Revitalizing the U.S. economy through government spending

As the U.S. economy’s growth continues to disappoint, various folks are calling for an increase in government spending. If U.S. businesses aren’t expanding then government should step in and do the spending and hiring itself. In the classical economic analysis of this process (see Keynesian economics) there is no adjustment made for the fact that government spending might not be as efficient as private business spending.

As the owner of a very small Boston-based helicopter charter company, I spent one morning this week with a very bright and experienced FAA safety inspector who drove out to my house in his government-issued car to inspect our records. This helicopter charter operator is licensed in the special “single pilot 135″ category, which generally means that the owner is the pilot and nobody else can fly paying customers. The FAA inspector, however, was working from a checklist that applies to all 135 operators. We went through a bunch of questions relating to how familiar was I with the procedures for hiring additional pilots and making sure that I had checked with their previous employers to find out if they’d ever failed a drug test. The FAA inspector also looked at my monthly duty time records to make sure that I hadn’t flown more than 1400 hours in the preceding 12 months (FAR 135.67). No Boston helicopter charter company with a single helicopter has ever flown more than about 50 hours per year, but we went through page after page of reports showing either 0 hours flown or 0.5 hours flown. Finally, the FAA inspector looked at my random drug testing program to make sure that everything was in place. I’m subject to the same drug testing requirements as United Airlines. I am the drug testing coordinator for our company, so I am responsible for scheduling drug tests and surprising employees when it is their turn to be tested. As it happens, I’m also the only “safety-sensitive employee” subject to drug testing, so basically I’m responsible for periodically surprising myself with a random drug test. As a supervisor, I need to take training so that I can recognize when an employee is on drugs. But I’m also the only employee, so really this is training so that I can figure out if I myself am on drugs. As an employee, I need to take a second training course so that I learn about all of the ways that my employer might surprise me with a random drug test and find out about drug use. But I’m also the employer so really I’m learning about how I might trap myself.

Given the costs of this guy’s salary, pension, government-issued car, supervisor, and office space, I estimate that the records inspection cost the U.S. taxpayer $500. Just a handful of these inspections, therefore, would have paid for an online system that would eliminate the need for inspectors to drive around to folks’ hangars and houses.

Five minutes after the FAA inspector left, I received a phone call. “I’m from the FAA and we’d like to schedule an audit of your drug testing program.” I remarked that a fully qualified FAA inspector was barely out of the driveway and had just gone through every document that I had on the subject. “He was from the FSDO (Flight Standards District Office)? That’s a completely different department. We’re going to send two inspectors up from Atlanta next month.” Why two? “We always send them in pairs.” What did they want? “We’re going to fax you a detailed list of all of the information that we need and you should immediately contact your drug testing provider (Lexis/Nexis) to tell them that you’re being audited. There is a bunch of information that you can get only from them. As soon as you get the fax, you should re-fax it to Lexis/Nexis.” I said that I didn’t have a fax machine, so he promised to send the information via U.S. mail. It could not be emailed.

As we also deal with some separate FAA maintenance regulators, I think it is fairly likely that we will meet with more FAA employees this year than with paying charter customers (most of the business is sightseeing or flight instruction; those activities are regulated separately and by different FAA employees; we have a separate drug-testing program for the sightseeing operation).

The FAA performs a valuable service in conducting checkrides with charter pilots and looking at maintenance records, though what they do has considerable overlap with our insurance company, which employs its own check airmen. But the paperwork inspection and drug testing program audits (this is our second) are done at a cost that would bankrupt any private enterprise that was subject to competition. My interactions with other government agencies have been much more limited, but I don’t see why they would be different, on average, than the FAA. If so, government stimulus money is not a substitute for private spending because the government spends money in ways that no private business or individual would choose to spend money.

[Update: This posting read out loud in Congress by a U.S. Air Force veteran.]

14 Comments

  1. Ron

    June 16, 2011 @ 7:43 pm

    1

    “… the government spends money in ways that no private business or individual would choose to spend money.”

    Absolutely! Private business spends it’s money in ways no government would choose to spend money:

    “Top 500 executives earned $4.5 billion last year.” => http://is.gd/xhKDIX

  2. philg

    June 16, 2011 @ 8:14 pm

    2

    Ron: Thanks for the link. Those public company executives were able to loot primarily because federal regulations and the SEC prevent public company shareholders from choosing board members, setting employee compensation, and doing the other things that shareholders in private corporations typically do in order to preserve their interest.

