If Governments Aren’t Wasting Money, They’re Doing it Wrong

Canada, Commentary, Local Government, Steve Lafleur (historic), Taxation, Uncategorized

Tales of government waste make for excellent news headlines. Bev Oda’s infamous $16 orange juice probably got more media attention than the $45 billion F35 procurement debacle. Part of the reason is that is that people understand the value and cost of orange juice. It also fits into the narrative that politicians are entitled and out of touch. It also plays into a woefully misguided theory foisted by populists: that governments can find large savings in their budgets by eliminating obvious waste.

While spending can be trimmed here and there, any large organization is bound to undertake some wasteful spending, and many spending initiatives that may seem superficially wasteful. Rooting out waste can actually cost more money than it saves while reducing the effectiveness of bureaucracies. In reality, structural changes are generally required to reduce departmental budgets. Rather than focusing on waste, analysts and the media should instead focus on getting more value for money from governments. We need to pay less attention to tens of dollars and more attention to billions.

In his excellent book How Not to Be Wrong: The Power of Mathematical Thinking, Jordan Ellenberg, Professor of Mathematics at the University of Wisconsin-Madison argued that “we shouldn’t be asking, “Why are we wasting the taxpayer’s money?,” but “What’s the right amount of the taxpayer’s money to be wasting?” That might seem offensive to honest, hard working people, but it is merely a recognition that waste comes in many forms. Excessive compliance can cost more time and money than the waste it seeks to stamp out. Violators should be punished when they are caught, but spending public resources to find small amounts of waste can be much more wasteful.

As an example, consider a bureaucrat who mysteriously requisitions new pens more frequently than average. In order to identify this problem, the department would need to analyse the number of pens being used, monitor workers to ensure they aren’t stealing pens, then discipline them when caught. Though this might save a few dollars in pens, it would cost thousands of dollars per department in compliance. The optimal amount of waste is not zero. As Ellensberg puts it, “if your government isn’t wasteful, you’re spending too much time fighting government waste.”

When waste is systematic and substantial, or in very large amounts, voters should be concerned. But focusing on thousands, even millions of dollars, often distracts from much larger problems. Consider the $12,000 Waterfront Toronto spent on umbrellas. Even if that spending was wasteful – Waterfront Toronto argues that it is part of a beautification effort to lure development Downtown – it is a drop in the bucket compared to the $6 billion annually lost to traffic congestion in Toronto, or the $1.5 billion extra that the City is poised to spend to build a subway to Scarborough rather than the initially planned LRT. Stopping the “gravy train” at Waterfront Toronto isn’t going to fund the Scarborough Subway. The most egregious waste is often the most difficult to conceptualize due to its magnitude. People understand that $12,000 is a lot for an umbrella, but determining whether $3 billion is a reasonable price tag for mass transit to Scarborough requires a lot of information.

There are ways to save money at all levels of government. Making better decisions about capital investments (including tools such as public-private partnerships, where appropriate) can save considerable amounts of money. Eliminating distortionary subsidies widely reviled by economists is another approach. In many cases, re-thinking the role of government in certain sectors of the economy makes sense. Consider the widespread privatization of crown corporations between the mid-80s and mid-90s. That turned money losing government enterprises into competitive private companies.

The above approaches can only work with sober analysis and proper implementation, potentially saving millions or even billions of dollars – $15 billion in the case of CN Railway alone. If defense procurement received the same scrutiny as political expense accounts we could find serious savings to return to Canadians in the form of lower taxes, better services, or both.

Diverting our attention to larger structural issues rather than one-off scandals would present opportunities to materially improve the wellbeing of Canadians, rather than indulging their frustration. That would take leadership from non-profits, advocacy groups, and the media. That is a lot to ask, but if they aren’t going to do that, why do they even exist?