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Mercatus Institute economist Veronique de Rugy follows where the non-stimulus stimulus money went

Friday, April 9, 2010

HH: As I’ve been promising you all day, where did the stimulus money go? Well, finally, we’ve got some idea, because of an exciting new study and follow up work out of Mercatus, which is a think tank at George Mason University. The website is Veronique de Rugy is the author of this. Veronique, welcome to the program, great to have you.

VDR: Thank you for having me.

HH: Can you first give us a little idea of your background? I know you were at AEI for a while. Are you a pure economist?

VDR: Yes.

HH: And so why did you get interested in where the stimulus money went?

VDR: You know, I’m a, I’ve always been interested in budget issues. I kind of always had a sense since I started working at the Cato Institute that we were focusing a lot on tax policy, on tax issues, but what the real size of government was actually, really, truly measured by how much it spent, like Milton Friedman said. And so that’s how I started actually paying attention, and became, really, a budget analyst. And so then of course, when you have like one of the biggest, I mean, the biggest spending bill in history comes through, of course I was going to actually look at what’s happening with that money.

HH: And before we go to the study that you’ve done on it, what is Mercatus? What does it do?

VDR: Mercatus is a research, university-based research center. So we’re affiliated with George Mason University, and so we have close ties with academia, and we, we’re kind of a policy shop, but really very academic. And we’re non-profit.

HH: All right. Now the stimulus bill originally was supposed to cost $787 billion. I believe it’s actually up over $800 billion dollars now.

VDR: Yes, because of the extension of unemployment benefits.

HH: So how did you get your arms around that much spending? How did…

VDR: Well actually, I mean, I didn’t. What I looked first, one of the things you had to know is that only $500 billion dollars of this is, strictly speaking, spending, right? The rest is like tax cuts and tax credits, which in my book, is spending. But the spending, like where the government spends things on programs, there’s roughly $500 billon of that. And of that money, I looked at the part which is actually very clear to look at, which is the grants and contracts.

HH: Okay.

VDR: And because that money is actually reported on, which is the administration’s website, where people receiving of the money from the government actually report how much money they’ve received, and what they’ve done with it.

HH: So what are your findings? Where did this half trillion dollars in grants and contracts go?

VDR: Well, so the first thing that we did is like, I really just kind of like looked the facts, like how much money’s been spent. So so far, on that portion, $170 billion dollars has been spent spent, right? Much more has been appropriated, but spent and reported as spent is $170 billion dollars. And I looked also at how many jobs has been claimed to have been produced. And even if you just take the reporting at face value, you find out that $286,000 dollars is how much you have to spend to get one job.

HH: Wow.

VDR: So I was looking at things like this, and then I looked at how many, which districts the money was spent on, like, and looking at the average award to Republican districts versus Democratic districts, the average, you know, award size for Republican versus Democrats, and things like this.

HH: Okay, run down some of those findings for us, because I think people are listening very closely as to whether or not this money was spent in a political way.

VDR: So I think originally, when I went into this, the real thing I was interested in is to try to find out whether the administration was actually doing what it claimed it wanted to do, which is create jobs, right? So you would assume that a bill that wants to create jobs is going to actually distribute more money, if you believe that government can create jobs with spending, which I don’t. But you would assume that they’re going to be starting to spend money in districts that have the highest unemployment. And I found out that it was not at all the case. The money wasn’t spent in districts that have the highest unemployment. But then, after that, I thought wow, it’s pretty amazing, like the difference in spending between Republican districts and Democratic districts is really high. So it’s like 80% more, right, on average is spent in Democratic districts than in Republican districts.

HH: Let’s pause on that for a moment, Veronique de Rugy. It’s an 80%, if you’re a Democratic Congressional district, you’re on average 80% more money went to you than a Republican district?

VDR: Yeah, but then it has to be qualified, right? So there’s a caveat to this, which is you have, if you take out all the money that goes to the state capitol, where all the agencies are, right?

HH: Okay.

VDR: That kind of like skews the data a little bit. When you take this money out, which is like extreme, but still, 30% more is spent in Democratic districts.

HH: So the state capitols suck up a lot of money, because that’s where state capitols, they just take a lot of money directly from the feds.

VDR: Yeah, that’s the way the agencies are, and they might actually redistribute that money, you know, later on. But I can’t see it from the data that’s available on the website.

HH: So even if you control for that, though, the Democratic districts…

VDR: Yeah, so if you control in a money value, they get 30, Democratic districts get 30% more, right? But then, that doesn’t tell you very much, anything about, that actually doesn’t tell you anything about…so there’s a difference. You know there’s a difference. But you don’t know why there’s a difference, right?

HH: Right.

VDR: And so that’s where, why we do regression analysis, which is to actually try to understand what went into the decision. And one other thing that I found was for sure, whether you actually took the whole money going to every district, without excluding state capitol districts, or just exclusively the districts that are not state capitol, you find that politics matters. So where, if a district is Republican or Democratic, it matters for the decision to spend money.

HH: But not unemployment.

VDR: Not unemployment, no. And I can’t, I cannot tell you how much the politics matters as opposed to other factors that went into the decision, like for instance, the formula that was used, right, to distribute the funds.

HH: Right, but…

VDR: That’s one aspect, or whatever, lobbying. I mean, there are many factors. But what I could test for, because I had government data available from the Census Bureau and from, which is like the big non-profit, legislative data available. That I could tell.

– – – –

HH: Veronique, where do you go next with this? What else can you discover from the public data about the non-stimulus stimulus?

VDR: So one of the things that we did with this report, and we did it with the previous report, because we issued this report each time there’s new data, quarterly, on the website, is we made it all available online, all the data, and all the regression analysis, and the paper and everything, so people could actually comment and play with the data, give suggestions, and things like this. And where, in the last round, there was some pretty, you know, strong criticism of the work, and that got me really thinking about something I had not thought about before, which is kind of like, sorry, it’s my daughter.

HH: That’s okay.

VDR: …which is how does the design of the stimulus influence, you know, how the money is spent, and what went into the decision to design the stimulus. So for instance, one of the things that we see is that a disproportionate amount of the money goes through the Education Department, right?

HH: Okay.

VDR: So what I want to know is, what I want to try to find out is to see whether that fact is the product of politics, so ideology, so for instance, the administration could be actually very close to, you know, teachers, or they can think that education is like, should be federally funded, or you know, they’re close to the unions, what have you. I mean, there’s a lot of reasons why. But another reason could be simply that they, unlike what they said about what the stimulus was for, they just wanted to spend money really, really fast.

HH: So just push it out.

VDR: And it was just like push it out, because it actually takes a long time to spend that much money. But if you actually already have the structure, and it’s way faster to spend money through the Department of Education than it is through Transportation, because you have to kind of find contractors, have them compete for the contracts and things like this, it takes, so the whole shovel-ready project is not at all right.

HH: Well Veronique, we are out of time, but I look forward to every quarterly update on this, and to someone following the money. And I am so glad Mercatus and you are doing that, because what you’re finding thus far confirms a lot of our suspicions, that this was an ill-conceived, ill-carried out, very expensive boondoggle with a lot of political overlay on it. And we look forward to checking back with you after the next quarter’s results are in.

End of interview.

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