be especially painful during a financial collapse where businesses and households are forced to pare down their savings and reduce their spending, thus tamping down economic and employment growth.

Due to this lag, which was totally predictable, the jobs have been slower to return than anyone likes. But make no mistake, thanks to the Recovery Act, we have gotten our economy back on track and growing again. We must not, however, take these results for granted. For those who said at the time we could get by with less, my Republican friends--and they are my friends, and I hold them in high regard--but to those who said the economy will come back without the Recovery Act, just look at the example of Japan in 1990.

Remember on this floor, and the vote against this was almost complete, against the Recovery Act. I think we ended up getting three Republican votes. They were saying: We do not need to do anything. The economy will come back.

Let me show you something. Japan tried that. Approximately 20 years ago, Japan also experienced a serious economic downturn that was precipitated by the bursting of speculative bubbles in real estate and financial assets. Sound familiar?

However, Japan was slow not only to address the crisis in the banking sector, but also to use fiscal stimulus to help jumpstart the economy. This chart shows the results. They call it the ``lost decade'' in Japan. Literally no growth in gross domestic product. That is what happens if you do nothing, if we had done nothing. We must not allow that to happen here.

There are those who continue to present a false choice between balancing the budget and fiscal stimulus necessary to get our economy back on track. This is a false choice. But we should know by now there are times in which fiscal stimulus and deficits are necessary--necessary. Good deficits to spur growth and get our economy on track. There are other times when deficits are unnecessary and short-sighted. Deficits are sometimes necessary, looking back through history, to allow fiscal stimulus to jumpstart an economy that is contracting due to a precipitous decline in private sector investment and consumer spending.

There is a hole in the economy because private sector investment and consumer spending stopped. The economy is frozen. That is the time you have to get the economy going. If you have a $2 trillion hole in the economy, you can't let it sit there, as Japan did, and fester. You have to do something. That is what the Recovery Act did. It put money into the economy.

However, my friends on the other side of the aisle are absolutely right when they say deficits are inappropriate during good economic times, which is what we had for the 8 years previous to this. At those times, they are typically the result of irresponsible decisions to cut taxes and put in place unfunded spending programs--tax cuts that were not paid for; the wars in Iraq and Afghanistan, not paid for; Medicare prescription drugs, not paid for. So during a period when the Congressional Budget Office said: In 2001, we are going to run a $5 billion surplus, we ran a $5.6 trillion deficit because we went out and spent and spent and spent with no provision for paying for it.

I cannot believe it when I am presiding here and colleagues come to the floor and talk about the unemployment extension like, man, this is a bad situation. These folks are going to spend money and not pay for it, because we have these incredible deficits.

These deficits didn't just show up in the last year. The deficit in the last year was to get the economy moving again. It was a good idea. Where did the $10 trillion turnaround come from between 2001 and 2008, when time after time, on big programs such as tax cuts and going to war, the decision was made not to pay for it? That is where we got the deficits. That is where the deficits came from. Those are the bad deficits. We were irresponsible. We had good times. That is when we should have built up the deficits. That is when the bipartisan CBO said we would have surpluses, remember? In fact, the rationale for the first tax cut was: It is better in their pockets than in our pocket. We should not have been giving out these tax cuts. But let's just give them to the American people because of the surplus. And we ran up a $5 trillion deficit.

While we have serious structural and budgetary problems--and we do--that need to be resolved for the long term, getting our economy growing again has to be our first priority, and had to be. President Obama has established a bipartisan commission to address those long-term problems. In the short-term, we need to grow ourselves out of deficits--a phrase my colleagues across the aisle have invoked many times in the past. They are absolutely right. We have to grow out of this.

One of the ways we grow out of this is to get the economy moving. One of the ways to get the economy moving is by the Recovery Act. I remember February 2009 all too well. No one in the Senate should ever forget what it was actually like in February 2009. We were looking into the abyss before we passed the Recovery Act. The American economy was in free fall, and another Great Depression was imminent. Those were truly scary days. The Recovery Act helped divert another Great Depression. It has our economy growing again. It has improved our fiscal situation. Imagine the size of our budget deficits if we had another Great Depression, which was an all-too-real possibility just over a year ago. Do you think these deficits are bad? Suppose we had the Great Depression.

We are now on the path to recovery, but it is a narrow ridge, not a broad field. If we do not keep our eyes forward, we will too easily lose our way. We have a fragile economic recovery that has been made even more so by the massive oil spill in the gulf and by serious fiscal and financial strains in Europe. We could have a double-dip. We could turn this around. This is a very fragile time for the economy. Given these perilous circumstances, we need to be vigilant to avoid another double-dip recession.

To conclude, the Recovery Act has done its job and will continue to do so. Now, as we get through this crisis, as this recession passes, we need to create new jobs. That is the key. It isn't enough to try to win back the jobs we lost. We have to do that. To keep pace with our population and keep a sacred promise to our children and grandchildren, we need to create a whole new generation of jobs.

As former President Clinton said in recent years: In the last 10 years, we were creating jobs in three areas--housing, finance, and consumer economy. Unfortunately, all three of these have suffered in this economy. All three of these have benefited from loose credit and easy money to build up a bubble. I am sorry to say that many of these jobs are not coming back, especially in the short term. We cannot look forward to the day or depend on the day where carpenters were scarce because we built more housing than people could afford to buy. We do not need a revitalized legion of clever bankers any more than we need another Starbucks one block closer.

Going forward, we need to transform our economy by revolutionizing how we produce and consume energy. To do this, we will need more scientists and engineers. It is in this area where future job and economic growth will happen. The Recovery Act, thank goodness, began this process, not only by turning our economy around but also by promoting green jobs and investment in clean energy initiatives. Our challenge in the future will be to build upon its foundation.

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