Politicians routinely divert funds from where they’re promised

Money

If a person holding a handmade “homeless and hungry” sign came across your commuting path, you might have good reason to suspect that money given them would go toward something other than housing or food. One would hope that government would be more reliable, given their constantly repeated rhetoric of advancing citizens’ general welfare. However, there are reasons to think that government may not be.

California’s Proposition 56 offers one current example. It hiked cigarette taxes by $2 per pack last year, justified because, as the Los Angeles Times endorsement put it, “The bulk of the funds would go … specifically, to pay healthcare providers more to treat Medi-Cal patients.” However, Gov. Brown has allocated no money to that end, even to offset a 10 percent cut during the recession, leaving California with reimbursement rates that are 48th in the country. Similarly, in November, Oakland passed a tax on sugary beverages which was supposedly to finance health and education programs, backed by an advisory board to ensure the money was well spent. But Mayor Libby Schaaf already wants to divert $6 million of it to help fill a budget hole, and other revenue to different purposes.

Unfortunately, the diversion of funds from where politicians promise voters they will go is a fact of political life, undermining any confidence in such promises.

Politicians routinely divert funds from where they promised. Diversions of earmarked bond revenues have been so common that citizen oversight boards are now routinely created (with limited actual effect) to convince voters of public agency trustworthiness, this time. State lottery funds promoted to supplement education have met a similar fate. Politicians, taking into account those additional funds, reduce other budgetary support, freeing up money to be spent however the state government decides, just as if the lottery proceeds went directly into its general fund. As professors Patrick Pierce and Don Miller concluded in a study of education funding, “Regardless of the state, the educational spending rate declined once a state lottery went into operation.”

Even when government spends money where they promised, the effects are often far different than advertised. For instance, food stamps (now SNAP) are largely equivalent to cash, because the vast majority would purchase more food than their food stamp allotments. That allows food stamps to replace money that recipients would have spent on food anyway, freeing it up to use however they choose. Housing, winter heating and other subsidies have similar effects, because to the extent they replace money that would have been spent on those items, earmarked funds can be diverted wherever recipients select.

Similar diversions have also often hobbled the effectiveness of humanitarian foreign aid. It frees up resources otherwise required to buy such supplies, allowing them to be spent wherever the recipient government chooses. As a result, much is lost to corruption or converted to other uses, including military spending, sometimes used to threaten citizens or neighboring countries.

If you voted for California’s Proposition 56 because it would increase Medi-Cal reimbursement rates or for Oakland’s sugary beverage tax to help health and education programs, you are probably disappointed at the deception involved. Those latest installments of the victory of hope over experience justifies anger and cynicism about government. It cannot be trusted to do what is promised. And when it does what is promised, the results are often far different than intended. Neither fact offers much assurance that government can reliably advance our general welfare. That is worth remembering, as it will not be long before the next installment of the government’s “hungry and homeless” signs will again be put on display.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, a member of the FEE faculty network, and a member of the Board of Policy Advisors at the Heartland Institute. His books include “Apostle of Peace” (2013), “Faulty Premises, Faulty Policies” (2014) and “Lines of Liberty” (2016).