Thursday, May 27, 2010

Study finds increased gov’t spending results in unemployment

Recent research at Harvard Business School began with the premise that as a state’s congressional delegation grew in stature and power in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.

It turned out quite the opposite. In fact, professors Lauren Cohen, Joshua Coval, and Christopher Malloy discovered to their surprise that companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressman’s ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper, “Do Powerful Politicians Cause Corporate Downsizing?

“It was an enormous surprise, at least to us, to learn that the average firm in the chairman’s state did not benefit at all from the unanticipated increase in spending,” Coval reports.

Read the whole thing.  

Apparently, government spending wastes more money than private enterprise does. (Surprise!)  Furthermore, the pork-barrel spending distorts the local economy in favor of political connections rather than economic efficiency. Of course, this study misses the whole point of government spending.  The appropriators are not trying to make the economy better for everyone, they're trying to making it better for the favored special interests so that they can get re-elected.  It's mostly worked out exactly as planned, but maybe times are changing.

Posted via email from The Blue Pelican

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