“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 increase in spending,” says Coval. “Indeed, the firms significantly cut physical and R&D spending, reduced employment, and experienced lower sales.” -- Let's hear it for stimulus spending…The fact scholars were surprised that government spending does not result in improvements to a local economy is pretty sad. Most business owners could have explained this basic of Econ 101: government takes resources from the private sector, whether it is money (taxes) or intellectual capital (employees). Governments compete against the private sector and when the government is losing it can change the rules.
Consider the U.S. Postal Service. Each employee of the postal service is also a potential UPS or FedEx employee. But, laws prevent private competition in standard mail delivery. You can buy a mailbox for your house, but only the USPS can use it. Absurd. The government is claiming your property, your space, for the exclusive access.
When the government builds a fancy new office complex, the construction workers and real estate are removed from the private sector. The workers may or may not return to the private sector -- the land does not.
As we have seen, the private sector cannot offer the job security, wages, benefits, et cetera, of government union jobs. Those workers are lost from the private sector to a government bureaucracy with little motivation to innovate.
The more money government dumps into a region, the less private sector activity. That's the logical outcome. Of course, the professors were stunned…