Waste and the Stimulus

From Michael Grunwald’s thought-provoking piece on the stimulus:

So far, despite furor over cash it supposedly funneled to contraception (deleted from the bill) and phantom congressional districts (simply typos), the earmark-free Recovery Act has produced surprisingly few scandals. Prosecutors are investigating a few fraud allegations, and critics have found some goofy expenditures, like $51,500 for water-safety-mascot costumes or a $50,000 arts grant to a kinky-film house. But those are minor warts, given that unprecedented scrutiny. Biden knows it’s early — “I ain’t saying mission accomplished!” — but he calls waste and fraud “the dogs that haven’t barked.” (See 25 people to blame for the financial crisis.)

Here’s an unpopular view – from the sound of it, there’s far too little waste in the stimulus program. (Yglesias is getting at this here.) All things considered, less waste here is always better, which isn’t hard when there are so many low-hanging fruits for the government to spend on infrastructure and other investments and when the administration is so worried about scandals blowing up.

But remember what the real waste is here: unemployment and unused capacity. Here’s Roosevelt Institute’s Chief Economist Joe Stiglitz:

Interviewer: There’s been a lot of criticism of waste in the way some of Australia’s stimulus money was spent. Is it inevitable if you’re going to spend a great deal of government money quickly that there will be some waste and can you ever justify wasting taxpayers’ money?

JOSEPH STIGLITZ: If you hadn’t spent the money, there would have been waste. The waste would have been the fact that the economy would have been weak, there would have been a gap between what the economy could have produced and what it actually produced – that’s waste. You would have had high unemployment, you would have had capital assets not fully utilised – that’s waste. So your choice was one form of waste verses another form of waste. And so it’s a judgment of what is the way to minimize the waste. No perfection here. And what your government did was exactly right. So, Australia had the shortest and shallowest of the downturns of the advanced industrial countries. And, ah, your recovery actually preceded the – in some sense, China. So there was a sense in which you can’t just say Australia recovered because of China. Your preventive action, you might say pre-emptive action, prevented the downturn while things got turned around in Asia, and they still have not gotten turned around in Europe and America.

Unemployment hovering around 10% is wasteful. High levels of underemployment and low levels of capacity utilization is wasteful. The subsequent lost wages years later, destroyed communities, hurt families, suicides, and general social suffering that comes from this kind of waste is something that isn’t going to be captured in a statistic – but it’s real. This waste is one of the worst kinds of waste, and the government has tools that are appropriate for fighting it.