2010 October 21 Thursday
Reihan Salam: Make Government More Cost Effective

Reihan Salam says the question of how to make governments more productive gets far too little attention. I agree with Reihan.

But before asking taxpayers — any taxpayers — to dig deeper, I’d gently suggest that we look at public bureaucracies. If the Milwaukee Public Schools spend twice as much as choice schools to deliver the same results in terms of reading and math scores, I’d say MPS can dig deeper, ideally be restructuring compensation and giving workers more autonomy. If one-fifth of public dollars spent on infrastructure are essentially wasted, as Barry LePatner argues in his brilliant new book Too Big To Fall, which I’ll discuss in greater detail soon, I’d say the bureaucracies we’ve placed in charge of public construction projects can dig deeper, ideally by doing a better job of sharing data and using life cycle assessments. If we could reduce Medicare expenditures by 8% per year by creating a competitive pricing system, I’d say the federal government can dig deeper by making a commonsense reform that will leave the quality of Medicare unchanged if not markedly improved. 

Of course some libertarians argue that ineffective government is better than effective government. But that's not a serious position. One might as well as argue for anarchy if you really believe that. Certainly some things that government intentionally does are damaging. So if productivity of those damaging activities goes up we'll be worse off. But quite a few government activities are beneficial to the vast majority. Examples of useful functions of government: Catching criminals, keeping criminals in jails, fixing roads, stopping polluters, catching terrorists in order to prevent terrorist attacks, tracking habitat destruction.

Governments do some things that libertarians do not approve of as government activities such as funding the medical care of retirees. But that's not an argument for neglecting how well government performs this activity. The prospects for convincing the majority of the population to oppose this activity of government seem extremely slim. So I tend to approach this issue with the thought that better policies for just how to deliver medical care to oldsters could benefit the entire population. Changes in government policy on how it funds medical care have the potential to change incentives in ways that result in more rapid innovation to cut costs or to create better treatments that cure more diseases. So given that government is going to do an activity doesn't it make sense to support policy changes that boost the total benefit we get from the activity?

One can find no shortage of advocates for more spending and even some advocates of less spending. But far fewer political activists or policy wonks or politicians spend much time thinking about how to spend more effectively and efficiently. The two sides of the political spectrum spend so much time battling each other for power that the cause of good government receives far too little attention. Yet the US economy and government finance are on course for a fiscal disaster. We need substantial increases in the net benefit delivered per taxpayer dollar spent. We need government programs to create better incentives on the private sector.

Reihan says the competing images of government workers as villains or heroes are simply not useful to the cause of improving government. We need a more nuanced view that enables us to improve the incentives on government workers and agencies.

Why does no one care about how public money is actually spent? Part of it has to do with the fact that abstractions are appealing, particularly to conservatives but also to at least some egalitarian liberals who find abstract arguments for a more progressive tax regime more engaging than serious discussions of how public bureaucracies work. If we think of public employees as actual people who respond to incentives yet who generally want to do their jobs well — I can’t help it because I grew up around public employees, two of whom were my parents — you have a different perspective than if you think of public employees as cash-hungry villains or, more to the point, as selfless heroes constantly attacked by the tax-phobic right.

Better law enforcement has the potential to save the American people billions of dollars per year. For example, in the last year the FBI has and the US DOJ have busted several Medicare fraud rings. The Miami area has lots of Medicare fraud and some of the large scale fraudsters are getting caught.

Federal agents arrested four Miami-Dade healthcare operators early Thursday in one of the nation's biggest Medicare fraud cases, charging them with scheming to fleece $200 million from the taxpayer-funded program by billing for bogus mental health services.

Lawrence S. Duran, 48, of North Miami, and his company, American Therapeutic Corp., were charged along with other employees in a conspiracy indictment. The Miami-based company's chief executive officer, Marianella Valera, 39, was also among the defendants named in the indictment.

Yet billions still get lost to fraud every year.

Although Medicare under the Obama administration has improved technology to weed out fraudulent claims, the agency still loses billions of dollars yearly to fraud because it generally pays bills quickly without verifying them.

So I wonder: How many dollars of fraud are avoided per dollar spent on enforcement activities? If the ratio is greater than 1 then the US government is not spending enough on enforcement. The same holds for any other way that the US government loses money to fraud.

Armenia organized crime groups are ripping us off for big money in Medicare.

