You have read a lot about Mayor Zohran Mamdani, an avowed socialist who now runs New York City. Your Survival Guy has criticized Mamdani’s efforts to tax the rich and to use that money to do things like open government-run grocery stores. Some readers may wonder, “What’s wrong with providing people with low-priced food?” The problem is that the price isn’t low, and the government isn’t providing anything, it’s simply taking from one resident and giving to another. But let’s focus on the cost.
Socialism fails because governments that attempt to own the means of production are leaky buckets with little to no reason for employees to minimize costs. In a recent in-depth study for the Cato Institute, Chris Edwards and Ryan Bourne explain why the “leaky bucket” of government is so inefficient. They conclude:
Trying to solve society’s problems through the federal government is more costly and less efficient than many people realize. Spending programs require funding from taxes, which damage the economy. A portion of the funds raised is wasted through political misallocation, faulty program design, and bloated bureaucracies. When the remaining funds flow out to the private sector, they distort working and investing, and they generate fraud and other types of waste.
Only a fraction of the tax dollars raised for programs ends up delivering the outcomes that policymakers promise. How small a fraction? Former Council of Economic Advisers chair Michael Boskin described the leaky bucket problem and suggested that the benefits generated by inefficient programs may be just one-third of the costs:
The cost to the economy of each additional tax dollar is about $1.40 to $1.50. Now the tax dollar … is put into a bucket. Some of it leaks out in overhead, waste, and so on. In a well-managed program, the government may spend $.80 or $.90 of that dollar on achieving its goals. Inefficient programs would be much lower, $.30 or $.40 on the dollar.180
Many federal programs are likely in this “inefficient” category. We discussed how some programs have improper payment rates of 10 percent or more. We noted that anti-poverty spending is often poorly targeted. We described how some programs consume 10 percent or more of funding on administration. And we described how value is lost on central planning errors, program design conflicts, and other failures. Some of these inefficiencies overlap, but they generally accumulate to reduce the benefits of each $1 in spending to less than $1.
Let’s say a $1 program has benefits of $0.40, as Boskin guesses for an inefficient program. With the program costing the private sector $1.40 in tax damage, the benefit-cost ratio would be just 29 percent. Or flip over the ratio and the cost-benefit is about three to one. Edgar Browning, emeritus economics professor at Texas A&M University, came to a similar conclusion in his book on fiscal policy, Stealing from Each Other. He estimated that “it costs taxpayers $3 to provide a benefit worth $1 to recipients.”181
Action Line: No company could survive losing three dollars for every dollar gained, and neither can a government long term. As former Prime Minister of the United Kingdom Margaret Thatcher explained, “There’s no such thing as public money, there is only taxpayers’ money.” Eventually, you run out of other people’s money. Click here to subscribe to my free monthly Survive & Thrive letter.
