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Money for nothing?

Originally published in the Baltimore Sun

Economic & Fiscal Policy, Government Transparency

by John J. Walters

OP-EDS

The $787 billion federal stimulus package was supposed to create and save jobs to offset the impact of the "Great Recession." But first quarter 2010 data on the stimulus show that many companies in Maryland received staggering sums and yet created, by their own account, zero jobs in the state. The data also show thousands of grants awarded to state organizations, listing only their names and the amount of money they received.

The state summary spreadsheet for the first quarter reports a total of $969.9 million in local awards that generated no new employment. In addition, about $1.4 billion was awarded to organizations noted only by name and, in less than 50 percent of cases, a very vague grant description.

Included in the above grants, which make up more than half of the 4,200-odd grants awarded in Maryland during this quarter, are nearly 300 expenditures for less than $5,000 that often seem to have been used for office supplies or hotel stays for people attending conferences in the area.

These expenses are listed as stimulus awards to businesses, although some of the businesses themselves are not aware that they are recipients of stimulus funds. Take Dell Inc., for example. The giant computer manufacturer received more than $163,000 in Maryland stimulus funding in first quarter of 2010 and more than $19 million in fourth quarter of 2009, according to federal data. When I asked how the money was used, Jess Blackburn of Dell's Corporate Affairs department said the company had "no awareness of [receiving] it."

Governments obviously need office supplies or computer equipment to operate effectively, but this spending should not be disguised as job creation.

Other projects spend money just to spend money, including one reported by Nick DiMarco of Maryland Reporter in March, where $1.3 million went to tear apart a parking garage in Annapolis and rebuild it to make it more "green" - a process that resulted in the elimination of one parking space.

Some say that any spending is good spending at a time like this, including the government. It applies a multiplier of 1.5 to projects, arguing that for each dollar it spends, no one else will have to curb their spending and 50 cents in secondary spending will be generated.

Research from Harvard economist Robert J. Barro contradicts the government's estimates, however. His work shows that the government multiplier is closer to 0.8, meaning that for every dollar the government spends, people must reduce their spending by 20 cents. In other words, government spending reduces rather than kick-starts economic activity, as a dollar spent actually curbs cumulative spending rather than increasing it.

The Associated Press also conducted a 700-county study in early 2010 that showed little difference in unemployment rates between counties that received the most stimulus funding for public works projects such as road construction and counties that received nothing.

How is that possible? Economic research shows that one-time increases in income do little to affect lifetime spending, so when a company gets increased but temporary business, it will likely hire temporary workers rather than new employees. Stimulus spending may help certain people keep their jobs until the economy picks up again and investors regain confidence, but real change will only come when the economy is well-functioning.

Gains to the economy will no doubt be attributed to the stimulus spending, as there is no way to see what would have happened in its absence. But Marylanders and everyone else in the nation would be right to ask whether spending $700 billion to rebuild perfectly fine parking garages, restock dwindling office supplies and generally make the government look as if it were "doing something" is worth the price of higher taxes, poorer services and potentially disastrous blows to the strength of the U.S. dollar in coming years.

John J. Walters is a research associate at the Maryland Public Policy Institute. His e-mail is jwalters@mdpolicy.org.