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Free Liberal: Coordinating towards higher values

Free Liberal

Coordinating towards higher values

Counting the Ways of Governmental Waste

by Fred E. Foldvary

Everybody knows that government is wasteful, but most of us have only a vague notion of the details of excessive spending. There is now a very useful book listing the federal projects that waste our resources and how this waste could be reduced. The book is Downsizing the Federal Government by Chris Edwards, published in 2005 by the Cato Institute.

The U.S. federal government spent $2.5 trillion in 2005, most of which is either unnecessary or replaces programs better done by the states or by private enterprise. Edwards explains how the “culture of spending” keeps expanding federal waste. Members of Congress become corrupted by the special interests and the pressure by other members to vote for their programs.

Government is wasteful both in spending and taxing, as taxes on income and sales create deadweight losses or excess burdens. Even if the spending is beneficial, government reduces private resources by about $1.50 for every $1 of benefits. If taxes were shifted to land values, pollution, and user fees, this excess burden would disappear, and government would only have to reduce private resources by $1 to spend $1. But that still leaves open the waste of spending.

Unnecessary spending includes $90 billion per year in subsidies to agriculture and other corporate welfare, as well as excessive military bases such as unneeded troops in Europe. Federal programs that could be shifted to the states include education, highways, and welfare aid to the poor. Programs that could be partly or totally privatized include job training, space exploration, and airport security.

Chris Edwards does not even mention the unnecessary war on drugs, which does more harm than good, perhaps because he wanted to focus on less controversial issues. Aside from controversial topics such as drugs and the War in Iraq, there are many programs that have no justification. Many programs are subject to fraud, corruption, and cost overruns. Medicare fraud, for example, costs $20 billion per year. Edwards proposes that programs be sunsetted, terminated unless Congress renews them.

Other programs benefit special interests such as big farmers at the expense of consumers and taxpayers. The number of “pork” projects in federal spending bills keeps growing. Edwards also has a chapter on programs that are not just costly but also harmful. Trade limitations cost Americans $100 billion per year. Antitrust actions have not benefitted consumers. The US Forest Service subsidizes chopping down America’s wilderness.

Federal grants to states and cities is also destructive, wasting resources in paperwork and limiting local democracy. Federal grants in 2005 totaled $426 billion. Matching revenues encourage greater spending and waste.

The reforms Edwards proposes include term limits for Congress and constitutional constraints on taxes and spending. These proposals are not new, and the incentive of the members of Congress is to avoid such reforms. The perverse incentives of Congress are inherent in the structure of mass democracy.

Deeper structural reforms go beyond the scope of the Edwards book, as it is intended to influence policy in today’s political environment. Unfortunately, the reason why U.S. federal spending is excessive is the reason why it is not likely to change. The structure of voting and public finance which may have made sense in the late 1700s are obsolete for today’s 300 million Americans. Today’s global economy and technology requires a radical reconfiguration of political power and public finance. Only a decentralized bottom-up power flow will solve the political problem.

The people of the world are still mesmerized by the global swing to big government which occurred during the Great Depression. That’s why Edwards provides an appendix on how big government did not cause, nor did it cure, that depression. The fascist policy of national-socialistic control of society by big government has been reduced but still has a powerful sway on public opinion. Few people understand freedom and non-destructive public revenue.

At any rate, the book by Chris Edwards provides a very useful service in cataloguing the waste of government programs, so that next time you complain about big government, and someone asks for specific example, you can just show them this book!

This article first appeared in the Progress Report, Reprinted with permission.

Dr. Fred Foldvary teaches economics at Santa Clara University and is the author of several books: The Soul of Liberty, Public Goods and Private Communities, and the Dictionary of Free-Market Economics.

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