23 October 2009


From the Freeman blog, an article by Hans Sennholz, titled "Underground Government."

It's from 1986.

All emphasis is Mine, sayeth The Jenius.

"...(W)hen constraints on government pose a major threat to politicians, government employees, and powerful interest groups that benefit from political largess, government goes underground. When budget cuts threaten the position and incomes of politicians and bureaucrats they react by going “off-budget.” Whether they are committed philosophically to expand the political arena or just defend their economic existence and life style, off-budget operations are an important procedure for achieving their goal. 

The path to underground government is rather short and direct. Government merely needs to establish independent corporations, that is, quasi-public enterprises that are managed by politicians or their appointees and operated “off-budget.” These enterprises (OBEs) may engage in any economic activity from the construction and maintenance of airports, public housing, and libraries, to the development of theaters, stadiums, and zoos. Their spending, borrowing, and other activities are deleted from any government budget. Their debt is not subject to constitutional debt limitation nor is it conditional on voter approval. Government activity may thus be made to disappear by a simple stroke of the pen that creates a corporate charter. The simple expedient of a corporate guise moves political machinations beyond the control and scrutiny of the electorate."

Yes. DO go on.

"The use of OBE’s allows (politicians) to spend and borrow without constraint, to dispense patronage without civil service restrictions, and to bestow favors and benefits on special groups. An OBE is an anomaly of organization: a government entity unfettered by many of the statutory constraints applicable to government, a corporation without stockholders but with a board of directors consisting of politicians or their appointees, a non-profit business that competes with business or is protected from competition as an unregulated monopoly."

Is there more?

"When tax resistance limits the scope of government revenue, politicians and bureaucrats on all levels of government learn to evade rather than accommodate. When state and local governments chafe under constitutional restrictions they go underground. Moreover, the federal government can be expected to encourage the move. It encourages off-budget activity by providing grants-in-aid and extending loans directly to OBEs, bypassing on- budget units of government. Aid may be given by an off-budget Federal enterprise to an off-budget state or municipal enterprise with a handful of politicians and officials deciding the issue. Taxpayers have no voice in such matters."

I'm listening.

"Politicians are the primary beneficiaries of OBEs. Fiscal limitations of any sort restrict their power to engage in transfer activity; OBEs evade the restrictions and ignore voter reluctance at the polls. By making political activity seem to disappear and permitting politicians to resume spending, OBEs enable them to preach fiscal frugality on-budget while practicing political largess off-budget.

OBEs inevitably give rise to special-interest groups that can be depended on to lend vocal support. Bankers, in particular, have a vested interest in the growth of off-budget enterprises, receiving income not only as investors in OBE projects but also as trustees on behalf of bondholders and as financial advisers to the entity. Bankers may act as underwriters of bond issues which OBEs, in contrast to government agencies, usually place on a noncompetitive basis, granting higher profit margins to underwriters. Attorneys always join the parade, acting as “bond counsels.” They derive generous income from reviewing indenture specifications and issuing opinions on the deductibility of bond interest from Federal taxation."

And the other shoe?

"Taxpayers must bear, in one form or another, the cost of OBE loss and failure. But even when OBEs manage to operate in the black, they crowd out competing borrowers and allocate capital and labor to political uses rather than to economic employment. They withdraw scarce economic resources from urgent want satisfaction so that political interests can be served, and channel capital from more productive to less productive employment, which depresses labor productivity and lowers labor income. No matter how efficient an OBE may be, it amounts to malinvestment and maladjustment because it is a creation of politics. After all, if an economic project is expected to be economical and profitable because consumers will patronize it, it will be developed by individual enterprises. If businessmen shun it and private investors avoid it, it is likely to be uneconomical."

And finally...

"Political power intoxicates the best hearts. No man is wise enough, nor good enough, to be trusted with much political power. Constitutional government is built on this very knowledge; it is cogent evidence of the distrust of human beings in political power. It rests on a deep conviction that individuals vested with authority must be restrained by something more than their own discretion—by bills of rights, laws, rules, regulations, and mandates by the people they govern.

Off-budget government escapes most such restraints and opens the gates of political power. It escapes the constraints because changing thoughts and values are either moderating the common distrust of political power or the distrust is failing to restrain the growing powers of government. The deep conviction that government must be restrained is giving way to the belief that government must be able to engage in any economic activity its agents deem necessary. It is yielding to the ancient notion that political rulers are endowed with extraordinary powers. Unfortunately, they are not. But they are ever eager to ignore the traditional constraints and follow their own caprice."

Watch the local Public-Private Alliances (PPA) discussion in the coming weeks. It will get louder and with greater rhetoric. Note also the increased emphasis on "rescuing the workers," on "building for the future" and on "becoming more responsive to the people." You'll hear it...and it's all crap.

And note also that what was said in this piece about OBEs applies quite well to Our local form of "Let the Fools run rampant" indifference. The more fools Us if We let them get away with it again.

The Jenius Has Quoted.


Prometeo said...

This is an eye opener Jenius. Never saw that coming.

GCD said...

This is excellent!!!

KW said...

I've read with interest the recent articles in END about APP, but I have to confess that I don't get it. This helps some, but I'm still not clear on how they work. My next step is to download the bill and actually read it, to see if it makes any more sense.

However, while I still don't get it, my bullshit senses have been tingling. Seems like way too many sharks swimming around a broke-ass government to make me feel all warm and fuzzy. Now, from what you add to the discussion I think that I have more to worry about than I anticipated.

Good job...btw, wasn't the author the guard on Hogan's Heroes?