Scandal-Free Stimulus

An important observation from Time’s Michael Grunwald:

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.”

I think that’s true and it’s crackerjack politics. At the same time, rapid economic recovery and employment growth are better politics. And it’s worth noting that the Obama administration’s obsession with avoiding waste and fraud in American Recovery and Reinvestment Act spending has arguably been counterproductive policy.

After all, what you’re ideally trying to do with stimulus funds is mobilize genuinely idle resources to go do something useful. But that can be a bit tricky. And as a second-best alternative, as long as the resources you’re mobilizing are genuinely idle then you’re helping to fight the recession even if your initiative isn’t all that useful in a conventional sense. Almost nothing is totally useless, and the mobilizing of resources will raise incomes and therefore demand for whatever it is that the market determines the income-earners want. But this can easily look like “waste.”

The other thing is that it’s obvious to everyone in a private sector context that the costs of fraud-prevention sometimes exceed the costs of fraud. At CAP, for example, there’s no system in place to prevent people from using the office printer for personal activities. Similarly, you can just walz into the copy room and poach some envelops. And, indeed, fraud and abuse of this sort do take place. But while it wouldn’t be beyond the intellectual capacity of CAP’s senior leadership to design a system to prevent this, preventing the fraud and abuse wouldn’t actually be worthwhile. If you try to do 100 projects well and quickly, you might find out that only 90 of them actually get done well. That might be ten instances of waste. But if the alternative is to avoid all the waste but only get 70 projects done at medium speed, that might be worse.