In January, when President Obama first began pushing for an economic stimulus bill, he made it clear that the No. 1 priority of the legislation was job creation. “Our first job is to put people back to work and get our economy working again,” he said in his weekly radio address.
When he signed the stimulus the following month, Obama’s administration specifically promised it would hold unemployment to 8 percent during the summer and then cause it to decline. It’s the end of December now. Unemployment is at 10 percent.
We’ve known for a long time now that the stimulus isn’t creating jobs, but perhaps now we’re beginning to understand why. Despite promises that the stimulus would be “timely, temporary and targeted,” a new analysis of the $157 billion distributed so far shows no rhyme or reason when it comes to distributing funds to the states most in need of jobs.
“You would think that if the stimulus money was actually spent to create jobs, there would be more stimulus money spent in high-unemployment states,” said Veronique de Rugy, a scholar at the Mercatus Center who produced the analysis. “But we don’t find any correlation.”
The Mercatus Center at George Mason University in Virginia is one of the nation’s most respected economic and regulatory think tanks and has a Nobel Prize-winning economist on staff. The econometric analysis was done using data provided by Recovery.gov — the government Web site devoted to tracking the stimulus data — as well as a host of other government databases.
Additionally, Mercatus found that stimulus funds were not disbursed geographically with any special regard for low-income Americans. “We find no correlation between economic indicators and stimulus funding. Preliminary results find no statistically significant effect of unemployment, median income or mean income on stimulus funds allocation,” the report said.
Another reason the stimulus appears to be failing is political affiliation has a stronger effect on how the money is spent than any major economic indicators. The Mercatus Center analysis also found that Democratic congressional districts received on average almost double the funding of Republican congressional districts. Republican congressional districts received on average $232 million in stimulus funds, while Democratic districts received $439 million on average.
Another reason the stimulus appears to be failing is political affiliation has a stronger effect on how the money is spent than any major economic indicators. The Mercatus Center analysis also found that Democratic congressional districts received on average almost double the funding of Republican congressional districts. Republican congressional districts received on average $232 million in stimulus funds, while Democratic districts received $439 million on average.
“We found that there is a correlation [relating to the party of congressional districts],” de Rugy said. Her regression analysis found that stimulus funds were expected to decrease by 24.19 percent if a district was represented by a Republican.
“During the appropriations process, you’re not surprised to see the Democrats are getting more money, but in this case a lot of the money we’re looking at is going through [the Department of Housing and Urban Development], or the Department of Education, the Department of Transportation, etc., and they’re following a formula,” she said. “But the correlation exists, and not only does it exist — when you look at how much money we’re talking about, it’s a pretty big deal.”
The analysis found that neither congressional leadership positions of local members nor presidential preference in 2008 were factors in stimulus allocation by congressional district.
Finally, the Mercatus analysis shows that a majority of the funds allocated went to public rather than private entities — nearly $88 billion to $69 billion. Though some of the money given to public entities may eventually filter down to the private sector, it’s much less transparent how money given to public entities is spurring economic growth and job creation.
When politics and bureaucracy dictate stimulus spending, it’s no wonder the bill isn’t creating jobs.
