Video: A case study of the stimulus

posted at 9:50 am on March 15, 2012 by Ed Morrissey

Why did the 2009 stimulus plan fail to keep unemployment below 8%? Barack Obama claims that the economic collapse was more severe than his advisers first knew, but that’s a smokescreen for incompetence and ideological blindness. Reason and Reason TV combine forces to plumb the reasons for this failure by taking Silver Spring, Maryland as a test case.  The city and the state got hundreds of millions of dollars in stimulus funds.  How did that work out?  Not well, as Veronique de Rugy explains in this video:

The ground rules for stimulus dollars, as laid out by Obama’s top economic adviser at the time, Larry Summers, were based on the insights of legendary 20th-century economist John Maynard Keynes. The funds were to be “targeted” at resources idled by the recession, and the interventions were to be “temporary” and “timely,” injected quickly into the economy.

None of that turned out to be true. “Even if you were to believe that government spending can trigger economic growth,” says reason columnist Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center, “the money is never spent in a way that’s consistent with the conditions laid out by the Keynesians for it to be efficient.” …

In Maryland, the “specialty trades,” a subset of the construction industry that handles big infrastructure projects, have lost an estimated 8 percent of their work force since the stimulus was passed, amounting to 8,000 jobs. Against that backdrop, the state’s Department of Transportation says stimulus money for transit projects has paid for the full-time salaries of about 600 construction workers since the middle of 2009.

Why didn’t Maryland’s $771 million in stimulus outlays for transit infrastructure have a bigger impact on the local economy? Partly because Gov. Martin O’Malley cut his own infrastructure budget more than enough to offset gains from the stimulus. Maryland’s Transportation Trust Fund generally pays for highway repairs by collecting a special gas tax and other user fees. After the stimulus money was made available, O’Malley raided the trust fund, diverting $861 million during the next three years to help balance the state budget, according to information provided by Maryland’s Department of Legislative Services. Even with the stimulus, state spending on transit infrastructure has seen a net decrease of $90 million since 2009.

That sort of scenario played out all across the country. Stimulus dollars were used to cover general expenses rather than activating idle resources.

For the most part, the stimulus had three major components.  The first was a big chunk of money dedicated to subsidizing the green-tech industry, followed by supposedly “shovel-ready” construction/transportation jobs and finally huge block grants to states in an attempt to keep them from laying off bureaucrats.  The latter got disguised by rhetoric about saving the jobs of teachers and first responders, but the block grants got used by the states in exactly the same manner as the construction and transportation funds did — papering over deficits in order to avoid the tough choices needed for right-sizing state governments.

The construction and transportation jobs didn’t actually come from new public-works projects, either.  The ARRA simply accelerated routine maintenance projects already on the books in states and local communities, like road repair and bridge updates.  The pretty orange signs dotting the highway took credit for work that would have been done anyway through normal transportation funding over the next couple of years.  It was the public-sector equivalent of Cash for Clunkers and the new-home tax credit: it stole demand from future quarters in order to momentarily boost economic figures for political purposes.  That didn’t create or save jobs at all, as Reason points out in the video.

The only positive outcome from the stimulus is that it put an end to the fantasy that top-down control of the economy and government intervention creates economic growth.  If we learn that lesson for more than just a few years, it might make the huge loss and our current economic stagnation worth it.

Update: Reader Juan B corrects me on the city name — it’s Silver Spring, not Silver Springs.  I’ve fixed it.


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You don’t do case studies on RIP OFFS!

KOOLAID2 on March 15, 2012 at 9:52 AM

Thieves without guns!

KOOLAID2 on March 15, 2012 at 9:52 AM

If they had taken all that money, bundled it in $1 bills, and mandated that it be “spread around” to all 57 states and flushed down toilets, it would have “created” more jobs in unclogging plumbing, septic tanks, and sewage systems than it did for all nearly $1 trillion of it being parceled out to Obamacronys.

wildcat72 on March 15, 2012 at 9:53 AM

S L U T S ! ! !

KOOLAID2 on March 15, 2012 at 9:53 AM

Thieves without guns!

KOOLAID2 on March 15, 2012 at 9:52 AM

Thieves WITH guns. There isn’t a dollar the government spends that wasn’t taken from an unwilling person by the implicit threat of deadly force.

wildcat72 on March 15, 2012 at 9:54 AM

All that wealth and opportunity, utterly wasted.

tom daschle concerned on March 15, 2012 at 9:54 AM

THE STIMULUS IS WORKING!

