Federal Stimulus - Harvard Study Yields Surprising Result

Recent research at Harvard Business School began with the premise that as a state's congressional delegation grew in stature and power through a Chairmanship in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.

It turned out quite the opposite. Researchers found 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.

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. These earmarks had a negative correlation to private sector growth in the state.

Conclusion: "Our findings suggest that they (the Federal Government) should revisit their belief that federal spending can stimulate private economic development. "

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Sam Keller
TEC 62