Reflections on the intersection of economics, history, politics, psychology and science

It’s a fairly common trope – and often an overused campaign line – that government is “wasteful.” But what does it mean to be “wasteful” (or “efficient” for that matter), and is it true that governments aren’t good stewards of our money? As you can imagine, the answer isn’t as straightforward as it may appear. And if there’s one thing we at the Boiling Frog love to do, it’s dive into things that aren’t straightforward! So have a listen to our latest podcast, Waste, Frog and Abuse!

The word “waste” is often used loosely, so it needs to be defined a bit more clearly. When we speak of waste, we’re probably thinking of one of three possible situations: (a) poor financial management, (b) some form of corruption, and/or (c) spending money on initiatives where there isn’t a universal consensus on the objective.

It is true that governments lack two forces which, in a general sense, would seek to reduce poor financial management: the profit incentive and competition. And we’ve all seen big headlines about government waste, although often these examples often mix up “average” and “marginal” costs, where the former includes fixed costs allocated over each unit. And there are cases where the public’s analysis of government spending is just flawed and/or incomplete, for example when many fail to understand public schools’ spending on “administration.”

There a myriad of reasons – some more benign than others – why public projects often seem much more expensive than they should be could be a combination of factors, including:

  • A lack of profit incentive and competition
  • A potential for corruption, where someone in power is using that power to benefit themselves personally
  • Ensuring there are benefits for multiple constituencies in order to garner political support 
  • The fact that the project is probably more complex than it appears on the surface
  • The fact that different people value the project differently

The last point is critical. As government is designed to serve everyone, there are few cases where everyone will agree on the end goal. Think about high speed rail in California – if you are personally not in favor of the state spending money on high-speed rail, then from your point of view it’s a “waste” of money, whereas proponents would consider it an “investment.”

So, is the government full of fraud and abuse? It certainly exists, because where there is power there will be a subset of people who take advantage of it for personal gain. And when that government doesn’t do a good job of meeting community needs the population will be tempted to overlook the corruption, or even actively support it on a personal level. But the classic example of bribery and kickbacks doesn’t happen on the scale people think it does – because of the relative openness of government, we tend to learn about the examples when it does happen!

However, there are other kinds of public corruption that are overlooked, such as the fact that elected officials are able to trade stocks or that our entire political system is based on privately funded election campaigns. Both of these have real obvious and hidden costs to the community and to the public trust. 

However, the cry of government “waste, fraud, and abuse” often both ignores the different contexts of government and is often hypocritical. Just because we don’t hear about such mistakes or misconduct in the private sector as much, that hardly means it doesn’t exist, or even exist on a much bigger scale. Anyone who has had any significant business experience has personally witnessed all forms of bad behavior, everything from padding expense reports to lying to customers to actual fraud.

Although the unique context of a government’s role should not be used as an excuse to defend poorly performing public institutions or instances where there is indeed waste, fraud, or abuse, simply making blanket and hollow accusations actually detracts from the discussion of the real issues facing our community. There are solutions, however, to improve government performance and accountability, including strengthening government ethics and transparency laws as well as other ideas discussed in the podcast.

Key Terms Used

Average Cost, Externality, Hindsight Bias, Marginal Cost, Public Good, Risk

Related Resources

Nothing is Away from the Classroom

The Myth of “Waste, Fraud, and Abuse”

Lessons from School Board Service