Creative Class

The bailout is big. But, where exactly is it going?

Thanks to the efforts of ProPublica, we can track bailout funds by state. The map below, based on their data, shows the geographic distribution of bailout spending.

The bailout is massively concentrated in just a few states. Total bailout funding, according to the ProPublica data, is $476.5 billion to date. One state, New York, has captured $175 billion of that, more than a third. Michigan is next with $80.7 billion or 17 percent of the total, followed by North Carolina with $56.3 billion, Virginia with $54.9 billion, and California with $34.4 billion. The top three states accounted for 66 percent of bailout spending; the top five 84 percent; and the top two more than 10 percent.

How does the geography of the bailout look when we control for the size of state economies – say, by population and economic output? With the number-crunching help of Ronnie Sanders and map-making assistance of Scott Pennington, both of the Martin Prosperity Institute, we decided to take a look.

The second map shows the geography of bailout funding per person. The average per state, excluding the District of Columbia and based on the ProPublica data, is $1,570.34 bailout dollars per person. Again, two states dominate the tally – New York, where the bailout adds up to $8,978.83 per person, and Michigan where it’s $8,067.28. There are just five additional states where bailout funds top $1,000 per person: Virginia ($7,044.47), North Carolina ($6.104.69), Minnesota ($1,379.21), Connecticut ($1,085.33), and Iowa ($1,065.76).

The third map shows the geography of the bailout as a percent of state economic output or gross state product. The bailout, again based on the ProPublica data, was three percent of total state output, with each state on average receiving 1.8 percent of its GDP. Michigan takes the top spot here, with bailout funds equivalent to a whopping 21.1 percent of its total economic output. New York is next at 15.3 percent; followed by North Carolina, 14.1 percent; and Virginia, 13.8 percent. No other state received bailout funding that was more than three percent of its output.

By any measure, the bailout has been massively concentrated geographically.

In my regular life, one of the things I do is edit Charity Channel’s online Grants & Foundation Review. I wrote this article yesterday for the review and thought it would be of interest and maybe useful to readers of the Creative Class blog.

This is Stimulating
by Michael Wells

The American Recovery and Reinvestment Act of 2009 (ARRA), otherwise known as the Stimulus Package, is setting the grants world on its ear. As a consultant, I’m getting calls from legitimate clients with a good idea of what they want, small nonprofits wanting me to find them grant opportunities, and an up-tick in individuals and small businesses looking for “free government money you don’t have to pay back.”

I’ve been doing some research and while I’m not an expert I can give some hints:

• The full $797 billion in new spending will be spread over 10 years, although the intention of many programs is to get it out the door this federal fiscal year (September 30).
• Much of the funding will go directly to states and local governments, which may or may not re-grant it.
• Stimulus grant funding will go mostly through existing competitive grant programs within agencies and be subject to the regular regulations.
• Most agencies don’t have new RFPs or NOFAs out yet.
• There are lots of programs in the Departments of Agriculture, Education and Justice. There are very few in Health & Human Services.

The agencies are racing to get their arms around the Act, but it’s not in place yet. My best advice is to look at some of the opportunities at the end of this article, check out these sites and keep checking back.

• Grants.gov has a page with links to agency recovery sites and another to grant opportunities.
• The Catalog of Federal Domestic Assistance website says it’s being updated to better support the ARRA, with the changes supposed to be operational by March 31.
• There’s a government website, recovery.gov, that’s supposed to make the process transparent, but so far it seems to be just happy talk.
• At the individual agencies, information is still shaky. HUD has one incomplete announcement page for its $995,000,000 but no details and no full announcements. Hopefully some of its funding will rescue affordable housing projects left stranded by the collapse of the tax credit market.

Given that the Obama Administration has been in office barely two months and the ARRA was signed February 16, it’s too early to expect much detail or for programs to be operating for another month or two. However, there are some good sources of information to begin preparing for the floodgates to open.

The American Association of Grant Professionals has assembled a Stimulus Plan Grant Information feature open to non-members that has overviews and analysis from a number of sources. Go here and scroll down the left side to the 10th button. You have to open each document separately, but they’re worthwhile.

One of Portland’s Congressmen is holding a public meeting this Friday on the stimulus package and I wouldn’t be surprised if many Representatives are doing the same in their hometowns. Check your congressional website or call their local offices.

UCLA’s Eric Morris, writing over at Freakonomics makes the case for pricing our roads.

For decades, economists and other transportation thinkers have advocated imposing tolls that vary with congestion levels on roadways. Simply put, the more congestion, the higher the toll, until the congestion goes away.

To many people, this sounds like a scheme by mustache-twirling bureaucrats and their academic apologists to fleece drivers out of their hard-earned cash. Why should drivers have to pay to use roads their tax dollars have already paid for? Won’t the remaining free roads be swamped as drivers are forced off the tolled roads? Won’t the working-class and poor be the victims here, as the tolled routes turn into “Lexus lanes”? …

Ultimately, there’s no free lunch; instead of paying with money, you pay with the effort and time needed to acquire the good … [D]elay is an externality imposed by drivers on their peers … In the end, of course, everybody pays, because as we impose congestion on others, others impose it on us …

Markets work best when externalities are internalized: i.e., you pay for the hassle you inflict on others … Using tolls to help internalize the congestion externality would somewhat reduce the number of trips made on the most congested roads at the peak usage periods; some trips would be moved to less congested times and routes, and others would be foregone entirely. This way we would cut down on the congestion costs we impose on each other.

He’s absolutely right. It’s a big win-win really – better for individuals who can get from point A to point B faster (also, recall being stuck in traffic is one of life’s least enjoyable activities) and generate higher overall productivity by increasing mobility and connectivity, and replacing wasted (stuck-in-traffic) time with more productive endeavor. What better time to start than with the new stimulus package.

