State and Private Waste

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State and Private Waste

by Ari Armstrong, October 6, 2005

On September 25, Ed Quillen mentioned in his column for The Denver Post that corporate welfare distributed by such Colorado agencies as the Economic Development Commission pretty obviously violates the state constitution.

But Quillen also offers some criticism against the type of arguments I make in my paper, "Wasteful Spending by Colorado Government." Quillen writes, "One major argument against Referendum C is that even in a time of financial constraints, the state has wasted tax money, and thus if the state got more money, the waste would grow. Part of that argument is unfair and deceptive. Any organization, public or private, that spends $14.6 billion a year is going to waste some of it. Good management will minimize the waste, but there will always be some. There will be things which seemed like good ideas at the time (perhaps 'Project Beanpole,' which was supposed to link county seats with high-speed fiber-optic data lines), but didn't work out. There will be salaries paid to inexperienced people like Marc Holtzman when he was state technology director and overpriced software purchased from multi-national computer outfits. Those things happen in any large enterprise, no matter how frugal it tries to be."

Of course, Quillen is on to something here. I would even expand his point: even small enterprises, even family budgets, are likely to include some items that most people would would consider wasteful or that, by some objective criteria, are wasteful.

But there is a major difference between waste by government involving tax dollars and waste by private parties, including individuals, families, nonprofits, small business, and large corporations. When the government wastes tax dollars, the people who do the wasting are not the same people who bear the costs. When private parties waste money, they pay for it. And that makes all the difference in the world.

Private parties have an automatic and strong incentive to economize, spend resources prudently, look for high-value deals, and make the best use of their money. And if they sometimes fail, they bear the full costs of their mistakes. Thus, there's no particular need, for instance, for me to track your private spending habits. If you spend wastefully, that's your problem, not mine. I have no incentive or good reason to track your spending, and you have every incentive to track your own spending.

What's more, what is considered wasteful is largely open to interpretation. Okay, everybody considers the state's purchase of Viagra and other sex drugs for registered sex offenders to be wasteful, and that practice stopped once the AP reported it. But some people have defended the state's $5,000 grant to an artist based partly on her submitted work, "12 Dildos on Hooks." So is that a wasteful expense, or not? I don't care if you use your own money to fund dildo artists. But if you use my money for that purpose, I care quite a lot.

Large organizations, such as corporations (with stockholders) and charity organizations (with donors) also spend money on behalf of others. But here again there's quite a difference between state and private action. If I don't like the way a corporation is going, I can refuse to buy stocks in that corporation. If I don't think a charity is spending its money wisely, I can withhold my money from that charity and send it somewhere else. But I simply cannot legally withhold my money from the state. If you tried to explain to the state tax agency that you are choosing to reduce your tax payments on the grounds that the state is wasting money, the state tax agency would eventually send armed men to seize your assets. Private parties do not have that coercive power.

Because taxation is coercive, and because of the problem of concentrated benefits with dispersed costs (i.e., the few benefit at the expense of the many), politicians (and their bureaucrats) have little incentive to economize on spending. Indeed, often politicians are rewarded precisely for spending money wastefully to enrich special interests.

So there are really only two ways to rein in wasteful state spending. First, citizens can keep a watchful eye on it. Second, citizens can enact tight budgetary restraints that establish spending limits, restrict the growth of spending, and prevent or at least limit debt financing. Thankfully, in Colorado we have such budgetary restraints in place that work pretty well. Most importantly, we have the Taxpayer's Bill of Rights.

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