A number of states have recently enacted employer mandates that force companies who don’t offer retirement plans to enroll their workers in a state-run, auto-IRA plan. Oregon’s program – known as OregonSaves – is the oldest and most established. By mid-2020, Oregon’s mandate will cover all companies; it currently covers companies with twenty or more workers.

One myth – perpetuated by the National Employment Law Project – is that state mandates expand opportunity to retirement savings, especially for low-income workers. They don’t. OregonSaves initially defaults worker contributions into a conservative capital preservation fund before redirecting contributions to a life-cycle fund once balances exceed $1,000. Since inception in 2004, the capital preservation fund has offered a paltry nominal return of 1.52% (essentially an inflation-adjusted return of 0%). OregonSaves also assesses an administrative fee of 100 basis points (that is, 1%) regardless of investment choices, further diminishing this return. This set-up isn’t really an opportunity for Oregon workers, because they already have access to Roth IRAs and investments with a more beneficial set-up. A 25-year-old worker might actively choose a life cycle fund with no minimums for initial investment or additional contributions, along with administrative fees of 75 basis points, significantly lower than OregonSaves. Choosing an index fund that tracks the S&P 500 could have administrative fees as low as 1.5 basis points. Without mandating Oregon employers to enroll their workers, OregonSaves would struggle to compete in a vibrant marketplace with many inexpensive alternatives for retirement contributions.

If government mandates don’t improve access to retirement plans, why have the program? The real reason is that the programs increase participation through inertia; simply put, many workers are asleep at the wheel. Many workers don’t take active steps to plan for retirement regardless of how a program is designed. If the default choice is to actively enroll, many workers won’t participate. If the default choice is automatic enrollment with an opt-out option, many workers do participate. Oregon’s 28% opt-out rate is relatively high, highlighting some of the problems of the program’s design. Among those enrolled, fully 93% of participants stick with the specified contribution rate and an astonishing 79% of all fund balances are invested in the capital preservation fund. Almost all remaining balances are invested in target date funds, likely for workers who have exceeded the $1,000 contribution.

Worker inertia is real, meaning that design choices like opting in or out, asset classes and contribution rates are likely to stick. The one-size-fits-all design of OregonSaves can cause real harm for many workers, an issue I explored with my colleagues in a new study for Journal of Retirement. If OregonSaves were adopted nationally, 24.2 million workers aged 25–64 would initially be opted-in. Approximately 33% of affected workers carry high-interest credit card debt, with balances averaging nearly $5,500. Around 15% of affected workers struggle to meet basic needs like paying rent or utility bills. Workers in these situations come out ahead by paying down debt or meeting basic needs, and siphoning off 5% of their paycheck will likely worsen their overall financial situation.

Financial planning websites consistently emphasize paying off revolving high-interest debt before saving for retirement (unless a company offers a match rate), yet auto-IRAs fail to take these investment lessons into account. Advocates for government mandates emphasize the benefits of compounding for assets in an IRA, while curiously ignoring the reality that unpaid debt compounds in the exact same manner! At an 18% interest rate, an unpaid $5,500 credit card debt would mushroom to $28,800 in ten years. The same amount of money directed towards OregonSaves might accumulate to $12,900 under rosy assumptions about investment returns. Ultimately, our study shows a significant number of workers are in situations like this, and auto-IRAs would do more harm than good for them.

Economist Martin Feldstein warns about excessive government debt in the Wall Street Journal:

The most dangerous domestic problem facing America’s federal government is the rapid growth of its budget deficit and national debt.

I agree.

To avoid economic distress, the government either has to impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth … the better approach is to slow government spending growth.

I agree. 

Defense spending and nondefense discretionary outlays can’t be reduced below the unprecedented and dangerously low shares of GDP that the CBO projects. Thus the only option is to throw the brakes on entitlements. In particular, the government needs to hold back the growth of Medicare, Medicaid and Social Security.

Here, I differ with Feldstein. We need a more expansive view of what can and should be cut.

The pie chart breaks down the $4.5 trillion federal budget for 2019 into major parts, and it identifies which parts should be cut.

