Chris Edwards

Energy Mismanagment

Try as they might, supporters of big government spending cannot make federal programs work very well. The Department of Energy, for example, has been plagued by mismanagement, cost overruns, and scandals for decades.

Today, the Washington Post reports on the poor performance of DoE’s environmental clean-up programs. As I reviewed in the linked essay, these enormously costly programs have been plagued by mismanagement for at least 25 years. Last week, Lou Dobbs lambasted DOE’s National Ignition Facility in California for its huge cost overruns (Hat Tip: Harrison Moar).

I summarize these costly projects and other DoE boondoggles here. With bipartisan support for increases to energy subsidies, we can expect a raft of bipartisan boondoggles developing over coming months and years.

Demand for Subsidies

My op-ed on National Review Online today provided new information about the increasing number of federal subsidy programs. The federal welfare state is expanding rapidly.

One friendly reader emailed me:

Ever cross your mind that there’s a reason government programs increase over time? I’ll clue you in: Programs increase because of public demand.

It’s not rocket science, people want more services. Period. Somebody’s got to pay for them. Hences taxes. Or perhaps borrowing. Or a combination of both. In any event, there’s no evidence people are willing to get along with fewer services.

The situation seems simple to me; so why can’t you ideologues on the far right understand what’s going on. Instead, you simply go on bemoaning the existence of programs and taxes you don’t like.

There are numerous problems with this reader’s views, including constitutional problems. But one thing that strikes me is the underlying assumption of the “public interest theory of government,” or the idea that democracies and bureaucracies operate to efficiently provide “services.”

In reality, there are structural problems in government that bias policymakers toward fiscal irresponsibility, as our current $1.8 trillion federal deficit indicates. The issue is not ideology, it is scientific: Does the government actually work as the optimists, like this reader, believe? I think the empirical evidence is in on that question.

Corruption Rewarded in Government

In Downsizing the Federal Government, I discussed some of the corruption surrounding former Senator Ted Stevens:

Another example of abuse engineered by Senator Stevens involves Alaska Native Corporations. Because of rule changes slipped in by Stevens, these shadowy businesses based in his state are allowed to circumvent normal federal procurement rules and win no-bid contracts. The result of such loopholes is that taxpayers do not get value for their money. For example, in 2002 a half billion dollar contract for scanning machines at U.S. border crossings was given to a native corporation with little experience in the technology, instead of established leaders in the field who were not allowed to bid.

The Washington Post did a good job of bringing the scandal of ANCs to light a few years ago. Did the spotlight on ANCs and connections to disgraced Senator Stevens convince Congress to move ahead with reforms? Hardly. From Government Executive today:

Obama’s Budget Cuts

The Obama administration has issued a modest list of budget cuts for programs that are “duplicative” and “ineffective.”

That’s a good start for spending reforms, but a more substantial way to end “duplication” would be to terminate all $500 billion of federal subsidies sent to state governments each year, which duplicate properly state-level activities such as highway building.

Further, cutting some “ineffective” programs ignores the broader question of whether programs represent just and legitimate uses of government power. We can make farm subsidies more “effective,” for example, but that does not make it ethical to transfer $20 billion each year from hard-working taxpayers to often high-income farm businesses.

I’d like to see the Obama administration attack Washington’s overspending problem in a more dramatic and fundamental way.

For now, here’s a great place to start:

 

FutureGen: Economic and Political Decisions

People who support expanded federal intervention into areas such as energy and health care naively assume that policymakers can make economically rational and efficient decisions to allocate resources. They cannot, as a Washington Post story today on FutureGen illustrates.

The story describes the political battle over the location of a $1.8 billion ”clean coal” plant. I don’t know where the most efficient place to site such a plant is, or  if such a plant makes any sense in the first place. But the story illustrates that as soon as such decisions are moved from the private sector to the political arena, millions of dollars are spent to lobby the decisionmakers, and members of Congress are hopelessly biased in favor of home-state spending regardless of what might be best for the national economy as a whole.

