Avoiding Stimulus “Waste” Is At Odds With Stimulating the Economy

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"Avoiding Stimulus “Waste” Is At Odds With Stimulating the Economy"

Alec MacGillis had a great piece in yesterday’s Washington Post making the point that all the effort being put into avoiding wasteful spending in the stimulus may itself be a waste of time. After all, the point of a stimulus program is to spend money, not to get things done with as little spending as possible:

“This plan cannot and will not be an excuse for waste and abuse,” President Obama declared last month, after he designated Vice President Biden the “sheriff” in charge of patrolling for misuse of stimulus funds. Sen. Susan Collins (R-Maine) has warned officials overseeing the money that “we must ensure that haste does not make waste” and that even minimal amounts of misspent money would be simply “unacceptable.” And California Gov. Arnold Schwarzenegger has appointed an inspector general to oversee “every single dollar” of the $50 billion flowing into his state.

Missing amid all these high-minded calls to protect taxpayer dollars is an awkward question: When the whole point of a major government spending program is to stimulate the faltering economy as quickly as possible, what exactly counts as “wasted” money? After all, if some stimulus cash is misspent — say an errant official or contractor buys himself a Cadillac or a Harley Davidson, only to suffer the full force of law — might not such fraud boost the economy more than if the cash languished in a law-abiding state account? All that monitoring, however well-intentioned, may undercut recovery by compelling officials to spend more slowly to avoid hearings, prosecution, or embarrassment in the media.

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We also learn that the “managing director for strategic issues at the Government Accountability Office” is named Chris Mihm just like the Lakers little-used reserve big man.

In defense of trying to stop stimulus waste, one could note that things like Arnold Schwarzenegger specially appointing an Inspector General to oversee California stimulus is itself a form of stimulus. But more seriously, the rationale for trying to do this rigorously is, I would say, macro-political rather than economic in nature. It’s not just that taking a stand against wasteful spending looks good. It’s that Barack Obama is governing at a time when the public has become much more open to progressive policy ideas and wants more in public services, but remains skeptical that government will, in practice, deliver services competently or effectively. Moving from stimulus to a broader progressive agenda requires overcoming that skepticism. And that means making sure that this very high-profile initiative get done with a minimum of waste or scandals.

These measures will, however, do something to diminish the efficacy of a stimulus bill that’s already almost certainly too small to really close the output gap anyway.

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