High, persistent unemployment and a sluggish economy underscore what all but the most-dedicated supporters of Barack Obama know to be true: The president’s 2009 stimulus program was a massively expensive bust.

Understanding why the stimulus failed is an important step in understanding how the government can—and cannot—goose economic recovery. To get a better sense of how and where the stimulus went wrong, Reason.tv focused on Silver Spring, Maryland, a suburb of Washington, D.C., that’s home to a large number of government contractors and other recipients of money earmarked for the sorts of “shovel ready” projects that were going to bring the economy back to life.

President Obama’s top economic advisor Larry Summers laid out ground rules for how stimulus dollars should be spent: The funds must be ”targeted” at resources idled by the recession, the interventions must be ”temporary,” and they needed to “timely,” or injected quickly into the economy.

None of that turned out to be true. “Even if you were to believe that government spending can trigger economic growth,” says Veronique de Rugy, Reason columnist and senior research fellow at the Mercatus Center, “the money is never spent in a way that’s consistent with the conditions laid out by the Keynesians for it to be efficient.”

Reason.tv identified four basic ways in which the stimulus was doomed almost before it was put into operation.

Government Contracts: More of the Same

According to proponents, an effective stimulus program must put idle resources back to work. A particularly bad way to go about this is to give money to big government contractors to do more of what they’re already doing.

Yet that’s what happened in downtown Silver Spring, where $138 million dollars in stimulus grants and contracts went to 46 organizations. Just three firms took home a majority of the money. These three firms—Synergy Enterprises, Senior Service America, and Social & Scientific Systems—were major government contractors before the stimulus was signed. In fact, these firms received a combined $71 million in stimulus funds. Over that same period, they got $702 million in other government contracts, according to USASpending.gov.

So the stimulus money was like icing on the cake. Take Palladian Partners, a communications firm in Silver Spring that’s received $97.5 million dollars in government contracts over the past 12 years. The National Insitutes of Health (NIH), which is Palladian’s biggest client, tacked $363,760 stimulus dollars on to an existing contract, and then followed it with two more awards totaling $431,333. Palladian was to spend the money collecting and disseminating information about how the NIH was spending stimulus money.

Palladian was well paid for its work, but with the project 80 percent complete, its main activities have included building a website, and publishing 29 short articles for the site. The stimulus grant went to hire two new employees, neither of whom was unemployed before coming to Palladian. That’s no way to jumpstart the economy.

Infrastructure: Money for Nothing

President Obama said the stimulus bill would put nearly 400,000 people back to work rebuilding America. But over the next two-and-a-half years, the U.S. construction industry shed about 900,000 jobs or 14 percent of the building workforce.

In Maryland, the ”specialty trades,” a subset of the construction industry that handles big infrastructure projects, has lost 8 percent of its total, which amounts to 8,000 jobs. Maryland’s Department of Transportation says stimulus money for transit projects has steadily paid the salaries of only about 600 construction workers since the middle of 2009.

Why didn’t Maryland’s $771 million stimulus dollars for transit infrastructure have a bigger impact on the state’s economy?

Partly because Gov. Martin O’Malley cut infrastructure spending more than enough to offset any gains from the stimulus. Maryland’s Transportation Trust Fund generally pays for highway repairs by collecting a special gas tax and other user fees. After the stimulus money was available, Governor O’Malley raided the trust fund by diverting $861 million over the next three years to help balance the state’s budget, according to information provided by Maryland’s Department of Legislative Services. After you account for the $771 million in stimulus money, state funding for transit infrastructure saw a net decrease of $90 million. That sort of scenario played out in all sorts of ways in all sorts of states: Stimulus dollars were used to cover general expenses rather than to increase overall spending.

The Green Jobs Fiasco

The stimulus bill set aside $500 million for a program to train and recruit people for the new green economy. The program promised to place 80,000 people in so-called green jobs. The grant period is more than half over, and the program has placed only 8,000 people in jobs, according to a report by the Department of Labor’s Inspector General.

