A massive federal bailout of state and local governments during the pandemic has had a negligible impact on overall employment levels, despite costing taxpayers an estimated $855,000 per job saved.
That’s the conclusion of a new working paper from the National Bureau of Economic Research released this week. In the paper, a trio of researchers attempted to determine the effectiveness of nearly $1 trillion in pandemic-era aid funds distributed to state and local governments — the bulk of which was raised under America’s rescue plan passed in March 2021 of $1.9 trillion.
Despite the staggering price, however, stimulus spending had “only a modest impact on government employment and has not translated into demonstrable gains for private business or the states’ overall economic recovery,” conclude economists Jeffrey of the University of California, San Diego Clemens and Philip Hoxie and Stan Veuger, senior fellow of the American Enterprise Institute, the three authors of the paper.
Aid to state and local governments has also not had a significant impact on the economy at large, the paper argues, in part due to other government responses to the pandemic. “Both voluntary and mandatory restrictions on economic activity inhibit standard transmission mechanisms that can make fiscal stimulus effective in other circumstances,” says Clemens wrote on twitter.
The case for bailing out state and local governments has always been flimsy. Despite fears of massive budget shortfalls due to a combination of government-imposed lockdowns and changing consumer behavior during the pandemic, those shortfalls have largely not materialized. Before America’s bailout plan passed, there was widespread skepticism about the proposed bailout package, in part because three other pandemic-era spending bills had already sent about $360 billion in aid to states and localities.
But instead of stimulating the economy or filling budget gaps that mostly didn’t exist, the bailouts for states and local governments just left them flooded with cash. As reason reported, some of that money was spent on unrelated things like loss-making state-owned golf courses.
And while saving jobs or preventing layoffs was not the sole purpose of America’s bailout spending for state and local governments, it was and remains a centrally stated goal of the bailout. “These funds ensure governments across the country have the flexibility they need to vaccinate their communities, keep schools open, support small businesses, prevent layoffs and ensure a long-term recovery,” Deputy Treasury Secretary Wally said Adeyemo in January of this year, when the Biden administration eased some of the restrictions on the use of those funds.
Even in the context of other federal emergency spending plans, the state and local bailout looks massively wasteful. Clemens, Hoxie and Veuger point out that the figure of $855,000 per job dwarfs estimates of other government bailouts.
For example, the $770 billion paycheck protection program was estimated to cost between $169,000 and $258,000 per job saved — although other researchers claimed the cost was only about $50,000 per job. The Obama-era American Recovery and Reinvestment Act (ARRA) ended up spending between $50,000 and $112,000 per job created or saved.
The federal bailout of state and local governments during the COVID-19 pandemic has already gone down as one of the most unnecessary responses to this crisis. Now, it might as well be remembered as the most lavish.