The Trouble with Stimulus Spending

Tony and I have an op-ed at Real Clear Policy about the economic impact of government spending. Here’s an excerpt.

During the Great Depression, Keynes argued that even digging and refilling holes would be beneficial. Accordingly, the federal government’s Works Progress Administration sometimes employed people in low-value activities such as picking up roadside litter. During the most recent economic crisis, Nobel Laureate Paul Krugman advocated spending by the government for any reason, including even an imaginary one such as a space alien hoax requiring “a massive buildup to counter the space alien threat.”

Our research comes to a different conclusion: Even in a depressed economy, the benefits of fiscal stimulus are not sufficient to justify indiscriminate spending.

Specifically, we account for the fact that government spending requires taxation, which lowers national income by reducing the incentive for people to work. Furthermore, even new jobs for previously unemployed workers require foregoing the value of alternative activities, such as working at home or in the underground economy.

After subtracting these costs, we find that stimulus spending is economically justifiable only if what it produces, such as infrastructure improvements, provides the public with at least 70 cents on the dollar in value. While this result allows for a relatively small amount of waste (no more than 30 cents per dollar, and only in a depressed economy), it clearly rules out make-work schemes such as those described by Keynes and Krugman.

Read the whole thing here.

Our full research paper is available here.

Job Corps: A Nightmare for Students and Taxpayers

Most upper-middle-class Americans living in their bourgeois bubbles have probably never heard of Job Corps, but their tax dollars have been paying for the $2 billion federal program for 50 years now. Job Corps was founded by Sargent Shriver, the brother-in-law of John F. Kennedy and father-in-law of Arnold Schwarzenegger. Job Corps was a key component of President Lyndon Johnson’s Great Society, which was supposed to eradicate poverty and all other social ills by spending federal money. The purpose of Job Corps was to get ‘disadvantaged’ youth into jobs by having them live on a residential campus for about a year where they would be taught job skills. Like every justification for expanding the government, the idea sounds good in theory, but in practice leads to a tragic tale of government failure.

Embedded below is a two-part investigative report by the local Fox station in Dallas. The report, horrifyingly revealing and well worth watching in full, uncovers rampant violence, fraud, and corruption at Job Corps. The program seems to do little or nothing to improve the employment prospects of students, but is effective at creating income and employment for the private contractors and managers who run the centers. The contractors receive about $45,000 in taxpayer money for each student, which is more than most people pay per year to attend a private 4-year college. Job Corps managers can make upwards of $200,000 per year.

Since the students are cash cows, the contractors are loath to discipline or expel unruly students. As a result, the centers devolve into lawless Lord of the Flies environments, riddled with violence and drug use. After watching the Fox reports, I don’t know how any parent could send their son or daughter into the hellish environment of Job Corps.

Job Corps is under the supervision of the U.S. Department of Labor, but the department refused to answer any of the Fox team’s questions. Such is the level of accountability and transparency that U.S. taxpayers receive from their government.

If members of the 88th Congress that created Job Corps in 1964 had access to a crystal ball so they could see what the program would become decades later, they never would have voted for it. But they did, and now we are stuck with it.

The 88th Congress should have known: Government Always Fails.

Investigation: Trouble at the Job Corps

Investigation: Trouble at the Job Corps, part 2

A Tale of Two Scandals: VW vs. USGS

I recall an interview with journalist John Stossel in which he said that early in his career he was assigned to report on cases of fraud by private businesses. After awhile on the job, however, he found that fraud in the business world was rare. Most businesses operated honestly because they had to retain customer loyalty. In contrast, Stossel found that fraud was much easier to find in government.

And yet, we don’t see a lot of media reports about the rampant fraud in government. The media seem to report the few cases of private sector fraud with gusto, but are far more reticent to report on government.

Consider, for example, the Volkswagen ’emissionsgate’ scandal that broke back in 2015. This scandal got wall-to-wall coverage on every major media outlet. At this point, even the most superficially informed person must be aware that Volkswagen rigged emissions tests on diesel vehicles during a period of about seven years.

In contrast, how many people know about the data manipulation scandal at the U.S. geological survey? Most people would probably imagine USGS to be a sleepy outpost of government, staffed by geeky but diligent scientists. But apparently, at least two USGS scientists committed data fraud spanning a period more than twice as long as the VW scandal. 

Data was manipulated by USGS employees at the USGS lab in Lakewood, Colo., for nearly it’s entire existence, starting in 1996 — just a year after the facility opened — until 2014. The lab stopped taking new work then and was permanently closed in March 2016. The USGS is part of the Department of the Interior.

