Monday, March 29, 2010

How bureaucrats deal with budget crises

This is a true story from almost 40 years ago, but it may be subject to some memory lapses and faulty recollections of facts on my part. I tell the story now because I think people need to understand why it is that government is so bad at controlling spending, especially now that spending is so out of control and deficits are approaching unimaginable levels.

Background: I was a young LTJG in the Coast Guard from 1972-75, and I was stationed in San Francisco as the Deputy Director of the 12th District Coast Guard Auxiliary. Sometime during that period, I can't remember exactly when, there was a federal budget crisis and the solution was to cut all federal budgets by 10% or so across the board. As it happened, when the 12th District command called a meeting of all division heads to develop a plan to implement this sizeable budget cut, I was the stand-in for my commanding officer because he was out of town.

Perhaps it was the Admiral who addressed the meeting, but I can't be sure. Nevertheless, his plan was straightforward. Instead of asking each division head to shoulder their share of the budget cut burden, the plan was to take the entire cut out of the Search and Rescue division's budget, leaving them with almost nothing. As of a certain date, the Coast Guard would suspend all search and rescue operations due to the budget cut.

The plan had an unspoken assumption that was explained to those of us present at the meeting: the public hue and cry that would result from such a draconian cut to emergency services would be huge, and it would likely persuade Congress to exempt the Coast Guard from the across-the-board budget cuts. And so it was. The Coast Guard never had to take that 10% cut, even though my budget had plenty of room to cut, and I imagine that many other departments and divisions could have taken a cut as well.

From that experience as well as others, I came to understand the difference between the public and the private sector. The private sector is all about survival: if your revenues drop, you have to cut your spending. The public sector is all about politics: your survival and prestige is a function of the size of your budget, so you never consent to a cut. Instead, you always ask for more and more spending authority, no matter what.

10 comments:

Colin said...

Ah, the famous Washington Monument Syndrome:

http://en.wikipedia.org/wiki/Washington_Monument_Syndrome

janie said...

That's a good example. Another one I noticed is that when California ran into their latest budget crisis, politicians said the state would have no choice but to release thousands of prisoners, including some who were criminally insane. Yeah, that's the first thing to do, alright. We certainly wouldn't want to reduce the public payroll or something crazy like that.

W.E. Heasley said...

Mr. Grannis:

A few years after you were in the Coast Guard , you could find me as an underground coal miner while going through college. Every once in a while the government mine inspector would come by. You couldn’t miss him. He was all dressed up in a space suit that appeared to be right out of NASA and had enough reflective tape on his outfit that he became blinding when you shown your helmet light onto him.

Anyway, one day I asked him why he was so picky. That the items he wrote us up upon where not safety items, but more like items based on the way he thought things ought to be.

Here was his answer: “The more violations I find the more they need my position, it’s a job security issue ,Sonny”. Remember him calling me “Sonny”.

Donny Baseball said...

Scott-
Great story, I have a similar one. I was a low-level Marketing guy at a manufacturer of foodservice equipment and we supplied the NYC school system's cafeterias. One day a procurment official called up wondering when a $75,000 order for equipment would arrive. After some easy research, I told him that it arrived several months prior, I even got the name of the receiving clerk that signed for it, and the check number that they paid us with. Turns out the equipment was stolen right out of their central warehouse. What did they do? Placed another $75,000 order for the exact same equipment...

alstry said...

GREAT POST!!!

As we both know, this whole "recovery" is based on government and Wall Street borrowing approximately $3.5 trillion last year and spending much of it(the rest being used to create the illusion of increasing cash)....approximately $10,000 for every man, woman and child in the nation.

Could you imagine the stimulous if the above amount was doubled?

As you reflect, government will keep taking from us until we run out of savings...the only question now is not if...but when?

Scott Grannis said...

Colin: thanks for the reference, of which I was unaware. I'm not surprised, however, that this sort of thing has become a routine maneuver.

Paul said...

Scott,

Excellent example, but sometimes the private sector works in similiar fashion in large enterprises. I used to work for one of the largest financial companies, and dept heads were always sure to spend their allocated $ or they feared they would
be allocated less money the following year.

Benjamin said...

Excellent story-and I love our men and women in uniform, some of the best people you will ever meet.

But that story is the federal government, from USDA, through Dep't of Education, through the Department of Defense.

In the next 10 years, the United States will spend about $10 trillion on national defense.

For a typical American family of four, that works out to about $133,000 in the next 10 years--enough for a modest house. For every family in the country.

Every family in the country could have a second country cottage-home for the money we will spend on defense.

No one, Dem. or Repub. seems concerned about this outlay, which will be financed by borrowing, undoubtedly. Milton Friedman suggested a progressive consumption tax for wartime outlays, and we spent on defense as if we are in a permanent war. Indeed, many say we are in a a permanent war against terrorists. So be it--we should not borrow the money, and should tax ourselves accordingly.

I can assure veryone of one thing: In 10 years, after we have borrowed and spent the $10 trillion, the Department of Defense will testify to the fresh dangers on the horizon, and how the equipment is aging, and how retention rates for good soldiers are low. We will be required to borrow and spend even more money.

Bill said...

Scott,

That seems to be the case for the federal government, but I will say that our local govts in Georgia are dealing with budget crises by making deep cuts accross the board. Many local school districts are facing $100 million shortfalls and are cutting teachers and administrators by the hundreds because they are required to balance their budgets. It's sad for the folks who get layed off, but necessary. What would happend if the US were required to balance its budget?

janie said...

When there was a blizzard in Washington DC one year, I remember a news report that said "Only essential personnel were to come to work." Some 300,000 employees stayed home. And that was before the hiring really began.