Friday, September 17, 2010

This is why stimulus spending is inefficient (and highly so)

According to an article in today's International Business Times, the City of Los Angeles received $111 million from the American Recovery and Reinvestment Act, yet created only 55 new jobs. That works out to a cool $2 million per job. Milton Friedman explained this long ago, when he said "you never spend other people's money as wisely as you would your own." It also casts serious doubt on whether the government spending multiplier is even remotely positive.

"I'm disappointed that we've only created or retained 55 jobs after receiving $111 million," says Wendy Greuel, the city's controller, while releasing an audit report.
"With our local unemployment rate over 12% we need to do a better job cutting red tape and putting Angelenos back to work,” she added.
According to the report, the Los Angeles Department of Public Works generated only 45.46 jobs (the fraction of a job created or retained correlates to the number of actual hours works) after receiving $70.65 million, while the target was 238 jobs.
Similarly, the city’s department of transportation, armed with a $40.8 million fund, created only 9 jobs in place of an expected 26 jobs.
This is a disgrace and an abomination. But if the information is put to good use, it might help send enough new and disciplined people to Congress come November to make a difference.

HT: Drudge

21 comments:

sgt.red.blue.red said...

The whole idea of the 'stimulus' use to create jobs is 180 degrees out of phase. By cutting tax rates, instead of 'stimulus' spending, the consumer (you and me) decide where to spend the money WE earned. Then, businesses meeting market demand produce product which WE want. The more efficiently and skillfully they do so, the better off stockholders (again, you and me are). If they have to hire more people to meet the demand, then that is great.

W.E. Heasley said...

“Milton Friedman explained this long ago, when he said "you never spend other people's money as wisely as you would your own."


“But if the information is put to good use, it might help send enough new and disciplined people to Congress come November to make a difference.”

Beyond understanding Milton Friedman’s fourth category of spending maybe newly elected legislators should examine Keynesian stimulus in the following light:


The Keynesian jump start theory (“stimulus” which is better signified by the term “debt”) always comes with the lovely diagram of the "bucket".

The bucket represents demand. The bucket's content is household, business, and government demand for goods and services. A recession, according to Keynesians, is a bucket that is not full to the brim. The bucket is no longer full as the demand components of households and businesses has shrunk and hence its the government's responsibility to increase its expenditures (increase its component of the bucket) in order to bring the bucket back to full.

Seems like common sense. However, the increased government expenditures that attempts to fill the bucket is really draining the bucket simultaneously. Its counterintuitive. As the government increases spending, private capital formation leaks out of the bucket. Hence you try and try to fill the bucket but it remains below the brim.

Once you stop filling the bucket with government deficit spending, you now must pay for the Deficit Spending. Hence Keynesians raise taxes. The taxes then create another leak in the bucket. Hence the bucket goes right back to the level that you began with before you started this wasted exercise.

Keynesians should wear the bucket over your head.

Benjamin said...

“Milton Friedman explained this long ago, when he said "you never spend other people's money as wisely as you would your own."

See cost of military equipment. It only gets more expensive, while private-sector hardware tends to get better and cheaper all the time.

Do you know that in Denmark firefighting is done by the private sector? Imagine the money we could save.....

ronrasch said...

The constitution authorizes military spending. Politicians contribute to inefficiency by spending kick backs or payoffs to their districts.

Benjamin said...

Ronrasch:

True, the military has become a large patronage machine. But every federal bureaucracy becomes ossified lard at some point, characterized by chronic bungling, and the Pentagon is no different.
Scott Grannis chose to highlight the cruddy results with stimulus spending, and rightfully so.
The same story could be told 100 times over with all federal spending in Iraq and Afghanistan, and has been. Power plants built and fallen into disrepair with weeks--no one changing out filters, wrecking turbines. Corruption. $1 million to paint a police station. Mysterious pallets of $100 bills being airlifted out of Kabul, a couple billion bucks at a time. US Marines protecting opium fields of thugs loyal to Karzai.

Bush jr. and America's foreign policy-military archipelago got us enmeshed in Iraqistan, and the total bill will be $3 trillion, according to the CBO. Every dollar sucked out of the private jobs- and wealth-creating sector.

Until the right-wing brings it skepticism to bear on that side of our government, I hold no hope the Republicans will ever present us with a balanced budget. Along with the Agriculture Department, the one agency that actually funnels direct cash, subsidies, to businesses.

