Policy » Federal Policy and the Great Recession

The Great Recession was a creation of poor policy choices by the federal government. During an economic recession, public investment provides an important economic stimulus that limits the spread of misery and provides a stronger foundation for broadly shared economic growth. Recovery from the 2001 recession was slow and weak because of the lack of any meaningful stimulus from the federal government. Instead, Congress cut taxes, with the benefits flowing mainly to the wealthiest American. The continuation of those tax cuts, despite embarking on two wars, crowded out already minimal public investments in education, infrastructure, and science.

To make matters worse, a mantra of business deregulation encouraged outsourcing of jobs and shifting of costs to individuals, furthered eroding the middle class. At the same time, a lack of regulation and oversight contributed directly to the growth of a housing bubble, subsequent mortgage crisis and near collapse of the finance sector that triggered a global economic crisis in the fall of 2008. The combination not only wreaked havoc on the world economy – it also destroyed the finances of millions of American families. Meanwhile, throughout the decade, an ever greater share of national wealth has accumulated at the top.

Things could have been even worse. The federal response to the recession in late 2008 and 2009 was far different from 2001. Bailouts of the banks and auto industry and passage of the American Recovery and Reinvestment Act (ARRA) by the federal government averted a total collapse. Federal stimulus funds spent from 2009 through the present time on unemployment insurance extensions, local schools (keeping many teachers employed), green energy initiatives such as “cash for clunkers,” and public works projects have been particularly effective in preserving or creating jobs in communities across the country. Through September 2010, recipients in Washington state had received $3.6 billion in ARRA funds and been awarded an additional $4 billion. Recipients in the state reported over 16,000 jobs resulting from those funds.

The major problem with ARRA was that it did not go far enough. Many economists recommended a stimulus package twice as large. State and local governments across the country – including here in Washington – were still forced to cut budgets, services, and jobs.

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