Stunner: American Recovery and Reinvestment Act a Failure

e21 blog sums up something we have known for quite a while:

A new study [Adobe PDF] by Daniel Wilson at the San Francisco Fed calls into question the idea that the stimulus legislation as a whole — including the state transfers and direct spending portion — failed to generate the promised improvements in employment.

It is difficult to properly calculate the effects of the 2009 ARRA bill, as it was a nation-wide program. Though employment and growth failed to respond to ARRA as the Administration had suggested, fiscal stimulus advocates have argued that employment levels would have been lower still without the program.

Wilson’s study makes an important contribution to this debate by focusing on state-by-state comparisons. A large portion of stimulus funding at the state level was based on criteria that were entirely independent of the economic situation that states faced. For example, the number of existing highway miles was used to calculate additional transportation spending.

The study uses this resulting variation in state-level stimulus funding to determine what impact ARRA funding had on employment — including both the direct impact of workers hired to complete planned projects, as well as any broader spillover effects resulting from greater government spending. Administration economists have repeatedly emphasized the importance of this indirect employment growth in driving economic recovery.

The results suggest that though the program did result in 2 million jobs “created or saved” by March 2010, net job creation was statistically indistinguishable from zero by August of this year. Taken at face value, this would suggest that the stimulus program (with an overall cost of $814 billion) worked only to generate temporary jobs at a cost of over $400,000 per worker. Even if the stimulus had in fact generated this level of employment as a durable outcome, it would still have been an extremely expensive way to generate employment.

Most of the stimulus money from ARRA that has been spent so far has been given either directly to Federal government agencies (to administer stimulus spending programs) or to city, county, and state governments, as well as organizations that draw the bulk of their income directly from government grants. Distribution of stimulus funds to state and local governments has been widely criticized due to the lopsided amount of dollars that went to heavily Democratic districts and metropolitan areas with large Democratic political machines.

Most of the money that went to state and local governments has been used to offset tax revenue shortfalls and prevent layoffs of public employees; in other words it has been used mostly to keep existing employees on government payrolls, not to hire new workers. Money that went to Federal agencies for the implementation of new spending programs has largely been consumed by the Federal bureaucracy, with few new jobs actually created. The government did hire tens of thousands of workers to complete the 2010 Census, but again allegations of fraud and waste were rampant, and these temporary jobs have mostly ended.

It seems that today, any kind of government “stimulus” is packed with so much pork, graft, and politicking as to render it essentially useless for its supposedly intended purpose.

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