The Waste-Free Stimulus

ARRA Sign, Acadia National Park (my photo, available under cc license)

ARRA Sign, Acadia National Park (my photo, available under cc license)

Lori Montgomery reports on the success of TARP oversight:

By the end of September, the administration had spent 70 percent of the act’s original $787 billion, which met a White House goal of quickly pumping money into the nation’s ravaged economy, the report says. The administration also met nearly a dozen deadlines set by Congress for getting money out the door.

Meanwhile, lower-than-anticipated costs for some projects have permitted the administration to stretch stimulus money further than expected, financing an additional 3,000 projects, according to the report.

Despite the speedy spending, the report says that stimulus contracts and grants have so far been relatively free of the fraud charges that plague more routine government spending programs. Complaints have been filed on less than 2 percent of awards under the program.

“Certainly, the fraud and waste element has been smaller than I think anything anybody anticipated,” said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan watchdog group. “You can certainly challenge some projects as questionable economically. But there haven’t been the examples of outright fraud where the money is essentially lining somebody’s pocket.”

As I’ve said before, I think we should actually have mixed feelings about this. The administration invested a great deal of effort and energy into fighting possible instances of fraud and abuse that they thought might prove politically devastating to their signature recovery initiative. But insofar as that reduced the efficacy at promoting actual recovery, that will ultimately prove far more politically devastating.

More generally, one of the problems we can now see with discretionary fiscal stimulus is that there are critical ambiguities around what an efficient stimulative measure would be. If we’re looking for things with a high multiplier—i.e., a large impact on GDP relative to the expenditure—then letting corrupt mayors embezzle money and hand it out as “walking around money” actually looks pretty good. The recipients of such funds presumably have a very high marginal propensity to spend. But of course that’s the essence of waste. Alternatively, something like a work-sharing program where you basically pay employers to keep employing workers even if there’s no demand for their labor is likely to have a very bad multiplier but by definition keeps people in their jobs. In terms of public works, there’s obviously something to be said for doing cost-effective programs in a cost-effective way but you might get a bigger macroeconomic bang for the buck by building bridges to nowhere in a deliberately inefficient way.

That’s not to say that these measures don’t help. They do all help. But it’s extremely messy, and the political system doesn’t do a good job of making these decisions on the fly. What we need for the future—badly—is better automatic stabilizers to prevent the kind of state/local budget crises that have provided so much economic undertow throughout this recession.