WE’RE HEADED IN THE RIGHT DIRECTION.

THE ECONOMY IS BETTER THAN IT’S EVER BEEN.

THE GOP IS THE REASON THERE IS HIGH UNEMPLOYMENT. THEY CAUSED THE DEBT AND THE DEFICIT, WHICH WOULDN’T BE THERE IF DEMOCRATS HAD AL THE LEVERS OF POWER.

THE ONLY THING HOLDING IT BACK IS THE FACT THAT THE GOP WON’T LET OBAMA RAISE TAXES ON THE RICH.

Good Lt on March 15, 2012 at 9:54 AM

so they admit that they are not smart.
And…It’s Bush’s fault!

kirkill on March 15, 2012 at 9:56 AM

The theft was all very legal. Afterall, they passed it into law, didn’t they?

WordsMatter on March 15, 2012 at 9:56 AM

The only positive outcome from the stimulus is that it put an end to the fantasy that top-down control of the economy and government intervention creates economic growth

Sorry Ed, but I have to disagree. While putting an end to that particular fantasy would be a positive, do you really think the Krugman class of Keynesians really learned that lesson?

Lost in Jersey on March 15, 2012 at 9:58 AM

How did this happen in my country?

tom daschle concerned on March 15, 2012 at 9:59 AM

The only positive outcome from the stimulus is that it put an end to the fantasy that top-down control of the economy and government intervention creates economic growth.

I wish. Unfortunately economic illiteracy is the foundation of Modern Liberalism. Their ideology defies basic economic principles.

visions on March 15, 2012 at 10:00 AM

The other, less reported-on positive of the stimulus is that it created a phrase “Go stimulate yourself!” which I use liberally on my liberal colleagues as we debate politics by the water cooler.

Archivarix on March 15, 2012 at 10:00 AM

The theft was all very legal. Afterall, they passed it into law, didn’t they?

WordsMatter on March 15, 2012 at 9:56 AM

…the crime is that most of them are still in office!
November?

KOOLAID2 on March 15, 2012 at 10:01 AM

Thus, the vast majority of the stimulus went straight to State governmental unions. It merely delayed the inevitable for a couple of years. I’m sure they expect a repeat performance if O is reelected.

tommyboy on March 15, 2012 at 10:01 AM

You think the swollen to bloating ranks of all the frackin bureaucrats that have been hired via the antics of the Oministration are just gonna go away?
It’s going to take an amputation or three just to stop the gangrene.
Who do we have out there that is willing to wield the bone saw?

OkieDoc on March 15, 2012 at 10:02 AM

and finally huge block grants to states in an attempt to keep them from laying off bureaucrats

That.

More than anything else.

Union leaders and management heads brokered deals across the State-City-Muni layers, protected each other and whacked everyone in the middle.

budfox on March 15, 2012 at 10:04 AM

You beat me to it Lost in Jersey. Democrats NEVER learn from their policy mistakes except to say that the messaging(progadanda)could have been better.

Wigglesworth on March 15, 2012 at 10:05 AM

Just when I thought I couldn’t get any more incensed at this administration…

Good grief. How friggin’ dumb do you have to be to vote for these destructive fools?

Common Sense Floridian on March 15, 2012 at 10:06 AM

Democrats NEVER learn from their policy mistakes except to say that the messaging(progadanda)could have been better.

Wigglesworth on March 15, 2012 at 10:05 AM

… or that we should have spent more.

Lost in Jersey on March 15, 2012 at 10:07 AM

For the most part, the stimulus had three major components.

1. Corruption
2. Waste
3. More corruption

forest on March 15, 2012 at 10:09 AM

All that wealth and opportunity, utterly wasted.

tom daschle concerned on March 15, 2012 at 9:54 AM

Yeah, but it made America more “fair” and less “mean-spirited”.

Barack Obama

katablog.com on March 15, 2012 at 10:10 AM

I blame the entire bunch.At least they haven’t started calling themselves the “Family.”

docflash on March 15, 2012 at 10:11 AM

Good Lt on March 15, 2012 at 9:54 AM

I’m guessing from the all caps that you copied this from one of the Obamabot sites.

katablog.com on March 15, 2012 at 10:14 AM

Sorry Ed, but I have to disagree. While putting an end to that particular fantasy would be a positive, do you really think the Krugman class of Keynesians really learned that lesson?

