in Houston, Texas

Texas Watchdog surveys the federal stimulus, and economists wish warnings had been heeded

Tuesday, Dec 21, 2010, 08:50AM CST
By Mark Lisheron
cash

So much has been said and written about the American Recovery and Reinvestment Act, the so-called federal stimulus, that an act of polite defiance has been all but forgotten.

Just days after President Barack Obama's inauguration on Jan. 20, 2009, a full-page advertisement appeared in the New York Times and most of the major newspapers in the country. At the top of the ad was a quote from Obama: "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy."


Congress would a few weeks later endorse the new president's point of view by passing the $787 billion stimulus that has since ballooned to, depending upon which source you are relying upon, $814 billion or $862 billion. Given the accounting done so far for the stimulus, the final total may never be known.


Beneath Obama's quote in the ad in large letters was a reply. "With all due respect Mr. President, that is not true." And beneath the dissent were the signatures of 300 American economists, at least nine of them teaching and doing research in Texas.


For the past year, Texas Watchdog has followed the roughly $16.5 billion (this figure, too, is subject to some debate) from various federal agencies as it made its way into Texas. Texas Watchdog has written dozens of stories about the local, state and national impact of the stimulus. The stories have been guided by the two measures set out for the Recovery Act by the administration itself: that the money get into the economy, to stimulate it quickly, and that it create or retain jobs.


Many of these closely reported stories called into question not only the effectiveness by the presidential measures, but the programs themselves. Texas Watchdog has paid particular attention to the state's $326 million Weatherization Assistance Program, which was slow to get started and plagued by administrative, spending and workmanship problems throughout the year.


Following our reporting on shoddy work overseen by Sheltering Arms Senior Services of Houston, which has a $22.3 million weatherization contract, the director of its stimulus program was fired. Most recently, the agency overseeing the program, the Department of Housing and Community Affairs, raised concerns of fraud with several of the local agencies doing the work.


We also questioned the return on the $290 million taxpayer investment in various energy programs, including $52 million to put solar panels on public buildings. We unsuccessfully challenged the transparency of a Houston nonprofit that refused to turn over the addresses of homes it had fixed up through the stimulus. And we wondered what would happen to a proposed high-speed rail system for the nation when the $10.5 billion in stimulus seed money ran out.


Once we started investigating job creation, things really got interesting. We wondered why a stimulus program that set out to create jobs spent so much money, sometimes millions, on so few jobs. We highlighted another agency's overblown jobs estimates, and that the Houston school district school district was using stimulus cash to pay for more than 200 employees it admitted it doesn't need. And we showed that for all the administration's promises of transparency, it's almost impossible to track the locations of jobs created by the stimulus.


Our reports on the absurdities embedded in the stimulus caught the attention of Sens. Tom Coburn, R-Okla., and John McCain, R-Ariz., in a report called Summertime Blues critical of the stimulus nationally. These stories were linked to by national watchdogs like ProPublica and the National Review and in Texas by Harvey Kronberg's much respected Quorum Report and the formidable newcomer, Texas Tribune


Texas Watchdog was among the very few news outlets who reported on the stimulus with the consistency and the seriousness the issue deserved. We continue to believe our readers deserved a careful look at how their many billions of dollars were being spent. And it made us wonder what those dissenting economists thought about the Recovery Act nearly two years after Congress passed it.


ECONOMISTS ANGRY


To be sure, there are economists who believe the stimulus did at least some of what it set out to do. Some think that while it did not supercharge the economy or reduce unemployment from its stubborn 9.5 percent rate, the stimulus kept the economy from slipping into a deeper recession. And there are other economists who think the stimulus failed because the government didn't commit enough tax money to it.


These are not the economists who begged with all due respect to differ with the president. Of the nine economists with Texas ties on the list, six responded to Texas Watchdog's offer to assess the stimulus, one replying by e-mail just moments after the Texas Watchdog invitation was sent. Not surprisingly, the six economics professors - Ryan Amacher at the University of Texas at Arlington, Samuel Bostaph, chairman of the Economics Department at the University of Dallas, Robert Collinge at the University of Texas at San Antonio, Earl Grinols at Baylor University, Roger Meiners at UT-Arlington and Roy Ruffin at the University of Houston - called the premise of the Recovery Act a failure. Several of the responses are angry.

Samuel BostaphBOSTAPH

"Frankly, I don't see any stimulus from the 'stimulus,'" Bostaph says. "Rather than falling, the unemployment rate has risen. Rather than falling, long-term interest rates are rising. Net job creation continues to be negative. The Bush and the Obama administrations should have let nature take its course and let the assets in the hands of failing enterprises move into the hands of those who could use them to create value, rather than to those who simply line their own pockets. A short recession and liquidation could have restructured the economy relatively quickly, such as was the case after WWI, WWII, the Dot-Com burst of the late '90s, and so on. Instead we face a Japan-like decades-long recession."

What would have been truly stimulating to the economy would have been sound tax and budget policies, Grinols says. Instead, government intervention with the stimulus and an uncertain tax future have caused American business leaders to hold cash reserves in record amounts rather than make new investments and hire new workers. This is the opposite of what the stimulus was intended to accomplish.


"One way to characterize Obama’s choices is that he selected wasteful, nearly ineffective means for doctrinaire reasons when better means were known, and he created repeated negative stimulus in the form of fear, harmful expectations, policy risk," Grinols says.

 

STIMULUS CREATES DEBT

Collinge isn't surprised by the poor performance of stimulus-backed programs in Texas outlined in many of the Texas Watchdog stories. Waste and inefficiency are hallmarks of government programs that emphasize spending money quickly.

Robert CollingeCOLLINGE

"You can't just come in and do some feel-good projects," Collinge says. "Government programs, with their centralized planning, waste resources. And this wasted money is still reported as spending, as though we're getting a dollar of value for every dollar spent, when the the project would have been done more efficiently without the government interference."

As the stimulus moves into its final year, these economists have expressed deep worry about what is going to happen when the government spending stops. State institutions of higher education flush with staff hired to carry out stimulus and other federally-funded research will either be kept on with state-supported salaries or let go.


"It is becoming clear that the stimulus was little more than a way to prop up state spending--now what will they do?" Meiners asked. "Assuming that now ends, the states deep in a hole are in trouble. Illinois, Michigan, New York and California, especially, have been papering over deep problems. Maybe they will have to face reality now. We are told to prepare for a 5 - 10 percent university budget cut (a real cut), on top of the 8 percent cut we have had this year. It is beginning to cut deep."


That is only the short term. The language used to described the stimulus suggests that it has already been paid for with tax money. Taxpayers will bear the burden, all right, but it will come in the form of interest on top of the principal because the country borrowed to pay for the stimulus, Collinge says. Rather than liberate the economy, he says, the stimulus has shackled it to future debt.


"Where is the money for the stimulus coming from? If you were to actually raise taxes to fund these projects, the stimulus would be self-defeating, Collinge says. "We're borrowing to do it, and you can't do that forever. We're racking up debts that somebody has to pay for."

 

Contact Mark Lisheron at 512-299-2318 or mark@texaswatchdog.org.


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Photo of money by flickr user stopnlook, used via a Creative Commons license.

Comments
David Siegel
Tuesday, 12/21/2010 - 01:50PM

A little one-sided, don't you think? How about Jamie Galbraith at UT-Austin, Bud Weinstein at SMU, or Ray Perryman, a private economist - they might have had a point of view different than these simplistic free-market types. It would have helped balance the story.

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