The Constitution? Interesting document. Many signers wanted an explicit ban on a standing army, which is one reason for the language about the right to form militias and bear arms. The founders intended us to have a citizen army, not a full-time professional army.

George Mason, after whom the university is named, refused to sign the document as it did not ban standing armies.

Let me tell you this: If we had a draft and a real citizen army, and 4F meant something, and we were taking the best and brightest students out the the ot 100 universities to form our military, there would have been no Iraq or Afghanie. The public would not have tolerated it.


I suspect every federal agency should be sunsetted every 20 years, including the US military.

ronrasch said...

The military has also piloted technologies that have scaled into the economy with huge volume,lowered costs, and are then widely used by the military. I believe the wars in Iraq and Afghanistan are making the world safer and more free.

marmico said...

According to the LA Controller's Report for the Department of Public Works, only $5 million of the $70 million grant allocation has been billed.

That works out to $100k per job created or retained thus far plus the actual improvements for any work completed during the audit period.

I believe that was the purpose behind ARRA. Infrastructure projects would be getting into high gear as the temporary tax cuts begin to wane.

You did know that there $270 billion in tax cuts in the ARRA stimulus package, did you not?

Be my guest, hitch your wagon to this bat shit crazy nutter who doesn't know how to balance a check book.

Paul said...

It never fails. Whenever Obama's policies are criticized, Benji tries to change the subject with his usual blather about military spending or the rural subsidies he thinks Democrats aren't up to their necks in.

"Let me tell you this: If we had a draft and a real citizen army, and 4F meant something, and we were taking the best and brightest students out the the ot 100 universities to form our military, there would have been no Iraq or Afghanie. The public would not have tolerated it."

Really? In the days after 9/11 the public would not have tolerated an invasion of Afghanistan? Absurd.

Paul said...

"Be my guest, hitch your wagon to this bat shit crazy nutter who doesn't know how to balance a check book."

Better her than the bearded Marxist who led New Castle county to the verge of bankruptcy.

Public Library said...

Paul,

Quote from your article:

“[I]t is only too easy to return from Africa glad to be American and smugly thankful for our wealth and freedom,” added Coons.

“Instead, Amherst had taught me to question, so in turn I questioned Amherst, and America.”

What is wrong with a young person questioning the power and authority of career government employees? Isn't this why we elect politicians and exactly what the Tea Party is all about?

Your point of view is a great example of the delusion we now find so prominent on the right. You are completely unable to vote for a good + qualified candidate. Party lines will always push your vote good or bad. This is essentially ignorance in it's grandest form.

You are blinded by your own biases and ignorance. When Americans can learn to have a balanced conversation, we might actually get ourselves out of this quagmire.

Until then, keep voting for your debt ridden, tax deadbeats, with anti- masturbation views and calling it Constitutionalism.

Your Tea Partiers are actually desperate for career government jobs which is the greatest irony of the movement.

Paul said...

"What is wrong with a young person questioning the power and authority of career government employees? Isn't this why we elect politicians and exactly what the Tea Party is all about?"

Run that by me again? Coons admittedly returned a Marxist. No, the Tea Party is not all about that, sorry.

"Party lines will always push your vote good or bad. This is essentially ignorance in it's grandest form."

Oh please, Public, spare me your condescension. The GOP is far from perfect, but I'd gladly go back to the pre-Pelosi/Reid budgets. Perhaps you're just looking for some intellectual cover after your huge mistake of voting for Obama.

"Your Tea Partiers are actually desperate for career government jobs which is the greatest irony of the movement."

I know scores of Tea Partiers, none of them are looking for government jobs. Scott Grannis attends Tea Partiers. Is he a parasite, too?

And you call me ignorant.

John said...

"Your tea partiers are...desperate for career public jobs..."

Pub, I'm not a tea party member and do not plan to be. But I have read not a small amount about them and do know a few. You may be right in what you cynicly say of them but I have seen no evidence of such. In fact, its the opposite. I believe, that if given the chance, they will go to work on "career public jobs" with a meat cleaver.

Paul said...

"What is wrong with a young person questioning the power and authority of career government employees?"

And then Coons, the newly minted bearded Marxist, went on to become a career government employee. He raised taxes whenver he could, and nearly bankrupted everything he touched.

