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Harvard: Free Federal Dollars Hurt State Economies

March 5, 2012 by  

Harvard: Free Federal Dollars Hurt State Economies

Often when a member of a State’s Congressional delegation holds a powerful committee seat in Washington, the lawmaker can count himself safe from voter wrath come election season. After all, what voter wants to lose a powerful earmark-happy legislative ally in the Nation’s capitol? A new study by Harvard Business School challenges this way of thinking.

The Harvard researchers found that people who favor laissez-faire economic policies are likely correct in believing that when government money is pumped into a region, private enterprise suffers.

In a study published in the Journal of Political Economy authors Lauren Cohen, Joshua Coval and Christopher Malloy contend that when a Senator gains more earmarking power as a chairman, publicly traded firms in his home State scale back employment growth by 3 to 15 percent. On average a State experiences a $48 million per year drop in capital expenditures and a $44 million per year drop in research and development spending by publicly traded companies. Some firms that are direct beneficiaries of government money do grow, but the researchers say that Federal funds mostly hurt private enterprise.

The study tracks only money that came with no strings attached, negating the popular argument that stimulus funds have to be paid for with higher taxes, thus hurting private sector business revenues.

“These findings argue that tax and interest rate channels, while obviously important, may not account for all or even most of the costs imposed by government spending,” the researchers write. “Even in a setting in which government spending does not need to be financed with additional taxes or borrowing, its distortionary consequences may be nontrivial.”

The authors offer an explanation of why “free money” from the Federal government actually hurts State economies and use the creation of the Tennessee Valley Authority which drove private companies out of the electrical business across the South in the 1930s.

“Some of the [government] dollars directly supplant private-sector activity—they literally undertake projects the private sector was planning to do on its own,” says Coval. “The Tennessee Valley Authority of 1933 is perhaps the most famous example of this.”

The authors also say that the government money also raises the cost of doing business for private sector business because of inflation.

Despite the findings, when Congressional elections roll around, Americans will undoubtedly be bombarded with promises to “take care of the State with Federal funds, because big government will spend the money anyway.”

“The jobs created from federal transfers are generally much easier to identify and quantify than those lost—indeed Senators often tout the number of jobs that their earmarks have been able to create in their home states,” the authors speculate. “Identifying and measuring those that have been lost is not as easy. When a firm shuts down because labor costs have become prohibitive, it can never be cleanly tied to the wage pressure produced by federal transfers.”

Sam Rolley

Staff writer Sam Rolley began a career in journalism working for a small town newspaper while seeking a B.A. in English. After learning about many of the biases present in most modern newsrooms, Rolley became determined to find a position in journalism that would allow him to combat the unsavory image that the news industry has gained. He is dedicated to seeking the truth and exposing the lies disseminated by the mainstream media at the behest of their corporate masters, special interest groups and information gatekeepers.

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  • FreedomFighter

    The government never really creates a job, because of the nature of government is a parasite. They the government can only take from others to pay wages.

    Laus Deo
    Semper Fi

  • eddie47d

    The question should be why didn’t Rural Electric or another company move into the Tennessee region and build an electrical grid to begin with? It’s a little late to say “I could have done that” after the government built and completed the whole project. Private enterprise should have stepped up to the plate BEFORE the TVA project instead of crying in envy afterwards. That whole region was considered poor and uneducated (including Southern Illinois and Kentucky) and the government saw the need to bring “civilization” to the region. I’m sure there is good and bad aspects because of the TVA project yet it did help the region move forward.

    • independant thinker

      They were starting to eddie. A few had been built by private enterprise then TVA came along and took over the building of the dams. Some were also prevented from building by the government as well. Fontana dam in North Carolina is one example. The site was surveyed for a dam around 1925 or 1930 but government regulations prevented its building then in 1942 TVA came along and built a dom in the exact location that had been surveyed years before.

      • independant thinker

        An example of one that was built by private enterprise was Tallulah falls Dam. It was built by Georgia Power Company.

