Why Obama's Stimulus Failed: A Case Study of Silver Spring, Maryland

High, persistent unemployment and a sluggish economy underscore what all but the most-dedicated supporters of Barack Obama know to be true: The president's 2009 stimulus program was a massively expensive bust.

Understanding why the stimulus failed is an important step in understanding how the government can—and cannot—goose economic recovery. To get a better sense of how and where the stimulus went wrong, Reason.tv focused on Silver Spring, Maryland, a suburb of Washington, D.C., that's home to a large number of government contractors and other recipients of money earmarked for the sorts of "shovel ready" projects that were going to bring the economy back to life.

President Obama's top economic advisor Larry Summers laid out ground rules for how stimulus dollars should be spent: The funds must be "targeted" at resources idled by the recession, the interventions must be "temporary," and they needed to "timely," or injected quickly into the economy.

None of that turned out to be true. "Even if you were to believe that government spending can trigger economic growth," says Veronique de Rugy, Reason columnist and senior research fellow at the Mercatus Center, "the money is never spent in a way that's consistent with the conditions laid out by the Keynesians for it to be efficient."

Reason.tv identified four basic ways in which the stimulus was doomed almost before it was put into operation. 

Government Contracts: More of the Same

According to proponents, an effective stimulus program must put idle resources back to work. A particularly bad way to go about this is to give money to big government contractors to do more of what they're already doing.

Yet that's what happened in downtown Silver Spring, where $138 million dollars in stimulus grants and contracts went to 46 organizations. Just three firms took home a majority of the money. These three firms—Synergy Enterprises, Senior Service America, and Social & Scientific Systems—were major government contractors before the stimulus was signed. In fact, these firms received a combined $71 million in stimulus funds. Over that same period, they got $702 million in other government contracts, according to USASpending.gov.

So the stimulus money was like icing on the cake. Take Palladian Partners, a communications firm in Silver Spring that's received $97.5 million dollars in government contracts over the past 12 years. The National Insitutes of Health (NIH), which is Palladian's biggest client, tacked $363,760 stimulus dollars on to an existing contract, and then followed it with two more awards totaling $431,333. Palladian was to spend the money collecting and disseminating information about how the NIH was spending stimulus money.

Palladian was well paid for its work, but with the project 80 percent complete, its main activities have included building a website, and publishing 29 short articles for the site. The stimulus grant went to hire two new employees, neither of whom was unemployed before coming to Palladian. That's no way to jumpstart the economy.

Infrastructure: Money for Nothing

President Obama said the stimulus bill would put nearly 400,000 people back to work rebuilding America. But over the next two-and-a-half years, the U.S. construction industry shed about 900,000 jobs or 14 percent of the building workforce.

In Maryland, the "specialty trades," a subset of the construction industry that handles big infrastructure projects, has lost 8 percent of its total, which amounts to 8,000 jobs. Maryland's Department of Transportation says stimulus money for transit projects has steadily paid the salaries of only about 600 construction workers since the middle of 2009.

Why didn't Maryland's $771 million stimulus dollars for transit infrastructure have a bigger impact on the state's economy?

Partly because Gov. Martin O'Malley cut infrastructure spending more than enough to offset any gains from the stimulus. Maryland’s Transportation Trust Fund generally pays for highway repairs by collecting a special gas tax and other user fees. After the stimulus money was available, Governor O’Malley raided the trust fund by diverting $861 million over the next three years to help balance the state's budget, according to information provided by Maryland's Department of Legislative Services. After you account for the $771 million in stimulus money, state funding for transit infrastructure saw a net decrease of $90 million. That sort of scenario played out in all sorts of ways in all sorts of states: Stimulus dollars were used to cover general expenses rather than to increase overall spending.

The Green Jobs Fiasco

The stimulus bill set aside $500 million for a program to train and recruit people for the new green economy. The program promised to place 80,000 people in so-called green jobs. The grant period is more than half over, and the program has placed only 8,000 people in jobs, according to a report by the Department of Labor's Inspector General.

In downtown Silver Spring, a union-backed organization called the International Transportation Learning Center got $5 million in stimulus dollars partly to recruit thousands of new workers and train them in new "green job" skills. But because transit workers already face low unemployment and low turnover and the new jobs weren't materializing, the group is instead using the entire grant to teach new skills to workers who already have jobs.

