Even If Stimulus Works in Theory, It Doesn't Work in Practice


I've spent a fair amount of time looking at problems with various arguments making the case that the stimulus worked. But in some ways, debates about the effectiveness of Keynesian stimulus spending just don't matter. Because even if stimulus spending works in theory (and there isn't strong evidence to suggest that it does), it still doesn't work in practice. The every day headaches of bureaucracy and government oversight virtually guarantee that stimulus dollars will be spent ineffectively.  

In his new book, "Money Well Spent? The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History," ProPublica reporter Michael Grabell looks at how poor planning, poor management, and layers of red tape ensured that the 2009 stimulus package would go to waste. The New York Post carried an excerpt over the weekend; here's a sample:

Obama billed the stimulus as a program that would "immediately jumpstart job creation" with "shovel-ready" projects to rebuild "our crumbling infrastructure." Such rhetoric conjured New Deal images of blue-collar workers heading out to the heartland with sledgehammers and pickaxes over their shoulders.

Indeed, minutes after the president signed the bill, sparks flew on a rusty Depression-era truss bridge in Tuscumbia, Mo., as construction crews went to work on the nation's first stimulus project.

But other projects were more like the bridge over the Conodoguinet Creek in central Pennsylvania, which Biden had highlighted, but which was delayed to avoid detouring school buses that depended on the bridge for their routes.

The timing of the stimulus was poor to bring about the flood of construction projects everyone expected in the first year. States had to advertise the project to allow contractors to submit bids. They needed to review those bids and sign the contracts.
Then, they had to go back to the US Department of Transportation for the final OK.

The red tape had noble intentions. But it also delayed the program's impact and may have even prevented more workers from being hired. Some projects in public housing, waterworks and home insulation remained paralyzed for six months to a year as short-staffed agencies reviewed Buy American waiver requests and calculated prevailing wages for weatherization work in every county in America.

In Michigan, human services officials estimated that 90% of the homes in line for weatherization work would need a historic preservation review. But as of late fall 2009, the office responsible had only two employees.

Grabell seems to think the stimulus could have been designed in such a way that it would have been much more effective. I'm skeptical.  The combination of administrative challenges and political pressures is just too great.

Getting the money out the door faster would have meant spending in ways that were clearly wasteful, or at least not ideal. At minimum, that's a political disaster. Meanwhile, spending just to spend ultimately creates a greater long-term drag on the economy—not only do we end up adding to a debt that we have to pay down later, but we have nothing (or perhaps negative impact) to show for it. Jugging nearly a trillion dollars of spending on what amounts to an emergency basis is just too complex: As research from Dan Rothschild and Garret Jones of the Mercatus Center suggests, even the money that was spent wasn't tracked very well, often resulted in useless make-work projects, and went to hire people who already had jobs rather than the unemployed. In the end, even President Obama was forced to admit that there's "no such thing as shovel-ready projects."

Link via Jim Pethokoukis. More on the practical reality of stimulus spending in my column, Use the Tiny Tiles, and Other Tales From the Stimulus