In downtown Silver Spring, a union-backed organization called the International Transportation Learning Center got $5 million in stimulus dollars partly to recruit thousands of new workers and train them in new “green job” skills. But because transit workers already face low unemployment and low turnover and the new jobs weren’t materializing, the group is instead using the entire grant to teach new skills to workers who already have jobs.

“The spirit of the stimulus shouldn’t be to get people who already have jobs to get more money to do the same thing, just bigger,” says de Rugy. Under stimulus theory, she says, ”government spending should be going to places where unemployment is very high, going to people who are poached from unemployment lines.”

Weatherizing Homes: Not So Shovel Ready

According to the Keynesian theory that undergirds it, stimulus spending must be spent quickly to be effective. By Barack Obama’s own testimony, one of the most “shovel-ready” stimulus programs was supposed to be a $5 billion program to weatherize 590,000 homes around the country.

But the weatherization program started off as a slow-moving, dismal failure. According to a February 2010 report by the Department of Energy’s Inspector General, only 8 percent of the weatherization money had been tapped in the program’s first year.

In Silver Spring, Gov. O’Malley held a press conference at the home of Sonja and Richard Lowery in June 2009. It was the first home in Maryland to get weatherized with stimulus money. The program was underway. And then it nearly ground to a halt. In the first year, Maryland weatherized only 279 homes, or 4 percent of its goal.

The main holdup was a concession to organized labor that the “prevailing wage” rules apply to programs funded by stimulus dollars. That meant weatherization workers had to earn at least the average wage in their area for the particular work they were hired to do. Before workers could be paid, Maryland (and every other state) spent months conducting surveys to determine average wages and benefits for workers weatherizing homes in every county.

Today Maryland is racing to spend the remainder of its weatherization money before it’s forced to forfeit what’s left in early 2012.

“The main lesson of the stimulus is that creating jobs is a very complex process,” says de Rugy, “and certainly it can’t be directed by a top down institution that pretty much fails at everything it does.”

Written and produced by Jim Epstein, who also narrates.

Approximately 8 minutes.

Go to Reason.tv for downloadable versions, and subscribe to Reason.tv’s YouTube Channel to receive automatic updates when new material goes live.

greenjobs_gw_03

A $500 million green jobs program at the Department of Labor has so far provided only 15 percent of current participants with jobs, leading the agency’s inspector general to recommend that the bulk of the money be returned to the Treasury.

The program, which was funded through the American Recovery and Reinvestment Act, aims to find employment for almost 80,000 people by providing grants for labor exchange and job training projects. With those grants expiring over the next 15 months, IG officials concluded that the program would fail to come close to that target.

More than $300 million remains unspent, according to the report (pdf). Sen. Chuck Grassley (R-Iowa), who requested the Labor audit when he was ranking member of the Senate Finance Committee, said the findings show that Congress should focus on creating jobs in all sectors of the economy.

“This report paints a pretty bleak picture of the program’s effectiveness in job creation,” he said in a statement. “It’s hard to see how leaving $300 million in unused funding for the program in the hands of the Labor Department benefits either the taxpayers or the unemployed.”

The report comes as the bankrupty of solar manufacturer Solyndra has reinvigorated GOP criticism of the Obama administration’s green jobs initiative. Congress is now investigating the Department of Energy’s half-million-dollar loan guarantee to the company, and the controversy has become a political issue (E&E Daily, Oct. 3, 2010).

Read the whole thing here.

Just months after receiving the first “Green Jobs” stimulus money from the Obama Administration, the Department of Energy was poised to funnel another $469 million to Solyndra, the failed solar energy start-up at the center of a growing scandal within the Obama Administration.

E-mails released today show that White House staffers in the Dept. of Office and Management had grave concerns over the proposed “Phase II” funding which would have brought the total amount of tax payer money delivered to Solyndra to just under $1 billion.

The Energy Department was actively pushing to provide the second loan guarantee to the troubled solar-panel manufacturer in April and May 2010, when Solyndra’s auditors warned the company was in danger of closing due to its rapidly mounting debts and expenses, according to complete e-mails just released by a House committee investigating the original loan.

