In a remarkable surrender to Big Government, Senator Ted Cruz of Texas voted for the budget deal last week that hiked spending $300 billion over two years. The deal essentially scraps the Budget Control Act, pushes the deficit over $1 trillion, and sets the stage for $1.5 trillion more in spending over the coming decade.

Why did Cruz do it?

Because the deal included disaster-related spending for Texas, according to Cruz’s comments. Yet the senator surely knows that for practical and constitutional reasons, federal subsidies for local and private disaster rebuilding makes little sense. (I discuss here).

In his comments on the deal, Cruz lamented, “This bill will increase our deficits and increase our debt. That’s foolhardy…we should be reining in government spending.”

Yet Cruz explains: “Washington logrolling sometimes forces lousy choices. This is one of those choices.”

That is the key point. Before recent decades, federal spending on local disaster recovery was very limited. But now that such spending is routine, one of the most conservative senators was bought off in classic logrolling fashion to support Washington’s spending orgy.

Here is one lesson: the size of the budget and scope of federal activities are related. As the scope expands, logrolling becomes easier, which strengthens support for all spending programs. The more different programs there are, the more different levers can be pulled to generate support for each program and for overall spending increases.

Suppose the government had just two programs, A and B. Supporters would seek spending increases, but some legislators may not have much A and B spending in their states, and thus might favor restraint to save money.

Now Congress adds a new program, C. It appeals to members with different interests and in different states than A and B. The addition of C strengthens support for A and B because supporters of C must vote for A and B to gain support for their program.

Perhaps you know that Congress puts farm subsidies and food stamps in the same bill to combine the support of rural and urban members. But you may not know that Congress started subsidizing dams in the West a century ago because Western legislators wanted something in return for their support of Army Corps projects in the East. That is logrolling. It explains much of the history of federal government expansion, and it runs counter to the democratic ideal of true majorities approving specific policies, as I explain here.

Anyway, the Cruz vote suggests a “network effort” for logrolling in Congress. Adding new programs strengthens support for existing programs because more programs make logrolling easier.

The figure shows a hypothetical relationship between the size and scope of the government. Let’s call it the “Spending Size and Scope Curve.” As the number of programs increases, total spending rises for two reasons. First, each new program costs money. Second, the logrolling network effect. As it adds programs, the government spends more on existing programs as well as the new ones, so the curve bends upwards.

The federal government currently spends $4.1 trillion a year and has about 2,300 subsidy programs.

The chart is theoretical and would need to be assessed empirically. In reality, the upward bend may be muted because other forces are at work. For one thing, there may be competition between programs for funding within Congress. Conservatives may favor restraint in nondefense programs to create budget room for defense. Liberals may favor restraint in defense to create budget room for nondefense programs. So as new programs are added, it may intensify spending competition between programs.

Unfortunately, such funding competition between programs has been greatly weakened by today’s massive deficits. Federal deficits have trended upwards since the 1950s, which has buttressed the power of logrolling by undermining the need for legislative trade-offs.

What’s the upshot? The number of federal subsidy programs has doubled since the 1980s. That has strengthened the power of logrolling and put upward pressure on spending. It would have been harder for congressional leaders to buy off Senator Cruz in the 1980s because the federal government was not in the business of huge disaster bailouts at that time.

How can we restrain federal spending? A constitutional cap on spending or deficits would force more funding competition between programs. Also, fully eliminating even small programs would reduce the fuel source for logrolling. We’ve seen in recent years that many members line up to support major bills if even small scraps for obscure programs are thrown their way.

I discuss the mechanics of logrolling here.

The Department of Veterans Affairs (VA) has been scandal-plagued for years. It has run up huge cost overruns on hospital projects and been guilty of appalling mismanagement and fraud related to waiting lists for veteran’s care. Congress has held hearings on the VA’s failures and passed some reforms to make it easier to fire bad employees.

But a new Washington Post story suggests that the department still doesn’t have its act together.

The piece says that the VA fired 2,537 workers last year. Maybe that sounds like a lot, but the VA has a massive 381,000 employees, indicating an annual firing rate of just 0.7 percent. By contrast, the firing rate in the U.S. private sector is 3.2 percent, or four times more than the VA firing rate.

The WaPo story describes how one VA employee who was caught essentially stealing from taxpayers kept her job:

When the VA Medical Center in Bedford, Mass., spent hundreds of thousands of dollars hiring landscapers and ordering rock salt, mulch and crushed stone, one whistleblower in the department found it suspicious that the supplies never showed up.

Turns out they were never delivered, and an employee had steered the contract to her brother’s landscaping business, according to a recent investigation by the Office of Special Counsel, an independent federal agency that investigates whistleblower claims.

