Stimulus Aided the Politically Connected at Massive Cost to Taxpayers

by Hans Bader on April 24, 2012

in Economy, Stimulus to Nowhere

“Stimulus money went to precisely the states that needed it the least but were more politically connected to the Democratic Party,” notes Wynton Hall, quoting from a new book. “Heavily Democratic states with lower poverty rates, lower unemployment rates, lower bankruptcy rates, and lower foreclosure rates received most of President Barack Obama’s $825 billion Stimulus.” As the book, Debacle: Obama’s War on Jobs and Growth and What We Can Do Now to Regain Our Future, notes,

There is a perverse pattern: The states hardest hit by the recession received the least money.  States with higher bankruptcy, foreclosure, and unemployment rates got less money.  And higher-income states received more.  Obama may have claimed that he was motivated to help out those in the toughest shape, but it looks more likely that Democrats were more interested in helping their supporters.

As Hall notes, “richer states got more, not less, Stimulus money. For every additional $1,000 in a state’s per-capita income a state received an average $86 more per capita in Stimulus money. Furthermore, states with high foreclosure rates got less, not more, money. Specifically, for every percentage point increase in a state’s foreclosure rate, a state received $217 less per person. . .while Florida only received $553 per capita, the District of Columbia walked away with $3,745 per capita.”

Perhaps this political favoritism should not be surprising in an administration in which ordinary people get prosecuted for trifles, while politically connected people receive no punishment for committing the same crime, or far worse crimes. Professor Glenn Reynolds argues that “the ‘stimulus’ was always a treasury-looting slush fund.”

Obama relied on exaggerated claims to push through the stimulus package, claiming it was needed to prevent an “irreversible decline” in the economy,  even though the Congressional Budget Office admitted that the stimulus package would shrink the economy “in the long run.” The CBO did argue that the stimulus would boost the economy in “the short run.” But even the CBO conceded that the stimulus would  reduce economic output in “the long run” by increasing the national debt and thus crowding out private investment. Saddling future generations with hundreds of billions in debt is not good for the long-run health of the economy.

Harvard University economist Jeffrey Miron argued earlier that the stimulus package wasn’t even designed to stimulate the economy, but rather to benefit special-interest groups, since it flunked even old-fashioned Keynesian policy prescriptions about how to boost the economy. Obama administration memos obtained by the New Yorker provide more evidence for this conclusion: “over the objection of his economic advisors, President Obama replaced $60 billion of ‘highly stimulative spending’ with a slow-spending but ‘inspiring’ $20 billion for high-speed trains and $40 billion in pork for his Senate Democratic allies. And this is starting from a point at which he knew that his advisors thought that not more than $225 billion of the $826 billion total was high-quality, fast-spending, efficient stimulus.”

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