The economic principle that government does not seem to understand

It is Wednesday, and you have $20 to last you until your Friday payday.  You can buy three gallons of gas and maybe have enough left over for a couple of coffees at WaWa.  Or, you can by two gallons of gas and treat yourself to some Starbucks each morning.  Or, you can buy four gallons of gas and skip the morning coffee.  You could call out sick from work so that you don’t need gas, but then you are using a day that you might need for your summer vacation.

You have choices to make.  You have limited resources and a multitude of needs.

Even those who may seem to live in the lap of luxury have choices to make.  Angelina Jolie and Brad Pitt may want a chateau in France, a castle in Greece, a mansion in Florida, a hunting lodge in Wyoming, and a hideaway in Maine.  Even Angelina and Brad have to make a choice as to which ones they can actually realistically afford, given the vagaries of the movie industry and their ever-increasing brood of children.

Yes, even Brad and Angelina have limited resources.

Economics, as Thomas Sowell tells us, is the study of the use of scarce resources which have alternative uses.

You learn this as a child:  a young boy with two lollipops can choose to keep both of them, trade one for an object of more value to him, or give one to his sister in hopes of some reciprocal good will on her part.  There are costs and there are benefits.  It is the boy’s task to decide which is the best use of his limited supply of lollipops.

As young adults we also learn to make choices.  We may opt to keep an old care for a few more years in order to save for a down payment on a house.  Alternatively, we may get the car of our dreams and forego the house, or we may choose to invest in an annuity.  Limited resource….alternative uses.  There is not a “best” way to use these limited resources, there is only the way the makes sense to the individual (or corporation, or small business, or civic organization) at the time.

The fact that resources are limited and one must make decisions on how to use these limited resources seems to be a concept that is obvious to all but is somehow incomprehensible to governments and government-funded programs.  They act in such a way that the resources appear to be limitless, even though they are not.  They seem to not “get it”, but you can’t really blame them.  They don’t have to “get it”.

Let’s say you are head of the Department of Recreation in some small city.  The city budget allocates $200,000 a year to you for city pools.   The first year, you spend money on hiring, fixing up facilities, establishing procedures, etc.  The pools are open and ready for business.

The next year, you get the same $200,000.  This time, you don’t have the hiring expense of the fixing-up expense or the procedure expense.  You have regular salaries and routine maintenance of the pools, but alas you still have this $200,000.  Let’s say you only really need $100,000 to maintain the pools in their present state on a yearly basis.

What to do ?  In the business world, this extra $100,000 in your pocket would be considered “profit” and you would use it to reinvest it in your business or as a return to your stockholders.  The City Pool department has no such obligations.

Do they return the money to the city saying, “That’s OK, we don’t really need that much this year ?”  No.  One of the mantras of the non-profit and government world that is hard to understand is the yearly “spend the money” chant.  If you don’t “spend the money” before the end of the term, people might think you don’t really need it.

So you spend up to the amount of money you have.  In some years you even get more money:   when inflation is taken into account the city budget may throw in another 2%.  That presents even more of a dilemma.  Even more money to spend.

This goes on in thousands of city and state governments all over the country every day, as well as government grant programs and government agencies.  You got $50 million last year ?  Well, you’ll get $50 million this year whether you like it or not.  Spend that sucker !

What kind of culture does this mindset generate?  Take the case of Philip F. Laverriere Sr., Executive Director of the Greater Lawrence Community Action Council in Lawrence, MA.   The agency controls over $30 million annually in federal and state “anti-poverty” funds.  Mr. Lawrence,  with his taxpayer-funded salary a relatively modest $145,000 per year spent his days something like this:

Based on an anonymous tip, The Eagle-Tribune began observing Laverriere and found that between Jan. 28 and March 14, the 85-year-old spent 21 afternoons at the Elks Lodge. Typically, Laverriere showed up for work at the agency’s headquarters within a few minutes of 9 a.m. and left work within a few minutes of noon for the 10- or 15-minute drive in his Cadillac DeVille over the Merrimack River to the club.

He typically stayed at the club for two to five hours, then went directly to his home on Ames Street.

Mr. Laverriere’s position was funded.  It was funded into eternity.  Therefore, there was no reason to find out if he actually did anything or if what it did do was worthy of his compensation.  Year after year, grant after grant, the position was accounted for.  Move on, there is nothing to see here.

Multiply this incident by thousands and thousands. 

One of favorites is the National Institute of Health.  While they do a lot of good research, nevertheless they received $40 billion in 2009 and they have to use that money for something:

  • “Impact of Dragon Boat Racing on Cancer Survivorship,” which examines whether dragon boat paddling will enhance the lives of cancer survivors more than just walking.
  •  “The Healing of the Canoe,” which investigates the need for an “increased cultural and community identity” among the Suquamish Tribe.

These are just two of many questionable uses of taxpayer funds.  Even with that, one NIH-funded researcher notes:

If I have grant money I can pay myself for summers, which is a bonus but not essential (we don’t “need” the money). 

These travesties have engendered a push among some, including Governor Chris Christie of New Jersey for zero-based budgeting.  Simply put, what this means is that each year the budget starts at zero dollars, and each department must prove and document what they need in order to operate for the next fiscal year.  As Governor Christie stated in his budget remarks in February:

For too many years, our government has operated under the belief that the baseline — the place you begin — is to continue to fund every program in the budget: regardless of the fiscal climate, regardless of the economy, and regardless of the effectiveness of the program. Not anymore.

Whether or not he and others can break the government culture remains to be seen.  It is ingrained beyond belief.    It is unfathomable for some in government and in the “grants game” that life would not continue on, year after year, budget after budget, with each year bringing not more challenges on how to do things efficiently or fund worthwhile and useful projects, but rather to “spend up to what they have” in order to justify their existence.  The managers and administrators and grant-writers must, after all, maintain themselves and their jobs into oblivion, with little or no accountability.

If I had the means, I would send every representative and senator in Congress a copy of Thomas Sowell’s Basic Economics.  Or, they could take a look at the budget of a typical middle-class family of four.

Or they could try to take those lollipops from that little boy and see what happens.

Then, maybe they would get it.

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1 Comment

Filed under Government Spending

One response to “The economic principle that government does not seem to understand

  1. Leo

    Twain sad that common sense ain’t so common.

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