O'Donnell may be against masturbation, and I personally would probably have voted for Castle for strategic reasons, but
the evidence says she'd vote for smaller government and lower taxes. Compared to Coons she's the "good, qualified" candidate.

Public Library said...

O'Donnell owes back taxes, stole from her prior employer to to run a side deal and was fired, sold her house under dodgy circumstances because she was about to default, and was on her last leg before this election.

Are you serious? Forget masturbation, the above is enough to tell you about the character of the person, man or woman!

And I am not talking about Tea Party followers, I am talking about the Tea Party candidates.

Who needs cover when the left, right, and center have/continue to bilk the American people for every penny.

Everyone mocks Benji about red state socialism but the irony is he is right. All of the red river states are socialist at their core with loads of government subsidies supporting industry. BUt under the 'cover' of anti-abortion and capitalist christian they get a free pass from your likes.

It is sad. I would vote for a good conservative regardless of affiliation but your ignorance blinds you form such considerations. It is clear by your rhetoric.

Public Library said...

You best do more research before you end up with a line of Joe back tax Six Pack candidates pushing your so called 'American' agenda.

Benjamin said...

PL:
"Everyone mocks Benji"?
Oh dear. I hear I thought I was making a good account of myself.

But I am right about the Red States Socialist Empire. Just check out data from The Tax Foundation, a very conservative organization.

In general, Red States are huge benefiaries of federal lard, netting back as much as $2 for every $1 they send to DC.

This is one reason why Tea Partiers will have such a hard time balancing the federal budget--within their own party, they will be undercut.

The Dems are no better.

John said...

Pub,

If all you say is correct, then it appears a better candidate could have been chosen...but was not. Thus the people of Delaware will, rightfully, decide.

I agree that our candidates should be of high character. If these are the standards though, then we should hold all elected officials to them, not just those we do not like.

Dr William J McKibbin said...

I regret that the so-called "stimulus" was really just a rouse for rifling money into the hands of state controllers so that they could meet current obligations, including payroll. In other words, all the "stimulus" money did was avert significant state layoffs precisely at a time when such layoffs may be in order. The government payroll is too large to sustain, and cuts in government payrolls are imminent. Had the "stimulus" money been sent directly to private companies, the effects might have been more stimulating for the economy, but who knows even about that. The US government does not have a mechanism for placing capital directly into the hands of small businesses, and so any efforts to stimulate the Main Street economy are likely to fail. Sending further "stimulus" dollars into the hands of state controllers is ineffective for these reasons.

The case studies about to "blow up" are California and New York. I suspect that California will fall into some form of default by October, and New York will follow soon thereafter. Hence, reality is coming and I suspect that further "stimulus" spending that benefits states will fail to pass Congress, which would be a good outcome in my mind, and I am a monetary expansionist so that says something. "Stimulus" spending that falls into the hands of state controllers is only making matters worse for the US economy as a while.

Benjamin said...

Google News

"US stocks nudged up in early trading on Monday as investors looked ahead to Tuesday's Federal Reserve meeting and the possibility of further quantitative easing."

Nothing wrong with prosperity.

John said...

Benj,

Don't hold your breath for this meeting. The media always looks for a reason the market moves one way or another. The Fed meeting was convenient. Not saying they are wrong, just saying they always look for a reason.

The Fed may do something further in the way of QE but I doubt it will happen before the elections.

Paul said...

"Are you serious? Forget masturbation, the above is enough to tell you about the character of the person, man or woman!"

And she's running against a bearded Marxist, a man with a long history of tax-and-spend. His type have led us to the edge of the volcano.

I couldn't care less what her personal habits are, and she hasn't been charged with any criminal behavior so perhaps you should hold judgement until all the facts are out.

"BUt under the 'cover' of anti-abortion and capitalist christian they get a free pass from your likes."

Really? Have you ever seen me write anything about abortion or christianity? Or give any pork-barreler a free pass? You just make it up as you go along, Pub?
That vote for Obama eating you up inside?

"It is sad. I would vote for a good conservative regardless of affiliation..."

But instead you voted for a socialist community organizer. Thanks for helping to saddle us with the most fiscally irresponsible, inept President in history.

"..but your ignorance blinds you form such considerations. It is clear by your rhetoric."

Sure, show me a "good conservative" Democrat. Give us an example.