Stimulus Not Targeting Job Loss States

Often times, non-economists attribute much more confusion to the ideas of Keynesian economics than is really the case. Take for example the idea of smoothing out business cycles. Anyone who's ever tried to keep to an exercise regime understands the concept intuitively. The fancy graph way of making the case looks like this:

The idea here is simple. The black line is the boom and bust cycle that characterizes un-managed markets. The red line is what happens when the government or private actors step in to manage the economy to smooth out these business cycles. Note that while at any one point, the black line may show a much higher rate of growth than the red over the long run, it ends higher.

Returning to the exercise metaphor. While you can can have an exercise regime that involves exercise binges followed by food binges, in the end slow and steady is going to when the day. Because each time you switch from pigging out to being an exercise freak there's a lot more effort involved than if you had just stuck to the program. The preference is for a stable program, and that's what any economic stimulus package should aim for too. But, that's not what's happening.

Where's the money going?

At the end of last week, USA Today ran a piece about how the $ 4 billion of stimulus money currently disbursed has been spent.

There's a cool flash graphic if you follow the link. I've recreated their graphic with a little clearer color and coding scheme here. Note the scale.

To put some actual numbers to this, we can look at the top 10 and bottom 10 states in terms of stimulus money per cap. And it's pretty amazing.

That's right. Idaho got $245.63 per capita in stimulus funds even though unemployment in that state's unemployment rate is 1.6% below the national rate.

Compare this to the long suffering state of Michigan, which received the princely sum of $0.21 per capita in stimulus funds, while the unemployment rate is 4% above the national rate. What the hell is happening here?

What kind of stimulus is this?

Let's return for a moment to that graph I used earlier about business cycles. This time, I've shown how those ups and downs are smoothed out. The arrows show the general idea.

Think of this is terms of employment. When employment drops, the government should step in to spend money to keep employment steady. The idea is to create confidence. Half the problem of the current recession isn't the people who are out of work. It's the people still on the job, but who've stopped spending cash because they are afraid of losing their job. By working to keep employment steady, the government limits the contagion from falling sectors to less affected sectors.

In this recession, it's construction and manufacturing that are losing jobs and these losses have been concentrated on the West Coast (Construction), the Midwest (Manufacturing), and the South (both).

The beautiful thing is that by pumping money into these sectors and areas early, the contagion effect can be limited.

For example, keeping an auto worker on the job in Michigan means that workers at suppliers in Kentucky stay on the job too. As do the waitstaff at the diner that Kentucky worker goes to. And the suppliers that diner in Kentucky orders may keep employees and a food processing plant in Georgia on the job.

Put the worker auto worker in Michigan out of work, and it's not only him or her that's going to lose, it's going to be everyone that money touches.

Drop a little cash to keep that one auto worker on the job, and you keep a whole other group of people who are linked to that auto worker on the job too.

The impact of the money spent is many, many times $1 to $1. $1 spent in manufacturing may allow workers elsewhere in the economy to take home $20-$30. But, stimulus spending has to be targeted at falling employment to make that happen. This has not happened.

No Stimulus at All

One of the statistical tools available to people looking at information of this sort is linear regression. It allows us to figure how much a given increase in one thing will lead to an increase (or decrease) in another thing.

For example, if the stimulus is being targeted towards keeping employment steady, then presumably this means that in as a rule where there has been a drop in unemployment there will be more stimulus money spent. The greater the drop in employment, the bigger the amount of stimulus cash.

I've created a database that includes these numbers, and when I run a regression to look for a relationship between, there is little or none. R-squared is the measure we use to look for relationships between things. It runs from 0 to 1, and the higher the number the stronger the relationship.

When I ran a regression using the employment drop as the driver behind stimulus spending, my adjusted R-squared was -0.018.

Which is actually pretty cool, because I've never gotten a negative R-squared before.

It means there is literally less than no relationship between the two.

In other words, stimulus spending isn't being targeted to states where employment drops have occurred. It's worse than random. It's as though someone were (ever so slightly) targeting stimulus funds to those states that need it the least.

Seriously, I've seen fucked up statistics, but this one truly takes the cake. It's like getting heads up in a coin toss 25 times in a row. It's bizarre.

How would this be done right?

It's still early in the game. So there's time to fix this situation. Of the more than $700 billion included in the stimulus package, only $3.941 billion has been released. On other words less than 1% of the total.

From the start of the recession till the end of March, US employment had fallen by 4,926,100. Which means that if the money had been distributed on an equal basis per job lost, that for support for each job loss would be $800.

