When Government ‘Saves Money’ And Gets ‘Smaller,’ We All Lose

Dave Johnson

Many say we should “run government like a business” and “save money” by “cutting spending” and “making government smaller.” Does this work? Do We the People really save money by doing these things?

Have you heard the phrase “penny-wise and pound-foolish”? How about “a stitch in time saves nine”? Maybe “eating the seed corn?” When government “saves money,” all of these snippets of time-honored wisdom, warning of what happens to those who try to “do it on the cheap,” should come to mind.

Infrastructure

You can “save money” by not changing the oil in your car. But have you ever seen a car that has never had its oil changed? After a while white smoke pours out the back because the rings are ruined. Other parts of the engine are also being ruined. Eventually the engine will seize up and quit and you have to either replace the engine or scrap the car. A simple and inexpensive procedure every few months would have prevented many thousands of dollars in expenses later.

After the Reagan tax cuts we “made government smaller” in several ways that are coming back to bite us now. One way we “saved money” by not “changing the oil” was by deferring maintenance of the country’s infrastructure – the water systems, levees, dams, roads, bridges, airports, ports, rails systems, electrical systems, and the rest of the things we all rely on to bring us safe water, get us to work, ship products and generally move our economy and live our lives.

Now the American Society of Civil Engineers’ (ASCE) most recent “Infrastructure Report Card” estimates we need to spend $3.6 trillion just to bring the infrastructure up to where it should be, never mind catching up to the rest of the word with high-speed rail and smart electrical grid systems. The bill is getting more expensive every year, and people are dying as bridges, roads and other important infrastructure components fail. Thousands died in New Orleans when the levees failed.

Deferring maintenance is also known as eating the seed corn. As the infrastructure deteriorates, businesses find it harder to get things done, people find it harder to get to work. The prosperity that comes from good infrastructure erodes, so the tax base erodes, the problems accelerate. This is also known as, “Hey look around you in 2016 America.”

Flint

The Flint tragedy shows how much money “big government” actually saves us.

Michigan Republicans tried to “save money,” “make government smaller” and run the city of Flint “like a business.” Thousands of human beings ended up being poisoned. Now someone is going to have to pay to cover the health care needs of all those people. That someone might be the people themselves or maybe all of us will pitch in through our government, but a cost is a cost.

Someone will need to cover either the remedial education cost for all the kids whose brains were affected by lead, or the societal costs if this is not done. Then there is the cost to replace Flint’s water pipes, the cost of plunging property values, the cost of all the businesses that will choose to leave or not locate in Flint.

Costs, costs, costs, some borne by government, most borne by individuals but costs nonetheless – because Republicans said we should “run government like a business” and “save money.”

Flint shows how basic government spending saves all of us from paying the enormous costs of living with the danger of unsafe water.

Cutting Senior Nutrition Programs

The post “Here’s A Sequester Cut You’ll Feel In Your Gut” described the results from budget cuts forced by Republicans wanting to make government “smaller.” The “sequester” cuts in senior nutritional programs caused seniors to need to be hospitalized for malnutrition – which costs government a tremendous amount more than the “savings” from cutting.

[F]or all the damage these cruel cuts do to actual, real people, they don’t even actually “cut” spending, they increase spending. Because doing cruel things to actual, real people leads to cruel results.

If government “saves money” by cutting nutritional programs, government ends up paying a lot of money to treat malnutrition. If government won’t pay those costs because it is “saving money” by denying health care services those costs don’t go away, they are just shifted onto individuals. The affected people have to pay, one way or another, with their money or their health. The communities they live in have to pay as its members suffer or become impoverished.

California’s Bay Bridge

California “saved money” by buying Chinese steel instead of using local suppliers when rebuilding the San Francisco Bay Bridge. The result? From “Should Be Made In America!“:

This outsourcing cost of thousands of American manufacturing jobs (3.5 million man-hours), which meant:

● loss of state and federal tax revenue from taxes on the wages and taxes of the workers and taxes on the companies that employed them,
● outgoing cost of unemployment benefits, food stamps and other “safety net” programs, cost of resulting foreclosures,
● the “ripple effect” economic costs of all these lost jobs — lost sales at stores, restaurants, gas stations, etc.,
● loss of worker training and in-country manufacturing infrastructure.

