Why the Democrats Raked It In

On this Reason post [h/t Instapundit] about possible serious political warping of the “stimulus”spending, commenter nate made an interesting claim:

I work in a federal agency that had a good portion of stimulus cash and was part of the team that picked projects to get funds. We really didn’t look at unemployment in the area. Our main criterion was whether the project had been designed and engineered to a point that we could get construction going pretty quickly. Once we set out our list, we sent it up to OMB. They knocked some stuff out and changed it up some, but for the most part the final list looked like what we sent them. I doubt politics had too much to do with the selection of projects.

I actually think this is very likely. As much as I would gain emotional satisfaction from the idea that perfidious Democrats systematically channeled hundreds of billions of dollars to their cronies in old style big city machine corruption writ large…

… I just don’t think they’re that competent.

Instead, I think the asymmetry could largely result from the type of projects that nate and his colleagues were primed to fund. They didn’t fund projects because the projects fulfilled an important need. Neither did they fund projects that local areas could not afford and therefore had never started. Instead, they funded projects based solely on how far along the projects already were in their development.

They were looking for projects that could spend money the fastest. The project that can spend money the fastest is the project that has already cleared the politics, legal, design, engineering and organizational hurdles. The project that can spend money the fastest is the project that has just started breaking ground.

So, the more government projects an area already had in the pipeline, the more money it would receive. It stands to reason that spendthrift Democrat-leaning areas would have more such projects already in the pipeline than would more financially responsible Republican-leaning areas. In other words, the more invasive and expansive the local government, the more projects they would have that “had been designed and engineered to a point that we could get construction going pretty quickly.

The preexisting spendthrift project hypothesis can also explain the perverse effect that hard-hit states like Michigan got relatively little money while much better-off states got a lot more. Areas that have been long suffering have had to cut back on public works projects long before the current crisis. When nate went to hand out the largess in those areas, he found few projects in the pipeline that could be boosted along with other people’s money.

If nate is correct, then areas that got the most spending were those who had hit a certain sweet spot in their road to ruin. They had to have an expansive enough government to have a lot of projects in the pipeline but not such a long history of such expansive government that it had already wrecked the local economy, leaving no money to even start thinking about starting new projects. (I think Vermont fits this pattern.)

This would also explain why the “stimulus” appears to have had little effect. (I mean beyond the very likely fact that it’s based on an utterly flawed premise.) Funneling money into projects that have already been budgeted for doesn’t create much of a change in the local economy.

It would be akin to giving money to someone who has already started building a house on their own. They’ve already budgeted for the house, got the loan, got an architect, bought the land, got the permits, hired a contractor, etc. Then nate shows up and hands them a wad of cash.

Such a windfall would speed up things a little bit but since all the money and jobs were already in the pipeline it wouldn’t generate as much additional activity as would giving the money to someone who couldn’t afford to start building a house. That person would have to start from scratch and would be spending money and hiring people that previously he would not have hired.

I think this yet another example of the practical failure of government in both decision making and execution. First, even while claiming the need to funnel as much money as possible into the economy, they chose the slowest option available (the fastest would have been payroll tax refunds and unemployment extensions). Then they chose a mechanism for disbursal that bore no relation to any region’s economic plight and they picked projects that were already well under way and whose economic effects had already been largely discounted.

They say you get what you pay for but we certainly didn’t in this case.

8 thoughts on “Why the Democrats Raked It In”

  1. I think that people in counties that voted for Obama ask for more. People who voted for Obama except the government to give them money.

  2. One big reason for the asymmetry in funding is that money was funneled through the states, via their capitals. So it’s sent by the Feds to cities like Sacramento, Albany, Boston, Springfield, Columbus, Harrisburg, Austin etc. Largely centers of political welfare queens who reliably deliver democrats to Congress. But the funds then get spent elsewhere in the state. So this is a true fact that doesn’t exactly describe the truth.

  3. Mrs. Davis,

    I don’t think that is a compelling argument. Why would the accounting system register the state capital as the location where the money was spent just because it passed through the hands of the state government? By that standard, all Federal transfers of money to states should register as being spent in the state capital.

    A better explanation is that since state capitals are disproportionately populated by tax consumers, they have more Democrats and therefore more preexisting projects and a general greater willingness to spend the people’s money. Austin, TX for example is a bright red blotch in a sea of blue. The city’s Democratic leadership requested 2 billion dollars in “stimulus” money for a IIRC 4 billion dollar city budget. It was something of a minor scandal. The surrounding suburbs by contrast are blue zones that requested and received very little.

  4. Why would the accounting system register the state capital as the location where the money was spent just because it passed through the hands of the state government?

    Must I also explain why the tax code is logical? That is the way the feds have reported the data that de Rugy used in her study (big download) that showed that the “Democrats Raked It In.” Another Nate, Nate Silver has shown that of the 50 top fund receiving congressional districts, 43 are state capitals. Of the $165 billion distributed to the 435 CD, $115 billion were distributed to the 54 CD that may be said to include state capitals. Even de Rugy accepts that there is a problem with the data. This doesn’t mean that her conclusion is incorrect, only that the data she based it on looks like it came from Phil Jones.

    Austin would appear from the map to have three representatives who might have a claim to parts of Austin, Smith(R) in the 21st CD which received $6.4 billion, Doggett (D) in the 25th which received $2.4 billion and McCaul (R) in the 10th who got $0.1 billion. Maybe McCaul doesn’t have much of Austin after all.

  5. Ms. Davis,

    Well, yes there is an issue with the accounting but it might also be that local governments of state capitals are much more wired into the political system and therefore actual. Like I said, the city of Austin got an embarrassingly huge amount of money that was spent in the city itself. I image that pattern is repeated.

    I just find it very odd that the data would list the state capital as the location of the spending. Don’t they break the projects down any? It’s all very strange.

    It would be interesting to look in detail at the data for a particular state capital and see where the money allocated that city actually went to.

  6. The other purpose of the stimulus, which seems to have been accomplished, was to replace the tax receipts that were not collected because tax payers had large drops in income. This spared the public employee unions from the consequences of the recession.

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