There are myriad reasons to oppose federal earmarks and pork barrel spending. They’re wasteful and inefficient, they promote corruption and kickbacks, and, as was vividly demonstrated with the “Louisiana Purchase” and the “Cornhusker Kickback” during the Senate Obamacare debate, pork barrel spending can be used to persuade congressmen to support outrageously expensive legislation they would normally oppose. Further proof of the pernicious effect of earmarks comes from a new study by the Harvard Business School — “Do Powerful Politicians Cause Corporate Downsizing?” — that concludes federal pork kills jobs and stifles local economies.
Using data spanning four decades, the Harvard researchers measured the effects on local businesses as their local congressmen grew in stature in Washington, D.C. The study correctly assumed that when a senator or representative acquired a powerful committee assignment, they would exploit their new position to funnel more money to constituents back home. But the Harvard researchers also assumed, incorrectly, they would discover, that local businesses in the members’ home state or district would benefit from opening up the federal largesse.
“It was an enormous surprise, at least to us, to learn that the average firm in the chairman’s state did not benefit at all from the unanticipated increase in spending,” said Josha Coval, one of the study’s three principal authors. In fact, the study found that in the years following a congressman acquiring a powerful committee assignment, the average company in his state cut back capital expenditures by 15 percent. In one prominent example, Alabama went from annually receiving $6 million less in annual earmark spending than other states to $90 million above the state average after Sen. Richard Shelby, R-Ala., assumed the chairmanship of the Senate Intelligence Committee in 1997. Shelby earmarked $15 million for low-cost fabricated housing, but the study found that one of Alabama’s largest suppliers of this housing, Homes Inc., correspondingly reduced capital expenditures by 79.5 percent and downsized its work force by 30 percent.
Coincidence? Not likely. “The pattern repeats itself across decades and over thousands of firms,” notes the Manhattan Institute’s Steven Malanga in his examination of the study, appropriately headlined “Businesses: Beware Pols Bearing Earmarks.” While we commend the Harvard researchers on their scholarship, we can’t say we were surprised by the study’s findings. You don’t have to go to Harvard Business School to see that federal pork distorts the free market with unintended and unpleasant consequences, so encouraging more federal spending is bad economic policy. It’s time Washington wakes up to that fact.