Economics

Is Stimulus Spending Political?

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Last week, Mercatus Center economist and Reason columnist Veronique de Rugy testified before Congress about patterns in stimulus spending. One of the things that she found was that Democratic districts received significantly more dollars on average than Republican ones (about $472,000,000 vs. $261,000,000). In her testimony and other statements on the spending, de Rugy stressed that the available data didn't allow her to figure exactly how much party affiliation mattered compared to other demographic criteria, but that it kept popping up in whatever way you sliced the data.

This week, Nate Silver of the rightly honored FiveThirtyEight blog weighed in, suggesting that de Rugy's research design was "possibly deliberately biased" and noting the study was "manifestly flawed" because it didn't control for congressional districts that included state capitals. Ziiinnnngggg! The idea here is that money was shoveled at the Sacramentos and Tallahassees of the world because states would then disburse funds around their prospective territories. And that state capitals were more likely than not to be Democratic because they tend to be urban and well, you know, kind of swinging places. Even still, Silver noted that

If you throw out the districts that are home to state capitals, those which elected Democratic members to Congress still rank higher, receiving 31 percent more stimulus funds, on average, than those which elected Republicans.

Despite that counter-zinger, which seems to make the basic point that stimulus dollars are more of a reelection ploy for the party in power than a general economic rejuvenator, the state capital point is worth considering. Even though, as de Rugy has pointed out, it's not immediately clear that funds are in fact being funneled through statehouses rather than individual districts. In any case, the official government data that was supposed to let citizens as well as econometricians follow stimulus spending to the "last dollar spent" is woefully incomplete and opaque.

Over at National Review's The Corner, de Rugy has responded (in a "fairly gracious" manner, says Silver) and points out, among other things:

If it is not possible to nail down the precise amount that party affiliation matters, does anyone truly want to argue that there are no political factors influencing this stimulus or stimuli in the past (whether put into place by Republicans or Democrats)? There is a lot of literature in economic-history journals on similar patterns in New Deal spending, and it consistently shows that New Deal spending correlated rather strongly and negatively with the margin of votes in the previous election. Areas where Roosevelt won by a little got more New Deal bucks than ones where he won by a lot. (I was directed to one article in particular by a reader this morning, and it is worth looking into: Price V. Fishback, Shawn Kantor, and John Joseph Wallis's "Can the New Deal's Three Rs Be Rehabilitated?: A program-by-program, county-by-county analysis." Explorations in Economic History 40 (2003), pp. 278-307.)

I'm with de Rugy on this one (full disclosure: We have coauthored a number of pieces). I think we err when we assume that politicians do not undertake particular policies for political reasons (though I hold open the hope and possibility that sometimes elected officials do what they think is right regardless of personal or partisan ambitions).

But more to the point, I think it's worth focusing on something else that de Rugy has written about for Reason: Stimulus spending has been done without any consideration of unemployment or other economic factors. If the government seriously believes it can create jobs via public spending, she wrote last fall, then

We should expect the government to invest relatively more money in the states that have the highest unemployment rates and less money in the states with lower unemployment rates….

Yet, with a few exceptions, the data show that this is not the case. Many higher-unemployment states are getting far fewer stimulus dollars than lower-unemployment states.

Take Michigan, for instance. Michigan's 15.2 percent unemployment rate is the highest in the country. So far, it has received $403 per person in stimulus funds. That's above the average stimulus per person across all states ($326).  However, it's lower than the $409 per person that the state of Vermont, a state with relatively low unemployment (6.8 percent), has received so far. Michigan's per-person take is also much lower than the $707 per person the District of Columbia received. D.C.'s unemployment rate is 9.9 percent.

Now look at the state with the lowest unemployment rate in the country: North Dakota. It's getting $253 per person with a 4.3 percent unemployment rate. Many other states are receiving roughly the same amount of stimulus funds per person despite much higher rates of unemployment.

