The U.S. government passed the most significant stimulus package in its history this year, and it may soon pass another, prompting many to look back for a historical precedent. While the U.S. has never needed economic stimulus on this scale, it has used the method to handle crises in the past. From the beginning, however, economic stimulus has been a controversial means of stabilizing a country.
An economic stimulus is as old an idea as money and governance, though public perceptions of the strategy have changed over time. It is particularly contentious in the U.S., where free-market capitalism has defined all of its history. Here, stimulus packages have almost always been deployed in response to an emergency, with the intention of mitigating a crisis rather than stimulating growth.
No stimulus package in United States history has come with as high a price tag as the CARES Act passed in March, though accounting for inflation, that might change. Still, with the U.S. already considering another stimulus package to handle the coronavirus pandemic, it bears looking back on how these direct injections of cash have impacted the country in the past. Here's a look back at all the stimulus packages used in the U.S.
Calvin Coolidge with Herbert Hoover in 1928 pic.twitter.com/3vQEKWoQFR— All the Presidents (@presidents_all) June 23, 2020
When the Great Depression began to take its toll on the U.S. in the 1930s, then-President Herbert Hoover was accused if "priming the pump" — a practice we would now simply call economic stimulus. Hoover was hesitant to intervene in the Depression, worrying that government hand-outs would make Americans lazy. However, Hoover ultimately proposed $400 million in new federal building projects and another $175 million in other public works projects, as a way of creating jobs and kickstarting the economy.
At the time, Hoover was ridiculed by business owners and economists for "pump-priming," though many academics favored his proposals, according to Steven Hortwitz's book Herbert Hoover: Father of the New Deal. Just a few years later, the term "pump-priming" would be turned on its head as a positive thing.prevnext
The New Deal
Of course, the true economic stimulus package of that time was President Franklin D. Roosevelt's "New Deal," which came just a few years later. Roosevelt pushed Congress to pass a historic amount of legislation, including the Emergency Banking Act, and established new federal agencies such as The Public Works Administration and the Federal Emergency Relief Administration.
All of this was counted under the umbrella of "The New Deal" — Roosevelt's explicit effort to deploy federal resources to keep the economy alive. The National Industrial Recovery Act was intended to blunt the cutthroat competition between big companies, while Congress gave broad new regulatory powers to the Federal Trade Commission. Homeowners and farmers were given mortgage relief, and employers were required to adhere to a minimum wage.
All of this legislation spanned about four years and touched just about every part of American life. The result was not only the gradual relief from The Great Depression but innovation in many spheres. The U.S. was pulled even further out of economic ruin by the effort to join in World War II.prevnext
Economic Stimulus Act of 2008
Jumping ahead, the next economic stimulus package modern Americans will likely recognize is the Economic Stimulus Act of 2008, signed by President George W. Bush in February of that year. It was intended to help the U.S. avoid a recession, as the housing market had been grinding to a halt for about two years before that.
The Economic Stimulus Act provided tax rebates to low and middle-income Americans and tax incentives for small business investments. It also increased the limits imposed on mortgages eligible for government-sponsored enterprises to purchase. In total, the bill cost about $152 billion.
The results of this stimulus package were not altogether positive. A study in December of 2009 found that only about one-third of the tax rebates had been spent, providing a "modest stimulus" to the economy at large. However, after a brief spending spree, most Americans held onto their rebate for fear of the economic crash they believed was coming.prevnext
American Recovery and Reinvestment Act of 2009
Another stimulus package followed shortly after — he American Recovery and Reinvestment Act signed in February of 2009 by new President Barack Obama. By then, the economic downturn had been dubbed "The Great Recession," and this bill was intended to save existing jobs and create new ones amid the panic.
The Recovery Act also created temporary relief programs for those most affected by the recession, while investing in infrastructure, education, health and renewable energy. The package was expected to cost $787 billion when it passed, though that price tag soon ballooned to $831 billion.
In general, economists found that the Recovery Act did reduce unemployment, and had been a relative success. However, the law created a political minefield around the already-embattled Obama. Not a single Republican Congressperson voted for the Recovery Act, and the Tea Party movement used it in attack ads against the administration. Meanwhile, there were critics on the other end of the political spectrum arguing that the Recovery Act did not do enough, and should have allocated even more money.prevnext
Still, those efforts were cheap compared to the CARES Act, which cost about $2 trillion back in March. According to a report by USA Today, the U.S. government expects to collect about $3.5 trillion in taxes in 2020, so the CARES Act and any future stimulus packages will certainly drive up the national deficit. Still, the response matches the need, according to economist Mark Zandi, who told reporters: "The magnitude of this stimulus is appropriately consistent with the magnitude of the COVID-19 economic shock."
Most Americans know the CARES Act best for the Economic Impact Payments — or "stimulus checks — that it included. These were worth up to $1,200 for each individual taxpayer, depending on their income, and came in the form of direct deposit payments or paper checks in the mail. They were distributed by the IRS via the same channels they delivered tax returns in previous years.
Those checks made up only about $500 billion of the CARES Act's total budget, however. The rest of that money was used to shore up the healthcare industry, aid states, boost unemployment payments and buoy business through the period of social distancing. About $454 billion, for example, was given out in corporate loans, while another $349 billion went in the form of small business loans. Smaller sums were given specifically to airlines, public transit programs and other industries in need.prevnext
All in all, the CARES Act was not as proactive as The New Deal or other stimulus packages for the simple fact that the coronavirus pandemic makes it dangerous for public works projects to take place. While it is too soon to determine the overall effects of the bill, it has been praised by many as a lifeline in these unprecedented times. Still, as in 2009, many critics say that it did not go far enough.prevnext
The United States' next stimulus package is still up in the air, and it could go anywhere depending on what comes next. The U.S. Congress has passed the HEROES Act — even larger than the CARES Act at $3 trillion, yet the Senate has been slow to even consider the law, with Sen. Mitch McConnell calling it "dead on arrival." It would include another one-time stimulus check for Americans of up to $1,200.
Many Republicans are calling for a smaller, more targeted stimulus plan, such as a payroll tax cut or another upstream measure. At the same time, critics of the HEROES Act on the left are still saying that it does not go far enough. Many want to see a monthly or quarterly stimulus check sent to Americans throughout the duration of this pandemic, while others want the federal government to step in and "cancel" all rent and mortgage payments until public spaces can reopen.
With new coronavirus cases in the U.S. on the rise fast, the country will need to decide how it handles this crisis going forward fast. The Senate is not expected to consider another stimulus package until mid-July.prev