Is Stimulus Money Going Where It Should?

I'm very afraid that stimulus $$ for transportation will do what federal $$ for transportation always does - go where the most vocal Congressional reps say it should.

Rail and improved public transit to link urban with suburban and exurban areas would be my choice for at least 75% of the transpo-tagged money. But I'm afraid it'll all go for road construction in towns/cities with the most successful lobbying efforts.

As a UK resident who picked up this story and link to your site through twitter (!) you may think I shouldn't comment on this story however.. I was involved in doing some interesting economic research a few years back which I think is relevant to this issue. The New Economics Foundation in London have an interesting model that may well have been designed for economic stimulus package. They call it LM3 and it is a Local Multiplier Indicator that can be used to assess a company (in this case) for example before they are awarded government contracts. What is assessed is the way in which subcontracts are awarded and where general expenditure of the company is spent and resources purchased. It can be used to tell you whether a company is a "Hoover" and sucks the money out and spends it elsewhere or whether it is invested locally. The project was initially called "Plugging the Leaky Bucket" and it aimed to encourage money to be spent and re-spent in these poorer communities rather than awarded to companies who had little impact on the local economy. In choosing projects to invest in, the stimulus package money can definitely make a bigger impact if it is carefully targeted so that it is recirculated back into the economy.

We should also be questioning the wisdom of seeking economic stimulus through unfettered government spending rather than sustained efforts to restore credit markets. Yesterday, the International Franchise Association released a report that shows that for every $1 million of lending obtained by franchised small businesses, 34 jobs are created and $3.6 million in annual economic output is realized. This number compares to the 30 jobs per million dollars of highway spending that the Federal Highway Administration has cited. Of course, most highway jobs end when the road is finished. By comparison, small business loans get paid back, allowing another entrepreneur to find capital for start-up or expansion.

Right now, the credit crunch is keeping these potential small business jobs on hold, and there are growing indications that the federal government’s response to the lending freeze has been inadequate. We believe that the response has been fatally undermined by a reluctance of policymakers to strike the appropriate balance between regulation and risk. In an environment where commercial lenders are extremely risk-averse, the small business lending programs initiated by the SBA, Treasury and the Federal Reserve must step in to absorb this additional risk.

Our study, Small Business Lending Matrix and Analysis, prepared by FRANdata for the IFA Educational Foundation, is available on line at www.franchise.org. It shows the relationship between lending to the franchising industry and the industry’s capacity to develop new businesses and expand existing businesses. Because of current conditions, the study predicts a 40 percent reduction in franchise lending in 2009. This reduction will result in the loss of nearly 50,000 jobs and over $5 billion in economic activity.

There will be over 48 billion spent in the next few years in the form of reimbursments to doctors and hospitals that adopt and use electronic health records.

We are seeing national bus tours by firms like Microsoft and Intel to "educate" providers on "how to capture this money" even though nethiner one of them even sells or makes an electronic medical record.

High priced consultants are charging clients a fortune and states are designating orgainzations that aren't elected nor have any public over-site to disburse the federal money using the same state models that resulted in one west coast state directing all of their state money to people who sit on the board!

Private investment has stopped and firms and organizations that are opposed to any government participation in health care are now suddenly standing in line with their hands out.

This is just the first volley in what will happen to health care reform. Power will win and the new administration sadly is being taken in by their newly found power.