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Federal Government Spending Is a Leaky Bucket
- People often hold optimistic views about federal government spending programs. They assume that new and expanded programs can fix the nation’s social and economic problems. The government is a powerful institution, and so people think that it can steer funding to individuals, businesses, and nonprofit groups to solve problems and aid those in need.
- However, solving problems through the federal government is not so simple. Spending programs require funding from taxation or borrowing, and both create collateral damage on the economy. As funds flow through the government, resources are wasted on bureaucracy, mismanagement, and faulty planning. As the remaining funds flow out of the government and into the private sector, they induce people to change their working and investing activities, further undermining the economy. Only a fraction of the tax dollars raised for programs ultimately delivers on the outcomes promised by policymakers.
- Economist Arthur M. Okun described this problem as a “leaky bucket.” When the government imposes taxes on some people to aid others, it is not a costless transfer of resources. Rather, it is like transferring water using a bucket riddled with holes. In this study, we describe the many types of holes in the government bucket, and we argue that the leakage of resources is large. We also argue that the government bucket gets leakier as federal programs and bureaucracies continue to expand.
- With the government running huge budget deficits, policymakers should rethink the many costly programs that it runs. Some programs are essential, and so policymakers should preserve them while reducing the types of waste or leakage that we identify. But many other programs are so leaky that their costs outweigh their benefits. These programs are spilling economic resources all over and should be eliminated from the federal budget.
- However, solving problems through the federal government is not so simple. Spending programs require funding from taxation or borrowing, and both create collateral damage on the economy. As funds flow through the government, resources are wasted on bureaucracy, mismanagement, and faulty planning. As the remaining funds flow out of the government and into the private sector, they induce people to change their working and investing activities, further undermining the economy. Only a fraction of the tax dollars raised for programs ultimately delivers on the outcomes promised by policymakers.
- Economist Arthur M. Okun described this problem as a “leaky bucket.” When the government imposes taxes on some people to aid others, it is not a costless transfer of resources. Rather, it is like transferring water using a bucket riddled with holes. In this study, we describe the many types of holes in the government bucket, and we argue that the leakage of resources is large. We also argue that the government bucket gets leakier as federal programs and bureaucracies continue to expand.
- With the government running huge budget deficits, policymakers should rethink the many costly programs that it runs. Some programs are essential, and so policymakers should preserve them while reducing the types of waste or leakage that we identify. But many other programs are so leaky that their costs outweigh their benefits. These programs are spilling economic resources all over and should be eliminated from the federal budget.
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