  • s c

    Comrade ‘e,’ do you get a huge discount for taking those drugs? Do you know WHEN the TVA was started or completed? Can you list two [2] good things or two [2] bad things about the TVA?
    Was the TVA built to get EASY VOTES for FDR I or “HELP” the American people? The TVA is yet another topic that’s loaded, comrade ‘e.’ Have someone read something FACTUAL about it to you.
    Make sure you’re hooked up to the machine so your doctor can bring you back to life when or if reality gets into that thing on your shoulders.
    Until then, make sure voter fraud is properly ‘concealed’ in Colorado, comrade.

    • Sirian

      Good point s c. All eddie has to do is read “The Roosevelt Myth” by John T. Flynn. That would clear his understanding – maybe. . . :)

      • eddie47d

        Could Roosevelt have pushed the TVA project for votes ? That is a real possibility but the Tennessee area was in serious poverty before the Great Depression and the unemployment was growing. It was a workable solution at the time and benefited many in the region. Even the Hoover Dam benefited many and still does to this day and also put thousands to work. Not much different than the Alaska Pipeline where thousands benefited or the possible Keystone Pipeline which is being pushed by Republicans. Government is involved in those projects too although mostly private endeavors.The Republicans are using that issue for votes so don’t kid yourself. The TVA project and these others have all created environmental problems that I don’t approve of so I would question them on that merit whether government or private.

      • s c

        Sirian, don’t take this the wrong way, but that would mean comrade ‘e’ would be forced to learn how to read AND understand. Ain’t gonna happen.
        Plus, in a utopian’s “mind,” one must NEVER criticize or question one’s ‘Gods.’ FDR is right under Obummer on comrade ‘e’s master list of infallible, utopian ‘Gods.’
        Moreover, utopians are bound to see “free” money as gifts that must be used – regardless of the FACT that there is NO such thing as “free” money that comes from Uncle Scam.

      • s c

        See what I mean, Sirian. I told the little toady what he supposedly wanted to know, but his programming won’t tolerate it. Facts don’t get in the way with people like him.
        It would take an act of God [GOD, not the false 'God' in the W H] to get utopians to change their ‘minds.’ And, as long as he’s ‘in charge’ of what they “think,” thinking is really NOT in the equation. Only FEELING matters in the march to utopia.

    • eddie47d

      Yes I do know SC but apparently you DON’T. Now in all your “wisdom” why didn’t any private company build that power grid? You need to start answering questions first then we’ll continue with your pointed remarks. Instead of being the mocking troll Comrade SC try laying out some of your own facts and prove your intelligence instead of the usual lazy and snippy remarks.

      • independant thinker

        See my reply above eddie.

      • s c

        Comrade ‘e,’ Sirian was right, but an even better book [IF you can READ] is FDR’s Folly, which was written by Jim Powell. First, comrade ‘e,’ the TVA was a ‘showcase’ New Deal project. In plain English, that means it had ONE purpose. It was designed to MAKE FDR LOOK GOOD – no matter how screwed-up he was.
        According to Powell, the TVA is an unaccountable government MONOPOLY. SUPPOSEDLY, utopians have a major problem with monopolies – unless they promote social justice or can approximate a royal humping of the Constitution. Comrade ‘e,’ even if you’re an effed-up tree hugger, you should see the TVA as one of America’s WORST polluters.
        Is that little light in your head ‘on’ yet? Even RALPH NADER says the TVA SUCKS! From that point, you’ll get
        to learn about the TVA’s nuclear power plants and how it maintains its monopoly, comrade ‘e.’ Then – once again – there goes your ‘reasoning’ right down the nearest toilet.
        OK, comrade ‘e,’ the next move is yours. When you say FDR, comrade ‘e,’ say unconstitutional, immoral, useful idiocy on steroids and full-blown utopianism in the same breath! Welcome to REALITY. ENJOY!

      • eddie47d

        If you could have some reading comprehension SC then you would have noticed that I would have opposed those projects because of the environmental damages. So whether you can read big novels or not doesn’t give you much credibility in reading short paragraphs. Now go rearrange the deck chairs in the snippy mind of yours before it sinks like the Titanic.