Here are some reform suggestions:

• Social Security. Congress should raise the retirement age as Feldstein advises, but also switch the indexing of initial benefits from wages to prices to slow growth, while also reforming disability insurance to encourage work.
• Medicare. Congress should increase premiums and cost-sharing while moving to a system of vouchers to encourage competition and cost control.
• Medicaid. Congress should convert federal aid to block grants in order to cut federal spending and encourage state innovation and cost reductions.
• Defense. The largest federal bureaucracy is the Pentagon’s civilian staff of 750,000. A Washington Post investigation suggested that bloat in the defense bureaucracy cost more than $100 billion year. I don’t know whether that is true, but the Pentagon could certainly save money by tackling excessive layering, cost overruns, and corruption.
• Interest. Without reforms, interest costs are expected to double over the next seven years, but those costs would fall if Congress cut spending.
• Other Spending. Congress should cut food subsidies, farm subsidies, energy subsidies, housing subsidies, rural subsidies, development subsidies, K‑12 subsidies, college subsidies, welfare subsidies, disaster subsidies, security subsidies, community subsidies, developer subsidies, water subsidies, grazing subsidies, unemployment subsidies, training subsidies, highway subsidies, transit subsidies, airport subsidies, rail subsidies, worker subsidies, foreign aid subsidies, business subsidies, flood subsidies, power subsidies, and much more.

If the government is subsidizing everyone, then it is effectively subsidizing no one. We are shuffling trillions of dollars around and the largest net gainers are the high-paid middlemen and lobbyists in Washington.

Feldstein concludes: “Lawmakers don’t like to cut spending, but they have to do something. Otherwise the exploding national debt will be an increasing burden on our children, economic growth and our future standard of living.”

I agree with that, but it suggests that cuts are like taking unpleasant medicine to treat an illness. Instead, spending cuts should be viewed as a positive. They would shift resources from mismanaged and damaging federal programs to more productive private activities. Federal spending cuts are not a necessary evil needed to tackle deficits, but rather an opportunity to spur growth and expand freedom.

President Trump’s hotly anticipated executive order on college free speech—brought to a fever pitch with his comments at this year’s CPAC—is out. It’s actually kinda several orders in one, with free speech on the main stage, but college outcomes data, and a bunch of studies—including of “skin in the game”—on the sides. Here are some quick thoughts on all three parts.

Free speech

Conservatives, especially, have become disgusted with what they have seen as an increasingly aggressive, politically-correct culture on American campuses, and not without some justification. The order, as you could glean from the White House signing event, was almost certainly motivated by that. But as far as the words of the order go, it seems restricted to combatting college policies, not cultures. Free speech zones, administrators prohibiting certain speakers, etc. Crucially, it treats public and private institutions differently, understanding that public colleges are fully subject to the First Amendment, while private colleges are beholden to what they promise their customers. If they say they are going to allow the free exchange of ideas, they need to do that, but if they are forthright about their speech codes, no problem.

The danger lurks in the order’s generality. It directs multiple federal agencies to “take appropriate steps, in a manner consistent with applicable law, including the First Amendment, to ensure institutions that receive Federal research or education grants promote free inquiry.” Sounds good, but it doesn’t spell out what that means. Could it result in agencies saying free inquiry requires intellectual “balance” among invited school speakers, or something similarly intrusive? What if all agencies have their own, differing definitions? And as Sen. Lamar Alexander (R‑TN) suggested, isn’t speech protection more the bailiwick of the Department of Justice than Energy, or the National Science Foundation?

Data

The order calls for the Department of Education to create a new website and mobile app so borrowers can easily check data on their students loans, which is fine if you (wrongly) accept that the feds should be in the student loan business. Also, it requires that the College Scorecard, launched during the Obama Administration, add data on program-level, rather than just school-level, outcomes such as graduate earnings.

Data publication is one of the less dangerous things Washington does, but it still has pitfalls, especially the likelihood the data will be politically cherry-picked instead of used to inform.

Studies

A longstanding proposal, championed by many people who understand the root problems of higher education, has been for colleges to bear some cost for defaulted loans. As it stands now, most schools have little incentive to turn away federal bucks-bearing students, no matter how unlikely to complete their studies they may be. Schools get paid no matter what, meaning student aid is all upside for colleges. The “skin in the game” goal is to incentivize schools to better vet potential matriculators, or maybe do a better job educating.

Two problems. First, this blames institutions when the crux of the problem is elsewhere: Washington gives bundles of money to just about anyone who wants them, without seriously assessing their ability to handle the programs they plan to enter. It’s at the point of the initial loan where the vetting should occur, to the benefit of both the would-be borrower and the true lender: the American taxpayer. Second, politically favored schools such as community colleges would probably quickly be identified for exemption. Thankfully, as the heading of this section telegraphs, the order just calls for a study of ways to implement such a proposal.

