Waste and the Stimulus

From Michael Grunwald’s thought-provoking piece on the stimulus:

So far, despite furor over cash it supposedly funneled to contraception (deleted from the bill) and phantom congressional districts (simply typos), the earmark-free Recovery Act has produced surprisingly few scandals. Prosecutors are investigating a few fraud allegations, and critics have found some goofy expenditures, like $51,500 for water-safety-mascot costumes or a $50,000 arts grant to a kinky-film house. But those are minor warts, given that unprecedented scrutiny. Biden knows it’s early — “I ain’t saying mission accomplished!” — but he calls waste and fraud “the dogs that haven’t barked.” (See 25 people to blame for the financial crisis.)

Here’s an unpopular view – from the sound of it, there’s far too little waste in the stimulus program. (Yglesias is getting at this here.) All things considered, less waste here is always better, which isn’t hard when there are so many low-hanging fruits for the government to spend on infrastructure and other investments and when the administration is so worried about scandals blowing up.

But remember what the real waste is here: unemployment and unused capacity. Here’s Roosevelt Institute’s Chief Economist Joe Stiglitz:

Interviewer: There’s been a lot of criticism of waste in the way some of Australia’s stimulus money was spent. Is it inevitable if you’re going to spend a great deal of government money quickly that there will be some waste and can you ever justify wasting taxpayers’ money?

JOSEPH STIGLITZ: If you hadn’t spent the money, there would have been waste. The waste would have been the fact that the economy would have been weak, there would have been a gap between what the economy could have produced and what it actually produced – that’s waste. You would have had high unemployment, you would have had capital assets not fully utilised – that’s waste. So your choice was one form of waste verses another form of waste. And so it’s a judgment of what is the way to minimize the waste. No perfection here. And what your government did was exactly right. So, Australia had the shortest and shallowest of the downturns of the advanced industrial countries. And, ah, your recovery actually preceded the – in some sense, China. So there was a sense in which you can’t just say Australia recovered because of China. Your preventive action, you might say pre-emptive action, prevented the downturn while things got turned around in Asia, and they still have not gotten turned around in Europe and America.

Unemployment hovering around 10% is wasteful. High levels of underemployment and low levels of capacity utilization is wasteful. The subsequent lost wages years later, destroyed communities, hurt families, suicides, and general social suffering that comes from this kind of waste is something that isn’t going to be captured in a statistic – but it’s real. This waste is one of the worst kinds of waste, and the government has tools that are appropriate for fighting it.

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4 Responses to Waste and the Stimulus

  1. I loved this article. I wish everyone in the country would read it. Here’s a great quote:

    But the Recovery Act’s line items represent the first steps to a low-carbon economy. “It will leverage a very different energy future,” says Kristin Mayes, the Republican chair of Arizona’s utility commission. “It really moves us toward a tipping point.” (Watch the video “TIME Polls America: Spend or Cut?”)

    The stimulus is also stocked with nonenergy game changers, like a tenfold increase in funding to expand access to broadband and an effort to sequence more than 2,300 complete human genomes — when only 34 were sequenced with all previous aid. There’s $8 billion for a high-speed passenger rail network, the boldest federal transportation initiative since the interstate highways. There’s $4.35 billion in Race to the Top grants to promote accountability in public schools, perhaps the most significant federal education initiative ever — it’s already prompted 35 states and the District of Columbia to adopt reforms to qualify for the cash. There’s $20 billion to move health records into the digital age, which should reduce redundant tests, dangerous drug interactions and errors caused by doctors with chicken-scratch handwriting. Health and Human Services Secretary Kathleen Sebelius calls that initiative the foundation for Obama’s health care reform and “maybe the single biggest component in improving quality and lowering costs.” (Comment on this story.)

    End Quote

    Here Obama was very smart, and not “cautious” (see: http://richardhserlin.blogspot.com/2010/08/was-it-cautious-or-cautious.html ). This kind of large scale extremely high return investment (of the kind the pure free market will grossly underprovide or inefficiently provide due to long established in economics market problems like externalities, etc.) would have been very unlikely to get by Republicans in normal times, so Obama smartly seized on the economic crisis, like FDR, to get great positive change past Republicans.

    You just didn’t need waste to bring unemployment quickly back down to a normal level. The stimulus was just much too small, not too unwasteful (quickly dispersing to spending). You could have thrown on top another $500 billion in grants to states to prevent layoffs and ramp up services and quality of the states. You could have had special elaborate grants to the unemployed to allow them to easily pay for new training or enroll in GOOD vocational programs, community colleges, and universities, including enough money to allow them to cover living expenses, and much more.

    Waste was not a necessary resort, and as Steve Waldman said, it’s a very dangerous game, because the Republicans will use it as reason to oppose any high return government spending (but not spending on their cronies and constituents). And it will be effective for a very long time until the wasteful spending fades from memory and is supplanted by many examples of smart high return government spending over many years.

  2. pebird says:

    When the private sector has a major initiative – no one even thinks to look at waste and inefficient spending. But it is there – some of it isn’t truly inefficiency, it is unavoidable, but after-the-fact it’s easy to build a 100% efficient process that should have been followed.

    Stiglitz hits the nail on the head – the inefficiencies of unemployment are rarely considered in public debate. The waste of people’s time – lack of daily routine job discipline, skill deterioration, impacts on families and communities – not on anyone’s balance sheet, so it doesn’t exist.

    I do think that in addition to tolerating or even encouraging inefficiency, there is far too little corruption in current government spending (defense excluded, but that is always there). There is an unpopular view for you.

    • Yes, I added this comment at Yglesias’ site. It’s a very important point:

      I didn’t see Obama becomming excessive to avoid any waste at all (and by the way you can find massive waste in the private sector — a million dollar birthday party for the wife of Tyco’s CEO billed to the shareholders. You want zero waste then produce nothing. Humans are imperfect. There will be some flaws in giant complicated organizations.), The stimulus was just much too small.

  3. AL says:

    Great post. Plus, you can never really spend too much on water-safety-mascot costumes.

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