Can Government Programs be Cut Back? Becker

Government programs, such as social security or price support of agriculture, are extremely difficult to cut back once they have been established. Yet, at times, specific programs have been reduced and even eliminated.  It is clear why programs tend to keep going, but it is also possible to understand why they sometimes do get reformed, reduced, and even eliminated.

Millions of potential government programs are conceivable, but they fail to gain political traction because they do not have enough political support. However, once a government program has been running for a while, politically powerful vested interests develop that seek to maintain and even expand its scope. That vested interests may develop to support the continuation of programs is obvious since every government program favors some particular set of individuals or companies. For example, social security and Medicare favor the elderly, while an ethanol program that subsidizes the use of corn in creating fuel for cars clearly helps farmers who grow corn.

The groups favored by a program sometimes form advocacy groups to further promote their interests. Astute politicians may realize they can gain votes and campaign contributions by becoming advocates of programs that help individuals, unions, and companies in their districts. One way or another, powerful political support usually develops for government subsidies and other programs.

One might expect political forces regarding particular programs to be balanced because they not only favor certain groups, but they also harm others. For example, an ethanol subsidy program harms the purchasers of corn and of meat. Social security retirement incomes require taxes on younger workers to help pay for these incomes.

However, political forces are not typically equally aligned because of a basic political asymmetry: the gains from a government program are usually far more concentrated than the costs. For example, an increase in social security retirement incomes by 10% has a sizeable effect on retirees, but a much smaller effect on each worker who is taxed a little more to pay for these added benefits. A program of accelerated depreciation on capital investments might help capital-intensive businesses a lot, but has a relatively small effect on each taxpayer who has to make up the lost revenue due to reduced income from taxes on business profits.

This basic asymmetry in the alignment of political forces has been understood for a long time. The 19^th century American astronomer and economist, Simon Newcomb, said in 1885, “One cent per year out of each inhabitant would make an annual income of $500,000. By expending a fraction of {their} profit, the proposers of policy A could make the country respond with appeals in their favor…Thus year after year every man in public life would hear what would seem to be the unanimous voice of public opinion on the side opposed to the public interests”(Principles of Political Economy).

Yet despite this fundamental political asymmetry, some programs have been reduced in scope and even eliminated. In particular, the ethanol subsidy program in the US has been cut back, and various European countries, such as Italy and Greece, have extended the age before government employees become eligible for their generous retirement pensions.

If the political asymmetry approach is our guide to understanding the durability of government programs, then presumably programs that get into trouble have had a shift in political support away from beneficiaries and in favor of those harmed. Obvious examples of this include the aging of the population in developed countries that has raised the burden of social security programs by increasing the number of beneficiaries and reducing the number of workers to tax. Airline regulation got into trouble because the growth in air travel increased the number of travelers harmed by regulations that maintained high ticket prices and kept out entry of new types of airlines offering more basic service, such as Southwest and JetBlue.

Shifts in the alignment of political forces apply to total government spending as well as to individual programs. For example, the financial crisis created serious problems for overall spending in a country like Greece because it raised the burden of the large government (and private) debt contracted during the good times leading up to the crisis. Pressure to rein in entitlement spending on medical care and retirement incomes have grown because these programs require more and more funding from a relatively smaller tax base of working persons.

Clearly, the alignment of political forces are more likely to shift regarding a relatively small program, such as support of rice production, than on the overall level of government spending. This is especially the case in an environment of robust economic growth that makes it easier to fund the overall government budget. But with slow economic growth, a changing age distribution toward older persons, and other structural changes in a society, even the overall level of spending faces stronger political opposition.

 

 

Comments

[Phil Candreva]

Charles H. Levine, ‘‘Organizational Decline and Cutback Management,’’ Public Administration Review 38, no. 4 (1978): 316–325.

[kevin]

One problem with cutting government programs is that it seems like an abstraction and really not tangible to me and the regular joe. Most people would say yeah that sounds good but we don't really understand it or can readily measure. My wife who is in stem used to always hear about cutbacks in the space program, but it didn't seem to majorly affect her. Yeah you could see small things but it wasn't like you could calculate it or see it or even kow whether it was just because the project was poorly managed

[Eric Rasmusen]

Many countries have cut back substantially on government ownership of businesses--- and not just the Communist ones. That is evidence that governments can shrink.