Government’s Spending Structures Are Fundamentally Unsound

Published November 15, 2010

As a college undergraduate, I studied civil engineering. One of the first things that is clear to any student of civil engineering is that gravity always works—all the time, now and in the future. We know that if we somehow fail to properly accommodate those forces of gravity in our structural designs, we will be duly notified, often in a very dramatic way, at an inopportune time and with devastating consequences, when our nonconforming structure fails. The bigger the structure, the greater the consequences.

We engineers know, of course, that those forces will apply regardless of what any politician might promise, no matter how powerful, influential, or popular that politician may be. We also know they will apply regardless of any action by a legislature to enact a law that happens to conflict with the laws of gravity, no matter how partisan or bipartisan it might be.

The same is true for the forces of economics. Over the past six decades we have constructed gigantic government program structures with potentially significant negative economic impacts and consequences to our prosperity. No one can deny that we are experiencing that now. Those programs are invariably sold to the electorate with good intentions and the promise of great benefits for many.

Unanticipated Changes
Over time, those programs are typically expanded and modified, the premises on which they are based change, and other laws and programs are enacted that might have an unanticipated or complicating impact on the original program.

Because those changes transcend congressional and presidential terms, there is little motivation to reexamine the collective impacts. In doing so, we accept the risk of economic catastrophe as the means to determine whether we obeyed the rules of economics in the design of a program.

Social Security Ponzi Scheme
In the case of Social Security, for example, we accept the known and foreseeable catastrophe as long as it is far enough in the future, like the person that conducts a Ponzi scheme.

The Social Security program was originally sold with the promise that each participant would get back only what they contributed plus earnings, and that their contribution would never exceed 3 percent of their wages. It also set up a trust to hold the funds and assumed a certain population demographic.

It evolved to provide benefits beyond what is contributed by each employee even with the contribution rate raised to 7.5 percent for most.

The funds have been removed from the trust and replaced by a note from the federal government, and the demographics are substantially different than anticipated at the beginning. We know now that it is not solvent beyond a certain point. What will we do with what has come to be known as the third rail of American politics?

Housing, Stimulus Failures
The Community Revitalization Act had its roots in the 1960s and evolved in the 1980s and 1990s to, in part, require that lenders make subprime loans for mortgages with the assumption that home prices would always be rising.

That combined with the federal government’s support of Fannie Mae and Freddie Mac to be purchasers of enormous quantities of those loans which they in turn rolled up and sold as the now infamous and failed mortgage-backed securities which are at the root of our current economic problems. Is anything to be done with those agencies to avoid that going forward?

More recently, the economic stimulus was touted as being necessary in order to keep the unemployment rate below 8 percent. We have now blown hundreds of billions of dollars and our unemployment rate is stuck around 10 percent. Would we have been better off not running up that stimulus debt?

ObamaCare Burdens
Last, but certainly not least, is the new healthcare law. Here’s a law that brings under regulation a significant percentage of the economy and seems to have been more designed to just barely pass into law than to address healthcare issues.

The early returns on the lower-cost claim are not favorable. Why do we think that a law that is so far-reaching and complex will do what it was sold as doing without huge economic risks? Does history tells us anything about that?

Given the complexity and the enormous size of the potential economic impacts of government program structures, there are bound to be many unintended, and, I would add, unknowable economic consequences.

If only for those reasons, the electorate must be very skeptical about allowing their elected officials to implement such programs, looking beyond the benefits promised by politicians seeking election to the realities of implementing them. A responsible engineer doesn’t build a structure simply because it looks good to wait and see if it fails as the means to determine if it is sound.

Robert J. Platt, P.E., J.D., is cofounder and CEO of Mostardi Platt Environmental, an environmental consulting firm based in Oak Brook, Illinois. He delivered these remarks October 18 at a meeting of the Chicago chapter of the World Presidents’ Organization.