"The spirit of the stimulus shouldn't be to get people who already have jobs to get more money to do the same thing, just bigger," says de Rugy. Under stimulus theory, she says, "government spending should be going to places where unemployment is very high, going to people who are poached from unemployment lines."

Weatherizing Homes: Not So Shovel Ready

According to the Keynesian theory that undergirds it, stimulus spending must be spent quickly to be effective. By Barack Obama's own testimony, one of the most "shovel-ready" stimulus programs was supposed to be a $5 billion program to weatherize 590,000 homes around the country.

But the weatherization program started off as a slow-moving, dismal failure. According to a February 2010 report by the Department of Energy's Inspector General, only 8 percent of the weatherization money had been tapped in the program's first year.

In Silver Spring, Gov. O'Malley held a press conference at the home of Sonja and Richard Lowery in June 2009. It was the first home in Maryland to get weatherized with stimulus money. The program was underway. And then it nearly ground to a halt. In the first year, Maryland weatherized only 279 homes, or 4 percent of its goal.

The main holdup was a concession to organized labor that the "prevailing wage" rules apply to programs funded by stimulus dollars. That meant weatherization workers had to earn at least the average wage in their area for the particular work they were hired to do. Before workers could be paid, Maryland (and every other state) spent months conducting surveys to determine average wages and benefits for workers weatherizing homes in every county.

Today Maryland is racing to spend the remainder of its weatherization money before it’s forced to forfeit what’s left in early 2012.

"The main lesson of the stimulus is that creating jobs is a very complex process," says de Rugy, "and certainly it can't be directed by a top down institution that pretty much fails at everything it does."

Written and produced by Jim Epstein, who also narrates.

Approximately 8 minutes.

Go to Reason.tv for downloadable versions, and subscribe to Reason.tv's YouTube Channel to receive automatic updates when new material goes live.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • WTF||

    The porkulus stimulus hasn't worked because it wasn't big enough, duh!

  • Appalachian Australian||

    Well, now we know Krugman's posting alias around here is WTF!

  • Harvard Grad.||

    The president's 2009 stimulus program was a massively expensive bust.

    Nuh-uh! We must give it time to work!

  • Vake||

    Yes! We will have a marvelous recovery in 2017!

  • ||

    Ha! The liberatus fund to liberate Iraq and Afghanistan wasn't big enough. Hahha..weep.

  • ||

    Trying to run the economy through the political process will always fail, even if central planning could succeed (which it can't).

  • ||

    this is the difference from trickle down vs. getting peed on...
    Owebomas Maximus fails again!

  • O3||

    so the 40% of the stimulus which was the payroll tax cut failed?

  • ||

    The payroll tax was the best part of the stimulus, according to the theory of stimulus. The entire rest of it got spent, not on people who were out of work or poor, but on well-off connected government employees and contractors and union members who already had jobs.

    However, surely you admit that 60% waste is a pretty bad standard. It would have been much preferable to adopt the alternative stimulus package written by McCain and supported by the Republicans that had the tax cuts and unemployment insurance but none of the direct spending.

    Thankfully, after the election of a Republican House, President Obama is concentrating on the least dubious aspect of the stimulus, instead of all the incredibly wasteful non-stimulating policy items like high speed rail and green tech and subsidies for government employees, contractors, and unions.

    The election of a Republican House moved Obama back towards the middle, toward the position that McCain had all along.

    Your post, O3, simply demonstrates how important it is to have divided government.

  • wareagle||

    so the 40% of the stimulus which was the payroll tax cut failed?
    --------------------------------
    what if we reframe the question: is it considered success to defund Social Security? Regardless of what one thinks of the program, the fact is THAT is what the payroll tax funds. Yet, the same party that champions the stimulus has, in essence, championed the starving of SS while charging the other side with wanting to do that.

    Never forget: the success of liberalism and the Dem Party relies on a massively uninformed and/or apathetic population. While I am for people keeping more of what they earn, the better solution is lowering tax rates. But, govt won't do that because it cedes control to the individual.

  • o3||

    i asked if the payroll tax cut was a failure...like the headline reads.

    please explain how SS has become "starved" by a 2yr reduction in the payroll tax.

  • BigT||

    If the funds don't come in, you have to get the money to pay SS from somewhere else. Deficit increase. Are you really that dense?