President Obama has promised to ramp up spending on such green projects. So get ready for some huge political fights over the big-dollar spoils, and get ready for some monsterous energy boondoggles.

Defense Cost Overruns

Wow, a bipartisan effort to actually do something about government waste. From the Washington Post today:

A bill to end cost overruns in major weapons systems would create a powerful new Pentagon position — director of independent cost assessments — to review cost analyses and estimates, separately from the military branch requesting the program.

Those reviews, unlike in the current process, would take place at key points in the acquisition process before a weapons program can proceed, according to legislation sponsored by Sen. Carl M. Levin (D-Mich.) and Sen. John McCain (R-Ariz.)

This seems like a step forward, but cost overruns are a big problem across the entire federal government, not just at the Pentagon. Federal financial management of energy, highway, and computer projects has been appalling, for example. I’ve written about this here and elsewhere.

The government needs to buy weapons, and so we should try to improve the Pentagon process as best we can. However, the federal government does not need to buy highways, airports, air traffic control computers and many other things that have chronic cost overruns. Those items should be privatized.

FutureGen Boondoggle

The Senate stimulus bill apparently contains $2 billion for “FutureGen.” Here is what my assistant, Harrison Moar, found out about this project:

FutureGen was launched in 2003 by President Bush as a public-private partnership to build a low-emission coal-fueled power plant and demonstrate technologies to capture carbon dioxide. The government was to share the cost of the project with 12 private energy companies. The project was originally estimated to cost $1 billion, but by 2008 the estimate had ballooned to $1.8 billion. By mid-2008, $176 million had been spent.

In 2007, the Department of Energy chose a single site for the project in Mattoon, Illinois. But after the project’s estimated cost started soaring, the department changed direction in 2008 and cancelled the Mattoon project. That was a good decision, but the government had still flushed $176 million down the drain. The department’s new idea was to focus on developing other clean coal projects in different locations at an estimated taxpayer cost of $1.3 billion.

FutureGen has involved pork barrel politics since the beginning. As the department originally considered various project sites in Illinois and Texas, the state governments in those states deployed aggressive lobbying to woo federal officials. Upon news of possible cancellation of the Mattoon project in 2008, Senator Dick Durbin of Illinois swung into action using all his tools as the second-ranking senator to continue the funding to his state. He even threatened to block appointments to the Department of Energy unless it reversed its cancellation decision.

$1.2 Trillion Deficit

Before 1987, Americans only needed to understand the word “billion” to get a handle on federal budget numbers. Today, the word “trillion” is the needed metric in budget discussions.

The Congressional Budget Office released an update to its budget projections today, and the figures show that the federal deficit for fiscal 2009 will be $1.2 trillion. That deficit represents 8.3 percent of GDP, the highest share of the economy since World War II. Thus, a burden the size of 8 percent of all income earned in the United States this year is being thrust onto tomorrow’s taxpayers.

Subsidies Beget Subsidies

Sorry, this blog has nothing to do with the Wall Street mess, despite the title.

Instead, consider this tiny story in the WaPo that reveals the general inanity of our subsidized nation. The article, “Federal Grant to Provide Help To Low-Income Students” reports on a $1 million federal grant to the state of Virginia. 

Will the grant money be used to buy books for poor kids, or to help pay their tuition? Nope. It will go to hire bureaucrats to train kids on how to grab more education subsidies: “The agency plans … to help educate students about college, with a sizable focus on how to obtain financial aid.”

For more about the follies of federal granting, see Federal Aid to the States.

Fannie and Freddie

The IBD has an excellent front page summary of the 1990s roots to the Fannie Mae and Freddie Mac disaster.

One issue IBD touches on is the ineffectiveness of the regulating agency OFHEO. OFHEO gave Fannie and Freddie a clean bill of health just last December.

One reason that having regulatory agencies is worse than having no suchagencies is the false sense of security provided to markets by such apparently off-base seals of approval.

Pages

Subscribe to Chris Edwards