Bismarck Was Half Right

by Pejman Yousefzadeh on September 15, 2011

The Iron Chancellor famously said that “laws are like sausages–it is best not to see them being made.” But he might have added that it is also rather appalling to see how laws are implemented.

Consider the American Recover and Reinvestment Act of 2009, better known as the stimulus bill. Bismarck would have had a field day discussing how it was put into effect:

So how did the stimulus work in practice? Daniel Rothschild, a former researcher at George Mason University’s Mercatus Center who now works for the American Enterprise Institute, wanted to find out. Working with Mercatus Center economist Garett Jones between August and November of last year, he oversaw 50 hours of interviews with businesses and contractors that received and applied for stimulus funding. And what he found was that the on-the-ground reality of the stimulus was far messier than the simple theory behind it.

In his initial report, Rothschild relays an illustrative story about a contractor with 25 years of construction experience, much of it laying tile in government buildings. Heading into an otherwise typical job that he expected to account for about two percent of his annual income, the tile-layer made plans to install standard blocks of four-inch white tiles—the same tiles he usually installed, the same tiles found in other parts of the same office complex, and the exact materials called for in the architectural plans.

Then he got updated specs. The large white tiles were out. Tiny, colored tiles that needed to be laid in an intricate pattern were in. Did it matter that the smaller tiles would cost the government 50 percent more than the larger white tiles? Not at all. In fact, the higher cost may have been the point. The tile-layer told Rothschild’s interview team that “the only reason he could see for using the smaller tiles was to move the money out the door on the ARRA schedule.” So in exchange for their stimulus dollars, taxpayers got a government building with fancier floor tiling.

At other times, they got even less. Rothschild tells another story of a truck salesman who placed a stimulus-funded order for an expensive big-rig. Delivery times on those vehicles range from six to nine months. But stimulus recipients are required to report how many jobs they’ve created every three months. “There was no work that he had actually generated. He was just a salesman,” says Rothschild. And the lag complicated the reporting process as well. “There was no real way to report what would be a fairly normal business transaction.”

Rothschild’s survey results suggest that the law’s reporting requirements, despite having been billed as unprecedented transparency measures, often created more confusion than clarity. In some cases, for example, firms that received stimulus money were instructed by their federal overseers to count jobs created by taking the total amount of money they were given, divide it by some predetermined per-job salary figure, then report the result as the number of jobs created.

Essentially, they were told to assume in their reports that if they got the money, they created jobs—regardless of whether or not any jobs were actually created.

It goes on like that for a while. Read the whole thing. Oh, and once we are finished with Solyndra hearings, we really ought to have an investigation discussing this and other problems arising from the implementation of the stimulus bill. The latter story may well turn out to be the bigger scandal.

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