Give the Cost-Cutters a Chance To Make a Buck

“Good enough for government work” is a phrase that has carried the scorn of the general population for more than half a century. But why is government so bad at doing things?How bad? The General Accountability Office, under President Biden, estimated that fraud underlies somewhere between $233 billion and $521 billion in federal disbursements every year, a not-insubstantial percentage of total government spending. More, the GAO estimates that improper (but not fraudulent) payments may have amounted to a staggering $2.7 trillion since 2003. That’s 7.5 percent of the total national debt.Any corporation that handled its accounts payable as sloppily as the federal government would very soon be in Chapter 11 (and its management quite possibly headed for a stretch in “Club Fed.”)This is not unique to the federal government, though. Many state governments are just as bad. So why is government so inefficient and lackadaisical in running its affairs? There are several reasons, but two main ones.The first one is human nature. Energy is expensive in biological terms and so no living creature works harder than it has to in order to achieve its goals. Lions do not get their supper by chasing the fast zebras. The slow ones taste just as good and are much easier to catch.Bureaucrats, let’s face it, are not famous for their consuming ambition and are thus more likely to settle for less stressful means of employment. And what could be less stressful than a job from which you can’t be fired for sloth or inefficiency, only serious dishonesty?It’s an old saying in political science that “Today’s reform is tomorrow’s problem.” The 19th-century spoils system, which caused a large turnover in the federal bureaucracy every time the White House changed political parties, began to be reformed in 1883 with the Pendleton Act that required that many government jobs be awarded on merit, not politics. But civil service protections have grown stronger and stronger, especially after public service unions were permitted to organize government employees beginning in the 1960s. Returned to the White House, President Trump has now reinstated an executive order from his first term that Mr. Biden had reversed, allowing the president to fire the top tiers of the civil service for failure to perform adequately. It’s a start.The most important cause of bureaucratic inefficiency, though, is undoubtedly that governments are not subject to the tyranny of the bottom line. Corporations are wealth-creation machines and exist for no other reason than to generate profit. Thus anything that will increase profits has a very high priority and management has a fiduciary duty to pursue such options. Benjamin Franklin was right that “a penny saved is a penny earned.” Any savings resulting from a cut in costs flows immediately to the bottom line. So finding ways to eliminate significant costs by cutting out deadwood or innovating are rewarded. This powerfully incentivizes employees at all levels to do so.But governments don’t make money, they spend other people’s money (which is to say taxes). And as Milton Friedman pointed out no one spends other people’s money as carefully as they spend their own. While corporations measure their success by the size of their profits, bureaucrats measure theirs by the size of their budgets and the number of people who report to them. So they are highly incentivized to pad personnel rolls and add costs, not cut them. Ever more regulations, after all, take ever more personnel to enforce.Elon Musk’s Department of Government Efficiency recently uncovered the fact that the Department of Health and Human Services was paying about $18 million a month for a facility at Pecos, Texas, that had been intended to handle the overflow from licensed care facilities during the Covid pandemic. The facility has been empty for more than two years and only now has the contract has now been cancelled.How can we change the incentives so that bureaucrats look for ways to save money, not spend it? Easy: Pay them to do so.In the 18th century, the Royal Navy encouraged its officers and crews to capture enemy ships by, in effect, giving them the ship and its cargo. Naval vessels were bought by the Royal Navy and commercial ones sold at auction. The money was distributed according to a strict formula, with the captain getting a quarter of the take, while the officers and crewmen divided the rest.Thus a lucky captain could find himself seriously rich and an individual crewman might get more than ten years’ wages for a single day’s good work. As anyone familiar with 18th-century naval history knows, the system worked extremely well. Many of the best ships in the Royal Navy had been built for the French, Spanish, and Dutch fleets.So why not give the bureaucrat who finds a way to save money the first year’s savings or a substantial portion of it? Then you wouldn’t have just Mr. Musk’s merry computer geeks looking for waste, fraud, and abuse — you’d have the whole federal workforce doing so.

Give the Cost-Cutters a Chance To Make a Buck

Give the Cost-Cutters a Chance To Make a Buck

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