Economics21

search
Close Nav

e21 Asks: Privatizing or Eliminating Government Programs

commentary

e21 Asks: Privatizing or Eliminating Government Programs

March 17, 2014

This week, we gave readers four choices of government programs, and asked them to pick one to eliminate or privatize. The Department of Education was the most popular candidate for elimination, garnering 48 percent of the vote. One quarter of voters wished to privatize Fannie Mae and Freddie Mac.

Fourteen percent wanted to eliminate the U.S. Postal Service, while just seven percent wanted to privatize the Department of Housing and Urban Development. Coming in last place, only six percent of voters did not want to eliminate or privatize any of the four options.

 

 

Though it may seem as if it has always been with us, the Department of Education is a mere 34 years old. It was established in the waning months of President Carter’s presidency, and President Reagan campaigned on abolishing the new agency. However, Democrats in Congress did not allow that to happen.

The American education system was by many measures successful prior to the formation of the Department of Education. Since its formation, progress has slowed to a crawl—although, it must be admitted, progress might have slowed without the new department. The average reading and mathematics scores on the National Assessment of Educational Progress have barely budged since 1979. The Department of Education spends $66 billion a year in discretionary funds, money that might be better off given to the states to use for education without strings attached, or in taxpayers’ pockets. Not every function of the Department of Education needs be eliminated, but those that remain should be administered by another agency. Schools already receive most of their funding from state governments.

Fannie Mae and Freddie Mac are two government-sponsored enterprises dealing with mortgages. The policies and actions of both contributed to the subprime mortgage crisis that sparked the Great Recession. Combined, Fannie Mae and Freddie Mac owned or guaranteed half of America’s mortgage market prior to the mortgage crisis. Fannie and Freddie took on risky loans backed by government guarantees. When the housing bubble started to collapse, the federal government had to step in and bail out Fannie and Freddie, costing taxpayers $187 billion. This amount was finally repaid this month. There might have been a rationale for the two GSEs when they were founded, in 1938, but in 2014 the mortgage market is vigorous and can stand on its own. With the private sector fully able to offer mortgages, there is no longer a rationale for Fannie and Freddie, and they should be privatized.

In 2012, the Post Office ran a historically high $16 billion deficit, in part due to high labor costs. In order to close its budget gap, the Inspector General of the U.S. Post Office recommended the Post Office start operating basic retail banking functions. However, the banking industry and postal industry have little in common, and there is no reason for the Post Office to expand into banking. Post Office administrators and service workers have none of the skills required to operate a bank. None of the training for either industry overlaps. Instead of trying to transform the Post Office into something it is not, it is time to finally turn the agency over to the private sector and remove its monopoly over the delivery of letters. Competition from FedEx, UPS, and ordinary email have reduced the need for a government-subsidized Post Office.  The government should ask for bids from private companies to operate the Post Office—if necessary, with conditions that every town should have at least one local Post Office. A private company could reduce labor costs and consolidate services.

The Department of Housing and Urban Development is another relatively young agency, established by President Johnson in 1965. HUD provides housing for many people living on low-incomes, but the homes provided are of extremely poor quality. Little else besides a roof over one’s head is provided, because the areas where HUD housing is located have high crime and few job opportunities. While any home is better than none, those living on low-incomes would be better off if HUD were eliminated and its budget was shifted instead to block-grants to states. This would allow the states to choose how housing funds could best be used.

In budget debates everyone agrees a problem exists, but few are willing to suggest cuts in programs. Here, a case is made for turning four government programs over to states or to the private sector. Devolving these programs would increase efficiency, encourage freedom of entry, and reduce costs. 

e21 Partnership

Stay on top of the issues that matter to you most



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
Close