    [Of course, $4.5 billion is not a huge sum in a country where more than $6 trillion is spent by local, state, and federal governments every year. Our government spends approximately $4.5 billion every six hours.]

  3. Chuck

    June 16, 2011 @ 10:35 pm

    3

    Apples and oranges. I concede the point that government spending is not the most efficient, but efficiency is not the problem that keynsian economics is trying to fix. You know that Phil.

    To pharaphase, pay one group of unemployed to bury the money and pay another to dig it up. Not much efficiency there, but money is being spent, which is not happening in the private sector.

  4. Owen

    June 17, 2011 @ 4:35 am

    4

    The Keynesian imperative is to spend, object immaterial, if I remember rightly. The object is to get more money in circulation.

  5. Burton Hanson

    June 17, 2011 @ 8:49 am

    5

    I ran as an anti-war candidate for Congress in the Republican primary in my MN district in 2004 against the GOP incumbent, not with any belief that I could win and not with the intent to throw away my money on silly ads in an ego trip but with the mere and old-fashioned idea that a) the Republican party here is controlled by the anti-abortion, anti-same-sex-marriage folks and b) the GOP voters who don’t share that perspective deserved a choice. I resolved to spend less than $100 building and maintaining a website using Dan Bricklin’s original Trellix software, which I already owned. I got coverage in the local papers & a whopping 11% of the vote. The site, now archived at my political opinion blog, can be found here:
    http://www.burtonhanson.com/id1.htm
    My relevant point is that Federal Election compliance folks kept hounding me with questionnaires & paper work, despite the fact that I’d informed them properly that the campaign contribution and expense reporting requirements didn’t apply to one spending nothing. As in your case with the costly inspection, I’m sure the gov’t spent far more hounding me over this with repeated mailings of tons of paperwork, etc., than the $100 I spent on my campaign. Just focusing on the federal elections bureaucracy, I submit that the entire enterprise of regulating campaign contributions and expenses is a waste of money (as is the costly investigation and prosecution of John Edwards).

  6. Jon

    June 17, 2011 @ 12:41 pm

    6

    Chuck and Owen,

    Keynesian policy suggests that government spending can “make up for” a lack of private spending and thus essentially force the economy to speed up. The most glaring error in this philosophy is believing that government “makes” money. Any money that the government spends, on any of its alleged helpful purposes, absolutely must come from one of two places: taxes or debt.

    Numerous studies suggest that due to the bureaucracy and waste involved in government spending; anywhere from 65-80% of each dollar is lost in overhead costs. This means that for every dollar the government spends in so-called “stimulus,” the private sector is losing out on an additional two to three dollars which could have been spent or invested in more appropriate areas.

    The debt burden has only recently been getting much attention. Presently, the U.S. current account debt is listed at $14.4 trillion. The elephant in the room which nobody talks about is the unfunded liabilities which would be on the balance sheet of any private business as required by the GAAP standard. Although an accurate count is difficult, most economists place total liabilities between $65 to 100 trillion. This places about $250-300,000 liability on every man, woman, and child in America – or around a cool million per household of four. This does NOT include personal, state, or local municipality debt.

    The fact of the matter is that Keynesian philosophy materialized in government fiscal and monetary policies have created a situation from which only bankruptcy can evolve.

    Phil,

    Great story! I know what it’s like to shell out multiple hundreds of dollars in return for half an hour of flight time and aggravation.

  7. pk

    June 17, 2011 @ 2:58 pm

    7

    One thing the Keynesians always seem to forget is that Keynes said it was necessary to also run a surplus in good years, not merely spend and spend in bad years.

  8. DT

    June 17, 2011 @ 5:29 pm

    8

    “To pharaphase, pay one group of unemployed to bury the money and pay another to dig it up. Not much efficiency there, but money is being spent, which is not happening in the private sector.”

    Money is being spent, but how does it help anyone?

    IMHO people get so tied up in intricate theories that they forget the basic truth that we only have what we produce. The FAA inspectors in Phil’s example produce absolutely nothing, and worse, prevent Phil from producing more. They are a net loss to the economy no matter how much the government pays them or what they buy with it. What they buy is not a stimulant or a benefit because it would have been purchased by someone producing things of real value had the government not taken the money and given it to people to do non productive things. Without a government job the FAA Inspector would presumably be at a private company helping make a product that other people actually want.

