Why the stimulus money is likely to lead to waste

Nicole Gelinas, a contributing editor for the Manhattan Institute’s City Journal, has an excellent article in the New York Post explaining why a lot of the so-called stimulus money is likely to be wasted and ineffective. Here are few choice bits of her analysis:

It will be interesting to see how much of that $4 billion, if it materializes, really will filter down to city capital projects, once it travels through state pols’ hands. But New York shouldn’t even be in the position of depending (or pretending to depend) on federal largesse. Consider: If New York City had worked with the state since 2003 simply to keep its medical costs – health benefits for public-sector workers and for people on Medicaid – in line with inflation, the city would have an extra $5 billion every two years now to spend on whatever it wants, including subway infrastructure.

But, alas, because NYC didn’t save, it’s going to have to pay more for the same amount of work.

As the local, national and global economies have plummeted, demand for construction materials and construction-intensive commodities like oil and labor has fallen. The recession has cut oil prices by more than 70 percent; big-ticket construction inputs like steel have seen similar declines. And there’s less competition for construction workers with private-sector projects. Instead, we’ve consigned ourselves to waiting around for federal generosity. And perversely, the mass scale of the promised federal stimulus could push up the costs of labor, materials and commodities, meaning New York may get less work done per dollar than it would have otherwise. Plus, federal stimulus money likely will come with its own labor strings attached – reducing the slim but real chance that New York now has to reform its labor costs at big agencies like the MTA.

Her analysis could easily be applied to state governments and economies.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.