Downsizing Government

Downsizing the Federal Government, Chris Edwards, Cato Institute, 2005.

Instead of advocating tax increases in the name of fiscal responsibility, this book focuses on how the bloated federal budget ($2.5 trillion in 2005, or about 20% of gross domestic product) could be reduced if our leaders put their minds to it. Here are some important facts about this budget:

State and local government are spending an additional 11% of GDP, so the total cost of government amounts to nearly 1/3 of the economy.
54% of current federal government spending is for “entitlements” (Social Security, Medicare, federal potion of Medicaid, etc.), 39% for discretional spending, and 7% for interest on the debt.
Government spending as a % of GDP has grown, importantly due to entitlements:

Federal-defense: 1900 – 1.0%; 1950 – 5.7%; 2005 – 4.0% (enough?)

Federal-nondefense: 1900 – 1.8%; 1950 – 9.0%; 2005 – 16.0%

State/local: 1900 – 5.0%; 1950 – 6.6%; 2005 – 11.0%

Assuming rapid growth in entitlements due to retirement of baby boomers and longer human life spans, the Government Accountability Office projects federal expenditures rising to 23% of GDP by 2015, 33% of GDP by 2030, 45% of GDP by 2040.

Mr. Edwards argues that many current federal programs are harmful (e.g., import restrictions), unduly beneficial to special interests (agricultural subsidies, corporate welfare), and/or better left to the states (education) or private sector (rail transportation).

One special problem is government grants, which are used by the federal government to influence state or local government programs. Some $426 billion in grants were paid in 2005, ranging from $186 billion for the federal share of Medicaid and the $71 billion cost of the Dept. of Education (mostly grants) to “hundreds of more obscure programs that most taxpayers have never heard of.” The result is to encourage overspending for the stated grant purposes, foster federal, state and local bureaucracies to document compliance with federal mandates, and reduce flexibility and innovation at the state level.

Another problem is duplication. Different federal programs often have overlapping objectives, resulting in “turf wars” and/or unnecessary costs to ensure coordination. Thus, the GAO has reported 50 different programs for the homeless in eight federal agencies, 23 programs for housing aid in four agencies, 26 programs for food and nutrition aid in six agencies, and 44 programs for employment and training services in nine agencies. If a program is ineffective or obsolete, the typical response is to create additional programs -- without eliminating the existing program.

Edwards lists more than 100 programs and agencies as candidates for elimination, with resultant savings of $380 billion per year. He also advocates cost-saving changes to entitlement programs. If all of his recommendations were implemented, the current federal deficit could be converted to a surplus without raising taxes.

Instead of downsizing the federal government, why not concentrate on managing its programs better? The answer is that efforts along this line, including the Committee of Economy and Efficiency in Government appointed by Taft in 1910, the Hoover Commissions (under Truman and Eisenhower, respectively), the Grace Commission under Reagan, Gore’s “reinventing government” plan, and Bush’s “management agenda,” have all failed. Government operations continue to be inefficient and in many cases ineffective.

The current programs of the federal government are too diverse and complex for Congress to effectively manage them; it would be far better to do a few things well than to do a lot of things ineffectively.
Congress has limited incentive to hold down spending because program costs represent benefits to its members (the gravy they seem themselves as responsible for producing).
There is no market discipline if government programs fail (unless and until the taxpayers revolt) such as applies for undertakings in the private sector.

Is government downsizing possible? Sure, if enough people demand it, but our political leaders typically hear more about how additional money should be spent than they do about how existing programs should be eliminated to save money. Politicians tend to get increasingly hooked on spending during their years in Washington, which is one of the reasons to support term limits.

In summary, this is a sound and useful book. Fiscal conservatives unite, it is time that we stood up and were heard!

12/6/06