Illinois Lost Half Its Pandemic Stimulus Relief to Fraud and Scammers

The federal government’s multi-trillion-dollar “stimulus” efforts during the pandemic may go down as the biggest legislative failure in modern American history. Congress spent an astounding $42,000 per federal taxpayer (do you know anyone who received anywhere near that much in benefits?) and only successfully “stimulated” inflation. What’s more, evidence continues to mount that the biggest beneficiaries of this binge were criminals and fraudsters. 

A new analysis from the American Enterprise Institute’s Matt Weingarten reports that the state of Illinois lost half of the money it sent out in expanded pandemic unemployment benefits to scammers. 

Illinois’s inspector general reports that the level of fraud it experienced was “unprecedented” and amounted to more than $1.8 billion lost. 

The Background

The program at issue here is the expanded unemployment benefits system created by the federal government back in March 2020. A bipartisan majority in Congress passed an expansion of existing state-level unemployment benefits to new groups of workers and added a $600/week supplement on top of state-level benefits. (It was later reduced to $300/week). The program was renewed multiple times but finally ended in September 2021. 

While it remained in place, this hastily-created system paid many unemployed people more not to work and created massive labor disincentives that hurt the economy. It also had little to no verification system and was simply designed to funnel as much taxpayer money out the door as quickly as possible. 

Wild examples of fraud soon went viral, and we’re now learning just how bad it was. 

A National Problem

While Illinois just provided a particularly acute example, fraud was rampant throughout the entire nationwide program and has added up to some truly shocking sums. Early estimates suggested that the feds lost $200 billion to fraud. To put that number in context, it’s 5 times more than the federal government spent promoting the development of Covid-19 vaccines. And some estimates suggest that the final amount lost could be closer to $400 billion. 

The scale of this fraud is truly breathtaking. But it shouldn’t actually be surprising. 

Why Government Waste is Inevitable

Whenever the government spends money, waste is inevitable. Why?

Well, as Nobel-Prize-winning economist Milton Friedman famously explained, the government is ultimately responsible for spending other peoples’ money on other people. As a matter of incentives 101, that’s not a recipe for the kind of frugality or quality assurance that’s inherent when people shop for themselves or spend their own money. 

“I can spend somebody else’s money on somebody else,” Friedman explained. “And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.”

This helps explains why so much government spending is wasteful, poorly targeted, and ineffective. 

So, the only way to avoid the government losing hundreds of billions to fraudsters is to stop letting it spend so much of our money in the first place. 

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