  • o3||

    please post the actuarials that show the SSTF is "starved" after a 2yr reduction in the payroll tax.

  • wareagle||

    o-cubed,
    try reading. I did not say this cut has starved SS. I said your side is the one accusing Repubs of wanting to kill SS and Medicare, yet Obama is the lead champion of cutting SS's main funding source. People already freak out when they realize teh SS trust fund exists in name only; let's tell them the truth what this tax cut really is.

    I like people keeping their own money but if that's what POTUS really wants - and you know he does not - why does he oppose making the current tax rates permanent, or lowering them further even if just for those not in the top bracket.

  • Old Mexican||

    Re: Triple Asshole,

    please post the actuarials that show the SSTF is "starved" after a 2yr reduction in the payroll tax.


    It's not being starved, the fund is simply being funded from infusions from the treasury, or taking from one pocket to pay the other, and just as productive.

    It's all a mirage, but at least the SSTF is not being "starved."

    http://www.businessweek.com/ne.....urity.html

  • o3||

    my point thx. the SSTF is NOT being starved by a 2yr reduction in the payroll tax. i would agree that, barring restructuring, the insolvency horizon is maybe shortened from 2030 to 2029.

  • tg||

    There is no Social Security Trust Fund. The money that is paid out to those who collect Social Security checks is the same lump of money that the US government pays the majority of its liabilities out of.

  • ||

    there is no trust fund ss money has been general funded since LBJ stop drinking the cool-aid

  • ||

    Well more than 40% of the Bush tax cuts went to the non-rich, so I suppose you'll call those a bigger success than the stimulus, right?

    And certainly the "sending out checks" stimulus under GWB was much better than the government direct spending, even if flawed.

  • Old Mexican||

    Re: Triple Asshole,

    so the 40% of the stimulus which was the payroll tax cut failed?


    Yes. Next question?

    You don't borrow money to "feel" like you are being paid more. Those cuts made without spending cuts were simply a transfer of wealth from rich producers to middle class wage earners.

  • ||

    You can look at it that way if you buy into the class warfare propaganda. Another way to look at it is that many of the so-called "rich producers" are not actually producers, just owners. They only pay half the taxes now for capital gains on those earnings than they used to under Reagan. Their effective tax rate is much lower than that of the middle class. The most effective stimulus possible is to give money to those who will, #1 - spend it and, #2 - search for value. Because 70% of our GDP is consumer spending, our economy will never recover as long as the middle class keeps shrinking.

  • Old Mexican||

    Why Obama's Stimulus Failed:


    a) Government spent the money.

    b) There's no b). That's it.

  • ||

    Yeah, that's the basic why. This article is more about the "how."

  • Anomalous||

    +1

  • BigT||

    In Maryland "Stimulus dollars were used to cover general expenses rather than to increase overall spending."

    State debt was federalized. Thanks, Obummer

  • k2000k||

    I think you can add a b

    b) The Goverment never had any money to begin with

  • ||

    That actually looks like it might jsut work dude.

    www.ano-net.tk

  • BakedPenguin||

    C'mon, anonymity guy. You can do better than that.

  • Joey Seymore||

    No, I actually can't dude.

  • Guest||

    Republicans want to bring back Jim Crow laws...just ask Barbara Lee or the NAACP.

    IMO, Jim Crow is happening already, just the other day on the way to the mall I saw a Black woman sitting at the back of the bus because all the seats up front were taken. I think the GOP is purposely pursuing policy that takes people out of their cars so more people will take the seats up front on the bus before it gets to the Black neighborhood.

    So then after arriving at my destination I was walking through the shopping mall, there were three water fountains and two of them were occupied by White people. However I noticed a Black man (must have been thirsty) was heading for the unoccupied drinking fountain. I suspect its because GOP policies lead to prosperity for Blacks and some have moved to the suburbs. It's a secret right-wing conspiracy by Republicans to bring back segregation at the water fountains. Just like the Republicans push energy and social engineering policies to get more people out of their cars and onto the front seats of the bus - which starts out its route in the suburbs - so Blacks will have to sit in the back on the way into the big city the Republicans want us herded into.

    /sarcasm

    Actions really do speak louder than words but I'm pretty sure Democrats openly admit they want more people living in the cities using public transportation and their energy policy proves Democrats are at war with suburbia.

  • ||

    They're at war with sanity.