    At the end of the day two people alternatively burying and digging up money will starve to death because nobody planted any food. This is true regardless of how much you pay them to bury and dig, or how much they are burying and digging back up.

    The problem with the U.S. economy is fundamentally one of efficiency. We have a lot of people consuming resources but offering nothing in return. And I’m not necessarily looking at welfare recipients when I say this. First and foremost we need to look at our own government.

  9. Quagmire

    June 17, 2011 @ 6:03 pm

    9

    The purpose of an economy is to get people the things they want. Not just give them mindless employment. We could have full employment if we outlawed advanced technology. Then everyone could have a job digging holes with spoons and handwriting everything. Everything would cost a lot and there would be a massive amount of boredom. But we would all have work to do!

    If we were to remove licensing regulations, maybe all those laid off people could become medical and teaching professionals in less time, providing much needed services for cheap. Removing licensing requirements would allow people with a car to become Taxi drivers (small business owners) almost instantly, instead of paying almost $700,000 to drive people around town:

    http://www.nyc.gov/html/tlc/downloads/pdf/avg_med_price_2k11_may.pdf

  10. Peter Reed

    June 18, 2011 @ 9:32 pm

    10

    I can confirm that the FAA is far better than DoD at this kind of oversight. A collegue has spend countless hours discussing establishing security clearances for a one person shop when the auditor said she must produce a letter from the board (her) to the designated security officer (her) appointing herself. I think the bureaucracy simply cannot imagine a one-man shop.

  11. Ted

    June 20, 2011 @ 1:23 am

    11

    Peter Reed has it exactly right. One-person or mom-and-pop operations surely were never even considered by any of the beetle-faced bureaucrats and heroic Drug Warriors during any of the innumerable interminable meetings in which their anonymous team so carefully crafted the regulations to which you are now being audited. They were thinking only of airlines and corporate air charters, and the awesome responsibility of protecting passengers from the Scourge of Drugs. Small operators like you were simply not on their radar, as they valiantly made battle plans for their vital part of the Sacred Eternal War on Drugs. But they still need to be audited the very same way, since even a one-person operation still needs to be proved drug-free as well as fully supportive of the War on Drugs.

    The one-size-fits-all checklists your auditors diligently followed were of course meant for the corporate operators the regulations were intended to protect. As were the procedures that included the use of multiple government staff and cars. This is War after all, and no expense should ever be spared when it comes to protecting aviation from an insidious Enemy that lurks under every bed. Just ask the TSA, which is even more heroically fighting an even more devious Enemy. The only effective weapon against either enemy is a dedicated force of Diligent Warriors whose effectiveness is assured by an even more dedicated force of Auditors armed with checklists!

    It may seem silly to apply the same assurance of protection to you as to United/Continental. But it’s not. You may not understand why it’s necessary and effective, but someone in Washington does. Just as with the TSA, Victory in the Wars on Terror and Drugs requires ordinary citizens to suspend their attempts to fathom the Unfathomable, and to just have simple unquestioning faith that someone who knows the Enemy has determined that each and every unfathomable measure is a necessary and effective defense or counter-measure against that intractable Enemy.

    Our proper role as loyal patriotic citizens who support the War is to unquestioningly and unhesitatingly comply with whatever the Warriors ask of us, whether they’re FAA auditors, Transportation Security Officers, or anyone else who is authorized to fight the War. It matters not whether it makes sense to us or is cost-effective. Those are issues appropriate for peacetime but not for Wartime. The important thing is that we have unquestioning faith and trust that those who lead the War effort are doing what they consider necessary for Victory!

  12. Cesar Brea

    June 24, 2011 @ 8:08 pm

    12

    Philip,

    So maybe have the SEC and FAA trade jobs for a while? Audits of Wall Street would then at least be done thoroughly and competently, if inflexibly, while you could fly high with impunity!

  13. Mark

    June 26, 2011 @ 12:33 am

    13

    Phil,

    I urge you to dig into the matter of why the FAA has to
    have TWO employees visit your tiny operation. Your post
    is sad and it only assists in infuriating me even more when I write
    my checks to the US Treasury, but there HAS to be an explanation
    for why the FAA would insist on absorbing the costs needed to ship
    two FAA staffers to Boston for a sit-down with you.
    You’re very capable of getting someone to give an answer, so make
    someone give you one! PLEASE.

  14. Tim C

    June 26, 2011 @ 8:58 am

    14

    Phil,
    Can you let us know why the FAA insists
    on using two employees to evaluate a
    one-employee op?

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