Ensuring Probity

The topic that I began the last post with the intention of discussing but somehow couldn’t manage to weave in is the question of how do you ensure probity in a $2 trillion program? How much money wasted is too much? One potential recent place to look is the PPP. Maybe its problems are attributable to the incompetent Trump Administration but, since every recent largescale government program implemented recently has suffered from similar defects, I think we need to at least consider the possibility that the Biden Administration’s “infrastructure plan” will suffer from some of the same defects.

First, how big a problem are we talking about here? As Ev Dirksen put it, a billion here and a billion there and pretty soon you’re talking about real money. Some observations from the Tax Policy Center might be a good place to start:

An October report by the House Select Subcommittee on the Coronavirus Crisis noted that over 20,000 loans, amounting to $4 billion, were potentially subject to fraud, waste, or abuse. The Department of Justice is currently investigating and charging those who engaged in PPP fraud. These cases comprise a small share of the total number of loans made, but they do raise questions about the tradeoffs of moving fast without sufficient due diligence, and whether a more targeted program in the first round would have been more equitable.

We can be pretty confident that 1% of the total was “waste, fraud, or abuse” but the honest truth is that we don’t really know and probably won’t ever know. Let’s pick an upper boundary at random, say, 10% of the total. In the case of the proposed “infrastructure plan” that would mean anything between $20 billion and $200 billion. Compared with the federal budget or the national debt that’s not an enormous amount of money but it’s not chickenfeed, either.

Ignore the boilerplate about job creation. It won’t create jobs any more than the ARRA did and for the same reasons. It will necessarily be administered through the states; bidding will be restricted to a handful of “qualified vendors” and those vendors simply don’t do that. By and large they’re large companies (think: Bechtel) and politically connected and rather than staffing up they’ll schedule the projects in such a way they don’t need to staff up or procure equipment.

Speaking of administering the plan through the states, if there’s a way to prevent the states from using portions of the money to increase the pay of public employees or pay the pensions of retired public employees, it’s unclear to me what that might be. I don’t even consider that under the category of “waste, fraud, and abuse” but more along the lines of carrying costs, like paying off public officials in Third World countries. We don’t do that here but we have other ways of accomplishing the same thing. As the late Dan Rostenkowsi put it, don’t take a bribe just hand ’em your business card.

My best advice for ensuring the honesty, decency, and equitability of disbursing such large amounts of money is basically three-fold:

• Don’t do anything that’s “shovel-ready’. Those projects have already been funded. Funding them through a federal “infrastructure plan” will allow those funds to be used for other purposes which will accomplish very little of the presumed objective.
• Focus on market failures. Things like grid redundancy or greatly expanded capacity or better sewer systems. Anything the private sector just won’t do. A few years ago I would have said rural broadband but it looks like Elon Musk has that one well in hand.
• Lots of federal oversight with measurable performance criteria and clawbacks for non-performance.
• Concentrate the spending in poorer counties or in poor sections of more prosperous counties.

I’m open to other ideas IMO it’s genuinely a tough nut.