Lost in Jersey on March 15, 2012 at 9:58 AM

Clearly, Krugman is incapable of learning this lesson. He continues to insist that the reason our economy is struggling is that we have only borrowed $15 trillion and that if we would just borrow more, all would be well.

What’s that definition of insanity again?

talkingpoints on March 15, 2012 at 10:16 AM

Good Lt on March 15, 2012 at 9:54 AM

Sad. Next time I come through your work area, I don’t want pickles on my Big Mac.

Hannibal on March 15, 2012 at 10:17 AM

Obama’s admin make the keystone cops look like the epitome of efficiency.

aniptofar on March 15, 2012 at 10:19 AM

What’s the odds of Democrats agreeing with assessment?

bflat879 on March 15, 2012 at 10:20 AM

Why do we address it as “the” stimulus? If you go to OMB’s website, the federal outlays beginning in 2009 when stimulus was passed, increase by nearly a trillion dollars. Every year thereafter, the outlays remain as high as in 2009. If it were “the” stimulus, wouldn’t it be expected that there would be a spike in spending just for 2009. Really, because of the Congressional Budget Act of 1974, “the” stimulus was baked into the federal spending baseline.

We should refer to “those stimuli” given that the rate of spending under “the” stimulus has never retreated.

So . . . whenever some lefty or media type spits out the question “where are you going to cut”?, our answer should be “Cut the stimulus.”

Nemesis of Jihad on March 15, 2012 at 10:25 AM

Romney supported bank bailouts

liberal4life on March 15, 2012 at 10:26 AM

Clearly, Krugman is incapable of learning this lesson.

talkingpoints on March 15, 2012 at 10:16 AM

I suppose if Ed’s speaking of the general public now realizing so-called stimulus spending by government is a fantasy, he may have a point. Clearly there are those who now have a vague notion that the whole thing was a bust, but there are far too many who still think TARP and the stimulus averted an epic disaster. Many more still who just don’t comprehend the amounts involved or that it is now part of the baseline budget or believe it’s just washington as usual.

It may have awoken a lot of people to the myth of Keynesian economics, but it certainly hasn’t ended the fantasy for a large chunk of the population.

Lost in Jersey on March 15, 2012 at 10:27 AM

Romney supported bank bailouts

liberal4life on March 15, 2012 at 10:26 AM

Obama supported the elimination of Super PACs.

Until he didn’t.

Good Lt on March 15, 2012 at 10:29 AM

I’m guessing from the all caps that you copied this from one of the Obamabot sites.

katablog.com on March 15, 2012 at 10:14 AM

No, all I’ve been doing is reading the talking points spewed forth from his minions on this board.

Good Lt on March 15, 2012 at 10:30 AM

Clearly, Krugman is incapable of learning this lesson. He continues to insist that the reason our economy is struggling is that we have only borrowed $15 trillion and that if we would just borrow more, all would be well.

What’s that definition of insanity again?

talkingpoints on March 15, 2012 at 10:16 AM

Yeah, all we need is for some space aliens to invade and all would be well.

Bitter Clinger on March 15, 2012 at 10:30 AM

Smart by Reason to take a few shots at my d-bag governor; he’s being groomed for a 2016 run at POTUS so lining up background on his numerous failures now is a good move by our side.

I could go into the “shovel-ready” aspect of this again, but it’s been done to death. Suffice to say, if it’s shovel-ready, it’s already funded.

BKeyser on March 15, 2012 at 10:30 AM

However beautiful the strategy, you should occasionally look at the results.

-Winston Churchill

mankai on March 15, 2012 at 10:30 AM

Romney supported bank bailouts

liberal4life on March 15, 2012 at 10:26 AM

Thanks for playing.

Bitter Clinger on March 15, 2012 at 10:31 AM

Thanks for playing.

Bitter Clinger on March 15, 2012 at 10:31 AM

You are welcome

liberal4life on March 15, 2012 at 10:34 AM

I suppose if Ed’s speaking of the general public now realizing so-called stimulus spending by government is a fantasy, he may have a point. Clearly there are those who now have a vague notion that the whole thing was a bust, but there are far too many who still think TARP and the stimulus averted an epic disaster. Many more still who just don’t comprehend the amounts involved or that it is now part of the baseline budget or believe it’s just washington as usual.