The lab analyzed a variety of energy-related topics such as uranium deposits and coal reserves. The data was relied upon by decision-makers and analysts in the energy and financial industries, among others. Officials said projects affected by the data involved $108 million in funding.

Even more infuriating is the fact that, nearly a year after the scandal broke, Congressional investigators don’t seem to have many answers due to foot-dragging by the agency. There’s also no evidence that anyone has been fired, punished, or even named.

Officials with the Department of the Interior’s U.S. Geological Survey (USGS) have yet to tell Congress they’ve punished a pair of scientists behind nearly two decades of data manipulation at a federal lab or what’s been done to prevent more of it, according to a key congressman investigating the scandal.

“We haven’t received assurance that the agency has taken the necessary steps to prevent future, intentional misconduct or that any employees were truly held accountable for these indefensible actions,” Rep. Louie Gohmert told The Daily Caller News Foundation’s Investigative Group.

The Texas Republican is chairman of the House Natural Resources Subcommittee on Oversight and Investigations, which is investigating the data manipulation.

The USGS has repeatedly refused to say if any person has been punished or fired for the manipulation. Gohmert’s panel has investigated the issue since June 2016, but hasn’t uncovered many answers. The USGS gave the subcommittee a batch of documents, but many were completely redacted, making them useless. “The more we dig in, the more questions arise,” Gohmert told TheDCNF. “We’re not talking about just a few fudged numbers, we’re talking nearly two decades of continuous data manipulation. We are still trying to understand the entire scope of the problem. Is this isolated to just one lab? Is similar misconduct happening elsewhere?”

Yeah, I too would like to know the answers to those questions. But I don’t know if we’ll ever get to the bottom of it. In contrast, there doesn’t seem to be much we don’t know about the VW scandal. But then the media were much more interested in reporting on that one. As far as I know, the only media organization actively following the USGS scandal is the Daily Caller, an ‘alternative’ news source.

Maybe this just reflects my personal bias, but I’m far more outraged by the USGS fraud than by VW’s. Since I am a taxpayer, USGS employees are supposed to be working for me. As a consequence of their malfeasance, they abrogated their fiduciary responsibility to me. But in contrast, I had no relationship with VW, and don’t feel the company had any fiduciary responsibility to me personally. Moreover, in the wake of the scandal, VW seems to have been far more forthcoming with answers, whereas USGS has responded with evasion and cover up.

If the public knew just how much fraud and corruption exists in government, and just how poorly taxpayer money is managed, they would demand something be done about it. Maybe that explains why the media does not want to report on it.

Beware the government-media complex.

Is the DC Metro Burning?

Back in the 1990s when I moved to the Washington DC area for graduate school, one of the things that most impressed me about the area was the subway system, the DC metro, that serviced the city along with the Virginia and Maryland suburbs. At that time, the system was relatively new; some of the lines were only a few years old, and even the oldest was only about 14 years old. The stations were modern and spacious, and the train cars also were roomy, with carpeted floors. The DC metro was so convenient that a classmate of mine commented that, even if he owned a Jaguar, he would still prefer to ride the metro every morning.

But that was over 20 years ago, and since then the DC metro has reportedly deteriorated badly. The metro, of course, is run by government, so it was inevitable that it would eventually fail. Over the years, the DC metro has reverted to the natural state of every government institution–a jobs program that barely pretends to serve the public (much like the public schools, for example). The DC metro bureaucracy is rife with corruption and incompetence. Employees know they can’t be fired no matter how lousy their performance, and the incentives are so perverse that the path to advancement primarily involves not rocking the boat by reporting abuses or safety problems. That’s right; the incentives are so perverse, that employees are better off NOT reporting safety issues.

With Metro’s budget chronically strained and reports of mismanagement coming more regularly than trains, interviews and internal records depict a likely root: an environment in which hardworking employees are actively excluded and those who rise are those willing to do the bare minimum — never causing a stir by flagging rampant safety violations, reporting malfeasance or proposing improvements.

A couple of years ago, a fire got started in a train tunnel, and incompetent employees bungled the emergency response by activating the wrong ventilation fans. The fans actually sucked smoke into a subway car filled with passengers.

Metro controllers in Landover reacted to the train operator’s report of smoke by turning on giant fans inside the L’Enfant Plaza station — behind the stationary train in the tunnel. The fans were activated in “exhaust mode,” Hart said, meaning they were sucking massive volumes of air in the direction of the station.

“This action pulled smoke” toward the station from the spot of the electrical meltdown deep in the tunnel, Hart said. As a result, the smoke was also moving in the direction of the stopped train, which was soon enveloped.

