Fiscal Stimulus...The Side Effects

An interesting anecdote from the comments section of Scott Sumner's blog:

"The Obama stimulus sent $350 million to New York City's Metropolitan Transit Authority to fund construction of the infamous Second Avenue Subway.

This while the Transit Workers Union, a hugely politically powerful government employees monopoly, was negotiating its next contract and threatening an illegal strike, as always. The Democratic politicians kicked the contract dispute to mediation with a pro-union mediation board (headed by the previous head of the union). The board found $350 million of excess funds available in the MTA's construction account -- excess because they weren't in the MTA's original construction plans, and money is fungible -- and used them to give the union an 11% pay raise.

This happened while the MTA was so broke that it was not only raising fares but also being bailed out by a new state-leveled employment tax imposed on workers in communities up to 80 miles away from the nearest subway station.

So at the height of the Great Recession, with unemployment going up to 10%, the union got an 11% pay raise paid for with stimulus money.

Net result: Zero new construction, zero new jobs, and when the stimulus funds run out the MTA will have no means to finance the permanently higher wage level (except more fare hikes and bigger tax increases) which will be the base from which the next demand for a raise is made ... all at the mere cost of $350 million added to the national debt."