Did the Stimulus Work? And Other Lessons of History: Ford Motor Company (F) and More

Page 1 of 3

On this day in economic and financial history …

On Feb. 17, 2009, after weeks of fevered negotiations following the inauguration of President Obama, the American Recovery and Reinvestment Act — most commonly known as the stimulus — was signed into law in Denver. The stimulus proposed to inject hundreds of billions of dollars into the flailing American economy through a combination of increased government spending and tax cuts, in an effort to halt a months-long slide into recession before it became another Great Depression. Originally slated to cost $787 billion, the stimulus’ impact on the deficit is now thought to total $831 billion. Four years after it became law, the stimulus has provided $291 billion in tax breaks, $250 billion in project and operational funding, and $244 billion in entitlement benefits.

Ford Motor Company (NYSE:F)Has all this funding worked? Less than a month later, the Dow Jones Industrial Average bottomed out and had more than doubled from its crisis lows within four years of the stimulus’ passage. The Congressional Budget Office found that the stimulus added as many as 2.1 million jobs in the fourth quarter of 2009, increasing the nation’s economic output by 3.5% and lowering the unemployment rate by as much as 2.1%. Time correspondent Michael Grunwald, author of The New New Deal, pointed out to The Washington Post‘s Ezra Klein:

We dropped 8.9% of GDP in Q4 2008. We lost 800,000 jobs in January 2009. We passed the stimulus. And then the next quarter we saw the biggest jobs improvement in 30 years. … It’s got the biggest middle-class tax cuts since the Reagan era. It prevented 7 million people from falling behind the poverty line.

On the other hand, a pair of working papers from the conservative Mercatus Center at George Mason University claim that the stimulus distorted normal market incentives. For example, some contractors were forced to use costlier materials to make it appear that a larger amount of stimulus money was being put to use, or funding might have been directed toward the purchase of useless tools instead of for the retention of employees. There are bound to be some flaws in even the most well-intentioned programs.

The tech index heats up
On Feb. 17, 2000, the Nasdaq Composite raced toward its ultimate dot-com apex, closing above 4,500 points for the first time in its history. That day, the index finished with a 2.7% gain to close at 4,549, with a then-record 2 billion shares traded on the Nasdaq exchange. It had taken the Nasdaq a year to grow from 2,500 points to 4,500, and only four and a half years to grow from 1,000 to its Feb. 17 close.

However, the cracks were already beginning to show in this booming market. The Dow had peaked a month earlier. On Feb. 17, it sagged under the weight of another warning from Federal Reserve Chairman Alan Greenspan, who told the House Banking Committee that “profoundly beneficial forces driving the American economy to competitive excellence are also engendering a set of imbalances that, unless contained, threaten our continuing prosperity.” At the close, the Dow was already 10% lower than its January peak. In less than a month, the Nasdaq would hit its all-time high, a level of just over 5,000 points that has been far out of reach ever since.

Page 1 of 3
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!