Economics

The Broken Window: A Parable No More

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While researching this week's column, which looks at the jobs "created or saved" by the American Recovery and Reinvestment Act, I came across an expenditure that should resonate with fans of Frederic Bastiat. Here is how the Government Accountability Office describes it:

Recipients were also confused about counting a job created or retained even though they knew the number of hours worked that were paid for with Recovery Act funds. For example, the Revere Housing Authority [in Revere, Massachusetts], in administering one Recovery Act project, told us that they may have underreported jobs data from an architectural firm providing design services for a Recovery Act window replacement project at a public housing complex. The employees at the architecture firm that designed the window replacement project were employed before the firm received the Recovery Act funded contract and will continue to be employed after the contract has been completed, so from the Revere Housing Authority's perspective there were no jobs created or retained.

Speaking of confusion, it is not exactly clear from this description whether the housing authority erred in reporting zero jobs "created or retained" as a result of the project so far or erred in thinking it had erred. But according to guidelines (PDF) issued by the Office of Management and Budget, "a job retained is an existing position that would not have been continued to be filled were it not for Recovery Act funding." So it sounds like the housing authority got it right for the quarter ending September 30. But at that point it had spent only $17,500 of the full $324,000 awarded for the project. As the project progresses, other contractors may report hiring, continuing to employ, or giving more hours to people as a result of the stimulus money. Every 520 government-funded hours worked by such employees in a given quarter will count as a "full-time equivalent," a.k.a. a job "created or saved."

I don't know why the Revere Housing Authority is replacing all those windows. But I like to think they were smashed by a vandal, who under the Recovery Act has been transformed into a benevolent agent of economic stimulus.