Tag: waste

MLLG

Public Sector Economics

George Noga

Public Sector Economics

Special interests, rent-seekers and public employee unions

GEORGE NOGA
NOV 12, 2023

My blog frequently refers to public sector economics and it is time for a full post on that topic. There is a branch of economics dedicated to the public sector and Nobel Prizes have been won for pithy analysis of public choice economies.

Many people, particularly the young and progressives, have an infatuation with government. They view elected officials as benevolent, dispassionate actors seeking the best possible social outcomes. In contrast, they view private sector actors as self-interested and greedy. They are half right: private sector decision makers do indeed pursue self interest; however, public sector workers just as shamelessly pursue self interest even when that means throwing the public under the bus.

white concrete building under cloudy sky during daytime

Public sector economics at work

  • The goal of politicians, to the exclusion of all else, is winning the next election. They focus single-mindedly on that goal – no other objective comes close.
  • Their focus is very short term, i.e. the next election. They make disastrous decisions knowing full well they harm the public in the long run. That explains deficits in 57 of the last 62 years. They enact immediate unfunded pensions and other benefits while pushing off the costs as far into the future as possible.
  • Special interest groups, rent-seekers and unions seek to extract value from government without giving value in return. Unionized public sector workers get 25% more than their private sector peers for comparable work. In exchange, unions donate money, campaign workers and votes and the process repeats.
  • Politicians understand they can significantly benefit special interests even when clearly contrary to the public because the benefits are huge in relation to the costs when spread over 330 million taxpayers. For example, sugar subsidies, to a very small number of growers, cost taxpayers $4 billion per year, but that is only $50 per American family – not enough for them to strenuously object.
  • Central planning leads to bad decisions. It ignores real world preferences of real people, creates perverse incentives and results in unintended consequences.
  • The private sector is quick to recognize and to cut losses; for the public sector the incentive is to deny anything is wrong and continue to throw money at it.
  • The incentives and disincentives in government are horribly misaligned such that they reward behavior that is not in the public interest.
  • Politicians get feedback only infrequently during election years. Even then, that feedback is bundled with numerous other issues making it difficult to isolate issues individually. Moreover, in many jurisdictions elections are decided based on identity politics and voting blocks with the issues being an afterthought.
  • Politicians always choose borrowing over raising taxes and go to extreme lengths to make taxes as opaque as possible. In the words of one solon, the goal is to get the most feathers off the goose with the least amount of hissing.
  • In recent years, with interest rates near zero, politicians borrowed short-term instead of locking in historically low long-term rates. They committed this malpractice purely for political reasons so deficits would appear less. Both political parties were culpable as public sector economics applies universally.

Why government fails

Public sector economics demonstrates why government failure is systemic, structural, deeply rooted and incapable of reform. Waste, fraud, abuse and corruption are ingrained and rampant. Government is not based on markets; it is top-down, highly coercive, ignores consumer preferences and artificially creates winners and losers.

Government cannot be fixed and it is futile to try because basic human nature, which is highly responsive to risks, rewards and incentives, is unchanging. Business succeeds, where government fails, precisely because it properly aligns personal rewards and incentives with the goals of the business. Hence, the value proposition offered by the public sector does not attract talented hard working people.

How to reduce public sector pathologies

There is one way – and only one way – to reduce the pathologies inherent in the public sector – they cannot be eliminated – only reduced. The answer is to drastically shrink the size and scope of government. Even then, the public sector will fail, but it will be less of a failure; absolutely nothing else will work.

Americans do not need more government, better government, wiser government or even more frugal government. America needs less government!

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Million Dollar Classrooms

George Noga

New York spends $1 million per classroom
GEORGE NOGA
JUL 9, 2023

I have been involved in the school choice movement (one of my signature issues) on the local, state and national level as an activist and observer for 30 years. I am also a CPA and can reconstruct the true spending by government schools. This post: (1) computes the real amount spent per classroom; (2) compares classroom costs in Florida and New York; and (3) analyzes the results in a unique format that shows the money wasted by government schools. Note: My 3/26/23 post compares FL and NY taxes and spending; you may read it is on my website or in the Substack archives.

woman standing in front of children

Spending Per Classroom in New York

Based on a composite of several sources, New York State spends $30,700 per student; but that is just the starting point. To the base amount of $30,700 must be added:

  • Education spending elsewhere in the state budget and off the budget
  • Federal funding – which usually runs around 10% of total spending
  • Grants from governments, NGOs and others estimated at 5%
  • Funds paid by parents and students also estimated at 5%
  • Proceeds from bonds and other debt instruments
  • Pensions and health care for retirees
  • Debt service on school and mixed purpose bonds

Without an audit it is impossible to know precisely how much all of the above items add to the basic amount. Fortunately, someone already has done the work. The CATO Institute published a study of public school spending in several districts across the USA. CATO determined the average off-budget spending was 44%, while the minimum found in any district was 19%. Placing NY somewhere in the middle of this range, I add 30% or $9,300 to the $30,700 base amount, which results in total spending of $40,000 per student. Since the NY average classroom size is 25, the total spending per classroom is your basic one million dollars. BINGO!

It is not an accident that no human being is able to determine the actual spending on government schools. Educrats and unions intentionally make the data as opaque as possible to prevent anyone knowing the true spending. Despite the gargantuan spending, the quality of education is dismal and no one is happy. Teachers caterwaul about pay; educrats grumble about budgets; and parents flee en masse.