The employee was allowed to keep her federal job. She was demoted only one pay grade, despite President Trump’s VA Accountability Act, which allows for quick removal of employees who violate standards or break the law in the troubled agency. …

“By allowing an employee who engaged in this conduct to remain with the agency, VA demonstrates a shocking degree of indifference to government ethical standards, procurement regulations, and public integrity,” Special Counsel Henry J. Kerner wrote to the president in a recent letter.

The landscaping scheme was brought to the OSC’s attention by a whistleblower who led investigators to nearly $1 million in “improperly spent or documented purchases” at the Bedford VA. The whistleblower disclosed suspicious, frequent and significant purchase orders for landscaping materials, such as rock salt, mulch and crushed stone, and said the majority of these orders were never delivered to the facility despite payment.

Ultimately, VA largely substantiated the whistle-blower’s allegations. VA found that Dennis J. Garneau and his daughter, Heather Garneau-Harvey, as Bedford VA employees, steered $200,000 snow removal and groundskeeping contracts to a business owned by a family member, their son and brother, respectively.

VA also found that Dennis Garneau directed purchases of more than $750,000 in “landscaping materials without appropriate verification of delivery, among other purchasing irregularities.”

More on federal mismanagement here.

Leaders of the two parties in Congress have agreed to a budget deal that raises discretionary spending a huge $300 billion over two years. While $300 billion is the headline, the deal may end up hiking spending $1.5 trillion over the next decade as the near-term increases get baked into federal budgets in later years.

The sad irony is that December’s Republican tax cut is supposed to save Americans $1.5 trillion over 10 years. But the new spending is essentially a $1.5 trillion tax hike imposed on people down the road. 

The centrist group CFRB summarizes the irresponsibility:

No one who supports this bill can consider himself or herself a deficit hawk or fiscally responsible. … This bill not only reverses the sequester cuts without sufficient pay-fors, it also includes significant further increases in discretionary spending that reverse much of the pre-sequester caps. And to add insult to injury, it also proposes further spending meant to satisfy everyone’s Christmas list.

Politico notes, “The agreement increases defense spending this year by $80 billion and domestic spending by $63 billion beyond strict budget caps, according to a summary of the deal obtained by Politico. Next year defense spending will increase by $85 billion and domestic funding will be boosted by $68 billion beyond the caps.”

As during the George W. Bush years, the eagerness of Republicans to jack up defense spending has led them to cave in on nondefense spending:

“I’m not going to say every piece of it. But obviously we’re excited about the defense numbers,” said Marc Short, the White House legislative director. White House press secretary Sarah Huckabee Sanders also told reporters the deal accomplished “our top priority,” with the defense boost.

So enjoy your tax cuts while you can because the pressure to repeal them will mount as rising spending pushes deficits over $1 trillion and ever higher levels after that.

Just as Congress is preparing to hike defense spending, a new report suggests the inefficiency that has plagued the Pentagon for decades continues unabated. Politico discusses a new audit of one of the Pentagon’s purchasing agencies:

Ernst & Young found that the Defense Logistics Agency [DLA] failed to properly document more than $800 million in construction projects, just one of a series of examples where it lacks a paper trail for millions of dollars in property and equipment. Across the board, its financial management is so weak that its leaders and oversight bodies have no reliable way to track the huge sums it’s responsible for, the firm warned in its initial audit of the massive Pentagon purchasing agent.

“Ernst & Young could not obtain sufficient, competent evidential matter to support the reported amounts within the DLA financial statements,” the Pentagon’s inspector general, the internal watchdog that ordered the outside review, concluded in issuing the report to DLA. The accounting firm itself went further, asserting that the gaping holes uncovered in bookkeeping procedures and oversight strongly suggest there are more.

Politico says that the Department of Defense “has never undergone a full audit despite a congressional mandate,” and that the “$40 billion-a-year logistics agency is a test case in how unachievable that task may be. The DLA serves as the Walmart of the military, with 25,000 employees who process roughly 100,000 orders a day on behalf of the Army, Navy, Air Force, Marine Corps and a host of other federal agencies — for everything from poultry to pharmaceuticals, precious metals and aircraft parts.”

Does the “Walmart of the military” deserve a break because $40 billion is a lot of purchases?

I don’t think so. Walmart itself has sales of almost $500 billion a year and manages to keep track of products from 10,000 suppliers. And then there is Amazon, which has annual sales of almost $180 billion. The online goliath sells 600 million different items and it ships five billion items through its Prime service a year.

So the Pentagon’s large size is not the root cause of its inefficiency and waste. Instead, it suffers from the same sorts of structural failures as other federal bureaucracies, and the same lack of congressional oversight.