Just to top it off, by buying the steel from China, “California Taxpayers Financed A New Chinese Competitor!“:

Never mind the cost of lost tax revenues, unemployment benefits, food stamps and other “safety net” programs for the lost workers and bankrupted companies that resulted. And never mind the cost to the larger economy and country from the foreclosures, closed businesses, lost jobs, etc.

[. . .] California paid for this Chinese state-owned company to build its capacity to do major infrastructure projects like this one. And they will be bidding against American companies on project in the United States and around the world from now on.

One state agency “saved money.” Thousands of workers, the state’s economy, other state agencies, the federal government and American businesses hoping to bid on bridge projects around the world? They paid and continue to pay the cost.

Privatization

Local, state and Federally, government “save money” by privatizing services and selling buildings and other assets. But studies have shown what really happens when governments “save money” by privatizing.

What really happens when, say, a city “saves money” by privatizing, for example, its waste pickup services? The current employees, paid an OK salary, probably with good benefits, are laid off. The contractor hires people at low or minimum wage with few or no benefits. The business “saves money” by cutting back on personnel costs, services and maintenance of equipment.

The former city employees, if they can find jobs at all, will be paid very little, homes go into foreclosure – which lowers property values citywide. They stop being able to do much shopping, hurting the local economy. They likely will need public assistance, which means costs were shifted to another branch of government instead of being “saved.” Their kids will need special services in the schools, as poor kids often do. And on it goes. Of course, they are no longer paying taxes.

Meanwhile the new workers won’t be paid enough to purchase homes, do much shopping, or pay much in taxes. They probably will qualify for public assistance; their kids will need special attention in the schools.

The privatization scheme forces people into poverty and onto public assistance, eroding the tax base, forcing local wages and property values down and generally putting all of us further under the thumb of those who have convinced people who “private companies always do everything better than government.” The contractor companies are often specialists in avoiding taxation themselves. One thing private companies are good at is driving every benefit of our economy upwards to a concentrated and privileged few.

Medicare-for-All

Another recent example that showed how government spending actually saves each of us money is Sen. Bernie Sanders’ proposal for a national Medicare-for-All health system. Instead of shifting the costs onto individuals through higher premiums, co-pays and deductibles, Medicare-for-All just covers everyone and does so at a lower aggregate cost.

While government might “spend money” and we might have to “pay more taxes,” the end result is a huge net savings. We would all pay a little more in taxes and a lot less in premiums, co-pays and deductibles. Meanwhile the country’s overall health care costs would drop dramatically. It is estimated that the typical middle class family would save over $5,000 in premiums and other costs.

Cost Shifting

Running government like a business doesn’t take something important into account: Businesses try to shift costs onto others. When government “saves money” by cutting budgets the costs are still there, but they are shifted onto individuals. And often the total cost paid by all those individuals is much higher than if government took care of things, because of the rule of economy of scale as well as the government’s negotiating power.

For example, government can “save money” by not funding a fire department, and not having a fire inspector. Of course, many of us will have to spend a lot of our own money to either pay for our own fire protection or risk the cost to rebuild our houses. And all of us would have to spend a lot of money if the whole town burns down. But hey, we “saved money” not paying for a fire department.

What about government “saving money” by cutting back on education budgets? Not only does this hurt local businesses, but property values are higher when there are “good schools” nearby. So the cost is shifted onto the businesses and individuals, when you “run government like a business.” Because that’s what businesses do.

Shifting costs from government onto the rest of us actually costs us more money than we save on taxes.

What Is Government’s Job?

What is our government for? Is it to operate like a business and make a profit off of We the People? Or is it a mechanism for all of us to decide to get together to do things that make our lives better?

If government cuts corners, tries to do things “on the cheap” like a business, we end up with results that cost more than we would have paid to do something right. When government “saves money” by shifting costs onto individuals, economies of scale and negotiating power are lost and aggregate costs go up, like what has happened in our health care system. And government cutting corners often leads to bad, even cruel results in people’s lives.

Do we really want to “run our government like a business” and “save money” with “smaller government,” cutting corners, eating the seed corn, shifting costs onto the backs of individuals? Because government is supposed to be about people’s lives, not profits.

Government is supposed to be We the People making decisions about how to make our lives better. Do we really want a “smaller” ability to make decisions about how to make our lives better? Do we really want to “cut” the ways we make each other’s lives better?

There is often a good reason for those “big government” budgets.

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