• Pork Hurts Your Town

      GMU economist Tyler Cowen and The Atlantic's Megan McArdle point to a new Harvard study that surprised them. In an interview, one of the study's authors, Joshua Coval, explains:

      Our original goal was to investigate how politically connected firms benefit from increases in the power of their representatives.

      ... The average state experiences a 40 to 50 percent increase in earmark spending if its senator becomes chair of one of the top-three committees. In the House, the average is around 20 percent. For broader measures of spending, such as discretionary state-level federal transfers, the increase from being represented by a powerful senator is around 10 percent.

      ...  It was an enormous surprise, at least to us, to learn that the average firm in the chairman's state did not benefit at all from the increase in spending. Indeed, the firms significantly cut physical and R&D spending, reduce employment, and experience lower sales.

      The results show up throughout the past 40 years, in large and small states, in large and small firms, and are most pronounced in geographically concentrated firms and within the industries that are the target of the spending.

      The study also found that "when the spending shocks reverse (through a relinquishing of chairmanship), most all of these behaviors reverse."

      My first reaction is to say that no one should be surprised that government spending has negative consequences, but as I pointed out in a blog earlier this week, pork barrel spending is chump change compared to billions in entitlement spending. It is surprising that something so small would have such a large effect.

      Of course correlation does not mean causation. Fire trucks are correlated with house fires, but they do not cause them. It is possible that something else causes the private sector to suffer when powerful politicians bring home the bacon. But there is logic to the correlation. Pork may be small compared to entitlement spending, but it is the sort of government spending that competes most directly with the private sector -- building bridges, museums, and airports that no one in the private sector was interested in building.

      Bad government spending drives out good spending. One more nasty unintended consequence of Big Government.

      TAGS
      Economics
      Government
      Pork