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Government Can’t Even Give Stuff Away Properly

09/15/2015

David Friedman once said that “government can’t even give anything away.” Given how much of electoral competition consists of promises to give people things, that is a striking indictment of government.

Unfortunately, it is all-too-commonly true. Government dollars (ultimately from citizens’ pockets) frequently benefit people other than those they target. Further, they also provide different goods and services than intended.

For example, government wants to help college students. So it throws money at them in several ways. But recent research confirms that most of it gets capitalized into higher education costs. Universities and suppliers of educational services are actually the primary beneficiaries. Similarly, subsidies for healthcare are substantially capitalized into health care costs, primarily benefiting health care providers. In other words, subsidies aimed at buyers in those markets primarily benefit sellers, providing a major reason why education and health care costs have risen so rapidly.

Further, government tries to help struggling farmers with price supports, crop insurance subsidies, etc. However, rather than helping struggling farmers, the benefits get capitalized into agricultural land prices. The owners of farm land at the time a policy change is implemented capture the benefits, while farmers still struggle (and struggling farmers and farmland owners are very different groups). Similarly, government has tried to help struggling cab drivers with restrictions to drive up fares. But the owners of taxi permits have captured the benefits, while cabbies still struggle.

Even resources that largely “hit” those targeted often cause far different consumption effects than intended.

For instance, SNAP (food stamp) benefits are equivalent to cash for almost all recipients. Because they would purchase more food than their benefit allotments, benefits substitute for money recipients would have spent on food, freeing cash to use as they wish. The same is true of other in-kind programs, as well, such as housing and winter heating subsidies. Subsidies are less than what most recipients would spend on targeted items, allowing subsidies to replace money that would have spent anyway, allowing diversion of earmarked funds to whatever recipients decide.

Similar problems show up in how often funds generated by school and other bond measures to fund specified government projects end up financing different ones. Another is state lotteries, promoted as supplements to education funds. Incorporating those “extra” funds, politicians, pare budgetary support, releasing resources to be spent however government decides, as if the proceeds went directly into its general fund. As Patrick Pierce and Don Miller concluded, “Regardless of the state, the educational spending rate declined once a state lottery went into operation.”

Such diversions also undermine humanitarian foreign aid. It releases resources otherwise required for such supplies, allowing them to be spent however the recipient government chooses. Consequently, much is lost to corruption or converted to other uses, including military spending, which has even been used to terrorize to threaten neighboring countries and those the aid was intended to help.

Government produces reams of rhetoric and spends mountains of taxpayer money attempting to benefit specific recipients. But vast amounts actually end up benefitting far different groups. Further, much of what does reach intended recipients has quite different effects than hoped for. In consequence, “government can’t even give anything away,” at least not very well.

Perhaps the overarching lesson to be drawn from these widespread problems is that such failures in “target efficiency” mean that virtually every government assistance programs is less effective in achieving its goals than administrators claim and supporters hope or imagine. But unfortunately, until more invest in the careful thought necessary to see beyond the “feel good” intended beneficiaries and hoped-for added consumption to actual consequences, there is little likelihood that such inefficiency and ineffectiveness will change for the better.

Author:

Gary Galles

Gary M. Galles is a Professor of Economics at Pepperdine University and an adjunct scholar at the Ludwig von Mises Institute. He is also a research fellow at the Independent Institute, a member of the Foundation for Economic Education faculty network, and a member of the Heartland Institute Board of Policy Advisors.

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