The adage that whoever pays the piper calls the tune is one of the oldest laws of economics.
Monday’s Supreme Court ruling on military recruiters at universities and law schools is just the latest example of this principle. In an 8-0 decision, the court ruled that a law cutting federal funding to educational institutions that bar military recruiters from campus is constitutional. Many may dislike this particular ruling — but most parents of teenagers should understand the familiar “as long as I am paying the bills, you will do what I say” argument.
In crafting economic policies, the power conferred by control of money creates some hard tradeoffs. Many of us are convinced that decentralized decision-making usually makes for fairer and more-effective public policy. But our sense of justice impels us to reject outcomes where some people or units of government have many more resources than others.
We can use government power to redistribute money. When we do so, the distributed funds usually include some mandate about how the recipient must act. Such mandates not only provoke resentment, but may cause economic inefficiencies. We need to recognize this inescapable conflict whenever we set about to transfer money.
Conservatives will respond that government simply should not transfer money, that if market forces determine that some individuals — or states or school districts — have fewer resources than others, we should simply accept that fact.
Few, however, are willing to push that belief to its logical conclusions. Some congressional representatives may oppose welfare payments to poor families, but support subsidies that benefit farmers in their districts.
Legislators from my corner of Minnesota oppose subsidies to theaters in Minneapolis. They don’t, however, think it fair that Edgerton public school students be limited to a third of the funds available for educating Wayzata children. Fiscally conservative South Dakotans want many more federal highway dollars than were paid in taxes on fuel sold in their state. And nearly everyone wants retired people to get Social Security payments, even when younger working people pay the bill.
When we extend welfare payments to families, subsidies to farmers or state aid to local government, however, we usually impose conditions. Farmers must limit erosion. Schools must comply with diversity requirements, keep records, or offer certain programs. States must set specified drinking ages and enforce certain speed limits.
The more broadly-based the transfer program, the less restrictive the conditions on funding usually are. While Social Security for years limited how much retirees could earn from working, these have been largely phased out.
The narrower the base of recipients, the more restrictive the conditions often are. Food stamps, given to millions, cannot be used for most non-food products, even if the items are sold in grocery stores and are very necessary for a household’s daily existence. WIC coupons, given to a much smaller set of low-income households, may be used only to purchase a tightly defined set of foods with high nutritional value.
Such conditions inevitably are resented. The cotton farmer no longer can plow the way his grandfather did. The heads of poor households feel they would be better off if they could use food stamps to buy essential non-food items. The local school board dislikes onerous reporting requirements.
Such resentment can stem from real inefficiencies. Economists have long argued that we would help poor people more if we just gave them the equivalent amount of cash rather than food stamps or Section 8 housing vouchers.
Talk to any school board members or county commissioner and they will cite examples of some senseless expense incurred only to meet some legislative mandate.
One must take some grousing about strings attached to government money with a grain of salt. Such conditions can serve as a convenient whipping boy to divert political pressure from local officials.
The International Monetary Fund imposes highly controversial conditions on loans to countries in financial straits. In nearly all cases, officials in the recipient country blame IMF conditions for unpopular budget cuts or sales of state-owned companies. Many of these officials will privately admit that balancing the budget and getting rid of white elephants are good policies in any case. But criticizing the unjust intrusions of an international institution is good electoral politics. Local school boards can succumb to the same pressures.
There is no easy answer on how to balance the competing interests of recipients to spend money as they see fit with the desires of funders to ensure the money is spent right.
Some restraint from lawmakers tempted to micromanage, and some understanding on the part of recipients can help, but the underlying conflict always will be present.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.