Armenian-American gangsters created a fictitious medical world, complete with fake doctors and fake patients, which they extended across the US in a scheme to defraud the Medicare system of more than $100m (£62.9m), federal prosecutors said yesterday.

The Armenian criminals operate nationally.

They then set up bogus offices and, using stolen beneficiary information, began billing for procedures that never occurred, according to a Department of Justice news release. Nationwide, the ring operated at least 118 phony clinics in 25 states and billed Medicare for some $163 million, officials said.

More Miami Medicare fraud:

Marquez, a former Miami Springs High pitching ace who almost played in the Major Leagues, was sentenced Thursday to 19 ½ years in prison for healthcare fraud. He schemed to bilk $48.8 million from Medicare by submitting false claims for purported HIV therapy.

Marquez's seven clinics in Miami-Dade and Orlando were paid $21.6 million, which he must repay the taxpayer-funded Medicare program.

Michigan Medicare fraud:

Collins, 39, pleaded guilty in May 2010 to one count of conspiracy to commit health care fraud. Collins admitted in court documents that he was responsible for submitting or causing the submission of approximately $6.96 million in false or fraudulent claims to the Medicare program between August 2007 and October 2009. According to the plea documents, in the late spring or early summer of 2007, Collins was hired by co-conspirator Muhammad Shahab to work as a nurse at Patient Choice Home Healthcare Inc. Patient Choice purported to provide home health services, including physical and occupational therapy services, to homebound Medicare beneficiaries.

According to plea documents, Collins solicited Medicare beneficiaries for Shahab and Patient Choice and offered them cash kickbacks in exchange for their Medicare patient information and signatures on medical documents. Collins admitted that he knew the beneficiaries he recruited were neither homebound nor in need of physical therapy services. Collins also admitted in court papers that he knew Patient Choice used the beneficiaries’ Medicare information to bill Medicare for physical therapy that was medically unnecessary and/or never performed.

Alex Tabarrok says we could save big time as a nation by doubling the number of police.

More generally, when one combines estimates of police effectiveness that come from myself and Klick, Steve Levitt, Bill Evans and Emily Owens and others with data on the costs of hiring police, it's clear that police are a bargain.  We could double the number of police in the United States and the costs of crime would fall by substantially more than the cost of police.  (Reallocating police and prison space from drug users to violent criminals would also help.)

We could get many benefits from government dollars spent more wisely.

Share |      By Randall Parker at 2010 October 21 10:28 PM  Economics Government Effectiveness

A Gentle,Bearded Left-Winger. said at October 22, 2010 2:19 AM:

Methinks if sharia law was adopted in the USA - then 'legal efficiency' would increase exponentially.

Dan said at October 22, 2010 2:18 PM:

Rick Sott republican candidae for governor made his money through medicare fraud.

.38 said at October 23, 2010 7:30 AM:

An even better bargain regarding cops/crime would be to have more citizens carry their own concealable firearm. Nothing drops the crime rate like criminals who are dropped (and bleed out after catching a few in the chest with a story the next day about how unexpected it was for the HS student from Anacostia being involved in such things, etc...).

Randall Parker said at October 23, 2010 11:24 AM:


My guess is at this point much more is stolen with white collar crime than via car theft, house robbing, and mugging. Look at the Medicare fleecing, credit card fraud, and other forms of mostly electronic theft. So a 45 magnum isn't a substitute for more FBI agents. Also, guns only work in situations where the physical assets are likely to have humans around them. Theft done at construction projects at night or at boat dealers at night isn't going to be stopped with guns when clearly nobody is around.

Engineer-Poet said at October 23, 2010 10:47 PM:
We need substantial increases in the net benefit delivered per taxpayer dollar spent.
There may be no way to do this; rent-seeking interests have such a lock on the process that the waste fraction will only ratchet up.  The "solution" is to cut the size of the system and let taxpayers spend their own money for their own benefit.
a 45 magnum isn't a substitute for more FBI agents.
How many FBI agents interrupt e.g. an armed robbery in progress and kill the perp?

Also, I think you mean .44 Magnum; there are some people making what they call a ".45 Magnum" but they seem to be a fringe.

B. Casing said at October 24, 2010 10:24 AM:

-Also, I think you mean .44 Magnum; there are some people making what they call a ".45 Magnum" but they seem to be a fringe.-

Maybe he meant .454 Casull? Good for rampaging elephants, runaway trains and low flying aircraft. Not exactly concealable, but quite dissuading to those looking to pilfer or assault.

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