Failure is not a (government) option

Matthew Melchiorre Analyst, Competitive Enterprise Institute
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At his press conference on the debt ceiling negotiations, President Obama lamented that he’d rather “be talking about stuff that everybody welcomes, like new [government] programs.” The president’s statement reveals a lot about his attitude toward government spending — one which many other politicians share — and demonstrates just how we got into the current debt crisis.

It also reveals a much more startling truth. He didn’t say that he’d rather be fighting poverty or combating pollution. Instead, the president essentially said that he wants to grow the size of government for its own sake.

The trouble for the president is that Americans want less government spending, not more. A June 2011 CNN poll reported that 63 percent of those surveyed thought that government was too involved in our economy. In other words, nearly two-thirds of the American people want government to leave individuals and businesses to make their own decisions.

There’s a good reason for that — government has tried spending to gin up the economy, without success. The $823 billion stimulus, the largest spending bill in history, led to 6.5 million fewer jobs than advertised, and has been followed by the slowest economic recovery since the Great Depression.

It’s no wonder the public doesn’t trust Congress and the president to fix the economy — they can’t. The only tool government has is to take money out of the economy and put it back in somewhere else. That’s a zero-sum proposition. Add in the transaction costs and political favoritism, and the stimulus is a losing deal by its very nature.

But the costs of government spending are not just about dollars and cents lost through waste and opportunity costs. Government consistently rewards itself with more money and resources every time it fails, turning incentives on their head. To a businessman, failure means liquidation. To a bureaucrat, failure means a bigger budget and an expanded mission.

Rewarding failure only causes more of it. Take the Department of Education as an example. Test scores have barely budged in 40 years, despite a tripling of federal spending on K-12 education over that time. Test scores didn’t go up? Spend some more money!

Rewarding outright reckless behavior is even worse, yet that is exactly what the federal government did in the wake of the financial crisis. After the government-sponsored entities Fannie Mae and Freddie Mac helped create the subprime mortgage disaster, the U.S. Treasury didn’t punish them. Instead, it removed each of their $200 billion funding caps and offered them unlimited support through 2012.

President Obama ignores a long history of government failure when he wishes for more programs and more spending, as well as the will of a majority of the American people. Fortunately, the debt ceiling debate is forcing congressional Democrats and even the president to put some of their sacred cow programs on the table. They should continue cutting spending even after the debt ceiling battle has ended.

Matthew Melchiorre is a Research Associate at the Competitive Enterprise Institute.