Then, at 3:24 p.m., according to Hart, the Landover controllers switched on another set of fans — inside a huge ventilation shaft about 1,100 feet in front of the train, near the source of the smoke. The shaft rises from the tunnel to the street.

But the fans in the shaft also were activated in exhaust mode, Hart said. This meant that the two sets of powerful fans, at both ends of the train, were sucking air in opposite directions, causing the smoke to linger in place, surrounding the train.

At least 200 passengers — most of them choking, many sickened and some growing panicked — waited more than 30 minutes to be evacuated by rescuers. One of the riders, Carol I. Glover, 61, of Alexandria, died of smoke inhalation, an autopsy showed.

So many fires happen on Metro that a Twitter feed called “Is Metro on Fire?” exists to warn passengers. Multiple fires were reported just last week.

As Reason magazine reports in the video below, Metro’s escalators are prone to dangerous malfunctions, and frequently break down due to lack of proper maintenance. The problem is that Metro in 1992 stopped using private contractors to repair and maintain the escalators and instead switched to using its own in-house mechanics. Metro justified the change by arguing, get this, that “government employees would do a better job for less money.” One can only hope that human civilization someday advances to the point where people reflexively respond to that particular argument with the full measure of derision that it deserves.

Last fall, Washington’s star pitcher, Max Scherzer, displayed some touching naivete after finding out that Metro refused to extend its operating hours so that fans could get home from a playoff game.

“God, I would hope to believe that playoff games here in D.C. would mean more than shutting down the lines for a couple hours,” Scherzer said last week during an appearence on a local sports talk radio program. “I mean, isn’t it a supply-and-demand issue? We have a supply of people that demand to use the line to go to the park. Why wouldn’t you want to meet that?”

Dude, rationally adjusting supply to meet demand is what happens in the private sector. This is government.

D.C. Escalator Nightmare

College: Watered Down

Blogger Audacious Epigone (A. E.) has been mining data from the General Social Survey, and he uncovered a remarkable downward trend in a measure of the literacy of college graduates. GSS for decades has been administering a test called Wordsum to its survey takers. To facilitate comparison over time, the test has never changed, and consists of just ten vocabulary words. The test, available here, is not particularly hard, and most educated persons should be able to score at least nine out of ten.

Indeed, A. E. shows that, forty years ago, roughly half of college graduates between the ages of 25 and 40 did score 9 or 10 out of 10. Performance, however, has steadily deteriorated over time, so that now only about one in six can make that score.

A. E. attributes the decline to over-expansion of higher education causing a decline in the average level of student talent. Forty years ago, only a relatively more select group of academically talented people went to college. At that time, only 12% of the population had degrees. Now, 33% do. Just as an individual school cannot generally increase enrollment without lowering standards, neither can higher education as a whole.

Letting more people into college was supposed to lift them up, but instead, they have brought college down to their own level. It’s fair to say that the expanded college population has changed college more than college has changed them.

If you follow the link to the test, it really consists of words that any literate person should know. I hesitated a bit over only one of the words. The fact that five out of six college graduates gets two or more wrong is frankly appalling.

This evidence concurs with my anecdotal experience of running into young college graduates who don’t seem to have learned anything. For instance, I recently met a young lady with an art degree (not from UD) who didn’t know what a fresco was.

She also has about $100,000 in student loan debt.

All this evidence points to the fact that higher education is massively over-expanded due to government subsidies. As a result, our current system of higher education involves an incalculably huge waste of resources. Government subsidies need to be eliminated so that the whole system can be substantially scaled back.

The World’s Most Expensive Bus Station

California’s high-speed rail project is a gigantic boondoggle that’s expected to require at least 12 more years of construction and cost overruns before the first trains run. That timetable, however, didn’t stop the single-party solons who run California from constructing a massive train station in San Francisco that will open later this year–more than 11 years before any trains arrive. For all those years, the facility will sit mostly unused, serving only as the world’s most expensive bus station. Literally millions of taxpayer dollars will be spent just to provide security to prevent the homeless from turning the world’s most expensive bus station into the world’s most expensive urinal.

San Francisco’s over-budget and oversize $2.4 billion Transbay Transit Center will open in December — but it’s going to cost an estimated $20 million a year to run the place, and no one knows where all the money will come from.

The three-block-long behemoth was envisioned as the Grand Central Station of the West, a dynamic hub for buses and high-speed rail that would draw more than 100,000 visitors a day.

