BY BECKY FENGER | JUNE 6, 2012
Money out the door
The Mercatus Center at George Mason University is an excellent source for market-oriented ideas. Fittingly, the name "mercatus" means market in Latin. I get warm and tingly just reading their mission statement: "Mercatus works to advance knowledge about how markets work to improve our lives by training graduate students, conducting research, and applying sound economics to offer solutions to society's most pressing problems." (It's sister organization, The Institute for Humane Studies, is no slouch either.)
In February, I was invited to a luncheon featuring macroeconomist Garett Jones, a senior scholar at Mercatus who specializes in the study of (dare I say it?) capitalism. He shared his ground-breaking analysis of the Stimulus Program, otherwise known as the American Recovery and Reinvestment Act (ARRA). Interesting stuff.
For all the talk of putting the unemployed back to work, it turns out that 46 percent of the people who took jobs were simply "poached" from another job. Breaking that down: 63 percent of those with graduate degrees were poached while 38 percent of those with high school degrees were taken from existing jobs. Simply stated: The right person for the job probably already had one.
The discouraging part of this whole operation is the fact that nobody told the folks in charge of doling out the money to hire the unemployed. They were simply told to "get the money out the door fast." That sounds like government at work.
Some of the recipients of this largesse admitted privately that the only reason their company landed the money is because their boss worked in a previous White House. (Proving again, it pays who you know.)
As a result of such willy nilly payouts, quality suffered. Here's a prime example. For decades, workers had been putting in two 4-inch white square tiles to build an item. For no reason whatever, the General Services Administration ordered that changed to four 2-inch multicolored tiles. Labor costs were thus increased by 40 percent, just to push money out the door!
Professor Jones laments, "It's not as bad as digging and then refilling ditches, but close."
Another example of burning money for the sake of the light: A company was told to make a list of equipment that they would need for a specific task. When the prioritized list was completed, the government officials instead gave them a crane and a forklift, the least useful things for the job at hand.
Jones stated that under ARRA there was much more red tape than usual. Thus, the firms that were experienced in handling government red tape got more of the funds with no concern as to worthiness.
In order to quell the critics of such profligate spending, the Congressional Budget Office played with the numbers. The result was that for every dollar spent on ARRA, private spending may have shrunk by fifty cents. It's a truism that as government grows, private spending shrinks.
Since ARRA's enactment in February 2009, $757.5 billion has been paid out.
To those who worry that the United States may default on its debts, Jones opines that default is unlikely. "We'll probably muddle through," he says, "partly because we're a very young country." I hope that optimism is warranted.
It would be great if our leaders had looked at the failures of the Stimulus Act and learned a lesson. Not so. Jones warns that "stimulus" is dead as a word (that politicians now avoid), but not as an idea.
George Mason University teaches economics to politicians on the Hill. Never have the lessons been more needed. Now if someone could just squelch the anti-capitalistic rhetoric of class warfare, I'd have a pleasant summer.
Quoteworthy: “You guys will ask, you guys will have." Although this sounds like President Obama with Stimulus money, it's State Rep. Ben Arredondo responding to bribes in return for perks.