Ted Kaufman - United States Senator for Delaware

Kaufman on Senate Floor: Recovery Act Is Doing Its Job

March 4, 2010

WASHINGTON, D.C. – In a speech on the Senate floor Thursday, March 4, U.S. Sen. Ted Kaufman (D-Del.) discussed the American Recovery & Reinvestment Act (ARRA) and its positive impact on the economy.

Since the Recovery Act was signed into law in February 2009, the economy has grown, the stock market has improved, and job losses have steadily declined.

“We were on the precipice – and we could have fallen into the abyss, if not for the extraordinary actions that we took,” Sen. Kaufman said. “Those actions saved us from another full-blown depression. We are still not yet out of the woods, of course.  And although we have had some good news recently, too many families and too many communities have been hit hard by job losses and falling home values.”

Sen. Kaufman noted that nearly two million jobs have been saved or created by activities funded by the Recovery Act and 95 percent of all working Americans benefited from the legislation’s tax relief.

“We cannot be satisfied until we have all of our jobs back, until our economy is working for everyone. But one thing we know for sure – without the Recovery Act money, we would be a lot worse off,” he said.

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 Full remarks, as prepared for delivery:

Mr. President, it has been just over a year since I took office and since President Obama was sworn in, and I think it is appropriate to reflect on just how far we have come.

A year ago, we came into office in the midst of the worst economic crisis since the Great Depression.  We had been spiraling deeper and deeper into recession for over a year.  

Almost three quarters of a million jobs were lost in the month of January 2009 alone.  Our credit markets were frozen.  Major edifices of our economic landscape had collapsed or were tottering on the brink, from Lehman Brothers to General Motors. 

Alarms were still ringing, emergency policies were thrown into the breach.

Things were bad, and there was no way to know how much worse they were going to get.  We were on the precipice – and we could have fallen into the abyss, if not for the extraordinary actions that we took. Those actions saved us from another full-blown depression.

We are still not yet out of the woods, of course.  And although we have had some good news recently, too many families and too many communities have been hit hard by job losses and falling home values. 

But we are nevertheless beginning to see evidence that we are finally turning the corner as a nation.  While things are still not good, they are no longer getting worse, and, in some areas, we see real improvement. 

I want to share with my colleagues some of that evidence.

Here I have a chart showing the Dow Jones Industrial Average since last October.  We all know that this is not always the best indicator of economic health, but since this downturn was precipitated by turmoil in our financial markets, I will start with this. 

As you can see, Mr. President, the market bottomed out just weeks after the Recovery Act was enacted, and has been climbing ever since.  This chart clearly shows that we stopped the freefall, that we stabilized the market, and that we are allowing it to grow again.

Here is another chart that shows the Purchasing Managers Index.  This is a survey of purchasing managers who report whether business conditions are better than, the same as, or worse than the previous month.  A score of fifty means no change, so anything over that should mean the economy is expanding and anything below indicates that the economy is shrinking.

In this chart, it is clear that business confidence plummeted in the fall of 2008. 

Only four times in the postwar period has this index fallen so low, and never in the last quarter century.  And we can see here that it was not until March of last year, right after the Recovery Act took effect, that manufacturing confidence began to return. 

With other data, we know this occurred as businesses began to rebuild inventories, confident that they had weathered the cash crisis that was last winter.

This next chart shows our GDP growth over the last three years, from the beginning of 2007 through the end of last year, the last date for which we have good data.  I’ve added a smoothing line, to show the trajectory our economy has been taking.  As you can see, in 2008 the bottom fell out from under us.  It wasn’t until last spring that we began to restore order.

I will not pretend that 6.3 percent growth for one quarter is good enough for me.  Without jobs, it isn’t.  But it is clearly better than what was happening twelve months ago.

But my last two charts, Mr. President, which address jobs, tell the most important tale. 

Now, we know from past experience that job growth lags behind economic recovery, and this chart here shows how long that took in previous post-war recessions. 

Businesses need to use up their existing capacity and they need to feel confident in the economic climate before they start expanding again. 

The process can be especially painful following 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.  That is why the jobs have been slower to return than anyone would like. 

It is important to remember this lag.  Economists suggest that we may be around eight months into economic recovery – and the jobs are coming.    

While the record of recent recoveries is a sobering one, the last chart I have shows the beginning of our good news.  With announcements over recent weeks, we have seen that unemployment is stabilized, and may even be turning around.  We have staunched the bleeding.

All of those charts show that things started picking up after the Recovery Act goes into effect. 

That is not the only thing we did – there were extraordinary efforts to stabilize the financial sector through direct assistance and low interest rates – but passage of the Recovery Act marks the beginning of the turn around.

We cannot be satisfied until we have all of our jobs back, until our economy is working for everyone.  But one thing we know for sure – without the Recovery Act money, we would be a lot worse off.

I want to stress: this will not be a smooth path back to a healthy economy.  There will be good days and bad days, good news and bad news.  But these indicators show we have turned the corner, thanks in no small way to the Recovery Act money that is still going out.