Come opening day, however, there will be no high-speed rail. Instead, for many years, the five-level showcase just south of Mission Street between Second and Beale streets will be little more than the world’s most expensive bus station — serving mainly the 14,000 transbay bus commuters who roll in and out daily on AC Transit.
That reality is starting to sink in and has city officials scrambling — because without the big crowds that trains were supposed to bring in, there are serious questions about where all the money needed to keep the place secure, clean and well lit will come from.

With the transit center expected to stay open around the clock, officials say it will take at least 65 private security guards — plus police and sheriff’s deputies — as well as a staff of janitors, maintenance workers and others to keep the place from becoming a giant homeless camp.

Taxpayers and bridge commuters will probably be on the hook to pick up millions of dollars in costs, although the exact amount still isn’t known.

Meanwhile, the authority has been working for months to find a master lessee to run the transit hub, and to line up tenants for the 100,000-square-foot mall that will occupy a good portion of the building.

But there’s a problem.

Without the foot traffic that high-speed rail could draw, the mall is looking a lot less attractive to potential renters. That means the authority may have to offer sweetheart deals to lure stores — which, of course, means less money.

If nothing else, this whole fiasco offers an object lesson in the perils of government planning. Remember, there are good reasons why the Soviet Union collapsed. When government can’t even coordinate the opening of a new railroad with its station within 11 years, do you really want to put them in charge of your healthcare? Do you really want to leave it up to government to decide which antibiotics people need, and in what quantities? Or, say, how many maternity beds to provide?

In any event, if something like this train station fiasco had to happen in America, it’s probably no accident that it happened in loony left California.

Can’t wait to see how long it takes California to complete its transition into Venezuela del Norte.

$7 Billion, Down the Rat Hole

Wanna know how the federal government spends your hard-earned tax dollars? A new report reveals that the Department of Education burned through $7 billion–that’s billion with a ‘b’–with literally nothing to show for it.

One of the Obama administration’s signature efforts in education, which pumped billions of federal dollars into overhauling the nation’s worst schools, failed to produce meaningful results, according to a federal analysis.

Test scores, graduation rates and college enrollment were no different in schools that received money through the School Improvement Grants program — the largest federal investment ever targeted to failing schools — than in schools that did not.

The Education Department published the findings on the website of its research division on Wednesday, hours before President Obama’s political appointees walked out the door.

“We’re talking about millions of kids who are assigned to these failing schools, and we just spent several billion dollars promising them things were going to get better,” said Andy Smarick, a resident fellow at the American Enterprise Institute who has long been skeptical that the Obama administration’s strategy would work. “Think of what all that money could have been spent on instead.”

Yeah, I’ve thought about it. At the current median price of a new home ($305,000), it’s enough money to build 23,000 houses. That’s enough to put about 60,000 people–the entire population of a small city like, say, Canton, Ohio–into new homes. You could literally build a Canton from scratch.

At the average current price of a new mid-size car ($26,000), you could give every household in the state of Delaware a brand new car. Everybody in the whole state gets up in the morning to find a brand new car in their driveway.

But we’ll never see those new cars or homes because the federal government wouldn’t allow it. They left the taxpayers empty-handed.

If terrorists or an invading foreign army burned to the ground a small American city, we wouldn’t hesitate to go to war. But the Department of Education does the equivalent and nobody is even fired or demoted.

The Department of Education did not even exist for the first 200 years of the United States. It was created during the failed presidency of Jimmy Carter. Can we ever get rid of it?

On Rolling Back Government, GOP Talking Big

When it comes to rolling back the federal government, the GOP has been talking big lately.

Donald Trump is ready to take an ax to government spending.

Staffers for the Trump transition team have been meeting with career staff at the White House ahead of Friday’s presidential inauguration to outline their plans for shrinking the federal bureaucracy, The Hill has learned.

The changes they propose are dramatic.

The departments of Commerce and Energy would see major reductions in funding, with programs under their jurisdiction either being eliminated or transferred to other agencies. The departments of Transportation, Justice and State would see significant cuts and program eliminations.

The Corporation for Public Broadcasting would be privatized, while the National Endowment for the Arts and National Endowment for the Humanities would be eliminated entirely.

Overall, the blueprint being used by Trump’s team would reduce federal spending by $10.5 trillion over 10 years.

A trillion a year? I’d be gobsmacked if all this actually transpired. Does Trump really believe he can achieve all of it? Maybe he’d settle for less and this is just his opening offer to the Democrats.

Meanwhile, the GOP House has passed some very significant regulatory reforms. First, the REINS Act.

The Regulations from the Executive in Need of Scrutiny (REINS) Act would require any regulation which would have an economic impact of $100 million or more to pass Congress and be signed by the president. If the regulation failed to do so after 70 days, it would become null and void.