  • Appalachian Australian||

    Last I checked, Democrats want to spend billions of dollars on roads nobody needs.

    (My definition of "not needed" is "nobody's willing to pay a toll high enough to induce a private developer to build the thing".)

  • anonymous commenter some guy||

    Be fair. Republicans want that too.

  • Appalachian Australian||

    Last I checked, Democrats want to spend billions of dollars on roads nobody needs.

    (My definition of "not needed" is "nobody's willing to pay a toll high enough to induce a private developer to build the thing".)

  • ||

    "last i checked, Democrats want to spend billions of dollars on high speed rail that no one will use."
    fify

  • ChrisO||

    There was no "stimulus" needed at all in the DC suburbs. With the out-of-control federal spending, the DC area hasn't even felt the remotest effects of the recession, apart from a few bedroom communities a zillion miles out of town that got crunched when the housing bubble burst.

    It might as well be 2005 around here. Everybody still has some sort of job, and the houses are still grossly overpriced.

  • ChrisO||

    And yes, I know, the "stimulus" was a stupid idea, regardless of location.

  • EDG reppin' LBC||

    No shit. I'm on the job hunt right now, looking for an analysis job in commercial real estate. There are very few openings in Southern California. There are hundreds of openings, if I wanted to relocate to the DC area. However, I'd rather have my genitals gnawed off by an angry marmot than move to that cesspool.

  • ChrisO||

    My wife and I both wish we could leave the DC area, but it's tough since we like having jobs and income and all that good stuff.

  • angry marmot||

    Do they taste like chicken?

  • EDG reppin LBC||

    Don't ask me marmot. Ask my wife!

  • Old Mexican||

    The main holdup was a concession to organized labor that the "prevailing wage" rules apply to programs funded by stimulus dollars.[...] Before workers could be paid, Maryland (and every other state) spent months conducting surveys to determine average wages and benefits for workers weatherizing homes in every county.


    Insted of simply allowing workers and contractors negotiate a price, like adults.

    Welcome to Kafkaland.

  • ||

    You've found my favorite paragraph.

    My head just explodes. Heaven forbid homeowners be responsible for their own weatherization. No, their homes must be weatherized at the expense of their neighbors, at the prevailing wage and lethargic pace dictated by union whiners. JFC.

  • ||

    a friend of mine tells me about his neighbor who loves working in NY because the Unions supports his rate but being non-Union if someone sees him on the subway with his tools they'll break his legs. union whiners? more like thugs...

  • ||

    its called the Davis-Bacon law, and it causes all federal contracts to be incapable of being 'shovel ready'

  • EDG reppin' LBC||

  • ||

    Great article Mr. Epstein.

  • AlmightyJb||

    Obama's stimulas didn't fail. America failed. We're just not sophisticated enough to efficiently take advantage of his great and unselfish generosity. The next thing you know, people will blame Obama for the rationed medical care that's around the corner. Such ingratitude. I wonder why he wastes his benevolence on us.

  • ||

    Obama's stimulus didn't fail, your just measuring the wrong thing. It paid off lots of campaign contributors and union organizers, it was never intended to create jobs.

  • O4||

    De stimmyouluss fayled bee-cauz the morgige lendrs trcks us al into borowing munny instd of youzing the stimmyouluss to cur in ee qwal it tee.

  • RoboCain||

    Needs more Z's.

  • Dan||

    I dunno, an attractive woman talking intelligently about the economy with an accent is really hot for me.

  • o3||

    try again o4.

  • ||

    somebody is jealous because o4 has one more asshole than o3

  • Charlie||

    They should have sent a film crew down to Falls Church, where they reinvested & recovered some permanent "your speed is" signs to replace the roving trailer.

    Also for several weeks beforehand there were snazzy "future location of a radar traffic calming sign paid for by ARRA" signs.

    The local economy has been BOOMING now that people know how fast they're going without having to look down at their instrument cluster.

  • ChrisO||

    The Falls Church economy has long been based primarily on speed traps and seatbelt checkpoints. They're just a little more high-tech about it, now.

  • ||

    But..but just imagine how much worse things would be if there wasn't a stimulus..

