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San Diego and the Federal Stimulus Package: A Six Month Review

As published in the San Diego Daily Transcript

by Erik Bruvold

Thursday, August 27, 2009

Six months after its passage, the federal stimulus package in San Diego is definitely a tale of a lot of bad and ugly and not a lot of good.

Last month’s unemployment numbers – 10.3% in San Diego County - are unquestionably the ugly. There are more than 160,000 San Diegans unemployed and over the past year the region’s employers have shed about sixty thousand jobs. The losses have been widespread, with only the education and government sectors showing any year-over-year growth.

Indicative of the hideous condition of the labor market, San Diego is actually outperforming many other parts of the state. July unemployment in Sacramento County hit 12%. The rate in Los Angeles hit 12.5%. A staggering one out of every eight workers in Fresno County are unemployed. While officials in Washington might be proclaiming that they rescued the economy, things seem much bleaker here 3,000 miles from the Beltway.

The “bad” in the stimulus program is just how much it reflects the dysfunctional inability of Washington to move above parochial interests and spend money where the need is the greatest. According to, California, with the 4th worst unemployment rate in the nation, has received $427.66 for each resident in the state. Meanwhile the five states with the lowest unemployment rate (North Dakota, South Dakota, Utah, Nebraska, and Wyoming) have received $520 per capita in federal stimulus funds.

The distortions are also apparent when one examines individual California counties. Imperial, with a jaw-dropping unemployment rate of 30% has gotten $127 per capita in stimulus spending. Meanwhile, Napa, another heavily agricultural county which has an unemployment rate of 8.8%, has received $467 per capita in stimulus funds. What seems to be driving the difference is that Napa is home to more institutions of higher learning (and thus benefited from the expanded Pell Grant program) and has received $53 million in Army Corp of Engineering spending for flood control projects on the Napa River. Too bad the New River doesn’t regularly spill over its banks- it might have generated more interest from Washington.

Beyond the core of the American Recovery Act, other simulative actions by the federal government also reflect a political rather than economic calculus. While “cash-for-clunkers” has been good for the auto industry and may have some marginal impacts on the fuel economy of the U.S. auto fleet, it largely reflects the power of Members of Congress from districts harboring auto manufacturers and auto dealers. I can’t help wonder where is the analogous cash-for-clunkers for the tourism industry to help increase demand in places like Las Vegas (10.7% unemployment) San Diego (10.3%) or the Big Island of Hawaii (11.4%). Instead, what politicians complained about corporate spending on meetings, conferences, and conventions, heedless of the economic harm their overcooked rhetoric was doing to thousands of workers in the visitors industry.

Fairness dictates that we acknowledge that the good , though only tangentially related to the stimulus package, was the swift government action in the face of the financial panic of late-2008. There is a consensus emerging that the actions by the Treasury and Federal Reserve helped stave off what could have been a horrible cycle of collapse, illiquidity, and further destruction in the financial sectors. A second Great Depression would have created much higher unemployment and caused the kind of damage to the economy which takes years, if not decades, to mend.

Perhaps more than anything, the sixth month anniversary of the passage of the stimulus legislation makes clear the complexity and variation in the American economy. The immediate economic challenges faced by the Great Lake Rust Belt are different than the challenges faced in fast-growing Sun Belt communities where the housing bubble burst the loudest, as well as the restructuring financial sector in New York City. A one-sized solution cannot fit the challenge of Flint Michigan, Manhattan, and Fresno.

That in turn suggests that greater flexibility is needed. States have a greater appreciation than Washington for where unemployment is the greatest and which sectors are in the most need of assistance. While even a sliver of faith in Sacramento is perhaps misplaced, I still have greater confidence in the ability of policy makers in the capitol to understand the modern “Grapes-of-Wrath-like” economy facing the Central Valley than bureaucrats plying the corridors of Washington D.C.. Imagine just how different things would be if California had been presented with the opportunity to get tens of billions of dollars for upgrades to its water system but with the caveat that, whatever the package of improvements, California would have to get moving on the program by the summer of 2009 or lose the funds to other more able states to put their house in order. Faced with both opportunity and threat, I perhaps overoptimistically believe that Sacramento would have risen to the challenge and forged a compromise that works.

As with the end of Sergio Leon’s classic trilogy, where the Clint Eastwood character rides off with his share of the hidden gold after the cemetery gun battle, perhaps there is some hope. Much of the stimulus money has yet to be spent. There is talk, which is likely to heat up if unemployment continues to rise, of a second stimulus package. Let’s keep our fingers crossed that when they return from the August recess, federal policymakers stand back and think about how they can create more flexibility so that more focus solutions can be tailored to get the economy moving forward again.