Nationally, nearly 2 million jobs have been saved or created by the activities funded by the Recovery Act.  This is not just something I am claiming.  Economic experts at Moody’s, the CBO, Macroeconomic Advisors, and more are telling the same story.

But that is not all that the Recovery Act has done.  It also gave a helping hand to millions of Americans out of work by expanding and extending unemployment insurance. 

Meanwhile, 95% of all working Americans benefited from tax relief.

State and local governments received badly-needed fiscal relief that allowed them to maintain essential services (including health coverage for millions of Americans) and retain workers, which kept cops on the beat and teachers in the classroom.

We will never know how bad the economy would have been if we had not acted.  That is the nature of things.  But the charts I just showed all tell the same story: of an economic freefall that has been slowed, stopped and reversed.

Mr. President, do any of my colleagues really believe that we would be in a better situation today without the Recovery Act?  The timeline is clear, the data are clear.

The challenge we faced a year ago was a roughly $2 trillion hole in our economy.  Two trillion dollars. 

The consumer spending, fully two-thirds of the whole economy, was in freefall.  Failing to plug this gaping $2 trillion hole would have continued the freefall or, just as bad, condemned us to a “lost decade” like what Japan saw in the 1990s.

And let’s tell the truth about how we got here.  It is absolutely essential that we remember what the situation was a year ago, when the Administration came into office.  The circumstances we inherited at the end of eight years of the prior administration were the worst we have seen in generations. 

When the Bush Administration came into office in 2001, the federal budget was not only balanced, it was in surplus, to the tune of $236 billion, the largest surplus in half a century.  We were actually debating how quickly we were going to be free of debt as a country.  We were on a path to financial independence, able to save for the retirement of the Baby Boom Generation, able to set something aside for a rainy day.

Tragically, that inheritance was squandered.

Instead of the surplus of $710 billion that was projected in 2001 for last fiscal year (2009), we wound up with a $1.6 trillion deficit.

Two major factors account for the bulk of this reversal of fortune.  First were the economic and budget policies of the last administration, which gave no thought to paying for its tax cuts or its spending increases.  Tax cuts primarily for the wealthy and the wars in Iraq and Afghanistan together accounted for more than $500 billion of the 2009 deficits, and $7.1 trillion over the next decade.

Second, we had the regulatory failures which permitted, and even encouraged, the financial excesses that brought our markets down.  That financial collapse battered our economy, reducing revenues and increasing necessary spending on unemployment insurance, food stamps, and other support programs.

It is true, Mr. President, that the budget for next year will not be as close to balanced as we wish, but I believe that is because of the hand we were dealt. 

The best way to bring our budget back into order, over the long run, is to grow our economy.

Our inheritance from the previous administration were tax cuts overwhelmingly tilted toward those who were already well off, unfunded new entitlement programs, and two wars paid for with borrowed money. All of these transformed our country’s finances, leading us down the path to fiscal ruin.  Instead of saving for the future, we were borrowing billions from China, Japan, and other countries, and falling deeper into debt.

President Bush inherited a balanced budget, a vast fiscal surplus projected at the time to be $5.6 trillion over ten years.  Instead, he left office having ADDED nearly $5 trillion to the national debt.  That is a swing of $10 trillion.  That means the Bush years cost us roughly $30,000 for each and every American.

Now, Mr. President, I think that those of us who supported the Recovery Act need to own up to our own mistake – that we have not been doing a good job explaining why the Recovery Act was needed – and how it is working.

To start with, I will say that I know it increases the deficit in the short term.  I don’t like it, but, to be honest, that was an unavoidable byproduct. The best long-term solution to our debt problems is not a little frugality that cuts down on growth – it is a robust, healthy, growing economy. 

That is why most economists believe that, in spite of the short-run deficit hit of the Recovery Act, it will bring us closer to fiscal balance over the long term. 

I know some of my colleagues on the other side of the aisle will take issue with that statement.  I would simply remind them that it is economic growth, and economic growth alone, that will get us out of our mess.

And there is another mistake that has been made.  As we have diligently worked to ensure accountability for the program and connected specific parts of the Recovery Act to specific jobs created, we have missed the forest for the trees.  We have lost track of the real objective: to jump start the broader economy. 

While the Recovery Act itself has created or saved 2 million jobs – independent analysis confirms this – perhaps its most important impact has been the renewed confidence it has given to our economy.

The jobs will come.  They always lag behind.

The charts do not lie – we are rebounding.  We cannot quantify it, but by returning faith to our consumer economy, the Recovery Act has had a much greater effect than the sum of its parts.

To those who complain of deficits I say, I understand.  I don’t like them one bit either, but right now they are a necessary evil.

To those who opposed the Recovery Act I ask, what was your plan?  Some said we should fill a $2 trillion hole with $200 billion.  That was a plan doomed for failure.  Economists far and wide said that would have failed to halt a fall into depression.  No reputable economists – none – said that that would have taken us from where we were to 6% GDP growth in the fourth quarter of last year.

Mr. President, we have come a long way in this last year, and we have a long way to go. To move forward we must remember first how bad things were when we began, and how deep was the hole that we are now pulling ourselves out of.

The Recovery Act has done its job and will continue to do its job.

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