I once wrote a piece about new Presidents and their inability to stop institutional government spending and waste. I could do an audit of government spending and deliver the same services for 50% of what we are spending today.

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I once wrote a piece about new Presidents and their inability to stop institutional government spending and waste.  I could do an audit of government spending and deliver the same services for 50% of what we are spending today.  The built-in waste/fraud in our procurement process is something that a new President seriously needs to understand.  We do not need new taxes, we need new courageous and bold policy.

I also pointed out in that piece that a new President will always be at his/her level of incompetence immediately upon taking office.  No human has the capability to understand all the complicated issues even if the cabinet members can help.  Most of the appointees are cronies in one form or another and just wont cut it. 

Below is a chapter from a book by Adam Cash: How To Do Business "Off The Books." It was written in 1985 and is a must read for what all of us need to know about government spending.

Why Government Spending Will Not Decrease

By
Adam Cash

Nowadays, few can fail to be aware that the government wastes their tax money, but the true extent of this waste is astonishing - and even worse is how waste is actually built into the system!  We have read how the Department of Defense has paid hundreds of dollars for such items as screwdrivers and hammers, which are available in any hardware store for a few dollars each, or even cheaper.

It clearly doesn't matter which party is in power.  Put very simply, the candidates on both sides tell the same tired lies year after year, and many voters still believe them. It is not exclusively an American problem, either, as voters in France, Britain, and other Western countries repeatedly elect the same sort of politicians that we Americans do.

The real problem is deeper than the mediocre quality of our elected officials.  Despite strident accusations by some, these are for the most part not evil men, intent on worsening the lot of the people who put them into office.  Instead, they are marginally competent men, unable to understand the large issues, lost in the mass of immediate details, and trying to find a compromise between conflicting needs.

Let's look at "defense" spending, to get an insight into why our "national security" threatens to destroy our economy with its voracious appetite for ever more and more expensive weapons.

A common slogan is, "War is good for business."  This is true, in the sense that the need for large numbers of weapons and support items do bring large government contracts and create jobs in the areas where the factories producing these weapons are located.  However, the basic fact is that our national resources are limited.  This is the most powerful industrial nation in the world, but it is still not quite able to produce both guns and butter, despite the assurance of various Presidents that it can.  Money spent on weapons has to come from somewhere, and this means one or more of these sources: Taxpayers, who pay higher rates.  This absorbs a lot of the overtime pay that defense industry workers enjoy diverting from other government projects, such as building and maintaining our highway systems.  One result of this is the increasing deterioration of our roads, which will become critical during this decade unless the trend reverses.

The national debt is out of hand, has been for several decades, and despite the promises of our current President, plans for reducing it are mostly fantasy. A good example of why our defense spending keeps increasing is the B-1 bomber.  The last version of the B-17 "Flying Fortress" heavy bomber produced in WWII cost $276,000 each.  Since, bombers have become more "sophisticated," which is governmentalese for complicated, and their prices have gone up to the sky, literally.

When the B-1 was first proposed, the projected price was about $20 million apiece. This was to be the most sophisticated, versatile, and capable weapons system in our arsenal and, of course, it had its price.  The already existing systems, did not seem like a very good deal  to President Carter, and he cancelled the program in 1977, after the projected price of each aircraft had gone to about $90 million. President Reagan took another look at it, and decided that the Air Force should have it, but the price in 1981 was at $200 million apiece.  By 1983, when the bomber was included in the procurement budget, the price had gone up to $553 million each.

We can't blame inflation or union demands for all these price increases.  The reasons lie in the method of procurement, and the nature of technology itself.  Each armed service must compete with the other services for a share of the defense dollar.  To do so, the service chiefs try to present attractive pictures of their needs, and to understate the costs.  For example, when an Air Force General quotes a price for the B-1, he's likely to be giving the price of the airplane alone, not mentioning the cost of new bases and other facilities needed to service the plane, the costs of training the people who will fly and maintain it, the costs of ancillary weapons systems it will carry, and the cost overruns which he anticipates.

This is bad enough, and the eventual cost of each aircraft could easily exceed one billion dollars, when we count all the expenses that will go with it.  However, there's worse.
We occasionally buy "interim models" - weapons that are not really suitable for the job.  Sometimes, this is simply due to a mistake.  More often, it's deliberate policy, which is hidden from the voters and taxpayers.

Not counting the prospect of bribes to generals and admirals and the expense-paid trips that companies lavish upon them, there is a serous purpose to buying inferior models of weapons.  The purpose has to do with research and development, and lead times.

