Tuesday, January 12, 2010

AP's STIMULUS WATCH Says, "Unemployment Unchanged by Projects"

Todd Steen, a colleague of mine from Hope College, recently did an analysis for the Associated Press that was used in a study they reported on yesterday. The article got picked up by a number of outlets, including ABC News, the Washington Post and the Seattle Post Intelligencer:
A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed. . . .

. . . AP's analysis, which was reviewed by independent economists at five universities, showed the strategy of pumping transportation money into counties hasn't affected local unemployment rates so far.

"There seems to me to be very little evidence that it's making a difference," said Todd Steen, an economics professor at Hope College in Michigan. . . ."



  1. Impossible to tell from the article (at least I could not find) - where is the analysis suggesting the money went? Raw materials? Workers that have been trucked in from out of town? Immigrants taking the money back to Mexico? Usually with government spending one is concerned with replacing private investment. Doesn't seem to be a big concern right now. So it seems the money (even if 95% wasted) has to be doing something. What is it?

  2. The analysis really doesn't get at where the money went, but focused on the impact of the spending. The Associated Press had data for the 3000 or so counties in the United States, and they found no real difference in the changes in unemployment rates between those counties with a lot of stimulus spending, and those with little or none. The AP also conducted some statewide analyses that showed little impact.

  3. Thanks for responding, Todd. I always enjoy deferring to others more knowledgeable than I!

  4. Indeed, thank you Dr. Steen for your prompt reply.

    It seems that with a lot of the analysis of the Recovery Act there is still not a lot of full understanding of what is happening. For a Krugman-economist, this analysis just proves that the stimulus was not large enough. For a Mankiw (or if you would prefer Friedman)-economist, this analysis just proves that government stimulus doesn't work. My guess is that reality is probably a bit more nuanced than either view.