Congress passed the whopping $787 billion American Recovery and Reinvestment Act this month, intending to infuse the economy with a much-needed dose of cash. Willie Belton, associate professor in the School of Economics, shared his opinion on the bill this week, giving expert insight into the issue.
“I think [the bill] is a very positive thing and is probably the only thing that [Congress] could do,” Belton said. Although there is an ideological dispute in Congress concerning the size of the bill, Belton said that the dispute is “pure politics.”
The bill provides tax relief for individuals and state and local governments. The bill also pumps money into transportation and infrastructure, renewable energy and the healthcare system.
From a Republican perspective, a spending strategy that includes a $19.9 billion increase in food stamps and an $86.6 billion increase in Medicaid is irresponsible and will not stimulate the economy, but Democratic congressmen claim that the increase is necessary to support American families.
The main ideological difference between liberal and conservative economics has been a point of contention since just after the Great Depression, when the United States began to see more economic regulation by the federal government as necessary. The dispute has always concerned the reach of government.
“We could probably do nothing, but I’m not sure we want to feel that kind of pain,” Belton said, alluding to the 25 percent unemployment rate of the 1930s. Currently, the U.S. unemployment rate is only 7.6 percent, almost double what it was in March 2007. Georgia’s unemployment rate has also steadily increased, reaching a 26-year high in December at 8.1 percent.
Georgia Senate Majority Leader Chip Rogers (R-Woodstock) expressed his dissatisfaction with the bill to reporters last week, speaking out against the “almost…trillion dollars in debt” that the federal government is placing “on the American people.”
Regardless, the fact remains that Georgia is not doing any better economically than other states, bearing an unemployment rate that is 0.5 percent above the national average.
Last week, Governor Perdue signed a piece of legislation that re-routes most of the $460 million of stimulus money intended for Georgia’s Medicaid. That legislation will essentially keep Georgia from bouncing the $200 to $300 checks it wrote to homeowners in the form of tax relief grants last fall.
Some optimism came from Belton, saying that “Georgia isn’t any better or any worse than any [other state],” but also adding that the mortgage crisis is especially painful in Georgia.
Still, there are many reasons why new graduates or even current students may want to purchase a home as opposed to renting in this economic climate.
First of all, homes are selling for historically low prices, some auctioning for as little as a few thousand dollars. Also, first-time home buyers qualify for a tax credit of up to $8,000 under the American Recovery and Reinvestment Act.
The thing to keep in mind when buying an auctioned home, however, is that the costs associated with making the home livable are often more than the purchase price. Distressed homes cost tens of thousands of dollars to restore, not to mention the thousands of dollars per year in property tax.
If one is looking to make a financial investment, Belton suggests “following the government’s lead,” meaning that if the government is preparing to pour billions of dollars into infrastructure, now is the time to invest in road-building companies.
Concerning the stock market, the Dow Jones Industrial Average has dropped 21 percent since the beginning of 2009.
While some Americans attribute losses to poor decisions being made in Washington right now, others point to a ripple effect coming from the recently distressed economies of Romania and Hungary.
For Americans, the trillion dollar question is: How long will the bill in question take to work? To some, the road ahead looks like an eternity, but to Belton, “[The bill] is already having an impact on expectations.”
Citing some of his own expectations, Belton said that he was looking forward to an infusion of funding to universities from the federal government. Although Tech only receives 35 percent of its funding through the government, every little bit helps.
Thanks to the stimulus bill, Georgia’s educational system will be able to stave off further losses. The state will no longer have to cut $20 million in education funding for the year 2010. Counting K-12 schools and universities together, the system was already dealing with budget cuts of more than $150 million this year.
In response to an outcry from college students, Pell Grants were increased by $500 per student. Nationally, an additional $200 million was set aside for work-study programs.
Whether or not spending has been strategic is a question that economists can theorize about now but will not be able to answer for years. “I think [Congress] is spending the money [in] the only places they can spend the money,” Belton said.