Most damning to the Obama Administration is the responses shown in the e-mails by career staffers at OMB.  Clearly not buying the value in throwing good money after bad at a company that was supposed to be part of President Obama’s “Winning the Future” plan for America, unnamed staffers resorted to gallows humor when contemplating the second proposed loan.

From the e-mails:

OMB Staffer: “Apparently the loan size for Phase II is $469 million.   I’ve been told we should expect the see that project soon for conditional commitment.”

Another joked: “Possible to close and default on one before closing on a second??? Could be a new record.”

Indeed.

The Solyndra fiasco has already enveloped Sec. Steven Chu’s Energy Department and revelations of e-mails warning about the impending disaster sent to the president’s closest adviser have brought the scandal to the door of the oval office.

Further investigations into the influence of major Obama fundraiser and Solyndra investor George Kaiser, who visited the White House multiple times in the days leading up to the loan approval, are expected from the Republican-controlled House in the coming days.

As the mainstream media continue to obsess about a painted rock in Texas, the Solyndra story continues to grow.

“A number of us are concerned that the president is visiting Solyndra…  Many of us believe the company’s cost structure will make it difficult for them to survive long term. . . . I just want to help protect the president from anything that could result in negative or unfair press.”

Those words appeared in an email from Solyndra investor and Obama fundraiser Steve Westly to Obama senior adviser Valerie Jarrett in May 2010.  The correspondence is yet another indication that the White House had immediate warning signs that the $535 million loan guarantee of stimulus money pushed through by the Obama Department of Energy (DOE) was at great risk.

President Obama visited Solyndra despite the warnings, and the resulting video footage of the photo-op has become the perfect b-roll to accompany stories describing the failed “green jobs” initiative that the president held up as a shining example of how his administration was “Winning the Future.”

“If it’s too late to change/postpone the meeting, the president should be careful about unrealistic/optimistic forecasts that could haunt him in the next 18 months if Solyndra hits the wall, files for bankruptcy, etc.”

Hit the wall they did. Solyndra is bankrupt and over 1,000 people are unemployed. And yet President Obama had praised the fledgling company as an “engine of economic growth” and a model of his administration’s $80 billion stimulus-funded investment in clean energy technologies and companies.

As the House Energy Committee continues investigating the details behind the Solyndra hand-out, each day brings a new revelation of White House connections and foreknowledge of the impending failure.

Today’s release of memos came from Democrats on the House Energy and Commerce Committee. That suggests a loss of congressional support for the president, even as the emails themselves reveal a deep rift between warring factions of the Obama Administration.

The Office of Management and Budget (OMB) began voicing concerns about the company’s financial standing in early 2010, and complained that the DOE was either ignoring the problems or was unconcerned over the potential loss of $535 million in taxpayer funding:

“DOE … has one loan guarantee to monitor and they seem completely oblivious to this issue,” one OMB analyst said to another in an April 2, 2010, email.

“What’s terrifying is that after looking at some of the ones that came next, this one [Solyndra] started to look better,” another OMB e-mail exchange said of Solyndra. “Bad days are coming.”

The “bad days” appear to be here for the Obama Administration as House investigations focus on the influence of George Kaiser, an Obama donor and Solyndra investor who visited the White House multiple times in the days leading up to the loan approval for the now-bankrupt California company.

Investigations have also uncovered:

• Solyndra violated the terms of the original loan, but still received more money from DOE
• DOE re-structured the Solyndra loan to allow investors to get paid back before tax-payers (allegedly violating federal law)
• A Solyndra investor said the goal of the DOE loans was to lend credibility to the firm so it could “cash out” by going public
• Obama’s top economic advisers warned him that Solyndra and “green technology” in general was a risky investment and the White House should not tie federal stimulus money to individual companies, but to a broad market instead.

Until now the Solyndra scandal only reached the White House in the guise of e-mails from staffers fretting about the political implications of the disastrous bankruptcy and how it would reflect on the President’s “Winning the Future” rhetoric.

Until now, the Solyndra scandal was a circumstantial log of White house visits by a big Obama donor who also was the failed solar company’s chief investor (those visits occurring right before a half-billion dollar loan guarantee was awarded by Obama’s Dept. of Energy).