The other areas for study are pretty innocuous, as far as federal education intervention goes. The Secretary of Education is to study and report on better ways to collect on defaulted loans, and to formulate ideas to increase college completion based on what’s worked in states and institutions.

Summary

All in all, the order’s not the worst thing we could have gotten, but there are ample causes for concern.

New York Governor Andrew Cuomo is upset that the Trump administration doesn’t want to fund new tunnels under the Hudson River. Cuomo sent an angry letter to Trump earlier this week accusing the president of being prejudiced against New York and New Jersey because they didn’t vote for him. Cuomo claims the tunnels should be federally funded because “the Northeast is home to 17 percent of the entire population and contributes 20 percent to the national domestic product.” 

But gross domestic product and regional populations aren’t among the criteria Congress established for federal funding of transit infrastructure. Instead, one of the most important criteria that the Department of Transportation is required to use is whether the project is “supported by an acceptable degree of local financial commitment.” Based on the lack of local support, the Federal Transit Administration’s 2020 New Starts funding recommendations gave the project a “medium-low” rating, and under federal law, that makes it ineligible for funding. Not counting some very small projects (such as the downtown Los Angeles streetcar), the only other project to get a medium-low rating was the Portal North Bridge, which is also part of the Hudson Gateway megaproject.

Cuomo argues that Trump has ignored “the financial commitments made by New York and New Jersey.” The FTA’s profile of the project reveals just what those commitments are.

First, the states are asking the federal government to put up $6.7 billion, or 49 percent of the projected $13.6 billion cost. Second, they want the federal government to make them a loan of $2.3 billion that will be “repaid with PANYNJ [Port Authority of New York and New Jersey] funds.” Third, they want another federal loan of $2.0 billion that will be “repaid with project revenues.” These two loans total to 32 percent of the projected costs.

Another billion dollars (7%) is supposed to come from “unspecified private capital sources” who will be “repaid with project revenues.” Further, $1.4 billion (10%) would come from “GDC funds” derived from “project revenues.” GDC is the Gateway Development Corporation, which consists of Amtrak, New Jersey Transit, the Port Authority, and the U.S. Department of Transportation. It currently earns no revenues of its own, so it will have a hard time paying $1.6 billion in construction costs. Finally, $178 million, or 1.3 percent of the total, would come from the Port Authority of New York and New Jersey.

In short, New York and New Jersey are nobly committing themselves to cover 1.3 percent of the cost of the project, while they are relying on the federal government to fund a mere 81 percent. Of course, some of that would be loans, but the states may not be obligated to repay those loans unless the project earns sufficient revenues to do so. The private capital sources who are supposed to put up 7 percent are almost purely imaginary, and even if they existed they would demand that they be repaid out of project revenues before the federal government. But before repaying anyone, these mythical project revenues are supposed to cover another 12 percent of the cost.

Pardon me if I sound naive, but what project revenues are we talking about? Amtrak, New Jersey Transit, and the Port Authority are all money-losing operations. Amtrak claims to make money in the Northeast Corridor, but that’s only because it ignores depreciation and the corridor’s $51 billion infrastructure backlog, only part of which is the Hudson Tunnels. New Jersey Transit trains don’t even earn enough fares to cover 60 percent of their operating costs, much less any to pay for maintenance or capital costs.

In other words, Cuomo is asking Trump to have federal taxpayers pay nearly all the up-front costs and to take nearly all the risks of this project. What if self-driving buses put New Jersey Transit and Amtrak out of business — or at least reduce their ridership enough that they have no surplus revenues to repay federal loans? What if many of the firms now located in Manhattan realize that the subway system is never going to be repaired and decide to move away? Who is going to pay for the inevitable cost overruns? New York and New Jersey are clearly trying to get these tunnels while putting up as little of their own money as possible.

The FTA has long had a policy that applicants for transit capital funds must put up half the cost in matching funds, and federal loans don’t count as matching funds. Following this policy, it rated the Hudson Tunnels “medium low.” Congress made the rules, so Cuomo is complaining to the wrong party when he writes Trump, as the Department of Transportation just followed Congressional direction when it gave the project a medium-low rating. If anything, the DOT was generous: the project really deserves a “low” rating.

