News Commentary | Government Grants, Bribery, And Public Debt

 

By Richard Colman

Government grants of funds can be considered a form a bribery or government control (or both).  

Such bribery is especially true if grants come from the federal government, a state government, or a regional government.

Suppose the federal government thinks local governments should have more bicycle pathways and offers a local government a sum of money for bicycle-related purposes.

Assume there is a City X, a city that already has bicycle paths.  If the federal government offers City X $1 million for bicycle-related purposes, City X might accept the money, using the funds to paint new bicycle-lane stripes even if no painting is needed.

Perhaps City X also has roads with potholes.  The potholes might not be repaired unless there is a government grant for pothole repair.  If there is no government grant, City X might have to go to its voters and ask for a tax increase.

The question should be asked:  Why have government grants in the first place?  Why not let citizens hold onto their money?

The federal government should not provide funds for such causes as transportation, construction, and housing.  Let the money stay with local residents.  Local residents, not some bureaucracy in Washington, D.C., will know best how to handle local residents’ dollars. 

(In some cases, federal oversight — but not necessarily money — might be needed for the construction and maintenance of a nationwide transportation system.  For example, railroad tracks should not, on a state-by-state basis, have different gauge sizes.)

For the purpose of constructing highways, suppose taxpayers sent $100 million to Washington D.C.  If City X asked for $100 million, would it receive that sum?  Bureaucrats in Washington would review the request and, if the request were acceptable, award less than $100 million.  Bureaucrats, of course, have to be paid.

Setting up government bureaucracies to distribute funds in such areas as transportation, school funding, hospital construction, and housing have an extra cost related to bureaucratic functioning.

Moreover, when accepting funds from government, government may demand that any funds spent involve union labor.  Government may demand a certain ethnic balance in the workforce of the recipients of funds.  Government contracts may go to firms with political influence, resulting in other firms’ losing a chance to receive government largesse.

In energy production, government may demand that natural gas, instead of coal, be used — regardless of the cost to the consumer.

There is also the possibility of corruption.  To obtain a government contract, a firm might bribe government officials.  Alternatively, the firm might contribute heavily to the campaigns of elected officials in charge of dispersing the money.

Each year, the federal government spends over $4 trillion.  The money can go toward national defense, war, energy production, and — as mentioned above — expenditures related transportation, education, and housing.  Money could even go toward health care and welfare.

The United States is heavily in debt.  The debt is financed largely by selling government bonds to individuals (domestic and foreign), businesses, and foreign governments.  The total national debt is now $21 trillion.  In 1981, the debt was $1 trillion.  In 1837, there was no federal debt at all.

No one knows how long the federal government can continue to borrow money.  But there could come a day when investors do not want to buy government bonds.

To encourage investors to buy government bonds (debt), interest rates would have to increase, perhaps drastically.  When interest rates rise, the borrowing costs for home purchases, car loans, and credit-card spending would also increase.  If interest rates rise to too high a level, then consumers are likely to cut back on purchases for homes, cars, and other items.  The result is likely to be higher unemployment and a decline in stock-market values.

Unless government manages its finances more carefully, the United States may experience a recession or a depression.  Is that what Americans want?

Richard Colman is the founder and president of Biomed Inc., a biotechnology, publishing, and informatics company.  He is a biochemist and earned masters and doctoral degrees from the University of California at Berkeley.  He lives in Orinda, California.


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