Feds Don’t Believe Stimulus Spending Will Create Jobs

Feds Don’t Believe Stimulus Spending Will Create Jobs
December 14, 2009

The idea behind the $787 billion stimulus bill is that government can create jobs by spending money. For now, let’s ignore fact, history, and economic theory and assume government spending can actually create jobs.

In that case, we should expect the government to invest relatively more money in the states that have the highest unemployment rates and less in the states with lower unemployment. So let’s check the data.

Using numbers from President Obama’s Web site—Recovery.org—and the Bureau of Labor Statistics, the accompanying figure plots the amount of stimulus funds spent per person in each state and the corresponding unemployment rate in that state.

Stimulus Funds Spent Per Person and Unemployment

The solid blue line shows what the allocation of funds should look like if the administration were allocating relatively more money to the states with higher unemployment rates. 
 
Little Money Correlation
With few exceptions, the data show this is not the case. Many higher-unemployment states are getting far fewer stimulus dollars than lower-unemployment states.

Take Michigan, for instance. Michigan’s 15.2 percent unemployment rate is the highest in the country. So far, it has received $403 per person in stimulus funds. That’s above the average stimulus per person across all states ($326), but it’s lower than the $409 per person that the state of Vermont, a state with relatively low unemployment (6.8 percent), has received so far.

Michigan's per-person take is also much lower than the $707 per person the District of Columbia received. DC's unemployment rate is 9.9 percent.

Now look at the state with the lowest unemployment rate in the country: North Dakota. With a 4.3 percent unemployment rate, it’s getting $253 per person. Many other states are receiving roughly the same amount of stimulus funds per person despite much higher rates of unemployment.

All of this suggests stimulus funds are being allocated without thought to the level of unemployment within states.

Myth Busted
If government spending could in fact create jobs, the problem of unemployment could be mitigated by distributing funds to states based on their relative unemployment levels.

But that's not being done at all. Instead, funds are being distributed randomly, as quickly as possible, among the states.

That, in turn, suggests something else: Even the federal government doesn't believe the myth that government spending can actually create jobs.

Veronique de Rugy (vderugy@gmu.edu) is an economist at the Mercatus Center at George Mason University and a columnist for Reason. This column first appeared at Reason.com. Used with permission.