This is not how things look right now.

How do things look now?

Below, I've produced a graph which shows the amount of stimulus money disbursed per job lost in each state.

The shocking lack of direction in the disbursement of stimulus funds continues.

4 states (Alaska, Wyoming, North Dakota, Louisiana) actually have gained jobs since the start of the recession and managed to still take in stimulus funds.

Among the other 46 states that have lost jobs, the amount disbursed per job loss varies greatly from a high of $16,131.50 in Washington to 3 states that while losing jobs having received no stimulus funds.

I've created a graph below ranking the states for stimulus funds received per job loss. I've excluded states that gained jobs and those that have received no stimulus funds. The list is pretty amazing. Remember that if the stimulus funds were disbursed according to job losses, that each job loss would lead to a state getting $800 in stimulus money. The column on the right shows the actual amount of stimulus per job loss received by a state as a percentage of its "fair share."

Conclusion

Like I said above, less than 1% of the stimulus funds have been disbursed. So there is time for change. It may be that this first set of disbursements is a fluke. I hope so, but I'm not the trusting type.

It's more than simple fairness that should concern us here.

Remember that the reason that stimulus packages are a useful policy tool is because they allow us to smooth out business cycles.

The problem here is that the money spent here isn't accomplishing that.

Which means not only that those currently out of work are likely to remain so, but also that many more are likely to join them.

Call me a cynic, but I see a distinct anti-manufacturing bias in the way that these funds have been distributed. Those states that have not gotten less than 10% of their fair share are overwhelmingly dependent upon manufacturing.

More specifically, of the six auto states (Michigan, Ohio, Indiana, Kentucky, Tennessee, and Mississippi) only one (Tennessee) has received it's "fair share."

Beyond that, Ohio leads the other 5 with 11% of it's "fair share" of stimulus funds.

The distribution of stimulus funds is never going to be entirely equal across states, but it should be more equal.

Just as there's something distasteful about a CEO making 500 times a line workers pay, it doesn't seem right that Washington and Idaho are getting over $10,000 per job loss while 18 states are getting less than $100 per job loss.

In order to work, stimulus spending must work to stabilize the employment situation. This isn't happening now.

In order for it to occur, there needs to be more attention to the way stimulus money is being spent. Only then can we know if the effort is going to be effective.

Meta: 

Comments

excellent work middle

That negative correlation regression calculation is truly a "are you shittin' me?" sort of result!

On top of this are the addition numbers that stimulus money has gone to "no jobs" as in offshore or using guest workers.

I also just read Robert Reich's piece where he claims we shouldn't worry about manufacturing and it's all on the decline, due to productivity and technological innovation...

so one should note he never seems to manage to deal with this graph in his argument..oops, I guess that goes against philosophy.

manufacturing output

You know what I find oh so suspect is the obvious place for Stimulus to create "green jobs", is Detroit as a transition.

You must have Javascript enabled to use this form.

Yes

the negative correlation was pretty shocking. I mean seriously.

If we randomly distributed amounts of stimulus cash to the states it would be more likely to actually target boosting employment than what's being done now.

The reception at big orange is mostly positive, but there's some "just give it time" type response.

I hope that they are right, but it's been nearly 4 months since the stimulus was passed.

Each passing month means that the amount of money that has to be spent to fix this grows exponentially.

You must have Javascript enabled to use this form.

time is everything

but yet another reason to have EP, so one can look at the facts regardless of what they hope for. ;)

but that was the entire "Shovel ready" argument and it's valid...in order for a temporary stimulus to be effective it must be deployed efficiently as well as timely and unless i inverted some economics text, that is what Keynesian stimulus requires (one of the conditions).

Well, what's really cool about the work you did is you took the time to run a regression analysis, chart the data again and create the graphs.

(I should be so unlazy, but hey folks, give me a break, I'm the site admin/resident geek too!)

But your work deserves high praise for it is one thing to simply type up someone else's original graphs and quite another to investigate from raw data and first principles!

I hope others realize this.

NDD does original research also and I just how all of the EPers realize how much time that takes.

(I love it!)

You must have Javascript enabled to use this form.

For the record

I've created a database at the state level of employment shrinkage and labor force levels looking at the change from the start of the recession in 12/07 till 03/09.

If anyone would like to take a look, I can email it to you.

I believe my email is on one of the pages. It's my user name at lycos dot com. I don't often check it, so it's best to post a reply on one of my recent comments if you write.

I suppose I should check it.....

