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.