Road Stimulus California Style, the Seen and Unseen

Here is an Email from reader Gregory Levine on how road stimulus money is squandered in one California city.

Levine writes ...

Dear Mish,

I have conducted an informal study of American Recovery and Reinvestment Act
stimulus fund usage in my hometown of Claremont, California. Recently the city
completed a four-month "sidewalk accessibility enhancement" project. I have
observed the work almost daily and documented the work with before and after
pictures which I have attached.

In the interest of brevity, I will only make two points about the project. First, the
sidewalks were in good condition and did not need to be replaced.

Claremont Village, where the "improvements" took place represents the major
retail and tourist center of town. At least 96 businesses were in some way
affected by the construction. Gas and water supply was shut down to
restaurants for up to four day. Parking, which is tight in the Village was negatively
affected by four-day street closures. Finally, business access itself was rendered
impossible by fresh concrete and dug-up sidewalks.

My second point regards the cost of the project. I conducted informal interviews
of eight business. All but one suffered major revenue losses. Most reported
being closed for 2-4 days with some suffering losses for five or more days.
Business owners estimated revenue losses from $2,000 to $3,700. The average
loss was $2,850. Total revenue losses to businesses comes to $2,850 X 96 =
$273,600.

How much did the project cost? $1,497,232.

And guess what? The contract was awarded to an out of town construction
company. So in the short run, Claremont businesses suffered $273,600 in losses
for prettier sidewalks. Most say it was not worth it, especially in this economy.

In conclusion, it looks to me like this "stimulus" project cost more than it
stimulated and was a net negative for my community.

Sincerely,

Greg

1 - In front of the Diamond Center - Before



2 - In front of the Diamond Center - After



Street Blockage



Use the Alley Please



Your Tax Dollars at Work



Looking at both Sides - the Seen and Unseen

Admittedly some improvements were made, notably wheelchair access, but $1,497,232 worth of them? No chance.

Levine totaled it up but it is difficult to say what businesses actually lost. Did shoppers merely postpone buying or did they go somewhere else? If the former, the affected businesses did not lose a thing.

If shoppers did go somewhere else, then overall sales tax collections did not change. However, assuming the affected area was a high rent, high overhead district, this could have put some marginal businesses in the affected area at risk.

The bottom line however, is most of the work did not need to be done. The administration wanted "ready-to-go" projects and so money was wasted on "ready-to-go" projects.

On a case-by-case basis this may seem trivial, but the cumulative effect is hundreds of billions of dollars were wasted on projects like this. Those projects were supposed to "stimulate" the economy.

However, no lasting jobs were created, and no net business will be generated as a result of any of these kinds of stimulus efforts. If improvements in one place do cause increased overall traffic, it will simply be at the expense of some other business somewhere else.

Contrast wasting money on stimulus projects like the above vs. lowering corporate taxes. Which one has a chance of promoting hiring? It sure is not money wasted on projects and this is another reason why Keynesian stimulus is ludicrous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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