Faking It: Government Enterprise
by Michael S. Rozeff
by Michael S. Rozeff
The people in government are quite smart about several things. They know how to spread our own tax money around so as to make themselves look like they are doing us good. They know how to tell us fairy tales about all the good they are doing. They know how to ring the bells that psychologically elicit our emotional support, words like "the future of your children and grandchildren." They know how to simulate business structure to make government enterprise look like business enterprise without being business enterprise.
Take for example the National Science Foundation (NSF). The National Science Foundation (NSF) is a major federal program that funnels money (taxes) to scientists and universities. Who can be against science and education, the politicians are thinking.
For politicians, the NSF program is an ideal pork-barrel program. It spreads money around to every state, to every (or almost every) Congressional district, to every major university throughout the land, and to many individuals. Each and every politician can point to some NSF grant or facility and credit himself to the public as having brought home the bacon to his district or state.
In the typical political speech, the politician takes credit for all his many accomplishments done with our money. He inundates us with statistics and lists of his good deeds, like he is some kind of boy scout. His web sites do the same.
The President's Office of Management and Budget, for example, credits "the Administration" (not the taxpayer) with (since 2001) funding 49,000 grants in science and engineering via NSF, supporting 82,500 students, and providing funds to complete 4 large research facilities. The President promises to increase science spending at a rate of 7.2 percent per year for the next 10 years. He promises "breakthroughs in information technology, nanotechnology, and other fields of science..." This he promises will strengthen the economy, create a high-tech workforce, stimulate innovation, etc. The fraudulent hype goes on and on and on. It is fraudulent because it is taking money (albeit against our will) under false pretenses.
In order to avoid prosecution for fraud, a company issuing stock has to publish a prospectus. This document contains page after page outlining risks in gruesome detail. It contains audited financial results. Under threat of severe penalties, the Sarbanes-Oxley law makes officers personally attest to a great many details. I bring this up in order to contrast politicians. They routinely make totally unsupported claims, exaggerate, distort, emphasize whatever details they choose and ignore the rest, provide horrendous accounting for what they do with tax monies, and are held responsible for nothing of what they say. They can commit massive frauds of this type and get away with them because they have not created any laws against them. Why should they?
Occasional scandals, investigations, and prosecutions are set in motion mainly to lull us into thinking that the government is keeping itself honest. They also divert attention from more important matters. The fact that these hearings and trials revolve around the most trivial matters, like who fired what attorneys, or who outed some already outed spy, or who leaked some trivia, rather than matters of substance suggests their true purposes.
Most people have never heard of NSF much less thought about whether it's a good or bad idea. NSF's 2008 budget request is for $6.43 billion, an increase of $408.79 million (6.8 percent) over 2007. This is not a large amount compared to many other government programs. But NSF is only one of several such government operations that finance research. According to the NSF, its share of the total spent on basic research is 20 percent. By their estimate, the total of similar programs is therefore about $32 billion. But when we combine basic research spending, applied research spending, and development spending, we find that the federal government spent upwards of $100 billion on science in 2002.
NSF is an independent federal agency that Congress created in 1950. The word independent means that it operates with its own people and organization while not being run by a department within the Executive branch of the government. NSF is run by the National Science Board and the NSF Director. No one from Congress or the Executive sits on NSF's Board, but all 24 members are appointed by the president and confirmed by the Senate.
NSF depends financially on Congress. All the money that it uses in its operations and distributes to scientists and universities around the country comes from Congressional appropriations whose source is taxpayers. But this financial dependence is meaningless because NSF is a Congressional pork-barrel project. Members of Congress choose to use taxpayer money in this way to make themselves look good.
What counts is that NSF operates independently of taxpayers. We have no say over it. Most of us know nothing about it. Taxpayers (really a small fraction who vote for winning candidates) elect politicians. The politicians form committees. The committees form subcommittees. The subcommittees have a chairman who has a staff. "Congress" in this way then appoints National Science Board members. The Board members then watch as the NSF Director relies on his bureaucracy to fund science proposals. The proposals from scientists that get approved go through a process of being reviewed by other scientists who can understand the proposals.
Obviously, taxpayers have no idea where their money is going or why it is going there. The Congress, Senate, and President know nothing of who gets the money and don't care as long as they can beat their breasts. The Board members, who meet six times a year, have certain overall responsibilities; but they know almost nothing of where the money goes. They make no serious interference with the money allocations that the NSF Director oversees. They can't and don't evaluate 1,500 proposals at each 2-hour or even 6-hour meeting every other month. The Director is in the same position of knowing little or nothing. He oversees the process, but he does not make most of the allocation decisions. He rubber-stamps them. He can't possibly read and understand 40 detailed proposals a day. The scientists control the details. They divvy up the money via their peer-review process. Taxpayers are completely out of the loop. They have no direct control over NSF actions. They have little or no knowledge of its existence much less how it distributes their money.
Basically Congress robs the taxpayers in order to spread the money around to make themselves look good. Science and universities are popular, so why not? The bureaucracies who distribute the money chew up part of it. The scientists and universities act as co-robbers. They divide up the money.
As with many government enterprises, various organizations and boards are constructed in order to give an official and business-like appearance to the process, that is, to make it seem more respectable and less tawdry than it really is. The reasons for this are psychological and sociological.
