All Commentary
Thursday, February 1, 2001

Budgetary Immortality

Politicians' Claims of Reduced Government Spending Are Ludicrous

Doug Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books, including Tripwire: Korea and U.S. Foreign Policy in a Changed World.

America will soon have a new president, and that means a new budget. Successive administrations and congresses routinely claim that they’ve squeezed the last possible unnecessary cent out of their spending proposals. But such claims simply cannot be taken seriously.

Last year the supposedly skinflint House Republicans voted $100 million for local fire departments, $19.4 million for New York’s lobster industry, and $2.2 million for a senior citizens center in Alaska. No expenditure is too great if it helps buy a few votes in a close election.

Herds of sacred cows roam Washington. Consider these five candidates for the budget slaughterhouse.

Export-Import Bank. America is the world’s greatest trading nation, yet ExIm has extended more than $40 billion in loans, loan guarantees, and insurance to underwrite U.S. exports. It contends that cheap credit is necessary to sell American products abroad, but it covers barely 1 percent of U.S. exports. That is just a blip in today’s $9.6 trillion economy.

Subsidies are only one factor in a buyer’s decision. Moreover, many of ExIm’s big borrowers, like Argentina, Brazil, China, India, Indonesia, Mexico, Russia, South Korea, and Venezuela, have enjoyed a surfeit of subsidized loans from other sources.

Finally, the bank drains its cash from taxpayers and other business borrowers. University of Arizona economist Herbert Kaufman estimated that every $1 billion in federal loan guarantees crowds out as much as $1.32 billion in private investment. Even the General Accounting Office has warned that ExIm just shifts production around. In fact, it has routinely subsidized competitors of U.S. firms—foreign airlines and steel companies, for instance.

Small Business Administration. America’s technological revolution reflects the explosion of new small businesses backed by private venture capitalists. Yet the Clinton administration wanted to dole out $18 billion in loans and venture capital last year through the SBA.

The SBA, created in 1953, supports less than 2 percent of the nearly 800,000 new businesses created every year. The agency boasts that it provides a third of its general loans and 40 percent of “micro loans” to start-ups—at a time when private investors are tossing money at the same enterprises.

Moreover, the SBA has lavished cheap credit on advertising agencies, bars, country clubs, golf courses, liquor stores, pool halls, and even stockbrokers. None are in short supply. Millionaire celebrities, pornographers, and scam artists have all collected taxpayer dollars.

The agency is a leading cog in Uncle Sam’s racial spoils system, with special programs for minority-owned businesses. The 8(a) set-asides for federal contracts have been a fount of abuse, spawning the celebrated Wedtech scandal of the mid-1980s.

Small business doesn’t need the SBA. More jobs would be created if Uncle Sam let the market support business opportunities with the highest economic, rather than political, value.

Help for Appalachia?

Appalachian Regional Commission. President Lyndon Johnson launched the ARC in 1965. Six presidents later, the ARC labors on, having spent more than $7.4 billion on highways and a variety of social welfare programs in the 406 counties of 13 states defined as “Appalachia.”

The Clinton administration pushed another $476.4 million in outlays last year. ARC’s primary nonhighway role is to ladle grants, for instance, to get citizens “engaged” in community activities.

The commission has generated no visible economic benefits. America’s boom, not ARC’s budget, which fell 40 percent in the 1980s, resuscitated the region. By the late 1990s unemployment was only slightly above the national average, 4.8 vs. 4.5 percent.

Moreover, the ARC is redundant. All told, other federal agencies spend nearly $20 billion annually on transportation, mostly on highways.

There are 60 other economic development programs run by a score of different bureaucracies. For instance, last year the ARC proposed spending $10 million to “help entrepreneurs start and expand local businesses.” Of course, that’s what the SBA says it is doing. But venture capital can do the job.

Community Development Block Grants. There are few programs more beloved by congressmen than CDBG. The Department of Housing and Urban Development nominally manages the program, which cost nearly $5 billion last year. But congressmen “earmark” their favored projects—21 pages worth in the FY2000 appropriations bill.

In short, CDBG is a big slush fund to help re-elect legislators. Money was given to design the Wheels Museum in the county of Bernalillo, New Mexico, and to build a wellness center in Holmes County, Ohio. The University of South Alabama got money to build an archaeological research center. Twentynine Palms, California, collected cash to finish a mural. Money went to Enumclaw, Washington, for a welcome center. Los Angeles got aid to build an archway in Chinatown. Springfield, Massachusetts, received a grant to build a park honoring Dr. Seuss (Theodor Geisel)!

Silly Commissions. Block grants come and go, but almost every government bureaucracy is permanent. And many serve little public purpose.

The United States and Japan have been close allies for half a century. Businessmen, entertainers, athletes, diplomats, and soldiers constantly flow between the two nations. Yet Uncle Sam spends $2 million annually on the Japan-U.S. Friendship Commission. It underwrites university courses, public affairs programs, and even Internet discussion groups, none of which needs government subsidies.

Washington spends $9 million on the United States Institute of Peace, essentially a government think tank in the nation’s capital—which is crowded with think tanks. The institute is supposed to counterbalance the Department of Defense, with an annual budget nearing $300 billion.

Money goes to America’s Education Goals Panel; apparently the $30 billion Department of Education is not enough. There’s an Institute of American Indian and Alaska Native Culture and Arts Development, on top of the National Endowments for the Arts and for the Humanities. There’s even a National Commission on Libraries and Information Services and a Commission for the Preservation of America’s Heritage Abroad.

The federal behemoth is growing even as private corporations are streamlining. And nothing changed with the GOP Congress. Indeed, last year budget analysts Stephen Moore and Stephen Slivinski expected that the 106th Congress would end as the biggest social spender since the 1970s.

Presidents and legislators talk endlessly about constitutional and procedural reform to constrain federal spending. What they need to do is just say no.

  • Doug Bandow is a senior fellow at the Cato Institute and the author of a number of books on economics and politics. He writes regularly on military non-interventionism.