Steve Chapman
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The idea behind channeling money to state governments is that it would reduce the paring of government payrolls, thus preserving the spending power of public employees. But the plan went awry, according to a paper by Dartmouth College economists James Feyrer and Bruce Sacerdote published by the National Bureau of Economic Research.

"Transfers to the states to support education and law enforcement appear to have little effect," they concluded. Most likely, they said, states used the money to avoid raising taxes or borrowing money.

That's right: The federal government took out loans that it will have to cover with future tax increases ... so states don't have to. It's like paying your Visa bill with your MasterCard.

The public works component could have been called public non-works. It sounds easy for Washington to pay contractors to embark on "shovel-ready projects" that needed only money to get started. The administration somehow forgot that even when the need is urgent, the government moves at the speed of a glacier.

John Cogan and John Taylor, affiliated with Stanford University and the Hoover Institution, reported earlier this year that out of that $862 billion, a microscopic $4 billion has been used to finance infrastructure. Even Obama has been chagrined.

"There's no such thing as shovel-ready projects," he complained last year.

Even if jobs were somehow created or saved by this ambitious effort, they came at a prohibitive price. Feyrer and Sacerdote say the costs may have been as high as $400,000 per job.

Based on all this evidence, we don't really know whether the federal government can use fiscal policy to engineer a recovery. We do know it can go broke trying.

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Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune.
 

 
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