Two important and inescapable facts about government are (a) government is inherently inefficient and (b) government is inherently brutal. The people working in, around, and through government do not want to know these facts. They are too discomforting to persons with conventional morality. They also do not want taxpayers to know these facts so that they will not revolt against being robbed. Indeed, the objective is to make them be glad they are being robbed. It would not do to see what is really going on here. The brilliant solution is to make it seem as if government is a business. It is to make it seem as if government is accountable to the people. Both structure and rhetoric are aimed at these purposes. The intent is to mimic what business structures look like but without the substantive content being present. These devices largely succeed. They fool both people within the system who piously proclaim all of its merits and point to their wonderful accomplishments. It fools the taxpayers who are lulled into accepting their paychecks being stolen week after week.
Actually, the system is one rotating carousel after another, each disconnected from the other, each going nowhere, each performing no real business function. Before a dollar travels from taxpayer to scientist, from payer to receiver, it boards each of these carousels (Congress, committees, subcommittees, appointments, confirmations, Boards, Directors, peer review) and spins around for awhile. In the end, where is the accountability in this system? There is none. The scientists and universities certainly do not present an accounting to the taxpayers. And they couldn't if they tried.
Whose interests does all this serve? Certainly not taxpayers. The system serves the money recipients (bureaucrats, scientists, university administrations) and the politicians who do the collecting and distributing. It serves those who use the scientific findings without paying for them. It serves those students who hook up with the scientists who get the money.
What effects does all of this have on science? It distorts and corrupts science. It creates hierarchies: of universities, of departments within universities, of professors within their respective fields, of journals that publish results, and of editors of journals. As a consequence, research is directed more greatly in certain directions and not others, based upon the firmly-held beliefs of those in the hierarchies. Newly-minted researchers cannot get ahead unless they are accepted. Many find this is easier if they work on and say what is acceptable. Innovative science is done, but it takes a back seat to safe projects that extend existing findings or add bells and whistles to existing models. Much pedestrian research is done, published, and immediately forgotten.
Meanwhile universities, private and public, compete to gain federal research funds. Competition in terms of teaching students recedes. The student takes a back seat to writing grant proposals in triplicate and aiming at NSF money. Private universities begin to look like public universities. The federal subsidies they receive through NSF and National Institute of Health (NIH) allow them to attract students away from smaller colleges. Many distortions emerge.
The state funds projects that its members have an interest in, which means projects that are sexy, popular, and make the politicians look good. Politicians will give off signals to their NSF minions to fund the latest thing, be it nanotechnology or energy-conserving measures. But if scientists themselves cannot pick winners in scientific endeavors, and they cannot or else they'd be producing these great discoveries themselves, then surely members of government who don't know a lepton from a ligand cannot pick winners. Politicians do not know and cannot know whether funds should be given to archaeologists or zoölogists, much less which persons, within the many fields of existing science plus the budding new fields, should get public money.
As in all such state programs, the main moral issue (there are other important ones) is the use of unjustified force (theft) to extract money from one group (those paying taxes) and giving it to another group (scientists). If scientists are not individually allowed by the usual notions of human morality directly to hold taxpayers up at gunpoint, why should they be allowed to do this through the state? Voting doesn't make indirect theft right. As Gary North writes, "The commandment doesn't say, ‘You shall not steal, except by majority vote.'"
As in all such state programs, one economic issue (there are other important ones) is that the use of force prevents individuals from realizing the values they would otherwise choose. Scientists (and some others) achieve their values, but the taxpayers do not. Consider only two economic ramifications. The theft from taxpayers is equivalent to a tax on their productive effort. It diminishes their incentive to produce wealth because they get to keep less of it. The payment to scientists is a subsidy to them. Their incentive to produce goods that others want is reduced because they can get wealth by taking it from others. Overall, these two effects diminish acts of value-creation and wealth-creation.
Defenders of NSF will say that the scientists produce useful knowledge. Maybe they do, but they produce less useful knowledge and more knowledge of lower value because of NSF's robbery and interference. This is because what they produce is disconnected from taxpayers and what they value. The scientists are insulated from the public and unaccountable to it.
Such a response will not satisfy NSF supporters. They will mention some specific inventions or discoveries made by those who received NSF grants. Or perhaps they will point to jobs created, or new industries begun as a result of NSF-funded science. They will suggest that the good done outweighs the harm. This, of course, they cannot prove. They can only express their own value judgments. Should government theft be sanctioned on the basis of opinions held by one segment of the population with no weight given to those who are footing the bills?
Common sense seems to suggest that the NSF money is not being poured into a sinkhole. Look at all those labs and research papers. Ah, but it is a sinkhole. The scientists are producing something. Yes, but what?
Government's simulation of a business-like arrangement does not make it a business arrangement. A true business funds the science and technology that it expects will pay off, and that which pays off is what provides real value to consumers. The NSF lacks all such consumer sovereignty.
NSF does not follow a business enterprise model. In that model, creating payoffs to the consumer is a goal that leads to payoffs for the business. NSF follows a government enterprise model. In this model, payoffs to the politician and his co-robbers are the objective, not payoffs to the consumer/taxpayer. In fact, the latter is present only as an input to the government's production function, that is, only to be fleeced.
Government is not business, and giving it the trappings of business does not convert it into business. There is no such thing as efficient government.
In business enterprise, business serves the public. In government enterprise, the public serves the government.
June 2, 2007
Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.
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