Since the Bank Secrecy Act (BSA) came into force in 1970, banks and other financial institutions have been subject to extensive reporting requirements on the transactions they perform on customers’ behalf. In subsequent years, notably after 9/11 with passage of the USA PATRIOT Act, Congress has expanded the range of firms subject to these rules and the information that they must collect. In the nearly half-century since the BSA’s passage, so-called anti-money laundering/​know your customer (AML/ KYC) reporting duties have also expanded fortuitously, as the dollar thresholds – typically, $5,000 or $10,000 – for reporting transactions have not been adjusted with inflation.

Law enforcement agencies have encouraged this expansion, warning that, without copious access to transaction activity, they cannot effectively prosecute criminal networks and terrorist groups. National security and the fight against crime are major public policy concerns, so it’s no surprise that politicians from both sides of the aisle tend to support financial regulation aimed at making it harder for the bad guys to engage in nefarious activities. Just last week, the House of Representatives passed a resolution affirming its resolve to “close loopholes that allow corruption, terrorism, and money laundering to infiltrate our country’s financial system.”

Whether AML/ KYC rules are cost-effective, or even just effective, is a different question. A 2016 study by David Burton and Norbert Michel of the Heritage Foundation showed an inverse relationship between the number of BSA-related reports from financial institutions, on one hand, and money-laundering investigations and convictions by the FBI and IRS, on the other. Indeed, of the 5,241,847 suspicious activity reports (SARs) that financial institutions filed with the Treasury’s Financial Crimes Enforcement Network (FinCEN) in 2018, just 1,044,495 are tagged “cyber event,” “money laundering,” or “terrorist financing” – the kind of security threats that BSA regulations are meant to tackle.

By contrast, 1,860,087 SARs (35.5 percent of the total) are labeled “other suspicious transactions,” with almost equally vague sub-labels such as “suspicious use of multiple transaction locations” and “other other suspicious activities” (the double “other” is not a typo). While financial institutions are reluctant to criticize the BSA framework on record, for fear of antagonizing regulators and politicians, this author and other policy analysts have had bankers explain that much BSA reporting is defensive, that is, filed “to be on the safe side” rather than to address legitimate suspicions.

Such overreporting might not be a concern if BSA compliance costs were low. However, that is emphatically not the case: Burton and Michel conservatively estimate the annual compliance burden of AML/ KYC requirements – including both private and government agency costs – at $4.8 to $8 billion. For comparison, 5,259 depository institutions regulated by the Federal Deposit Insurance Corporation (FDIC) have assets below $10 billion, most of them below $1 billion. With such a weighty compliance burden to bear relative to the size of their portfolios, it’s no wonder that community banks, in a 2018 survey conducted by the Federal Reserve Bank of St. Louis, cited the BSA as the costliest of all financial legislation to comply with, accounting for 22.3 percent of their total compliance expenses.

Despite evidence of escalating costs and diminishing returns, AML/ KYC requirements continue to grow. Last year, FinCEN’s new customer due diligence (CDD) rule came into force. It requires financial institutions to collect and submit to the agency information about who owns their corporate clients when they open new accounts. While financial institutions need only report individuals with an ownership stake equal to or greater than 25 percent, indirect owners and individuals “with significant responsibility to control, manage, or direct a legal entity” must also be reported. Where one legal entity is owned by another, the CDD rule requires banks to identify the ultimate owners, a potentially time-consuming process, or else face stiff penalties.

The expected compliance costs from the CDD rule, like those for other BSA-related reporting requirements, are considerable. FinCEN’s own impact assessment – which takes an optimistic view of the benefits to be had from the rule – gives an upper bound for compliance costs equal to $1.5 billion over 10 years. FinCEN estimates the IT costs related to the rule at $20 million for a large bank, $3 million to $5 million for a medium-sized bank, and $50,000 to $70,000 for a small credit union. Considering that the assets of the median credit union are $33 million and that its return on assets is 0.96 percent, the one-off IT costs from the CDD rule alone could wipe out 20 percent of its annual net income.

In response to concerns about the additional reporting burden placed on financial institutions by the CDD rule, both Democratic and Republican representatives in the last Congress introduced bills that would place beneficial ownership reporting requirements on legal entities themselves. The current discussion draft in the Democratic-controlled House is New York Congresswoman Carolyn Maloney’s “Corporate Transparency Act (CTA),” which would require newly formed corporations and limited liability companies to report their beneficial owners to FinCEN directly, and existing ones to do so within two years of the regulations’ coming into force. However, the CTA would not reverse the CDD rule, even though their respective reporting mandates overlap considerably.