Two very useful views on the stimulus (both via Mark Thoma):

Jeff Madrick says government spending is much more effective than tax cuts or monetary policy:

The reason higher-tax nations do well economically is that government spending can and often does succor economic growth. All rich nations today have robust government. … America’s to-do list is now very long…, and many, with an unnecessary fear of budget deficits, believe it cannot do what it must. The first step will be to jettison ideology and return to America’s pragmatic roots. That has not happened yet, but push-back has already started…

Dean Baker on why we need to invest in the “right” things:

We know that some of the money in the stimulus package will not be well spent. … This is a necessary cost of getting money out the door quickly. But, it is possible to prevent projects that are not just wasteful, but actually counterproductive, from being included in the stimulus package. It should not require too much analysis to identify highway projects that are likely to promote sprawl. Such projects should be excluded from a fast-track stimulus package. … The amount of stimulus required to offset the impact of the collapsing housing bubble and the plunging stock market is substantial, but there are good ways to spend large amounts of money. The huge shortfalls incurred by state and local governments are an obvious place to start…

UPDATE:

Hal Varian, former Berkeley Professor now Google’s chief economist says private investment is the answer (also via Mark Thoma).

These days it seems like it is our patriotic duty to consume more. And if we don’t choose to spend more money ourselves, the government will do it for us. But wait a minute. Isn’t it excessive spending that got us into this mess in the first place? …

Direct stimulus of consumption is tricky. In this economic climate,… tax cuts would probably be saved, and rightly so…

That brings us to government expenditure… The danger with this form of stimulus is twofold: First, it takes too long for the government spending to kick in, and second, spending may easily focus on pork-barrel projects that have little inherent value … One further warning about government stimulus: It makes little sense for the federal government to spend more if the states are forced to spend less. A significant part of the … spending should be transfers to the … state and local level …

[P]rivate investment is what makes possible future increases in production and consumption. Investment tax credits or other subsidies for private-sector investment are not as politically appealing as tax cuts for consumers or increases in government expenditure. But if private investment doesn’t increase, where will the extra consumption come from in the future? Ultimately, we want to end up with a significantly higher savings rate in the U.S. than we have seen recently. That means some other component of demand must increase to compensate for the reduced consumption. And the most attractive candidate by far is private investment.

The unasked question is what will this mean for America’s economic geography ?The Great Depression and New Deal ultimately had huge reshaping effects on America’s economic landscape, ecouraging the rise of suburbia and the rise of the Sun Belt among other things. How might the combined effects of the crisis and subsequent effect our economic geography today?

Nobel-prize winner, Joe Stiglitz says the stimulus should invest in the innovations that can power our future, and not just breathe life back into the industries and economic patterns of the past (via Mark Thoma).

Kevin Drum thinks maybe the rush to stimulus ignores the deeper problems facing the U.S. economy.

I continue to wonder if a massive stimulus package that spurs domestic consumption means that just as we propped up the economy in 2002 by replacing the dotcom bubble with a housing bubble, we’re now propping up the economy in 2008 by replacing the housing bubble with continuing support for our ever-ballooning trade deficit bubble …. See Tim Duy for more on this. I don’t know if he’s right, but I don’t feel too bad for bringing this up since no one else really seems to know either.

In any case, I do know that pretty much every economist in the country agrees, in general, that eventually U.S. consumption has to go down, savings have to go up, and we have to start exporting more than we import. It’s just a question of whether we can afford to worry about that with the economy collapsing around our heads. Still, here’s a thought: if this is a serious long-term concern, shouldn’t we at least try to construct a stimulus package that stimulates export industries more than other sectors of the economy? If so, how would we go about doing that? And what else should we be doing to prepare for the day when the current panic subsides, the great T-bill bubble bursts, and the rest of the world decides that 0% yields on treasuries suck and they don’t want to buy any more of them? And what they’d really like instead are some tangible goods and services…?

I don’t know. Maybe we really can’t worry too much about this at the moment. But the trade deficit bubble is going to pop eventually just like the dotcom bubble and the housing bubble. We at least ought to be thinking about this a little bit.

Yeppers. And here he is on the bailout “prepackaged bankruptcy” option.

It actually sounds like a decent compromise to me: it keeps the companies from imploding in the middle of a huge recession, but at the same time it gives a bankruptcy court considerable leeway to impose serious restructuring of the kind that a political process probably can’t. The end result — if it’s done right — is a pair of companies that will end up smaller but still viable in the long term, and an economy that takes only a moderate hit instead of a killing blow.

I mainly agree, but am much less optimistic on their long-term prospects. The key will be how to minimize such “incumbent claims” politically and shift investments to the new idea-driven economy.

Economists have long argued that wages are sticky. I think it was the late John Dunlop who first discovered this. He told me once that Keynes actually sent him a letter congratulating him on that. Fed Ex has just announced big wage cuts. Felix Salmon says it may be class warfare time.

There’s been a huge shift in power in recent years from labor to capital: corporate profits have been rising much faster than wages for some time now. It makes sense that capital would make use of its newfound power to reduce labor costs in a deflationary environment of rising unemployment. During the boom, companies laid off workers because those workers demanded, and cost, too much money. Now that workers have lost their negotiating leverage, we might start seeing more across-the-board pay cuts.

Hmmm… cutting wages in a downturn when folks say there’s a need to stimulate demand and consumption. And double hmmmm… locked up credit markets where people can’t get loans. Try it for yourself, go out there and try to get yourself a mortgage on the buy-of-a-lifetime house. Boy oh boy, quite a vicious set of collective action problems we’re confronting. Not to worry: we have the stimulus and the auto bailout coming (ahem …).