This pattern remains in force and strikes me as a fairly damning commentary on the seriousness of the stimulus mentality. Look, government spending is always political in the sense that those doing the spending (or trying to restrain the spending) are expecting to get some sort of advantage out of their actions. Yet if you're spending money that's supposed to get the economy going again without any thought for what spots need it most, you're thoroughly incompetent on top of misguided.

Which is something that I think Team Obama knows in its heart of hearts. At this point, there are precious few people who are willing to pretend that the stimulus has achieved anything other than more red ink. Indeed, my gut sense (not a regression analysis!) is that Obama's crew of cracker-jack economists such as Christina Romer, whose academic reputation was made in part by deflating claims about previous efforts at stimulus spending, knows that the economy ain't going up anytime soon and that when it does it's not going to be because of weatherizing foreclosed homes in Detroit.

That's one reason that the president is unbelievably slow to talk about jobs even as he claims it's priority number one. He has no good ideas on how to goose the economy and seems fairly desperate to talk about other stuff, whether health care or Afghanistan or cap and trade or the BCS. In fact, if he was serious about the economy, he'd be doing something other than laying more and more regs, both huge and picayune, on every aspect of market exchange, whether we're talking about health insurance or fast-food menus or mileage standards.

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53 responses to “Is Stimulus Spending Political?

  1. Uh … No?

  2. the president is unbelievably slow

    Straight.

  3. Veronique is a good looking lady! I somehow imagined her as a dowdy troll, but she is really quite attractive.

    1. I love the oh-so-subtle juxtaposition between the glowing, healthy looking Veronique and… however one might describe that Nate Silver photo.

      1. But no alt-text? Matt should hear about this.

  4. One of the things that she found was that Democratic districts received significantly more dollars on average than Republican ones (about $472,000,000 vs. $261,000,000).

    So the fix will undoubtedly be to increase the amount of spending in Republican districts.

  5. Is it political?

    Does the Pope shit in the woods?

    1. If he’s huntin’, he’ll damned well shit in the woods.

      1. Where do I go to get me a huntin’ license?

        1. I got your license right here John.

  6. Too lazy to research, but yes or no, does the Michigan stumulus money include Auto Industry bailouts, or is this money given to the State of Michigan for “shovel ready projects”.

  7. The scary thing is that there is no information to track this well. Can anyone think of a business that would blow that kind of money and not know where every dime went at every point in the process.

    1. Enron, GM, Chrysler, Amtrak, Fannie Mae, Freddie Mac, most defense contractors, ….

      1. Actually Enron knew where the money was wasn’t. Do you notice a trend with the others? Thanks for making my point. I couldn’t have asked for a better straight man.

        1. MY point was that they were all politically connected, and was intended more as a corroboration of your first post than as a snark.

          1. Sorry, my interwebbing sarcasm detector is not working. Hell my real life sarcasm detector sucks.

            My gaydar is pretty good though. No clue why, but it is.

  8. Please delete Natee Silver’s pic, or at least move it below the story.

  9. The most underhanded tactic you can use against baseball geeks like me and Nate is to show actual pictures of us. 🙂

    Okay, that’s not fair. Nate’s capable of taking a good photo. I used to be about 15 years ago…

  10. Why wouldn’t the feds differentiate between stimulus money that goes to a state government as opposed to money that goes to a specific district?

    1. *Raises hand*

      “I know! I know this one!

      They don’t really WANT people to know where the money went?”

  11. All govrnment spending decisions are political.

    Does anyone think the War on Poverty (after 55 years, we must have won that one, no?) was aiming at garnering Northeastern moderate Republican votes?

  12. That graph is bunk. Of course DC is going to get a hugely disproportionate share of federal spending. It is the federal capital, you know. So that data point should be excluded. Once that’s done, the linear projection is going to fall to about the middle of that cluster of data points.

    And there’s no reason given why the stimulus spending per capita should be a linear function of unemployment rate, let alone one that goes through (0,0). If there’s some base level of unemployment, say 5%, that represents essentially full employment, that has to be taken into account. As does any decreasing marginal utility of stimulus spending past a certain amount, which would result in a sublinear or possibly logarithmic fit being appropriate.