      • Sirian

        No, you most certainly wouldn’t have eddie. If you would have been around at that time and had been suffering through the economic disaster that FDR had continued to extend and extend in his glorious efforts to solve the problem – sure – then anything concerning “environmental damages” would have been the furthest thing from your mind. His push for government projects, TVA and all the rest, were in his mind as a very “progressive” way of not only securing votes from the poor and uneducated in Tennessee or anywhere else but also in securing more government control over just about everything. Come back to a sense of reality when it comes to something such as this regardless of the difficulty factor. Now then, go read the book I mentioned or the one s c mentioned or better yet – BOTH – and you will perhaps get a better understanding, no matter what the risk level may be, of who you obviously feel is one of the greatest.

  • aubreyfarmer

    Soon, perhaps very soon the question of the impact federal dollars has on local economies will be rendered moot. America is being plunged head long into a Communist or Fascist dictatorship depending on whether the left or the right is successful in the next election. Millions will soon wake up to the horror of what our government has become. All made possible by the influence of Jewish money on our electoral process. Jews have a money monopoly with the Federal Reserve and with that monopoly they have undermined our Republic. Jews control our media, control our electoral process with their media ownership and AIPAC lobby. Now Jews are also in position to change the very laws we depend on to guarantee our freedom. With Kagan’s appointment to the Supreme Court the redefining of our Bill of Rights will go into high gear. Next through hate crime legislation (Joe Lieberman) criticism of anything Jewish will be labeled a hate crime. Next comes the redefining of our 2nd Amendment. You will either give up your arms voluntarily or by force. (new gun control legislation is also by Jews in Congress.)The same pattern is used over and over by the self worshiping Orthodox Jews. Take control of a nations currency, bribe the politicians and then begin the oppression of the indigenous population. Judaism is Communism to the core so that should warn everyone that values their freedom the challenge we all face. 29). “Wars are the Jews harvest, for with them we wipe out the Christians and get control of their gold. We have already
    killed 100 million of them, and the end is not yet.” (Chief
    Rabbi in France, in 1859, Rabbi Reichorn).

    30). “We Jews regard our race as superior to all humanity,
    and look forward, not to its ultimate union with other races,
    but to its triumph over them.” (Goldwin Smith, Jewish Professor
    of Modern History at Oxford University, October, 1981)

    31). “We Jews, we are the destroyers and will remain the
    destroyers. Nothing you can do will meet our demands and needs.
    We will forever destroy because we want a world of our own.”
    (You Gentiles, by Jewish Author Maurice Samuels, p. 155).

    32). “We will have a world government whether you like it
    or not. The only question is whether that government will be
    achieved by conquest or consent.” (Jewish Banker Paul Warburg,
    February 17, 1950, as he testified before the U.S. Senate).

    • Vigilant

      Good God, you bigoted idiot, take your hate speech and propaganda elsewhere. It’s not appreciated here.

      If there’s a KKK website, go there and preach to the choir.

      • Leo

        Just curious.

        You did not appreciate the conclusion of the commenter or the quotations he gave?

      • oh oh

        Even Rabbi Stephen S. Wise said, “Some call it Communism. I call it Judaism.” If you honestly study the composition of the leadership of the communist regime that was established in the Soviet Union and its pervasive ties to American Jewry, you would understand the truth of the rabbi’s admission.

    • s c

      A, you’re too focused to be properly “focused.” You remind of a kook who used to send in feedback to this website. His “thing” dealt with the so-called “authenticity” of the The Learned Elders of Zion.
      YOU are off-base, and you’ll wind up with a bad case of Chrissy Mathews’ Tingling Leg Syndrome. If you have any constructive habits concerning OLD books [the Bible, etc.], look up the wisdom about ‘Jews who claim to be Jews and are NOT.’
      LEARN, chum. Appearances can be VERY deceiving – even with religion.

      • Leo

        I guess you are very right formally.

        The way there are many good real peaceful Muslims and there are just few bad Wahhabi non-real militant Muslim. I just wonder how and when we can distinguish them?

        Just a practical question.

        In 1917 in Russia a multitude of good ones decimated the crème de la crème of Russia turning it in a mob state. Some claim it was done on the order of the ‘Jews who claim to be Jews and are NOT.’ There are some good evidenced they brought Hitler to power too.

        I am not claiming to know how to deal with the problem. But to pretend that there is none is kind of short sighted. I am quite sure the Russians had been very sorry they failed to to pay their heed to warnings of impending danger from this angle.

