Ending Hunger in America, 2014 Hunger Report Full Report | Page 56

policymakers would have to agree on additional fiscal stimulus measures. In 2009, the federal government filled part of the vacuum in private sector demand with the American Recovery and Reinvestment Act (Recovery Act), which added 3 million jobs between 2009 and 2010 and kept the unemployment rate from rising by an additional 1.5 percent.25 But it was still not enough to compensate for the worst economic downturn since the Great Depression. In negotiating the terms of the Recovery Act, the White House and Congress clearly underestimated the severity of the recession. Since the Recovery Act, Congress has been reluctant to pump more fiscal stimulus into the economy, raising concerns about the size of the federal deficit. Yet deficit reduction at the expense of stimulus policies is shortsighted. In a weak economy, when public spending does not crowd out private sector investment, job creation policies ultimately pay for themselves.26 As the unemployment rate falls, so does the federal budget deficit as a percentage of Gross Domestic Product (GDP). As we see in Figure 1.5, unemployment rates and the federal deficit have been closely joined since World War II.27 In 2011, President Obama proposed spending $447 billion on a stimulus plan that, according to independent analysis, could create nearly 2 million jobs.28 He and most Democrats argued that deficits should be reduced by changes that would affect taxes and spending for years to come, thus allowing for job-creating investments now. But Congress rejected the proposal.29 Republicans argued that keeping taxes low gives incentives to employers to invest and expand businesses. They also argued that by borrowing to finance job creation, the government was Figure 1.5 The Close Relationship Between Unemployment Rates and Federal Deficits 13 7.5 11 5.0 9 Federal Deficit as % of GDP 2.5 7 0.0 5 Civilian Unemployment Rate -2.5 3 -5.0 1948 1958 1968 1978 Shaded areas indicate U.S. recessions Source: Federal Reserve Economic Data (2013). 46? Chapter 1 n Bread for the World Institute 1988 1998 2008 1 2018 (Percent) 15 10.0 (-% of GDP) 12.5