One of Candidate Barack Obama’s standard lines in his stump speech was: “As President, I will go through the federal budget,line-by-line, ending programs that we don’t need and making the ones we do need work better and cost less.”
Well, President-Elect Barack Obama will soon find out that most of the federal government’s biggest spending isn’t actually in the budget. Going through it line-by-line won’t help much. That’s what I and others found when we were tasked by President Bill Clinton to conduct his National Performance Review 15 years ago. He said “we’ll conduct an intensive national review of every single Government agency and service.” Well, we did that. And we conducted a huge savings review that went beyond agencies and services. We had identified $700 billion in potential savings (in the days when $700 billion was a big number) but only acted upon a fraction of that. What we found was politically too scary to do anything with.
A really brilliant young college intern who worked on that portion of the review, Steve Tidrick, wrote up his experience in an article for The New Republic a few years later. He titled it “The Budget Inferno,” and likened this in-depth review of the federal government as being analogous to Dante’s Divine Comedy – also called “Dante’s Inferno,” that chronicaled the author’s descent down through the nine circles of Hell. Here’s a quick breeze though his 1995 article, which is still timely:
The first five circles comprise the realm of “traditional spending.” The other four are more exotic.
The first circle of possible spending cuts is embedded in programs for the poor. Tidrick found that only 30 percent of poverty spending went directly to the poor; the remainder went to others – landlords, grocers, welfare professionals, and healthcare providers. Directly below this circle he places pork barrel programs.
The second circle in Tidrick’s analysis is defense waste, such as the states’ Air National Guard fighter units, which he says “Unlike the Army National Guard, the Air National Guard has no peacetime mission . . . and would not be useful in time of war unless, say, Vermont launches an air attack on Connecticut; yet the government spends (in 1996) more than $4 billion a year to keep it airborne.”
The third circle is the “province of welfare for the well-off,” the “universal” programs that provide assistance to all Americans regardless of need: unemployment compensation for those with net taxable incomes of over $120,000 (again, in 1996), and Social Security and Medicare for people with incomes over $120,000.
The fourth circle is where corporations and industries line up to collect in-kind benefits and services such as advertising abroad for American food products (e.g., $10 million for Sunkist oranges) and building 340,000 miles of logging roads in national forests for timber companies.
The fifth circle includes special legislative provisions that are not direct subsidies, such as the requirement that all interstates have four lanes, even in Montana. Or the 1991 highway bill with a $369 million courthouse in Brooklyn. Or a provision that specific small agency field offices cannot be closed (my personal favorite is the Customs international port of entry in Front Royal, Virginia, which is in the middle of the Blue Ridge Mountains, which no cargo ships can reach).
We then reach the lower levels. . . . .
The sixth circle of federal spending analysis examines federal credit programs, which Tidrick says is equivalent to spinning straw into gold — “For the cost of mere straw, Congress allots benefits that are as valuable as gold.” This includes direct loans, guaranteed loans, and credit provided by government sponsored entities like Freddie Mac. These liabilities, as we are learning through the 2008 bailout crisis, totals far more that all the traditional spending in the first five levels!
The seventh circle is comprised of insurance programs. The face value of the government’s insurance commitments is even greater than the credit programs. These include, for example, the Price-Anderson Act, which guarantees the federal government will pay the cleanup costs of a nuclear plant failure that exceed a certain amount, and of course the costs associated with potential corporate pension plan failures (think of the auto industry).
The eighth circle is comprised of tax exemptions, tax deductions, and the like. These subsidies are nearly as large as the traditional federal budget (called “non-entitlement spending”). Looking at these is part of the Obama campaign platform.
The ninth, and lowest, circle is comprised of trade protections, regulations, and government-enforced property rights that shield selected industries from market forces. While they cost the government virtually nothing, they can impose costs on consumers. For example, the sugar and peanut quotas increase the cost of these products to American consumers. In the case of sugar quotas, the cost to American consumers is estimated to be $2 billion a year. This is not measured as part of the government’s budget, but it is the equivalent to a tax from the perspective of individual taxpayers’ budgets. Banking rules, health and safety rules, and environmental rules all shift costs (and risks) among different groups in society. But this lowest circle also includes property rights that the government grants, sometimes at rock-bottom prices, such as the 1872 General Mining Law, which requires the federal government to lease mineral rights to mining companies for mere pennies of what a commercial lease might get.
I tracked Tidrick down. He’s now a respectable lawyer in San Francisco and has a wife and family. And he’s still passionate about government working better and costing less! He even helpfully provided me a link to the full article on his website!