It is impossible to build a modern complicated weapon from scratch.  There has to be a design team, and a factory with the proper equipment.  In order to procure the weapon, the Pentagon has to buy it from a company that can make it.  If a company does not get enough government contracts to keep it going, it will go out of business.  The skilled workers will find employment elsewhere, and perhaps be lost to the industry as a whole.

Normally, it takes about ten years to design an aircraft and get it into production.  This is with an established company that is a going concern.  It would take even longer if the project came into the hands of a company that had to assemble a team of engineers, build a manufacturing facility, and start from zero. This is why it's in the Pentagon's interest to keep the various companies that comprise the "defense industry" alive and well, even if it means buying inferior models. 

Another factor is the increasingly rapid pace of technological advances.  The slogan, "If it works, it's obsolete," is not just a joke.  It is quite literally true.  Better weapons are always on the drawing boards.  This means that a weapon that is the latest thing today will be obsolete as soon as the competition brings out a new model.  This does not necessarily mean a competing company in this country.  To return to the example of the B-1, if the Russians bring out a new fighter with enhanced electronics and missiles that is capable of shooting it down, it's time to go back to the drawing board and improve the B-1, or to design a completely new aircraft.

Often a new plane is not practical because of the huge cost involved.  It's cheaper to "upgrade" the existing model, to tack on some improvements that will give it the ability to do a better job.  This, too, costs money, and it's impossible to anticipate the cost when ordering the original model.

This close examination of one weapon has given some insight into why the government spends more and more, and why there is no hope for ever keeping spending down. Also, we must remember that the very structure of our tax system and the agencies which collect the money is redundant and wasteful.  To give a simple example, a resident of New York City pays Federal income tax.  He also pays New York State income tax.  On top of this, he has to file a New York City income tax return.  Here we have three redundant bureaucracies doing the same job. 

Now let's look at local government and see why it spends money wastefully. We have, by law and by tradition, a system of local governments because of the states' rights provision in the Constitution.  We shun a strong central government, even though that's what we have today.  Actually, we have the worst of both possible worlds.  Let's look at one function of local government to see how this works in practice.  Let's look at the police.

Americans don't want a national police force.  We like to keep our police forces local, under local control.  What we get is a complex system of competing and overlapping jurisdictions, each with its own police force, each following its own laws and procedures. Typically, a criminal is arrested by a town police force for violating the state's criminal code.  He's housed in the town jail until arraigned in the state court, by a county prosecutor.  During the trial, he's the responsibility of the county sheriff, who keeps him in the county jail.  If he's convicted, and the violation is a major one, he then goes to the state prison to serve his sentence.

Let's take another example, a more common one of a simple traffic accident.  Two cars collide in a street the centerline of which is the boundary between the city and the county.  A city police officer arriving at the scene determines that, as the cars have come to rest in the county, it's the responsibility of the sheriff's office, and he radios for a deputy to come do the paperwork.  He stands by, re-directing traffic, while the deputy is on his way  When the deputy arrives, he pursues the investigation, and cites one of the parties for violating a state traffic law, thereby causing the accident.  As a routine part of his investigation, he radios for a "10-29," a routine check to determine if either of the parties is a fugitive from justice.  His dispatcher sends a request to the state crime computer, and one to the National Crime Information Center, run by the U.S. Department of Justice in Washington, to see if there are any interstate "wants" on them.

These are normal, routine, bureaucratic complications.  They involve a lot of overly-complicated paperwork, which costs money. Thus, we see that the cost of inefficiencies in our government can't be measured only in money.  It's far more serious than that.  The net result is that, although we pay more for government than ever before, we are not getting what we're paying for.

Our various levels of government increase in size and cost, but not in effectiveness.  In fact, as long as they continue to be organized the way they are, they'll continue to be less effective with each passing year.  Less effective and more expensive.  That is the hard reality of the "system."  That is why government spending will not decrease, regardless of the promises of politicians.

Authors Website: www.paradigmventure.com

Authors Bio:
Sheldon Drobny was the co-founder of Nova M radio and  Air America Radio. He has supported many philanthropic causes. Mr. Drobny specializes in business and tax matters and is admitted to practice before the U.S. Tax Court as a non-attorney. Less than 200 non-attorneys have been admitted to practice before the U.S. Tax Court since its inception in 1942. Mr. Drobny received a Bachelor of Science Degree in accounting from Roosevelt University in Chicago and is a member of Beta Gamma Sigma, an honorary fraternity recognizing acadamic achievement in colleges of business administration.