The Politics of Stimulus

The anecdotal evidence is starting to come in regarding the Administration’s “American Recovery and Reinvestment Act” (ARRA); the $787 billion bill that passed Congress without most members having any idea what was in it with the expressed intent of immediately stimulating the economy.  The evidence so far is not comforting.

Let’s remember that in his speech before a joint session of Congress in February discussing ARRA, President Obama said, “I called for action because the failure to do so would cost more jobs…a failure to act would have worsened our long term deficit.”

So, how are we doing?

According to the White House, the Stimulus has already created or saved 150,000 jobs.  Promising, yes?  But since February, the Department of Labor states that the nation has lost more than 1.3 million jobs.  That’s still a net 1.15 million jobs in the red.1 The Congressional Budget Office (CBO) recently added color here, reporting that it expect unemployment to continue to climb in the nation to a high of 9.4% in late 2009-2010.2

But is the stimulus helping? According to the Associated Press, “The billions in transportation stimulus dollars that President Barack Obama promoted as a way to create jobs shortchange counties that need the work the most… [an AP analysis] reveals that states are planning to spend 50% more per person in areas with the lowest unemployment than in communities with the highest.”, an apparent misallocation of resources.3

As a companion to the jobs numbers, the CBO also reported a nearly $600 billion increase in the deficit from its January estimate for FY 2009, to an eye-popping $1.8 trillion. That is four times the size of the last Bush deficit in 2008 and effectively means that the US is borrowing 50 cents for each dollar it spends.  Meanwhile, the longer term trend predicts that increased spending and weak tax collection will force the government to borrow $9.3 trillion over the next decade. That is $2.3 trillion increase since January.  The lowest predicted deficit for the decade hovers at $600 billion in red ink.4

So we’re not adding jobs at a rate to cope with increased unemployment, and they’re not going where they’re needed most, and we’re not containing the deficit.

What are we doing?

President Obama has compared today’s economic problems to the Great Depression, with the lesson being that aggressive government intervention in the economy is necessary to promote fairness and growth.

Taking the President at his word, I did a little research. In an excellent book “FDR’s Folly’s” Jim Powell discusses at length the political dimension of the New Deal, when government, instead of the private sector, allocates funds.  The book raised an interesting dimension.

Powell discusses an analysis performed by economic historian Gavin Wright. “Wright performed a statistical analysis of New Deal spending purportedly aimed at helping the poor and he estimated that 80% of the state by state variation in per person New Deal spending could be explained by political factors Wright explained that less New Deal spending went to southern states that gave FDR big winning margins (over 67%) in 1932, presumably because he was sure to win those states again.  More New Deal spending went to western states where he had won less than 60% in 1932, to help assure victory.”

So, what about the Stimulus package?

Here is an interesting exercise for Soapbox readers.  There is an excellent website that shows which projects stimulus dollars are being directed at, with varying and darker shades of blue to show where the big money is going.http://tinyurl.com/orulga .

If you can, print this page out in color for easy reference and comparison.

Now I direct you to one of the best political websites for factual, historical election information, David Leip’s, Atlas of US Presidential Elections. http://www.uselectionatlas.org/RESULTS/

This will give you the results for 2008. Look at the center of the screen. Under “Maps” are a number of yellow buttons. Hit “counties”, and you have a county level analysis of how the country voted. If you have that color printer, print it out.

Keep in mind that David Leip’s site was created before the “Red-Blue” debates started and thus, Democrats are Red on the site and Republicans blue.  It takes a moment to keep it straight.

Now, compare where the stimulus dollars are going against the county vote in 2008.  Certain things become obvious at this stage of stimulus dispersal.

Florida, Arizona and Nevada, all key battle ground states are getting a lot of stimulus money. So are more traditional Democratic constituencies in the greater Phili area, NJ, and New England, and the entire Left coast. Pennsylvania, which mirrors the nation with Democratic borders but a Republican middle shows that the borders are the biggest recipients.

But look at the Mississippi River valley. This is mostly Republican territory and yet, you don’t see a lot of stimulus funds until you get to Iowa – another key Democratic state.

Of course there are anomalies.  Alaska and Wyoming are solidly GOP states, but also have heavy stimulus spending. North Carolina and Indiana, both GOP states that Obama carried by small margins, don’t seem to have benefitted with their importance.  It will be interesting to see Virginia another pivotal state that has yet to submit its projects.

So, is the Stimulus political?  Is potential waste balanced by some people who need aid getting it?

Back to Powell and the New Deal:  “One might be tempted to say that even if only a fraction of New Deal relief spending went to the neediest people, it was still worthwhile because they were so desperate. But unavoidable political factors meant that government programs for the neediest cost much more than they should have, and taxes were higher as a consequence. Tax increases meant that consumers had less money to spend, employers had less money to hire people, and the New Deal ended up prolonging higher unemployment.”

Is past prologue?