More on Pentagon mismanagement here and here.

“Trump’s tax cuts are rocketing us into the debt ceiling,” wrote Catherine Rampell in The Washington Post on February 1, because “withholding from employee paychecks will drop starting no later than mid-February. Individual income tax revenue will therefore be about $10 billion to $15 billion less per month than the CBO previously estimated.” The suggestion that the debt crisis could be blamed on a mere $10–15 billion cut in monthly withholding got a Twitter shout-out from budget hawk Stan Collender, who must know that errors in monthly budget estimates are commonly larger than that.

This was followed two days later by Heather Long’s extremely misleading Washington Post story, “The U.S. Government Is Set To Borrow Nearly $1 Trillion This Year, an 84 Percent Jump from Last Year.” The article goes on to say, “Treasury mainly attributed the [$436 billion debt] increase to the ‘fiscal outlook.’ The Congressional Budget Office was blunter. In a report this week, the CBO said tax receipts are going to be lower because of the new tax law.” According to that link to another Post story, “CBO said that the tax law is expected to lower tax receipts by $10 billion to $15 billion per month. Even though the tax cut law went into effect January 1, the large drop in tax receipts didn’t kick in yet because companies won’t start using new withholding tables until sometime in February.” Fiscal 2018 began last October, so lower withholding tax can affect no more than 8 of the remaining months. Contrary to the Rampell-Long theory, the CBO’s revenue loss of $80–120 billion can’t explain her alleged $436 billion increase in Treasury borrowing.”

Where did all that added debt come from? What Ms. Long initially called “the exact” figure of $955 billion is later explained as “determined from a survey of bond market participants.” Asking about 23 bond dealers to guess Treasury “net marketable borrowing” is far from an official estimate, and it isn’t a measure of the deficit.

The first Table shows that OMB and CBO estimates show the FY 2018 deficit falling by 11–34% from the $66 billion in FY 2017. The median guesstimate in the last New York Fed’s email Survey of Primary Dealers, by contrast, is a FY2018 deficit of $750 billion. It’s a very small sample of non-expert opinion, and we don’t know the range and variance of forecasts or the Survey’s forecasting record.

Note well, however, that the Washington Post writer’s unexplained $955 billion private estimate of net borrowing is much larger than the 23 Primary Dealers’ wildcard estimate of a $750 billion deficit. Why? The reason is explained in the Table’s Footnote 5: “For FY2018, the restoration of extraordinary measures used during the 2017 debt limit impasse artificially adds to the ‘other means of financing’ which shows a larger net borrowing assumption.” Extraordinary measures include such things such as suspending debt issuance for civil service and USPS retirement benefits and redeeming certain securities instead of issuing new ones.

In case anyone missed the connection Rampell and Long were insinuating–that tax cuts nearly doubled FY2018 borrowing–an Axios summary of Long’s report was headlined: “After Tax Cuts, U.S. Borrowing To Spike 84% This Year to Nearly $1 Trillion.”

Aside from the mathematical implausibility of blaming an alleged $436 billion increase in borrowing on a JCT-estimated $103.5 billion tax cut (see the second Table), it was inexcusable for the Washington Post to publish the bizarre $955 billion net borrowing estimate without divulging that (1) it was a median estimate from an email survey of 23 bond dealers, and that (2) that dubious unofficial FY2018 estimate was also artificially inflated by “extraordinary measures” taken during debt limit impasse.

As we near the release of President Trump’s new budget, some of his proposals are leaking to the press. The Washington Post reports that the president will propose cutting renewable energy and energy efficiency subsidies by 72 percent. That would be a good start, although 100 percent would be better.

Spending for the Energy Department’s Office of Energy Efficiency and Renewable Energy (EERE) is set at $2.04 billion for the current fiscal year, which ends Oct. 1. Last year, the administration asked for $636.1 million, a decline of more than two-thirds, although Congress did not implement the request. For 2019, the administration’s draft proposal would lower that request even further, to $575.5 million.

We will see whether Congress goes along, but the story does show that, so far, Trump is siding with his conservative budget director, Mick Mulvaney:

The Energy Department had asked the White House for more modest spending reductions to the renewable and efficiency programs, but people familiar with the process, who spoke on the condition of anonymity to share unfinished budget information, said the Office of Management and Budget had insisted on the deeper cuts. …“It shows that we’ve made no inroads in terms of convincing the administration of our value, and if anything, our value based on these numbers has dropped,” said one EERE employee…”

Apparently, the White House budget office has concluded, as I have, that energy subsidies are a waste of money.