The REINS Act sounds like a huge step towards restoring Constitutional government, according to which laws are voted on by the people’s elected representatives in Congress, rather than imposed on the people by unelected bureaucrats in the executive branch.

REINS sounds great to me, but law scholar Richard Epstein has some objections to the ‘factual review’ provisions that are beyond my pay grade. Epstein likes better another bill that has been introduced in the House, the Separation of Powers Restoration Act (SOPRA).

Its key provision reads that any court reviewing administrative action shall “decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies.” “De novo” review means that the reviewing court gives no deference to the legal opinions of either the parties or lower court judges and administrators.

This compact and straightforward provision, which should be promptly enacted, takes aim at two of the most misguided decisions of administrative law that instructed courts to take a deferential stance toward agency actions interpreting the key statutes and regulations they administer. The first of these cases, Chevron USA Inc. v. NRDC (1984), written by Justice John Paul Stevens, insisted that in all ambiguous cases, reviewing courts should defer to an agency interpretation of its governing statute. Auer v. Robbins (1997), written by the late Justice Antonin Scalia, similarly held that for an agency’s “own regulations, [its] interpretation of it is, under our jurisprudence, controlling unless ‘plainly erroneous or inconsistent with the regulation.’”

Letting the courts smack down the bureaucrats’ interpretations of law sounds great to me. But one thing Epstein doesn’t mention is that none of these bills can get enough Senate votes to override a Democrat filibuster. There’s just no way they can become law in this Congress, and the House must know that very well. Which raises the question: if it can’t become law, then what’s the point? Political grandstanding?

Given that the GOP House knows the bill can’t become law, there’s no cost to the members in voting for it. Which also means there’s no evidence they really support the legislation. Passing a dead-end bill doesn’t prove they really mean it.

Trump: Schools are ‘Flush with Cash’

I didn’t watch President Trump’s inaugural address, but he apparently made a controversial statement about America’s schools being ‘flush with cash.’ This statement was denounced by the usual assortment of fraudsters and freeloaders who are the bane of what remains of our civilization.

Donald Trump lies.

If you haven’t learned that yet, America, you’ve got four more cringe-inducing years to do so.

Even in his inaugural address, he couldn’t help but let loose a whooper [sic] about US public schools.

“Americans want great schools for their children, safe neighborhoods for their families and good jobs for themselves,” he said. “But for too many of our citizens, a different reality exists. … An education system flush with cash but which leaves our young and beautiful students deprived of all knowledge.”

Los Angeles Unified School district routinely has broken desks and chairs, missing ceiling tiles, damaged flooring, broken sprinklers, damaged lunch tables and broken toilet paper dispensers.

They’re flush with cash!?

New York City public schools removed more than 160 toxic light fixtures containing polychlorinated biphenyls, a cancer causing agent that also hinders cognitive and neurological development. Yet many schools are still waiting on a fix, especially those serving minority students.

They’re flush with cash!?

At Charles L. Spain school in Detroit, the air vents are so warped and moldy, turning on the heat brings a rancid stench. Water drips from a leaky roof into the gym, warping the floor tiles. Cockroaches literally scurry around some children’s classrooms until they are squashed by student volunteers.

They’re flush with freakin cash!?

Are you serious, Donald Trump!?

Well, let’s take a look at the figures. The U.S. Census Bureau publishes data on school spending, but those figures are typically incomplete and underestimate the true amount of spending. A few years ago, Adam Schaeffer of the Cato Institute found that schools usually leave important categories of spending out of their reported figures. For instance, the Los Angeles Unified School District reports spending only about $11,000 per student, but this figure does not include capital spending financed by bond issues. Here are the figures Schaeffer estimated for fiscal year 2008:

New York City: $21,543 per student.

Los Angeles: $25,208 per student.

Keep in mind that those figures are from way back in 2008. Spending now must be considerably higher; LA in particular probably now exceeds $30,000 per student. By comparison, at private schools in the LA area, the average is something like $12,000.

Schaeffer did not obtain an estimate for Detroit, but the Census reports $14,197 for 2014, which is probably an underestimate, and in any event, above the national average and well above what private schools spend.

$30,000 in LA should be enough to send a pupil to a fancy private school with a polo field and a personal Uber ride to school every morning. But put government in charge and what we get for that kind of spending is “broken desks and chairs, missing ceiling tiles, damaged flooring, broken sprinklers, damaged lunch tables and broken toilet paper dispensers.” What a disgrace.

With the possible exception of the major news media (another Trump nemesis), public schooling must be the worst-performing industry in America. Kudos to Trump for pointing this out.