  • Gerholdt||

    Not to mention the recently completed Inter County Connector, a road that had been on the master plan for over 40 years. O'Massingill built it with Transportation Department funds (the agency that controls the Baltimore harbor tunnel and the Bay Bridge) and made it a toll road. No toll booths (no jobs) and you need to pay for an EZ Pass transponder to pay the tolls, or they will bill you based on license plate readers at twice the price. As a result, it will be a Lexus Lane white elephant, and tolls for the I-95 lifeline of the Northeast and the lifeline of the eastern shore will be doubling next year.

  • Appalachian Australian||

    Wow, I can't believe the ICC is finally getting built. The NIMBY types were campaigning against it fiercely when I lived there in 2001.

    The area definitely needs another Potomac crossing between the Beltway and Point of Rocks, but with our culture of "roads should be free" it's hard for the market to respond to a need like this. (Especially since the government keeps insisting on building and maintaining "free" roads.)

  • ChrisO||

    There were no tolls for the first few days the ICC was open, so I took the grand tour. Nice road, though I believe the tolls are going to be pretty steep.

    They're raising the I-95 tolls in Maryland again??? The Ft. Henry Tunnel is now $3, and the Millard Tydings Bridge is now $5. It's more economical to take the Baltimore Beltway around the tunnel toll (the 10 extra miles don't cost $3 extra in gas for my car), but there's no good way to avoid the Tydings Bridge.

  • ChrisO||

    I just googled it. Next year, the tunnel is going to $4 and the Tydings Bridge is going to $8. Guess it will finally pay to schlepp up to to US-1 to cross the Susquehanna, despite the extra travel time.

  • Chaos Punk||

    Francis Scott Key Bridge was raised too... dundalk and baltimore. My girl takes that route to work everyday. She is hella pissed.

  • ||

    I'm in Rockville, so the ICC's perfect for me, as I've got family in Baltimore. Road's been under-utilized, though. But the tolls aren't going up because of the ICC, they're going up because O'Malley raided the transport fund to balance the budget and couldn't get a gas tax hike approved.

    /Now if I'm heading to NY, I go 270-15-81-78, and skip all the MD/DE/NJ tolls, only paying $8 or so to get to Long Island City, and $2 to get back. Ya also avoid all the bottlenecks, though Harrisburg can be a bitch.

  • Comment Tater||

    "There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to 'insufficient private purchasing power.' The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the 'deficiency.'

    A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily 'to provide employment' is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. 'Projects' have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries."

    Henry Hazlitt, Economics In One Lesson, Chapter IV

    http://steshaw.org/economics-i.....p04p1.html

  • anonymous commenter some guy||

    Why not build a bridge to Europe? Think of the jobs that would "create".

  • ||

    "those who doubt the necessity are dismissed as racists and nazis"
    fify

  • Chaos Punk||

    I live in Maryland, the democrats have destroyed the place. The company I worked for back in my early 20's moved out of the state when O'mally raised the taxes. Lots of road projects that do nothing. O'mally is a big spender.

  • Samiam||

    The political climate in MD is the primary reason I moved to TX. I enjoy having a well-paying job, an affordable house, no state income tax and my AR-15.

  • first||

    Still a porn star and now a supermodel, she has the face – and the body – of an angel.

    One of the most famous models to come out of Japan in within the last 6 years, Maria Ozawa appears in bukkake films and still made the cover of FHM magazine. These are Impressive credentials for anyone, but not surprising when you see the perfect proportions of this cute little thing.

    A phenomenon on both YouTube and YouPorn - she is yin and yang, the best of two worlds. Sexy and innocent, sweet and arousing, and she loves shopping for shoes.

    Maria Ozawa is a unique Japanese icon and celebrity, in many different ways. And now she appears here, on Hegre-Art.

  • Nike Dunk Shoes||

    thanks

  • Brain||

    Let's think: this article admits that stimulus money was used to offset massive spending reductions at the state level. News flash: that was the point.

    What would have happened without that spending? There would have been (even more) massive spending cuts at the state level, throwing millions more teachers and other workers out of their jobs. The private sector, decimated by the credit crunch and lack of demand, would not have been able to support these workers.

    A basic mathematical fact many "reasoners" fail to understand: there is a zero lower bound. Most people cannot spend more money than they have. If people don't have money to spend, the economy collapses. This is (just one example of) market failure, and it is documented throughout the field of economics.

  • sandy||

    i realize that, the best food restaurant is Pollo Mex in the silver spring city. it gives great service and delicious food. The location of restaurant is beautiful and romantic.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement