University of Southern California law and business professor Edward Kleinbard devotes his latest book, We Are Better Than This, to, as the subtitle declares, “how the government should spend our money.” Reviewing the book for Barron’s, retired Yale law professor Peter Schuck explains that Kleinbard could have been much better than this.
In analyzing the spending side of the ledger, however, Kleinbard finesses the hard issues. Yes, infrastructure can be a good social investment, but is often wasteful. A Brookings Institution study showed that urban rail transit systems generally reduce social welfare, even factoring in safety and environmental benefits, because of high capital and operating costs, underutilization except in rush hours, and overpaid and featherbedding labor. Amtrak is a big money loser, partly because Congress mandates passenger service in all but a few states regardless of cost and traffic. It heavily subsidizes the relatively wealthy Northeast Corridor, while trivially reducing travel times. It loses over $80 million annually on its food-and-beverage service alone.
True, social insurance against the worst perils of bad outcomes in life’s lotteries is desirable, but only if it controls work disincentives, political payoffs to favored groups, and moral hazard—the propensity to take on more risk when one knows that others will bear much of the expected cost of that risk. Moral hazard pervades poorly designed pension, disability, crop and flood, and other insurance programs, and invites government bailouts in other areas, as we saw in 2008-09. This creates new distortions that are even worse and harder to manage. The author recognizes some of these problems, but plays them down.
Sure, education looks like the best way to reduce poverty. But vastly increased funding for education over a half-century has scarcely moved the needle. The District of Columbia’s per pupil spending is among the highest in the country; student performance is near the bottom. Teachers’ unions stymie needed reforms. Government and outside studies repeatedly find—most recently in May of last year—that Head Start, which costs $8 billion annually, does not significantly change measurable outcomes by the third grade. A recent Brookings review of early-childhood programs gives little cause for cheer. Except in narrow areas like prenatal care, policies do little for deeply dysfunctional families.
The author’s moral scorn for the wealthy, even including his former clients, is a distraction, as are the numerous quotes from Adam Smith and Thomas Jefferson that simply affirm the obvious—that a state must sometimes regulate markets in the name of efficiency and equity. But the hard issues are when it should regulate, in what ways, with which tools, and how extensively. He has little to say about this.