      • oh oh

        One way to start, is to stop accepting the fiction of Judeo-Christianity, an oxymoronic charade authored by those Jews who claim to be Jews and are not, the followers of the Talmudic teachings condemned by Christ, the enemies of Christ we were warned about by Christ before they killed him and who continue to deceive in order to confound the Lost Sheep of the House of Israel.

    • reggie3

      Your comments,Adolf,are a flat out,bigoted lie.Sounds like something right out of Mein Kamph.Probably the only book you have ever lip-read.So seal it,skinhead.I am sure you and Hitler will get along when you are in Hell.

      • reggie3

        That reply was to the racist KKK Grand Kleagle Aubreyfarmer.

  • Pilot

    Getting States addicted to Federal “free” money is a plain and simple way to undermine the State governments’ authority and negate the 10th amendment. That is the Only purpose of the federal Department of Education and others. The evil masterminds in Washington DC have this all figured out. Since the Federal government has exceeded its authority, one peaceful way to reign them back in is for the State governments to give the Feds a “no confidence” vote. Suppose 26 or more State governments decide not to recognize Federal authority based on their crimes of violating the Constitution. The States can refuse to comply with Federal law. All military bases become under the authority of the State in which they are located. It’s the opposite of when the central government “federalizes” the National Guard. The States don’t secede from the Union, The States unite against the criminal Federal government. Once the Feds are toothless, combined State authority can go to DC and clean house. Restart with a clean slate and a few more safeguards to keep the new government Constitutional. The power to fix things can only come from the States or the People. If the People do it, it could get pretty messy. I think it’s time for the States to step up and do the right thing.

  • http://gmail sancheleezy

    In every which way possible we need to restore the Bill of Rights and the U.S. Constitution and then put a stop to the unconstitutional redefinition it by the incompetent judicial/executive progressive activists. Yes the states need to not accept but confront and stand up to the illegal activities of the Washington bureaucratic establishment. I see only one candidate through his action and words promoting these ideals or standards that are necessary to end this bankrupted nightmare, namely Congressman Dr. Ron Paul.

    • boyscout

      I must agree with your estimate of Ron Paul, but I would not expect positive results from his improbable election. Even a good man stands negligable chance in a pre-established den of Republocrat vipers. Above, I have read divergent opines from the reality detached gravy sucking pigs who still believe that our government issues can be “fixed” from within the status quo. Fat cats are fighting over scraps from a morally and fiscally bankrupt
      Federal table while an uneducated and propagandized citizenty is lacking shelter and sustenance.
      Look into the ancient history of failed empires for obvious correlations to our present situation (but go to pre-”modernized”editions). Start with Plutarch or just surf the wonderful world of dusty library shelves. Note and remember that when the hoi paloi are loosed in anger and hunger, reason is always abandoned, much blood is always shed, and anarchy inevitably follows.
      We are already far down the slippery slope of Federalizing private life intrusions (affirming the Orwellian objection) and are attempting to co-ballance this evil with the evil of corporate monopalization of all natural resources with the prostilzation of divine right justice.
      Get real now or face the consequences,

  • Pingback: The Sunday ‘Report;’ 03/11/2012 « Justincase505's Blog

  • http://personallibertydigest gottaplenty

    There has been a large amount of private sector projects in the last few years that would be world class job creaters. Not one got off the ground … Why? It just so happened a Democrap got into office at the right time to save the country from all the greedy rich behind the jobs trying to destroy the enviroment. … Sound familiar? The democraps have never done any thing to build up America. They have been the first to continue in the destruction of America though. Havn’t all of us seen more times than not when ever something gets off the ground and gets going it was’nt a Dem . driving.They are experts in stopping any thing productive by regulation and laws that are hatched right out of the communist manifesto . All designed to flat stop progress. Then all thier follqwers can complain about the rest of us being flat earhters because we cant see going down to the pond to fill our tank with algai and wanting to not go forward with new technology. XL pipeline for example. We are supposed to wait till the great algai brained idiot ,, thier massiah,, gets a new green substitute for fuel We know the battery car thing was a joke before it even started. Well I was a little late with my post but I shurly got the point across enough to stir the fecal minds. ..


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