The CTA would apply to firms with fewer than 20 employees and less than $5 million in annual sales – ostensibly because those are the characteristics of “shell companies” set up to facilitate criminal activity. Banks, credit unions, broker-dealers, insurance companies, and other large firms would be exempt, as would non-profit organizations. However, all must file with FinCEN to benefit from the exemption, which could prove to be a major burden. Many of the people running these small exempt organizations – charities and religious congregations – would likely be unaware of the new requirements, inadvertently becoming felons subject to penalties of up to $10,000 and up to three years’ imprisonment.

That is not the only problem with the CTA. It defines a beneficial owner as someone who “exercises substantial control,” or who “has a substantial interest in or receives substantial economic benefits from” a legal entity. Establishing the legal reach of the Corporate Transparency Act would likely take many years of litigation, consuming the resources of small businesses that simply cannot afford it.

Indeed, the firms that the bill targets employ 20 million Americans and form a sizable proportion of the total 30.9 million small businesses in the United States. The fact that most “shell corporations” meet the characteristics of a small business does not imply that most small businesses engage in suspect activities. In fact, the vast majority of them not only lack any nefarious intent, but also any skill or opportunity to engage in serious criminal activity. Yet it is they, more than the bad guys, who would be hit by the CTA. Malicious financial operators, on the other hand, could still form partnerships or trusts and escape the bill’s requirements. It’s questionable whether any beneficial ownership reporting regime can improve the enforcement of money-laundering and illicit finance laws at reasonable cost. But all evidence suggests that the CTA would involve a high compliance burden for little public-interest benefit.

Most people agree that national security is a chief task of government. Political representatives take it seriously and are sensitive to enforcement gaps that might constitute security risks. Yet, for too long, we have assessed the Bank Secrecy Act and related legislation by its stated intent and promise, not by whether it leads to net positive outcomes. So onerous has the compliance burden on financial institutions become over the years that those institutions finally shrieked when FinCEN introduced its CDD rule. The solution, however, is not to duplicate that burden by placing it on non-financial firms as well as financial ones. Rather, policymakers should find ways to narrow down reporting requirements to the most pressing concerns – to begin with, by raising reporting thresholds in line with inflation – and to use existing information more productively across different arms of the government.

In fact, much of the information that the CTA attempts to collect for FinCEN is already in the hands of the Internal Revenue Service, which could share it with other agencies for enforcement purposes. While there are legitimate privacy concerns around the IRS’ sharing of private taxpayer information, the CTA raises the same issues and would involve a much greater compliance burden on small firms. Such information-sharing would not set a precedent, either: The Internal Revenue Code contains numerous disclosure provisions in specific cases.

Even the most important and delicate matters of public policy should be subject to cost-benefit analysis. While this approach is gradually becoming the norm within government agencies, it does not seem to have much influenced policymaking on national security issues. Yet calmly assessing the net gains from additional BSA-related regulations will not only help to reduce their compliance burden – it can improve outcomes by allowing public authorities and the private sector to allocate resources to the most pressing concerns.

[Cross-posted from Alt‑M.org]

The United States has “at least $232 billion in critical public transportation” needs, claims the American Public Transportation Association (APTA). Among the “critically needed” infrastructure on APTA’s list are a streetcar in downtown Los Angeles, another one in downtown Sacramento (which local voters have rejected), one in Tempe, and streetcar extensions in Tampa and Kansas City.

Get real: even ardent transit advocates admit that streetcars are stupid. The economic development benefits that supposedly come from streetcars are purely imaginary, and even if they weren’t, it would be hard to describe streetcars — whose average speed, APTA admits, is less than 7.5 miles per hour — as “critically needed.”

Much of the nation’s transit infrastructure is falling apart, and the Department of Transportation has identified $100 billion of infrastructure backlog needs. (Page l — that is, Roman numeral 50 — of the report indicates a backlog of $89.9 billion in 2012 dollars. Converting to 2019 dollars brings this up to $100 billion.) Yet APTA’s “critical needs” list includes only $24 billion worth of “state of good repair” projects. Just about all of the other “needs” listed — $142 billion worth — are new projects or extensions of existing projects.

In fact, few if any of these new projects are “needed” — they are simply transit agency wish lists. For example, it includes $6 billion for phase 2 of New York’s Second Avenue Subway, but no money for rehabilitating New York’s existing, and rapidly deteriorating, subway system. Similarly, it includes $140 million for a new transitway in Alexandria, Virginia, but no money for rehabilitating the DC area’s also rapidly deteriorating Metrorail system. (In case anyone is interested, I’ve converted APTA’s project list into a spreadsheet for easy review and calculations.)