Spending Per Classroom in FL and Compared To NY

Spending data for Florida also is opaque as the funding comes from myriad sources. To be fair, I took data from several sources and chose the one with the highest spending, which is $11,000 per student (national average is $13,200). Adding the same 30% as New York to cover all off budget spending, means FL is spending an added $3,300, equalling total spending of $14,300. Again assuming the same 25 student class size as NY, results in spending $357,000 per classroom.

NY spends $643,000 more or 280% that of FL for each and every classroom. It costs nearly triple to educate each student in government schools in NY compared to FL. Moreover, the quality of education in FL is much higher than NY when using an apples-to-apples comparison. When deconstructing students by race and other metrics (and then reaggregating them), FL ranks #3 in the USA while NY is toward the bottom. People in NY are paying nearly triple and for vastly inferior results.

Analysis of Spending Per Classroom

To the best of my knowledge, no other source uses spending on the classroom level; they all use per student spending. However, looking at the issue by classroom reveals truths that otherwise might be masked. Let’s take a dive into the data.

In NY the average teacher salary is $80,000; when allowing an added 25% to cover benefits, a teacher costs $100,000. Of course, we also must provide for certain schoolwide expenses such as a principal, some assistants, guidance counselors, computer support, PE, art and music teachers, librarian, custodial and support staff. This should add no more than another $100,000 per classroom. And yes, we must allow for the cost of district administration which should add no more than another $50,000 per classroom – raising the total to $250,000 for each NY classroom.

Where is the other $750,000 per NY classroom? NY spends $3.00 outside the classroom for every $1 spent in the classroom, while FL spends $1.50 outside the classroom for each classroom dollar spent. Elite private schools spend about 50 cents outside the classroom for every classroom dollar. The champs are parochial schools, which spend only ten cents outside the classroom for every classroom dollar. Our local parochial school district has 15,000 students and only 3 full time administrators.

The Bottom Line

Waste, fraud, abuse and corruption are endemic in government schools which are incapable of reform. As the juxtaposition of NY and FL shows, spending and quality are uncorrelated and, in fact, negatively correlated. The only solution is universal school choice where the money follows the student. Nothing else will work.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

Why Government Always Fails

George Noga

Government failure is structural and systemic; it is utterly incapable of reform.

 

Why Government Always Fails

By: George Noga – June 21, 2020

          This post explains why government at all levels invariably fails. Next week, our companion posting shows why business succeeds. Sentient people know government fails at everything it attempts, but they often don’t understand why.

          We provide many reasons infra for government failure, but first we must explain the nature of its failure. The causes of government failure are systemic and structural; they are deeply rooted and incapable of reform. Its most common symptoms, waste, fraud, abuse and corruption are organic and cannot be eliminated; it is futile to try.

         Changing political parties, appointing different bureaucrats, increasing oversight by Congress, forming elite study commissions or hiring more inspectors general will have no effect. Government failure can’t be eliminated, but there is one, and only one, way it can be reduced. That solution is revealed at the end of this post – stay tuned.

Reasons for Government Failure

Opposed to Human Nature: A principal reason for its failure is that government is unalterably opposed to human nature, which is unchanged since we lived in trees. Humans are hardwired to advance their self interest and to respond to incentives. All the incentives in government are misaligned and contrary to the public interest. This also explains why socialism never has worked outside of a family, clan or tribe.

Public Sector Economics: This is more an explanation than a reason. It explains, inter alia, why government prefers borrowing over taxation, why taxes are opaque and why failed government programs continue to exist – and even to expand. Politicians and bureaucrats are responding to incentives, but ones that reward them, not the public. And politicians’ biggest (and likely only) incentive is to get reelected.

Failure to Attract Talented, Motivated People: Risks and rewards of government work do not attract highly talented, motivated and hard-working people. Government work tends to attract those who are risk averse and prefer inertia over action. Why would being a bureaucrat appeal to anyone who is capable of succeeding in business?

Not Market Based: Markets gather knowledge from the bottom up based on consumer choices and preferences; all transactions are non-coercive and benefit both parties. Instead of mutually beneficial relationships created by markets, government is top down, highly coercive, ignores consumer preferences and creates winners and losers.

One Person Can’t Make a Difference: Try to name one bureaucrat who transformed government for the better. You can’t because none exists. There are no bureaucratic equivalents of Steve Jobs or Jeff Bezos and there never can be. Such people would never go into government and if they did, they would soon quit in frustration.

Lowest Common Denominator: Politicians succeed most often when they appeal to our basest instincts, or lowest common denominator – instead of to the better angels of our nature. That explains why they divide people by race, gender, age and income and pursue policies they know are detrimental to those whom they represent.

Too Big to Manage: There is no way 537 politicians can manage a $4 trillion budget. Few of them have the necessary private sector experience; most serve only a few years and they have wildly different ideas about what should be done. Moreover, they are not held accountable for their (mis)management of government spending.

         Government failure, with its embedded waste, fraud, abuse and corruption, has been with us since George Washington’s administration. It never can be eliminated. There is only one way it can be reduced and that is to shrink the overall size and scope of government. That’s one reason our mantra is: more liberty and less government!

Our next post on June 28th explains why business succeeds.
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us