Until now, the White House’s direct involvement in the Solyndra scandal appeared to be over-zealous operatives looking to speed-up the loan so Vice President Biden could have a nice photo-op at the doomed solar firm.

Now, we know much more.

According to an investigation by the Los Angeles Times, President Obama was warned nearly a year ago that Energy Secretary Stephen Chu’s department was not rigorous enough in vetting loan recipients and they ran the risk of funneling federal money to companies that shouldn’t receive it, or didn’t need it.  And the warnings came from the President’s top economic advisers Lawrence Summers and Timothy Geithner.

Summers and Geithner also warned about the overall risks involved in relying so heavily on pumping federal stimulus money into unproven programs and technologies which would not have any lasting positive effect on the moribund economy and the stagnant job picture in America.

The divisions foreshadowed a question that has emerged since Solyndra’s bankruptcy: Was the program’s vetting process thorough enough? The disagreements also spotlighted an issue that has confronted Obama since he took office: What is the appropriate role of the government in stimulating the private marketplace?

Skeptics, noting that taxpayers could now be on the hook for $527 million the federal government loaned Solyndra, said the administration would have been better off making greater use of market incentives, not individual company loan guarantees.

“It was completely predictable that there would be a colossal failure among the bets,” said one person familiar with the internal debate.

The meeting took place in the White House last October.

Now that we know what the President knew, and when he knew it, it’s instructive to look at how his administration reacted to the information provided by the President’s top economic geniuses.  The White House ignored their advice and doubled-down on the risky and fruitless endeavor of “investing” in unproven companies like Solyndra.

Here are the key actions by the White House since hearing the advice from Summers and Geithner about the risks of the President’s policy:

• Within months of the fateful meeting, the DOE restructured the Solyndra loan allowing the tax-payers to take the back seat to private investors if any money were to be paid back.  This move appears to be unlawful according to Rep. Cliff Stearns of the House Energy Committee.
• In the President’s State of the Union in January 2011, Mr. Obama lectured lawmakers on the importance of “Winning the Future” and implored them to send our country further into debt by “investing” in more “green technologies” like Solyndra.
• Just today the Dept. of Energy announced a $737 million loan guarantee for a Nevada solar project in direct contradiction to the Treasury Secretary’s advice.

Yes, now we know what the president knew and when he knew it.  Unfortunately, it appears the president didn’t learn anything from it.

On today’s edition of Coffee and Markets, Brad Jackson and Elizabeth Blackney are joined by Philip Klein from the Washington Examiner to discuss the latest on the Solyndra scandal and how it perfectly illustrates the crony capitalism and back room deal culture of the Obama administration. Then, we’ll discuss Obama’s plan to reduce the deficit through phantom cuts and trillions in tax hikes.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

OMB had warned Solyndra “NOT ready for prime time”
Obama Rejects Obamaism
Day No. 972: President Obama unveils a deficit reduction plan
Obama reaches out to liberals with budget plan
Philip Klein at the Washington Examiner

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Drum’s excuse is laughable. But it’s also bad for the cause he wants to advance. If you still believe, as most on the left do, that we need government spending to create jobs, your only fallback thus far in the face of the failed stimulus has been the Paul Krugman line: that we ought to have spent more. That argument itself has failed because of our increasingly urgent debt problem.

Solyndra could provide the left with an alternative: the argument that Obama was right to spend, but he spent corruptly, and therefore unwisely. That’s a line that would let Keynesians separate the theory of the stimulus from its execution. It also would allow the left to attack corporate special interests–something it is quite eager to do, rightly or wrongly, when a Republican is in power.

If they care about their beliefs, Drum and the left ought to join Republicans in the call to investigate Obama’s apparent fraud in Solyndra. Thus far, most have chosen to make Solyndra a partisan issue, on which they must cede no ground–perhaps because of an overriding, almost theological belief in the power of “green jobs” and solar energy. Regardless of the reason, that strategic mistake ensures that when Obama fails, big-government liberalism will fail with him. This conservative will shed no tears.