The $166 billion total on APTA’s “Project Examples” list is less than the $232 billion APTA says is needed, but even if all of the difference is “state of good repair” projects, that difference plus the $24 billion on APTA’s list doesn’t add up to what the DOT says is needed to restore transit infrastructure. This shows that even APTA doesn’t take public safety and “crumbling infrastructure” seriously.

I’ve previously pointed out that the best-maintained infrastructure is funded out of user fees. For example, Federal Highway Administration data show that only 2.9 percent of toll bridges are “structurally deficient,” compared with 5.5 percent of state-owned bridges funded mainly out of gas taxes and 12.2 percent of locally-owned bridges that are funded mainly out of general tax dollars. Gas taxes are a user fee, so state bridges are better maintained than local bridges, but tolls are an even better user fee so toll-funded bridges are in the best shape.

Politicians allow infrastructure funded out of tax dollars to deteriorate because they would rather spend money on new projects than maintain old ones. APTA’s list simply confirms this: APTA is trying to entice politicians into funding all sorts of new projects rather than maintain the existing ones that are falling apart.

To justify this spending, APTA claims that transit produces $4 in economic benefits for every $1 spent. This is based on a report prepared for APTA in 2009. This report includes two kinds of benefits from transit spending.

First, when anyone spends money on anything, the recipients of that money turn around and spends it again. That’s called “indirect” or “secondary” benefits. Spending money on digging holes and filling them up would produce similar secondary spending. That doesn’t mean the government should pay people to dig holes and fill them up (although that’s really what it’s doing for many rail transit projects). For one thing, if government didn’t spend that money, there would be more money in the hands of taxpayers, who would spend it, generating just as many secondary benefits.

Second, the study counts cost savings to transit riders and other travelers, such as the savings from not having to own a car, from getting to destinations faster, or from congestion relief. But transit costs far more and travels far slower than automobiles; there is no cost or time savings from substituting expensive, slow methods of transportation for inexpensive, fast methods of transportation. Transit also does not provide a significant amount of congestion relief; in fact, large buses, streetcars, light rail, and commuter trains that have many grade crossings often do more to increase congestion than reduce it.

The study’s arguments are even less plausible today, when transit ridership is shrinking, than they were in 2009, when transit ridership had been growing. Charlotte, Los Angeles, and Portland recently spent hundreds of millions or billions on new light-rail lines or light-rail extensions, yet transit ridership in those regions dropped after the new lines opened. There is no way that can that be good for transit riders or other travelers.

APTA’s wish-list is just one more reason why Congress should only pass an infrastructure bill if it is one that is funded exclusively out of user fees. An infrastructure bill funded out of tax dollars or deficit spending would impose huge costs on taxpayers in order to build unnecessary projects that we won’t be able to afford to maintain. 

The OECD has released results from a survey of 22,000 people in 21 countries regarding their views of government social programs.

Governments in the high-income OECD countries hand out more subsidies than ever, yet many people feel that they are not getting what they want. The OECD survey finds, “There is clear dissatisfaction with existing social policy. Across the surveyed countries, many respondents believe public services and benefits are inadequate and hard to reach.” And the survey finds, “More than half of respondents say they do not receive their fair share of benefits given the taxes they pay.”

Those responses make it sound like people may want a bigger welfare state. But other responses show that people don’t believe that the existing welfare state works very well. Two-thirds of the OECD respondents think, “Many people receive public benefits without deserving them,” as shown in the chart below. And 60 percent across the OECD think that “government does not incorporate the views of people like them when designing social policy.”

In my study of government failure, I found that even as the U.S. government has vastly expanded social programs, the public has not grown fonder of the government, but rather has become more alienated. Public polls show that the share of people who trust the federal government has plunged from about 70 percent in the 1960s to about 20 percent today. Today, about 80 percent of Americans are “angry” or “frustrated” by the federal government, according to Pew. Americans have grown less fond of the government even as the number of programs ostensibly created to help them has increased.

What seems to be going on is that politicians relentlessly propagate myths that the government should coddle the citizenry and that it can do so efficiently. They propagate an expansive public interest theory of government. But actual government programs are inefficient, wasteful, and often counterproductive, which the public choice theory of government better describes. Government realities are different than government dreams.

Governments overpromise and underdeliver, and that seems to underlie the dissatisfaction coming through in these polls.