Tag Archives: Great Society

A Congressional Cookie Jar with Oak Tree Roots: The Economic Development Administration

David Bier of the Competitive Enterprise Institute makes the case in a recent paper for the abolition of the Economic Development Administration. The history of the EDA is tied into the programs of the Great Society which spawned many fiscal and programmatic connections between federal, state and local agencies with the ostensible aim of spurring local economic improvement (e.g.The Community Development Block Grant). Fifty years on and these programs haven’t lived up to the grandiose mission statements of their architects. The EDA is part of the framework through which stimulus dollars flowed and Bier’s article underscores the key objections to the application of federal dollars to local economic development.

Interestingly, the EDA has been the subject of several academic studies over the years. The classic public administration book, Implementation, by Jeffrey L. Pressman and Aaron Wildavsky undertook an early case study of the EDA in Oakland, California with its inaugural goal of hiring long-term unemployed minorities. They conclude that while advocates had “great expectations” the program produced meager results with impulsive project choices and cost overruns. The cause, the authors postulated, was a delay in implementation and cumbersome bureaucracy.

Pressman and Wildavsky seem to have documented a familiar tale of public choice theory: the malincentives present in bureaucracies and tendency toward inefficiency. Their classic book on programmatic breakdown has touched off another debate recently in the literature centered around the question, “What ever happened to the study of policy implementation?” An intellectual dead-end was encountered according to deLeon and deLeon which can be revitalized by considering policy implementation not from the top-down but from the ground-up.

Pressman and Wildavsky sliced into their analysis in keeping with the dominant theories of the time. They view the EDA in a top-down fashion – as a single federal programmatic entity acting on subordinate levels of state and local government. Since their 1973 classic, advances made by Vincent and Elinor Ostrom and others point to the fruitfulness of thinking in terms of polycentric rather than monocentric orders. That is, to consider policies in horizontal instead of vertical terms. Map out the multiple decision nodes that connect government, marketplace and community.

B. Guy Peters in his article, Implementation Structures as Institutions, notes that in the last decade, the public administration literature now strives to make just such connections in understanding how policies are implemented. It’s an important advance which allows for a more complex and nuanced picture of the effects of programs. Such analysis may help answer one perennial question: how is it that small-budget, experimental programs inspired by mid-century economic theories grow deep roots and resist any kind of reform, alteration or pruning for generations?

When we consider federal spending programs and trace their effects we often see the fleeting connections and feel a sense of unease. A former EDA administrator calls the program, “A Congressional Cookie Jar.” From his vantage point the program is an expense account for politicians to sprinkle federal dollars on their districts. But as EDA grants are scattered among municipal governments, what else happens along the way? How do constituencies coalesce? Who benefits and who loses? Where do the dollars go and how are connections forged between private, non-profit and public sector actors. Metaphorically speaking, how did a single-shot grant in the mid-1960s become an oak forest?

“The last thing we can do is go back to the same failed policies that got us into this mess in the first place.”

I’ve heard this a great deal lately. I suspect I’ll hear it even more over the next three months. Whatever could it mean? Presumably, the speaker is worried about the sorts of micro and macro policies that were pursued in the years prior to the Great Recession:

  • Perhaps he thinks it was bad policy for federal spending as a share of GDP to leap from 18.2 percent in 2001 to 25.2 percent in 2009 (this was the largest such increase in ANY 8 year period since WWII).
  • Or perhaps he thinks it was bad that net federal debt went from 32.5 percent of GDP in 2001 to 54.1 percent of GDP in 2009 (a post WWII high).
  • Or maybe the speaker thinks it was ill advised for the Bush Administration to be far more aggressive than its predecessors in pursuing discretionary, Keynesian-style countercycle fiscal policy. There were no fewer than four such measures during the Bush years: cash rebates in 2001, investment incentives known as “bonus depreciation” in early 2002, tax rebates in 2003, and of course, the 2008 stimulus bill which included more rebates.
  • Perhaps the speaker thinks it was a bad idea for the Bush Administration to impose 30 percent tariffs on imported steel.
  • Or maybe he thinks it was bad for the Bush Administration to introduce (an unfunded) Medicare prescription drug benefit, the first major entitlement program since the Great Society.
  • Perhaps he thinks it was bad for the Bush Administration to reintroduce industrial policy by signing the Energy Policy Act of 2005, creating the Department of Energy loan program that ramped-up the government’s adventures in venture capitalism.
  • Perhaps the speaker thinks that in the years leading up to the crisis, monetary policy became unhinged from a restrained, rules-based approach?
  • Or perhaps the speaker thinks that the government sponsored enterprises, Fannie Mae and Freddie Mac, systematically encouraged over-leveraging in the housing industry?
  • Or maybe that capital requirements encouraged investors to load up on mortgage-backed securities.
  • Or maybe he thinks that, once the crisis hit, the Bush Administration shouldn’t have undertaken the most comprehensive and far-reaching bailout of private industry in U.S. history, one that resulted in the federal government buying stake in or bailing out hundreds of financial firms.
  • It must be that the speaker was worried that in aggregate these policies had seriously undermined the economic freedom of the U.S., as evidenced by the precipitous fall in measured economic freedom from 2001 to 2009:

If this is what the speaker was getting at, then I couldn’t agree more! Hopefully, he’s proposing ideas to reverse course: spending reductions to bring spending in line with taxation, entitlement reform to put the nation’s budget on a sustainable course, tax reform to close loopholes and reduce rates such as the corporate tax rate, financial reforms to finally end too big to fail, regulatory reforms to reduce distortions in the marketplace, health care reforms so that market forces can actually operate in that industry, and other economic reforms to restore a level playing field in American business.

….Or, maybe the speaker is just focusing on one policy that marginally moved the nation in a market direction, the temporary reduction of all personal income tax rates, including the top marginal rate from 39.6 percent to (gasp!) 35 percent. And maybe the speaker is hoping that no one will notice that on just about every other policy dimension, the previous administration was anything but laissez faire.