2009 Stimulus Was Squandered

April 19, 2013

President Obama touted the American Recovery and Reinvestment Act (the "stimulus") as a chunk of funding that would put people back to work rebuilding roads and bridges, modernizing schools, and building alternative and green energy capabilities. Instead of creating the 2 million to 2.5 million jobs that were promised, however, the $833 billion stimulus package was largely squandered, says Peter Suderman, senior editor at Reason Magazine.

  • As soon as the bill was signed, a Spokane, Washington, construction firm was awarded more than $450,000 to replace 22 remote toilets in Mark Twain National Forest south of St. Louis.
  • New Mexico also received $2.8 million to spend on new toilets in its national parks and an astounding $42 million went to upgrading toilets and other sanitation facilities in Alaska.

The goal of the stimulus was to boost output by injecting money into the economy to stimulate consumer demand with the hope of creating a multiplier effect. A multiplier effect occurs when each dollar of stimulus creates more than $1 of economic activity. The multiplier effect for the stimulus is estimated between 0.5 and 2.0, but is hard to measure precisely.

  • Almost the entire $833 billion stimulus was borrowed because the government could not tax to raise the funds.
  • Stimulus money went for a variety of pointless absurdities including $760,000 for interactive dance software, $1.9 million for international ant research, $550,000 to replace windows at a Forest Service visitor center that was closed, $700,000 for behavioral research into how monkeys respond to inequality and $194,000 to study voter perceptions of the stimulus package.
  • Nearly half of the new hires that stimulus money generated were employees that were previously employed, meaning that it added far fewer jobs than expected.
  • Approximately 33 percent of the money went to transfer programs like aid for the unemployed and other low-income individuals.

"Shovel ready" projects were harder to find once the stimulus had been passed but the funds did keep some employers in business when they would have otherwise failed. Stimulus funds were spent quickly and with little regard for the economic impact. The Congressional Budget Office stated that it is impossible to tell how many jobs the stimulus created.

Whether the stimulus worked or whether it was wasted is a matter of opinion since the multiplier effect is unknown and much of the money was spent with little oversight. Four years later, with the economy still struggling to recover, there is plenty of reason to be pessimistic.

Source: Peter Suderman, "Down the Drain," Reason Magazine, April 15, 2013.

 

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