It may have awoken a lot of people to the myth of Keynesian economics, but it certainly hasn’t ended the fantasy for a large chunk of the population.

Lost in Jersey on March 15, 2012 at 10:27 AM

Ed may be referring to the fact that Obama called for another stimulus last fall and Democrats ran away from that like the plague. But I agree that that’s only a temporary situation. There will come a day that they decide that Keynesianism needs to be revived.

Bitter Clinger on March 15, 2012 at 10:34 AM

Democrats can’t do math and they don’t have identification. I guess they really do need help – over and over again.

Nemesis of Jihad on March 15, 2012 at 10:38 AM

The name of the suburb is Silver Spring. Singular, not plural.

ddh on March 15, 2012 at 10:40 AM

The only positive outcome from the stimulus is that it put an end to the fantasy that top-down control of the economy and government intervention creates economic growth.

Didn’t the old Soviet Union already demonstrate that? Oh, sorry! Forgot. It’s liberals we were talking about. They just need MORE time and MORE money. They’ll “get it right, THIS TIME.”

GarandFan on March 15, 2012 at 11:05 AM

but there are far too many who still think TARP and the stimulus averted an epic disaster
Lost in Jersey on March 15, 2012 at 10:27 AM

While the Stimulus itself was an epic disaster, the case can be made that TARP really did prevent a meltdown. However, the long-term effect of TARP (and Dodd-Frank) is that it institutionalized too big too fail. TARP was mostly paid back (80-90% I think?), but it could have been done in a much better way, say like the S&L liquidations back around 1990.

mdenis39 on March 15, 2012 at 11:21 AM

The only positive outcome from the stimulus is that it put an end to the fantasy that top-down control of the economy and government intervention creates economic growth.

It didn’t put an end to the fantasy in loony lib world. They’re all convinced that the only reason it didn’t work was because it wasn’t big enough. If only we’d spent more, then it would have worked!

Unfortunately, you can’t fix stupid. Even with a trillion dollars.

AZCoyote on March 15, 2012 at 11:21 AM

The stimulus purpose was threefold: feed the unions, weaken America with more debt, and get the public used to speaking in terms of the far larger deficit numbers. See “health care”, that would cost less than a trillion dollars. And so forth.

If Zippy supposedly didn’t understand the gravity of the situation, maybe someone should ask him why he rarely showed up for work, his only consistent trait in fifty plus years.

MrKleenexMuscles on March 15, 2012 at 11:26 AM

Invest We Much

forest on March 15, 2012 at 11:33 AM

Just throw more money at the problem, that’ll fix it.

Socratease on March 15, 2012 at 12:09 PM

There’s Joe Biden standing behind Howdy Doody…looking like Jeff Dunhams puppet…WALTER!

KOOLAID2 on March 15, 2012 at 1:47 PM

I wrote about this in 2010. In my state the stimulus money first went to pay current deficits, then to actually hiring more bureaucrats to manage the governmental departments who were getting most of the stimulus funds.

In one case a Social Services Agency got stimulus money to help ‘those in need’, and then expanded from a 21 employee Agency to a 38 employee Agency. When questioned, we were told that the Agency needed the 17 people to help find enough more ‘people in need’ to justify the increased income. Then there were screams in 2011 when there wasn’t enough money to support even the original 21 employees. By the way, none were ‘laid off’.

dahni on March 15, 2012 at 1:50 PM

Sigh… I was born and raised in Silver Spring, MD.

It was a fantastic place to raise a family in the 70s and 80s. By the 90s, the D.C. was expanding and reaching into our community. It was all down hill from there…

Crime rates, drugs, what have you… the place became uglier by the year. Everyone raised there started moving north or east to try and escape the coming tide of ugly.

I’m lucky enough to live in Maui now but when I return there to visit family it depresses me. Silver Spring looks tired and neglected. It’s overcrowded and stressed. Makes me sad.

ccrooke on March 15, 2012 at 1:55 PM

After raiding the transportation trust fund for years, O’Malley now wants to raise the gas tax to add another 20 cents per gallon by 2015. I can’t wait to leave Maryland–it used to be a great place to live and raise a family. Not anymore.

shana on March 15, 2012 at 3:17 PM