Government Grants

MoneyWithWings

Yesterday, I received an email from my congressman, he was sharing with the citizens of the district some opportunities for federal grants. It turned out that there is a website called grants.gov that lists all grants available from the different departments of the federal government. I did a quick web search using few states and all of them have similar grant programs.

Can the government start and fund the right projects?

In the free market when an entrepreneur starts a project, he estimates the market need for the product or service the project is going to offer and the possible price to charge. He funds the project through his money, loans or partnership with investors. The market provides a signal through profit and loss to the entrepreneur and the investors to steer the project to success or shutdown. If the entrepreneur tried to continue a failing project his investors will not continue supporting the project and may go to courts to block the project and extract what remain of their money.

The government lacks this kind of feedback mechanism provided by the free market to know if its projects are successful or not and if the cost is reasonable or not. The entity that seeks a government grant needs to fill a certain application, convince a committee of bureaucrats that it meets the requirement then take the money and spend it and after a some period delivers a certain end product. The government cannot show that this product was useful, or that the price paid was reasonable.

Is there a check on the government ability to spend?

The government, unlike private entrepreneurs, has the power to extort money through taxation. When the government takes 10%, 15%, 25% or 33% of someone’s income this person cannot spend or save that money. This money is not allocated through the free market to the most efficient use but through the political process to the most connected. The investor, the tax payer, cannot walk away from the project or force the government to abandon the project and give back the remaining money.

Theoretically, citizens could write to their representatives to object to certain spending and if a politician feels the heat from constituents he or she may raise the issue but the current budgetary process both on the federal and state level favors large spending or budget bills that can hide a lot of details and because the executive branch exercises lot of discretion in spending decisions programs like grants exist.

Is there a solution?

Citizens need to apply pressure to their representatives to curb government spending. I urge anyone who reads this post to go to grant.gov and pick a couple of grants that he or she find really ridiculous and write to his or her house representative or senator.

Budgetary process in the United States should move back so small targeted spending bills where each bill covers a single topic or program and where politicians who vote for it are accountable. This could also help cut the size of government because programs that don’t get enough support will lose funding and congress or the state legislature will have an incentive to cut the number of programs to manage the workload.

Our goal is to cut the amount of money allocated by the political process to the minimal amount.