Posted on 05/27/2010 8:21:26 AM PDT by dalight
Recent research at Harvard Business School began with the premise that as a state's congressional delegation grew in stature and power in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.
It turned out quite the opposite. In fact, professors Lauren Cohen, Joshua Coval, and Christopher Malloy discovered to their surprise that companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressman's ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper, "Do Powerful Politicians Cause Corporate Downsizing?"
"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 unanticipated increase in spending," Coval reports.
Over a 40-year period, the study looked at increases in local earmarks and other federal spending that flowed to states after the senator or representative rose to the chairmanship of a powerful congressional committee.
(Excerpt) Read more at hbswk.hbs.edu ...
Well, Duuhhhhh!
In other news Harvard researchers have also discovered that sex is the leading cause of pregnancy.
You’re correct in your thought process since your thought process is based on facts and common sense.
From a Congressional thought press this can’t happen because government is here to help and the outcome of the report is completely wrong and to prove it they’ll increase earmarks and pork barrel spending.
This is not obvious as you are making it out to be, in fact, it is plain counter intuitive, and calls into question many deeply accepted ideas about the multiplier effect of transactions in a local economy.
And, this study reached back 40 years so an argument that economies are less local now than ever doesn't explain this either.
Frankly, using traditional economics, it is downright hard to explain this result and the professors who wrote it were reduced to fumbling to come up with a plausible reason.
The best explanation put forward is that Government spending very rarely supports or encourages the innovation that builds new businesses. Instead it goes to connected political insiders that represent larger firms and potentially firms that provide jobs in the district but little more because of the basic insecurity of government programs where the spending is normally limited in time and then dries up.
This also sticks a fork in the agrument against term limits. Those against term limits have always said that we need “senior” members (lifers) in congress to hold leadership positions, so we could have all the pork and power. Guess that doesn’t help, after all.
Yes, indeed it does. This is perhaps one of the most important studies for political economics ever. So much so, that it needs reconfirmed and it will be challenged. But, if accepted it is a powerful weapon for Conservative politicians to use to defeat the Earmark, Pork Barrel and Corruption culture.
As the reasons behind this are clarified, the reasons and causes of local electorates to support politicos who are not dealing with the big picture decrease.
Politicians like Murtha who sell their value as guys who bring home jobs and money are exposed as sources of the overall poor economic performance in their districts even though the few that receive government largess seem to be helping. Murtha's old district has suffered mightily even while clinging to him for dear life. This study records the facts of this.. and many other districts who have supported the masters of power and lost.
Now we know.
“unexpected”
The multiplier effect is well understood. It’s just that the compliment - the divisor effect of sucking money out of the productive economy for government purposes is ALWAYS ignored.
Yes, and no. As a businessman, I have known it for years; there is nothing unanticipated, surprising, or unexpected about this conclusion. I cut back in Bush's last year because of his wasteful spending, and I've cut back far more since the community organizer occupied our White House. I moved out of one area due to the pork coming to that district - I prefer a community that works for a living to one that depends on welfare (even corporate welfare) for completely practical reasons and not just based on values. The theorists in academia are stumped, but those of us in the real world have been on the receiving end and alreay learned this.
The way this analysis was done was to just look at the economies of the districts of powerful legislators like Murtha and compare to districts that had non-chairman Reps and Senators. They expected to see that the pork dollars increased the local economies compared to the less fortunately represented districts, but shock and surprise, this wasn't the case. In fact, the districts of power players like Murtha suffered. This means that the dollars the Federal Government was pumping in didn't seem to multiply or some other effect canceled out the benefit of those government dollars in that very district.
Your explanation of the divisor effect would not be specific to that district but more general. This would be one of those cynical adverse selection for the whole because of individual benefits sort of game, except.. the consequences actually did fall right where the Government money was targeted. So, something happens when government money comes in to a community that actually hurts it. This is the big question posed here.
So you are saying that because GE gets a big government contract in an area, you move a working business out? Come on.. tell me more lies.
If you really do this, it is in response to declining sales. But, what is the cause of the decline. We are not talking about people all of the sudden being on the dole because Rayathon gets a contract to build missiles.