    Not to mention the fact that the 13th state is not “Rhodes Island”.

    1. Jim Halpert: By any chance did you see Battlestar Gallactica?
      Andy: No I did not. Was that any good?
      Jim Halpert: Actually not. It was really so-so. [holds up stopwatch to Dwight] I mean I like all the crazy monsters and stuff, you know like Klingons and Wookies and all that but– Sorry was, there something you wanted to add Dwight?
      Andy: Is that anything like the original Battlestar Galactica.
      Jim Halpert: You what’s weird? It’s practically a shot for shot remake.
      Andy: Really? Huh. Cool.
      Jim Halpert: The story’s kind of bland. It’s about this guy named Dumbledore Calamazin and he has to return the ring back to Mordor.
      Andy: [pause] That doesn’t sound right…
      Jim Halpert: Something wrong, Dwight?

  13. I work in a federal agency that had a good portion of stimulus cash and was part of the team that picked projects to get funds. We really didn’t look at unemployment in the area. Our main criterion was whether the project had been designed and engineered to a point that we could get construction going pretty quickly. Once we set out our list, we sent it up to OMB. They knocked some stuff out and changed it up some, but for the most part the final list looked like what we sent them. I doubt politics had too much to do with the selection of projects.

    1. Thanks for the comments Nate. Unfortunately, I don’t think commenters on this site are going to really listen to what you have to say. Because a) you work for the government and government is bad, and b) you’re probably a socialist. 🙂

      However, I’m glad that your team approached spending the stimulus money the right way, which is finding projects that can get going as quickly as possible, without regard to politics. The logic (or lack thereof) of many conservatives is pretty distressing considering the dire state of our country coming out of a huge recession.

    2. Actually, that might explain why Democratic districts got more spending.

      It stands to reason that Democrat leaning districts would already have more government sponsored construction projects in the pipeline than would the more fiscally responsible Republican leaning areas. Therefore, they already had more projects that money could be quickly shoveled into.

      I mean, if you wanted to get a lot of money spent in a hurry, would you (1) give it to the guy who has good credit, a nest egg and moderate habits or (2) give it to the guy who burns through his paycheck , has trashed credit, no saving, is deep in debt with a cocaine and hooker problem? Which one will “stimulate” the economy faster?

      It has long been observed that the real-world political dynamics reward feckless and irresponsible behavior because government gives more money to people and regions that screwup. This is most likely just another example of government enabling self-destructive behavior. Places with an established history of public spending binges would be in a better position to cash in on a crash program than those who spent the people’s money more carefully.

      Ironically, the very worst economically hit regions (like Michigan) had started imploding a long time ago so they couldn’t afford to have public works projects in the pipeline so they didn’t get as much money as they should have. The regions that really scored big are mostly likely those in the transition from a responsible financial policy to an irresponsible one. They have enough money from robbing their stock of economic capital to fund boated projects but haven’t yet reached the point they have driven off or suppressed all their economic creatives.

      1. My particular agency does most of the construction itself, rather than giving grants to states. We’re fairly unique among federal agencies in that way. I can’t really speak for how other agencies approached things.

      2. One other point, most federal programs require a match or cost-share by the state or local government, and those weren’t waived by the recovery act. Some projects have dropped out now because the states and local governments couldn’t come up with the match. That dynamic probably tends to cut against the irresponsible governments.

        1. It’s still the case that the more projects a jurisdiction already had planned to spend money on, the more money they were likely to get.

          Some projects have dropped out now because the states and local governments couldn’t come up with the match. That dynamic probably tends to cut against the irresponsible governments.

          Well, no. If the projects were needed, then they shouldn’t have been dropped and if they could be safely dropped then they probably weren’t really needed. Instead, politicians are simply building things for no purpose when they can get extra money and then dropping them when they can’t.

          Moreover, the entire point of the stimulus is to randomly spend great gobs of money. Why refuse to spend the money just because the localities can’t match it?

