Apparently, just about the only economic recovery strategy both the Republican House leadership and the President agree on is to eliminate congressional earmarks, those insidious special requests by individual lawmakers. Collectively, all such pork barrel spending amounts to little more than a rounding error in the Federal budget, but because it so clearly does not serve the interests of the nation as a whole, and represents special favors for local interests, earmarks have become a lighting rod for those angry about “out of control” governmental spending.
Since it seems quite possible we might see a reduction, if not elimination, of such projects, at least on a temporary basis, it’s worth asking if that will make any difference to our annual budget deficit and rising public debt. Possibly more important, it’s also worth considering whether pork barrel projects help or hurt the economy as a whole.
The Economist magazine pointed me to a recent paper from the Harvard Business school, which examined the effect on private corporations in states which saw an marked increase in earmarks following one of their congressional representatives becoming chairman of a committee. Such positions enable the congressman or senator to direct much more federal spending to their local district or state.
Examining 232 such new chairmanships over a 42 year period, the researchers discovered that, while a state would receive a 40-50% increase in earmarks in the year following the chairman’s appointment, private firms in the state reduced capital expenditures by 8-15% and research and development spending by 7-15%.
To quote the conclusions at the end of the paper:
“Specifically, we find statistically and economically significant evidence that firms respond to government spending shocks by: i.) reducing investments in new capital, ii.) reducing investments in R&D, and iii.) paying out more to shareholders in the face of this reduced investment opportunity set. Further, we find that when the spending shocks reverse (through a relinquishing of chairmanship), most all of these behaviors reverse. Finally, we also find some evidence that firms scale back their employment, and experience a decline in sales growth.”
Cutting back on earmarks may be the stimulus plan to Rs and Ds can both agree on? It’s worth a try, I say. It’ll make the noisy TPer’s happy, it’ll let Obama keep a campaign promise, and it would fit neatly into the plan smilin’ Eric Cantor has been espousing all over TV for the past few days.
It sounds too good to be true, so it likely will never happen. Once all out war breaks out in Congress next month over increasing tax rates for the rich, this proposal will probably shrivel under the pressure of 300,000,000 constituents begging their federal representatives for their turn to slobber at the federal trough.