Your reasons for cutting back in 2008 through today, uh.. have more to do with an economy that is tanking generally rather than the pork barrel policies of your congressman. Get real. Now this may have been a good move.. but you will have to dig deeper to explain a why.
Perhaps something akin to the curse of large oil reserves in a country.
(See Venezuela)
The way this analysis was done was to just look at the economies of the districts of powerful legislators like Murtha and compare to districts that had non-chairman Reps and Senators. They expected to see that the pork dollars increased the local economies compared to the less fortunately represented districts, but shock and surprise, this wasn't the case. In fact, the districts of power players like Murtha suffered. This means that the dollars the Federal Government was pumping in didn't seem to multiply or some other effect canceled out the benefit of those government dollars in that very district.Huh?...What was the question again?Your explanation of the divisor effect would not be specific to that district but more general. This would be one of those cynical adverse selection for the whole because of individual benefits sort of game, except.. the consequences actually did fall right where the Government money was targeted. So, something happens when government money comes in to a community that actually hurts it. This is the big question posed here.
How does government spending in a community damage the economy of that community? All you need to do is look at the Leheigh River Vally (PA-12) to see a perfect example of an economic basket case. They were getting millions of Federal dollars but the place is otherwise a falling into decay.
The effect was fast enough for the economists to see a negative return for a Rep being made a committee chair but this is a slow process. And it doesn't compare Dem vs. Rep committee chair performance probably because there is much less of it with Reps in these positions.. but that is not clear without examining their data.
If I were to suppose that this is actually measuring net effect of a community becoming dependent on Corporate welfare and knowing it so that they switch to Dem voting patterns and then elect Dem local governments which then perform like Detroit and kill all of the local business with taxes and regulation.. then you get a mechanism for Federal Dollars hurting the communities that it touches.
This goes right with your sense of withdrawing from communities who have gotten hooked on Government dollars. Like noticing an employee has a Drug problem, ultimately, you know unless they kick it, they are in a downward spiral.
After chatting about this.. I think I get the why.. perhaps..
No. What I'm saying is that you can compete based on what you deliver or based on who you know. When disproportionately large unearned government contracts come into a district, the entire business community loses. Since I deliver quality (and have far more demand than I have the resources to meet), I don't play the connections game.
If you really do this, it is in response to declining sales. But, what is the cause of the decline. We are not talking about people all of the sudden being on the dole because Rayathon gets a contract to build missiles.
I see this very differently than you do, and it's not the (mostly) competitive contracts Raytheon wins that damage the community, it's the earmarks to do something of no value that distort the local economy. If we're building a large Museum of Chewing Gum (my previous community had something just as stupid), and those controlling the contracts want the money spent for the sake of spending government dollars, that massive waste raises my prices as well. Your reasons for cutting back in 2008 through today, uh.. have more to do with an economy that is tanking generally rather than the pork barrel policies of your congressman. Get real. Now this may have been a good move.. but you will have to dig deeper to explain a why.
There are slightly deeper reasons, but it's not the economy. I have a whole lot of business and financial flexibility, and I could go into more detail, but the bottom line is pretty close to the fact that I don't like socialism.
Be careful about jumping to conclusions.
When disproportionately large unearned government contracts come into a district, the entire business community loses. Since I deliver quality (and have far more demand than I have the resources to meet), I don't play the connections game.
This is digging deeper.. but it isn't a reason for the community surrounding the target of the earmark to suffer specifically, just a general philosophic argument that doesn't propose a mechanism.
However, do the trick of attempting to think how a person could be right.. in their choice..(that being you) and then attempting to think how.. I came up with a possible explanation that I posted to you as Post #16 in this thread.
That a large number of earmark and even bid based Government jobs encourages folks to vote Democrat for their Congress Critter and if they don't ticket split and go for the Democrat ticket.. they screw themselves like Detroit did with higher government spending, taxes and regulation. Killing their local economy.
This is impossible, we all know that West Virginia is a shining beacon on a hill. Thank you Senator Byrd!
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