You must have Javascript enabled to use this form.

Perhaps only a snapshot

Though you make a valid point regarding the timeliness of the stimulus deployment.

 

Due to the fact that the charts I create leave a lot to be desired and I was a very average Stats student (somehow I got lost around ),

I appreciate the time and effort in stating your premise.

You must have Javascript enabled to use this form.

About crossposting

Your work will be found and read here. With Big Orange, unless you are among the lucky few, your work scrolls of within the hour.

And if you don't use the tag "economy"over there, it probably won't be found anyway, even by someone looking!

Nice job, that finding really does seem perverse. Have you tried regressing by party representation, i.e., did poor Southern states get less help because their GOP members of Congress didn't ask?

You must have Javascript enabled to use this form.

Thanks for the advice.

I've been avoiding Daily Kos, but I've found that I most often get my diaries rescued.

The idea was to build a "brand" with the EconPop series.

I'm going to put an economy tag in it.

I ran a basic OLS (Ordinary least squares) regression with stim cash as the DV and employment shrinkage as the IV.

I'm wondering how you would run a regression model for to account for the Southern/GOP factor.

I guess you could create a measure of % support (what % of reps by each state supported it.)

Don't know.

I really am digging this database that I made, because I can go through and look at the state level at changes in the labor force and employment from 12/07 to 03/09.

Which, ironically, I don't think that anyone has.

The diary I did earlier this week tried to flesh out a two recessions argument with manufacturing and construction being the falling sectors that need to be boosted before they "infect" the rest of the economy.

Later this week I want to do a diary looking at the "Creative Class" cities, and linking this up to the idea that in these areas unemployment is rising because the labor force has expanded, not because there has been employment shrinkage.

So for example Portland drags down Oregon because people are moving there without jobs, and not finding them when they show up.

So for years, the idea was make your town hip and when.

But now, these cities are continuing to see people move there. But there are no jobs to be had.

So they've really screwed themselves.

This is different from Detroit and the auto towns where the labor force is flat or falling and employment shrinkage is driving unemployment up.

You must have Javascript enabled to use this form.

Not only that, the feds took 57 mil from MI

in WIA dislocated worker funds. I have dislocated workers everywhere standing in line for job training money, and I am so short on it that I have to screw around writing for NEG grants.

Obama has so screwed over MI, I can't believe I voted for the SOB. He is saving GM by destroying American jobs and offshoring the work (jobs) to China, S. Korea, and Mexico with our tax payer money. But hey, what else could anyone expect from his WS boy, Geithner.

If I'm indicative of what's to come and I hope I am, MI won't be blue again for a long, long time. I totally blame Clinton, the Democrats and Obama for all of this mess.

Great diary mfm. I am going to print it and hand it out to our WIB.

You must have Javascript enabled to use this form.

don't just blast Dems

The problem is we have this sort of political elite, tied to the corporate oligarchy in both parties.

So, it's easy to just blame the party in power instead of the system itself, which needs fixing.

And of course expecting those who benefit from the system, expecting them to fix it...

well, what was that phrase about foxes in the hen house?

$57M from MI. It just seems like MI gets pooped on everytime! From the primary votes to jobs to Federal money it seems like their title should be the shit on state.

You must have Javascript enabled to use this form.

Not just the party in power....

I expect Republicans to be greedy little swine trampling on each other at the feeder. I use to expect more from Democrats until Clinton and now Obama proved they are a part of the problem.

MI has also been a donor state for as long as I can remember. Working with unions and the autos, a controlled downsizing was taking place. It was balancing GM against the people it owed. Obama, to GM's glee I'm sure, just said hell and plowed on through straight to bankruptcy court.
If you need saving, think twice about calling him. Geithner has been calling all the shots.

YES WE CAN doesn't necessarily mean he will.

You must have Javascript enabled to use this form.

A full two months after you wrote this middle

is the MSM now reporting on what you researched.

Analysis: States Hit Hardest getting least Stimulus funds.

I swear, we need some $$$$ because come on, a full two months after you work this all out, for free and only then comes a MSM report and they don't even link over to this?

You must have Javascript enabled to use this form.

I used the USA

Today database to get numbers, so I think that the MSM was covering it.

Just not particularly well.

I still think that there is a huge problem.

I understand that the immediate concern was to get money into the system to kick start the economy. I just think that the money wasn't well targeted.

A targeted recovery that focused on putting those out of work back to work would be much more effective than an ad hoc cash dump into the economy.

You must have Javascript enabled to use this form.