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40-year study finds that federal stimulus reduces private sector employment

Research at the Harvard Business School found the following:

"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."

"...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."

"...Some of the dollars directly supplant private-sector activity."

"Other dollars appear to indirectly crowd out private firms by hiring away employees."

"...we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement."

(Sean Silverthorne Q&A with Joshua Coval, published May 24, 2010, HBS Working Knowledge)

(See also Government stimulus works against economic recovery)

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