The coronavirus is negatively impacting the economy and will leave lots of damage in its wake. Most of us in the private sector are feeling pain that will only be exacerbated in the future. The recession-to-come will cause a major restructuring of our economy with many businesses going bankrupt and workers left unemployed.
Our government should feel the pain as well. After all, we are all in this together.
Untouched Government Agencies
So far millions in the private sector have lost their jobs or have been furloughed—but not many in government have. Many government employees continue to get salaries and benefits despite not working. Their agencies most certainly will not have as much work to do since major portions of the economy are closing down. Many agencies won’t even be needed any longer, but you better believe they will continue to be funded and probably expanded over time. That is outrageous. As we suffer economically, government should not be exempted.
This phenomenon is truly confounding and unfair. After all, government does not exist without taxes and taxes can only come from people who produce and earn a living—in other words, the private sector. The private sector supports government employees who, on average, receive higher pay, better perquisites and much better retirement plans. That should change. As we restructure our economy in the wake of the coronavirus, government should be restructured as well.
Businesses have no guarantee they will remain in business—they must provide their customers with a quality product or service at a competitive price or they will go bust. But government agencies remain in place for life, even if they continue to provide lousy services at outrageous expense. Government needs to show us they are with us during this fight. Part of doing so is to take a hard look at various agencies and departments to see if they can be improved or if they need to be eliminated. Before you say that would be difficult, let’s look at some obvious choices.
Corruption and Waste
Government corruption and waste are rampant. We generally have ignored these problems because times were good. Now that the bottom is falling out of the economy, these apparently once-minor issues should outrage us all. Here is just a little taste of the waste:
Federal government agencies have a use-it-or-lose-it policy that encourages waste on a grand scale. If they don’t spend their allotted budget for the year, they may not get the same allocation the following year. Therefore, agency heads have an incentive to spend the entire budget irrespective of effectiveness, which leads to large, needless expenditures, especially in September, the last month of the government’s fiscal year.
For FY 2018, $97 billion went out the door from 67 different agencies in September alone. $53 billion went out the very last week of the month, representing over ten percent of total expenditures for the year for things such as $1.7 million for musical instruments, $9.8 million for workout equipment, and $4.6 million for lobster tails and crab.
Improper payments from a multitude of programs waste inordinate amounts of money. Social security recipients were overpaid by $10 billion. There are currently six million active social security numbers for people over 112 years old, even though there are only 40 people alive in the entire world who are older than 111. How can the social security administration allow this to happen? Medicaid and Medicare admit to over-paying $36 billion and $31 billion last year respectively.
Since 2017, the Trump administration identified over 31,000 duplicate contracts, saving over $27 billion. There is much more to be done along these lines, however. The Air Force spent $1,200 per coffee cup and the census bureau was over budget by $3.3 billion. Why?
Aside from departments and agencies wasting tons of money, we should question if we need them anyway. The Department of Education has increased spending over 200 percent in inflation-adjusted dollars since its inception only to have test scores go down or remain flat for nearly 40 years. The Post Office lost $8.8 billion in FY 2019, its 13th consecutive year of losses totaling over $70 billion. This monstrosity of a wasteful enterprise needs to be privatized. The list goes on and on.
And many of these agencies just don’t do their jobs. Many people feel the government let us down on the seriousness of COVID-19 before it entered our country. Certainly, their bungling response deserves scorn—the CDC and FDA both minimized the threat and delayed providing for testing, surgical masks, ICU beds and ventilators. The SEC dropped the ball on Bernie Madoff’s Ponzi scheme, never investigating his operation for eight years before it was finally exposed in the recession of 2008 despite receiving much hard evidence from whistleblowers that his scheme was impossible. The list goes on and on.
Our politicians and government have lost focus. The original purpose of the US government was to ensure liberty by protecting citizens’ lives and property. That was it. The powers of Congress are delineated in the Constitution in Article I, Section 8. Look it up. There aren’t very many powers there. Certainly, there is no power to create a Department of Education or Medicare or Social Security. The government has grown tremendously in its powers and scope, way beyond what the founding fathers intended. And it is obviously out of control, diverting resources and attention away from truly important problems and issues.
Our senators and congresspeople are notorious for backstabbing, lying and manipulating—in other words, practicing politics. But these charades look foolish and petty now. There is plenty of blame to go around on both sides of the political aisle but how senseless and trivial do the investigations into Russian collusion look now? Rather than chasing power surreptitiously and spending over $40 million on the Mueller Investigation alone, Congress should have been concentrating their efforts on protecting us from threats like COVID-19 and putting our fiscal house in order.
The most important driver of our standard of living, including our healthcare system, is private production. Government has a huge, negative impact on that through its fiscal policies. Continuously running large deficits every year and adding to our already burdensome debt is not a good formula for a strong economy.
The World Bank completed a study that determined a debt-to-GDP ratio of over 77 percent over time will reduce economic growth. Our ratio was over 106 percent at the beginning of this year. Because of the shutdown, by the end of this September that ratio will have ballooned to at least 150 percent! These numbers get even scarier as we project them into the future.
For the past 20 years before the coronavirus, federal debt grew at an average 7.2 percent per year compounded, doubling every ten years. Meanwhile, average GDP growth was just four percent. There is no doubt over the next few years the debt is going to explode way past seven percent growth. And most likely economic growth will be below four percent on average. However, using these conservative but unrealistic historical rates as assumptions going forward, our debt-to-GDP ratios would be 198 percent in ten years and 284 percent in 20, decreasing economic growth in the future.
The feds need to reduce debt growth over time. That can only be done by limiting spending. As mentioned above, there are many wasteful programs that can be eliminated. We should abolish those immediately; however, the programs that will have the largest negative impact if left on autopilot are entitlements. This is another area where government has stuck its head in the sand and refuses to deal honestly with us.
Social security, Medicare and Medicaid are time bombs waiting to explode. The Medicare Trust is projected to be out of funds by 2026, social security by 2034 (although these dates will probably accelerate given the bleak economic future the next few years). After those dates, funding will come only from payroll deductions from workers. The unfunded liabilities for these three entitlement programs are over $85 trillion. There was no way we could afford these in the best of circumstances. Post-COVID-19, they are even further away from the realm of possibility. Our politicians and bureaucrats are going to have to address these now. It won’t be easy, but that is what we pay them for. They need to do their jobs, not waste time and money on jockeying for power.
When all the smoke clears, there is only one reason for the precarious finances of the federal government—politicians and bureaucrats who gain at our expense.
The fact is Nancy Pelosi and Mitch McConnell don’t know much about the economy or how wealth is created and maintained. They are politicians, and they’re really good at it. But that’s not good for us. We need to demand they concentrate on their main mission—protecting us. That means protection not only from pandemics but also from economic catastrophe. They can start by getting their house in order, and they need to do it quickly.
Imagine if our government had been frugal and smart with taxpayer money over the past few decades. Imagine if they had balanced the budget every year and had no current debt, but a rainy day fund instead. They would be in a much stronger position to weather this storm. But in the interest of chasing votes and retaining power, our politicians have put their short-term needs ahead of the long-term interests of the country. We are going to pay for that short-sightedness for many years. In the meantime, government needs to get its priorities straight and feel some pain along with the rest of the country.
J. Kyle deVries is a financial planner residing in Southern California. He is the author of an Amazon #1 New Release entitled, Bern, Baby, Bern!: Why Bernie Sanders’ Policies Would Incinerate the U.S. Economy.
Image credit: Maryland GovPics on Flickr | CC BY 2.0 (https://creativecommons.org/licenses/by/2.0/)