Study: Stimulus Money Had Little to Do With Economic Need

Posted: Feb 27, 2013 11:10 AM
Judgment of President Obama's stimulus bill has and always will rest on the criteria that it was "timely, temporary and targeted." Satisfying all three of these criteria has long been questionable for such a massive piece of legislation, but new research questions the "targeted" part in particular.

James Orr and John Sporn of the Federal Reserve Bank of New York have just come out with a study casting doubt on the idea that stimulus money went where it was needed. Unemployment insurance went to states with high unemployment, but that was just about the only part of the stimulus thatwas "targeted."

It turned out, however, that most other state allocations had little association—positive or negative—with state unemployment rates. The ultimate distribution instead seemed to reflect a number of practical considerations involved in implementing such a vast spending program.

We believe five practical considerations drove the ultimate allocation of funds, and that each potentially weakened the link between spending and unemployment.

The authors include two damning graphs relating spending per capita and unemployment rates by state. The first shows a near-zero correlation between unemployment and stimulus money. The second actually shows a negative relationship between unemployment and infrastructure funding send to the states.

These results largely confirm other reports that have been made about how stimulus money was allocated. USA Today reported in 2009 that there was a correlation between county-level support for Barack Obama and per-capita stimulus spending:

Counties that supported Obama last year have reaped twice as much money per person from the administration's $787 billion economic stimulus package as those that voted for his Republican rival, Sen. John McCain, a USA TODAY analysis of government disclosure and accounting records shows. That money includes aid to repair military bases, improve public housing and help students pay for college.

This is in line with a Fox News analysis that showed that foreclosure rates and bankruptcy rates had little to do with the stimulus' targeting of funds. Time Magazine correspondent Michael Grunwald wrote a book last year in favor of the stimulus as a package, but was an in-depth exploration about how it was anything but a limited-scope economic aid package - Barack Obama's stimulus was nothing less than an attempt at a complete transformation of the American economy.

The legacy of "timely, temporary and targeted" lives on.

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