Why is it so hard to cut government spending?
One reason is what some have called the "March of Dimes" problem. Back in 1938, Franklin Roosevelt helped start the organization as a way to raise private money to fight Polio. They were tremendously effective: during the post-war Polio epidemic it is estimated that the March of Dimes aided over one third of all Polio victims nationwide.
After the development of the Salk vaccine, the number of Polio cases fell precipitously. Today, Polio has been all but eradicated. But the March of Dimes organization didn’t declare victory and disband. Rather, they adopted new causes and initiatives: mission creep.
The same thing can be seen in public budgets. An example is Fire Departments. In many major cities, the number of large fires has fallen dramatically. In Boston, in 1975 there were over 400; last year there were 40. But the firefighting budget has gone up from $140 to $180 million. So firefighters have taken on other causes like emergency medicine, as automatic sprinklers and better building codes reduce the need for their core mission.
But if the city tries to reduce spending, all the firefighters have to do is take a picture of a burned-out home and claim that if the budget is cut, children will die. It’s hard to negotiate with heroes.
But pubic budgets are subject to the same constraints as anyone else. If a government agency can’t be reigned in, it’s the taxpayers who will get hosed.
Douglas R. Tengdin, CFA
Chief Investment Officer