          Worse, the localities that can’t provide a match are most likely the localities that need the money the most.

          It’s just a clusterf*ck no matter how you look at it.

    3. Oops! Nate Forgot to include one important factor: “Is this project the bset use of funds; and is it needed now?

  14. The flaw in VdR’s analysis is that she doesn’t account for the fact that all government spending — and indeed all taxes, subsidies, etc. — are stimulus for one thing or another. And there’s no way to account for all the variables at play. This is one of the reasons utilitarian libertarianism is doomed to fail. Better to start with sound premises (e.g., I own/control my body) and derive second and third order principles from there.

    1. First, Second, & Third. libertarianism is doomed. Maybe Comostarianism is what is preferred on this site.

    2. There’s considerable debate about this statement. You’re walking down the street on your way to buy a donut and a cup of coffee: I mug you, take your money, and go buy a donut and a cup of coffee. Have I “stimulated” the economy? All too often that’s essentially what Congress does when it taxes you. It now devolves into the argument whether Congress is “wiser” than you as to how to spend your money. The article’s author suggests not, if Congress really did blow our money insulating foreclosed houses in Detroit and the like.

      1. Why you little!!! Take my doughnut!!! Why I oughta!!!

        *Strangles Orion*

  15. Take Michigan, for instance. Michigan’s 15.2 percent unemployment rate is the highest in the country. So far, it has received $403 per person in stimulus funds

    This sentence makes my head explode. What is $400 going to do for anyone? Or if it goes straight to the unemployed, it comes straight out of the pockets of the employed. So what does that do for anyone? My WTF-meter is off the charts…

  16. I’m sorry, but this is the same nate silver who was ready to certify the iranian elections, as legitimate, less than 48 hours after the results.

  17. So Nate Silver “zings” her with the state capital claim (which may or may not even be true!) and then goes on to admit that de Rugy’s point holds even considering the state capital claim.

    Yes, Silver’s site is justly lauded, but every now and then he does something like this, making me wonder how such a careful analyst could also be such a partisan hack.

  18. Wouldn’t the simple matter of inserting an 0-1 dummy variable based on capital district status largely address Silver’s criticism?

  19. Dowdy, frumpy = Christine Romer;
    Pasty, zit-faced = Nate Silver

    Veronique DeRugy = hot!

    Gawd! Its always that way, the Conservatives are attractive; the lefties? Eh–Not so much!

    Bad, bad side effect of feminism or maybe damned good proof of the theory that feminism was invented so ugly women could have better career choices—(Silver is just a fem with a johnson!)

    1. We have the inner beauty. Very Very inner, we’re talking deep, deep, deep down.

      1. (tweet) Ack!

    2. Naomi Wolf is probably the only good-looking one I can think of. I can’t think of many good-looking statists of the right except Palin and Malkin.

  20. Well duh of course it is, isnt it always?

    Lou
    http://www.anonymous-surfing.us.tc

  21. Of course spending is political. Unfortunately, so is de Rugy’s flawed analysis. She should really own up to that part. Her conclusion’s truthiness doesn’t count for much.

  22. Wow, I’m an expert in this area and visited George Mason two weeks ago to talk about the distribution of federal funds, but Veronique didn’t bother to show up and talk to me. I could have set Veronique straight on the state capitals problem before she testified. Anybody who’s worked with federal funds data should know about that issue.

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  28. At this point, there are precious few people who are willing to pretend that the stimulus has achieved anything other than more red ink. Indeed, my gut sense (not a regression analysis!) is that Obama’s crew of cracker-jack economists such as Christina Romer, whose academic reputation was made in part by deflating claims about previous efforts at stimulus spending, knows that the economy ain’t going up anytime soon and that when it does it’s not going to be because of weatherizing foreclosed homes in Detroit.

  29. And that state capitals were more likely than not to be Democratic because they tend to be urban and well, you know, kind of swinging places. Even still, Silver noted that

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