Economics · Politics

Throwing Money At a Problem Doesn’t (Necessarily) Fix It

One of the consistent cries we hear from people who want to see more money allocated to various programs is that, “We need more money to fix [favorite program]!” Contrary to popular belief, it doesn’t always work.

The Idea

The idea is simple: if a program/department/whatever is failing to achieve desired goals, it is probably caused by a lack of resources. Since money is what you use to purchase more resources, then more money is needed to acquire to resources to achieve the desired level of success.

Two Major Problems

First, it ignores numerous other factors that determine whether an agenda will succeed. Consider a program to help homeless people stay warm. If the program is run by literally burning one dollar bills in barrels, changing them to ten dollar bills and spending ten times as much money won’t improve anything at all. While this is a silly example, it makes a point: spending money in a wasteful and ineffective manner will not be corrected by spending more money wastefully and ineffectively.

Second, it ignores whether the problem is solvable at all. Depending on how you measure a problem, and how you measure success, you may or may not be able to solve it, or determine if you’re making progress. Let’s suppose you want to solve poverty in America by creating various social programs. At the start of your program, you find that 10% of Americans are in poverty. You implement your social programs with a one trillion dollar budget per year. Five years later, you find that 10% of Americans are in poverty. How could this happen? If you define a person as being in poverty if they are in the bottom 10% of income earners in the US, then you have defined the poverty rate to be… 10%. No amount of spending will change that. In this case, you need a reasonable definition of poverty that can shift.

How do these problems manifest? Let’s consider some hot-button issues.

Education

One of the areas where we hear about the need for increased spending is education. However, if you compare SAT results to spending, what you’ll find is that increasing spending has accomplished almost nothing over the course of 40 years. In the case of Delaware, spending more than doubled, and SAT scores dropped by ten percent!

How can this happen? First, education techniques have changed a great deal over forty years. In 1972, four function calculators were an expensive luxury. Now, there are expensive computers in every classroom, and there are massive, annual software budgets. There have also been changes in disciplinary standards, various regulations, and offered electives.

What this means is there have been many changes to how students are taught, both due to technology and changes to accepted teaching practices. These, combined with additional money, have resulted in a negligible overall change in student performance. Whether money is covering over other disasters, or whether it’s just being wasted, is another matter entirely.

Poverty

The War on Poverty was started in 1964, and while it resulted in an a rapid drop in the poverty rate, it didn’t further lower it since 1966. Actually, if you look at the graph of poverty here, you’ll see something interesting: There was a roughly linear decline in the poverty rate from 1959 to 1966, at which point it fluctuated between 11% and 15% for the next 46 years.

In this case, there are a lot of arguments that can be made regarding “what went wrong”, as discussed in the article linked above. However, looking at the data causes me to suspect that the spike in the poverty rate, due to the Great Depression, was naturally lowering and would have behaved the same without any government intervention whatsoever. It is entirely possible the War on Poverty accomplished nothing other than waste money. Economic recessions seem to have more to do with poverty than anything else.

Conclusion

Money is an important government resource that allows it to do a lot of good things. However, when a government program fails, there are several possible causes, of which lack of money is only one. Other causes can be inefficiency (Nutrition.gov lists eight different food assistance programs!), mismanagement, or the reality that the government isn’t in a good position to solve the problem (communism vs capitalism). Without analyzing the nature of the problems in an under-performing program, determining how to effectively solve it, including spending more money on it, is impossible.

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