There is more good news from the Post:

The draft document says the administration will once again ask Congress to abolish the weatherization program … The budget proposal would also eliminate state energy grants. The budget would ax research in fuel efficient vehicles by 82 percent, bioenergy technologies by 82 percent, advanced manufacturing by 75 percent and solar energy technology by 78 percent.

The proposal would cut funds for electric car technologies and fuel-efficient vehicles—at $307 million currently the biggest of the program areas—to $56 million in 2019.

… The plan would also chop spending on more efficient building technologies and research into geothermal, hydro and wind power.

These cuts would be splendid, and straight from the Down​siz​ing​Gov​ern​ment​.org playbook.

Nonetheless, there has been some bad news on energy policy. Energy Secretary Rick Perry has tried to aid coal and nuclear at the expense of electricity consumers. Also, the administration supports the ethanol boondoggle, and it just imposed special taxes on solar panels. As for the president, he has been talking nonsense about “beautiful clean coal.”

Still, I’m looking forward to the spending cut proposals in the budget to be released February 12.

Meanwhile, you can read about energy subsidies here and proposals for federal spending cuts here.

As a general matter, governments are poorly managed compared to businesses in competitive markets. They tend to spend money on low-value activities, put up with sloth and waste, and follow failed policies for years without a course correction. I have examined the structural causes of federal waste and mismanagement in studies on Congress and the executive branch.

Many of the federal government’s structural problems also bedevil state governments. Yesterday, a Washington Post editor, Gene Park, described some of the dysfunction in Hawaii’s government that led to the false missile alert last month.

I could not figure out whether Park was mainly blaming institutional problems—such as union job protections—for government failures, or whether he was blaming the general culture of Hawaii and its government.

Certainly, the two factors are related. Flawed institutions such as labor unions create bad incentives and spawn a culture of waste. I would guess that people are similar everywhere, but different institutions across societies have shaped differing cultures or general behaviors. Of course, within societies people have many different personality traits, and governments likely attract workers seeking an environment of high job security and low performance expectations.

Is Hawaii’s government more mismanaged than other state governments? If so, is it because high unionization and other features of its government have created bad incentives, or is it because people in the state hold attitudes that undermine government efficiency?

Anyway, see what you think about Park’s article. Here are some excerpts:

This past week, we learned that the man responsible for the bogus Hawaii missile alert last month had kept his job for a decade, even though he had a history of performance problems and had been “a source of concern,” according to a Federal Communications Commission report. His fellow employees had expressed discomfort about his work, and the FCC said that he was “unable to comprehend the situation at hand and has confused real life events and drills on at least two separate occasions.” Although the emergency management worker, who remains unnamed, was a union member, he could’ve been fired at will. “Why, then,” Gizmodo understandably wondered, “was the employee in a position to send a false missile alarm to a couple of million people?”

As we say in the islands, e komo mai (welcome) to Hawaii.

I worked as a Hawaii state employee for a short time, serving as spokesman for a division of the Hawaii Department of Commerce and Consumer Affairs, and then spent more than seven years dealing with the government as a journalist. Anyone who knows how Honolulu functions can’t have been surprised by the FCC’s revelations. The sad part is that the worker’s ineptitude and the chaos he caused have exposed to the world old, ugly tropes about Hawaiian accountability and competence that residents would love nothing more than to shake off. “How many more non effective employees are on the job here in Hawaii?” asked a local on Hawaii News Now’s Facebook page.

There’s a strong assumption in the islands that once you enter the state government system, you’re set for life. … The prevailing notion is: You don’t have to work that hard.

And there is often no cost for screwing up. Vern Miyagi, the emergency management chief who resigned in the wake of the FCC report Tuesday, had made his reluctance to fire the alert author clear: “You’ve got to know this guy feels bad, right? I mean, he’s not doing this on purpose.” …

Culturally, Hawaii tends to reward seniority, not competence. Careers often advance only when incumbent workers resign or die. …

That’s a sentiment young people (and apparently 54-year-old members of Congress) hear often in Hawaii. The author of that 2006 newspaper column rued how “local values” insist on deference and conformity. …

I often heard residents of my old state parrot a Japanese saying: The nail that sticks out gets hammered down. And people who want reform, or just want to try something new, hear a common refrain in Hawaii’s private and public sectors: “That’s not how things have been done before.” Play your role, and you’ll be rewarded when you’re good and old.

That attitude has consequences. The FCC report shows it was no secret that the missile alert’s author was inept. Yet he somehow landed the critical job of telling an entire state whether its people could die in a nuclear blast. While 10 years passed, his supervisors did nothing to remove him from a job they knew he was unqualified for, nor did they implement procedures for what to do if someone accidentally sent a missile alert. It took a national embarrassment to dislodge him from his job.

More on the causes of government failure here and here.