1. The package is simply not big enough.

In response to the 2008 economic meltdown and resulting global recession, Congress passed the American Recovery and Reinvestment Act (more casually referred to as the “stimulus package”) in February, 2009, allocating $787 billion to stimulate economic growth. Some economists viewed the plan with skepticism when it was first announced, not because they objected to the underlying economic principles of stimulating economic growth through a combination of tax breaks for individuals, low-interest loans to small businesses, and direct spending on infrastructure, but because they felt the damage from the meltdown was so extreme that this was simply not enough money to get the economy moving again. These concerns may have been pessimistic. This investment was widely viewed by economists as having contributed significantly to economic recovery

2. We're hoping the stimulus will result in expansion.

An economic expansion is a period of economic growth as measured by a rise in real GDP. Like sharks, economies must keep moving forward, lest they die, or at least get sick. An economy with a rising GDP is in a state of expansion. If it isn’t rising, it’s falling, which means the economy is contracting, and is in a state of recession.

The stimulus package worked by getting money moving again. Spending on infrastructure directly created thousands of (temporary) jobs. Tax breaks for low and medium income workers put more money in the hands of citizens most likely to spend it. Extending loans to small businesses was a key component, because banks were simply not able to continue to lend money (having already lent out too much that they didn’t get back). Without the availability of credit, the economy would grind to a screeching halt. Fears that this was going to happen were at the forefront of the minds of economists throughout the world in 2009, but the stimulus appears to have been very largely successful. The global economy did recover, with American GDP up 3.9% in the 4th quarter of 2009, after the worst economic blow in almost a century.

3. The unexpected slowdown has initiated deflation.

Deflation is a general reduction in the prices of goods and services within an economy. It’s essentially the opposite of inflation, but while runaway inflation can be very bad for an economy, deflation can be just as bad or worse.

Deflation results from a fall in aggregate demand, the willingness of consumers to purchase goods and services. If aggregate demand falls, this produces an overall reduction of economic activity. Investors may hold onto their money, rather than invest it, because the prospects of significant return on investment are dim. When cash flow dries up, money becomes more scarce. As money becomes more scarce, the amount of goods one can obtain with a given amount of it rises. Prices fall. This may initially seem a godsend at the grocery store, but falling prices usually presage falling wages.

4. Some of the most widely touted assets turned out to be over-valued.

The 2008 economic crisis largely resulted from the misassessment of the value of certain assets. Banks loaned money out to thousands of people who used it to buy property. The banks took all those promises to pay all that money back (mortgage-backed securities) and grouped them together, then sold off little pieces of this pile of promises (collateralized debt obligations).

The collateralization of the mortgage debt is designed to shield investors from risk. Investors thought that while a few people would inevitably default on their mortgage, most of them would not, and the vast majority of individual loans would eventually be paid back. Thus the assets were valued highly. When real-estate prices suddenly dropped, thousands of people found themselves in the position of owing more on their homes than those homes were worth. They defaulted at far greater rates than anyone anticipated, and the mortgage-backed securities based on these loans were revealed to be worth far less than investors had thought.

5. A moderate level of inflation would be welcome.

Runaway inflation, as seen in Germany following the first World War, is ruinous to an economy. In order to pay burdensome reparations under extremely punitive peace terms with the allied powers, Germany simply printed a lot more money, effectively reducing the value of its currency. More money was needed for any given good or service. Workers demanded higher wages. Employers raised prices to pay these higher wages, continuing the upward spiral of inflation.

In extreme cases of hyperinflation, the value of money can decline to the point that it's worth little more than the paper it is printed on, as was the case with post WWI Germany, largely paving the way for WWII. But a low level of inflation is actually quite good for an economy.

If money is slowly declining in value, investors have a strong incentive not to hoard their money, but rather to inject it into the economy, creating jobs and economic growth. When it is increasing in value, they have the opposite incentive. Additionally, controlled inflation reduces the debt burden of nations (or individuals) who owe money. While it was disastrous for post WWI Germany, a high (though not unreasonably so) inflation level following WWII was extremely beneficial to the US, largely facilitating the reduction of its massive war-acquired debt.

As long as the inflation remains moderate and stable, the economy will expand and prosperity will reign. Economists are by no means agreed, however, as to what constitutes an appropriate level of inflation, with some theories and theorists suggesting that a level as high as 6% may be healthy, under the right circumstances, while others (the more mainstream camp) suggest that the healthiest inflation level is somewhere under 2%. Nearly all agree, however, that the number should be positive.

6. Growth is unlikely without appropriate stimulus.

The 2008 economic crisis was nearly catastrophic. Most economists agree that without coordinated interventionary tactics, a worldwide depression would have resulted, with utterly dire consequences.

When the above-described collateralized debt obligations on mortgage-backed securities turned out to be such terribly bad investments, banks, many of which were holding these as a large share of their overall assets, found themselves with a lot less cash on hand than they ever expected to have. As a result they suddenly and dramatically reduced the amount they were willing to lend. This type of credit crisis is self-perpetuating. If banks have no money to lend, businesses start going out of business and laying off workers. Unemployment rises. Defaults on mortgages and other obligations increase as people find themselves out of work, and the spiral continues.

A central monetary authority may be able to break this downward spiral by providing credit where none was available. The US Government is often referred to as the “lender of last resort” in this capacity. If the government can lend money at very low interest to cash-strapped banks, which can then lend it out to businesses, money begins flowing again. And this is largely exactly what happened. The stimulus produced growth.

7. An incautious approach to a merger could risk harmful exposure.

In economic parlance, “exposure” refers to a change in the valuation of a company or its assets based on changes in exchange rates between different currencies. If a company is entirely US based, and does little business outside US borders, the exchange rate between dollars and Yen will have little impact on its net worth. If, however, the company were to merge with a Japanese company, then exposure could be a significant concern.

8. As soon as he withdrew his assets, he naturally lost all interest.

Humans invented money a few thousand years ago. It took them a long time to fully realize that the value of money is time dependent. A dollar tomorrow is worth slightly less than a dollar today. Prior to this realization, economies were hamstrung by a perverse abhorrence of lending money at interest, based on biblical admonitions against such “usury.”

Controlling interest rates is the primary economic tool of the US Federal Reserve. If an economy is “overheated,” the Fed may decide to raise interest rates, making money more expensive to borrow. This can be used if the economy is in danger of entering a cycle of runaway inflation. Making money “tighter” puts a cap on rising prices.

When an economy is sluggish, the Fed will lower interest rates, loosening monetary policy, and making credit easier. More cheap money will stimulate activity.

One natural limitation on this mechanism of economic control: Interest rates can’t fall below zero. Inflation can. If inflation is negative (i.e. the currency is in a period of deflation) and interest rates are close to zero, you might have little incentive to put your money in a bank. But deflation is rare, and interest rates are usually at least high enough to make the small gains on deposits more attractive than your mattress. If you take your money out, any positive level of inflation (which is the case most of the time) will slowly erode the value of your money.

9. There has been a dramatic change in the variety of jobs available.

The US remains the largest consumer nation in the world. We’re also the largest producer, though that position is slipping. Much of the consumer goods that Americans purchase were once made here in the US as well. Much of that production has now gone overseas. Low skill, factory jobs were once far more widely available in the US than they are today.

While overall unemployment remains fairly high, some sectors are experiencing labor shortages and high demand and competition for qualified workers. These opportunities generally involve a high degree of specialized knowledge and specific skills sets. This highlights the need for investment in job training, if we are to remain competitive with other nations into the 21st Century.