Waste, fraud, abuse, and orders of magnitude

I never cease to be amazed at how petty and venal the level of corruption is inside the Trump Cabinet. The most recent example is HUD Secretary Ben Carson’s $8,812 dishwasher. And who can forget EPA Administrator Scott Pruitt’s use of staff to search Washington for his favorite body lotion?

From the point of view of basic math, however, this media attention on de minimis waste, fraud and abuse is an over-reaction as compared to easily-found “WFA” with several orders of magnitude greater corruption and impact. I wrote about the math concept of “orders of magnitude” back in a February post, where I noted the human tendency to conflate “millions” and “billions,” not recognizing the three orders of magnitude (or 1000 times) difference between the two. One billionaire has the purchasing power of 1000 millionaires (whether buying either “stuff” or political power), and we need over 100 billionaires (or 100,000 millionaires) to equal one Jeff Bezos.

This post is a little exercise in understanding orders of magnitude in the U.S. federal government budget. My thesis is pretty simple: if $10,000 worth of WFA is easy to pull off in the relatively-small Department of Housing and Urban Development, think about the levels of corruption that likely exist in the much, much bigger Department of Defense. How many orders of magnitude of positive impact could have been made by constraining WFA in the Department of Defense just over the past two decades.

U.S. budgets are notoriously squirrelly things to get a definitive handle on. There is often a distinction made between “discretionary spending,” say the administrative costs of the Department of Agriculture, versus the often-larger grant and entitlement spending that those folks administer, and sometimes even those grants are included under the “discretionary” label. Technically U.S. government expenditures which are subject to annual review and authorization by Congress are “discretionary,” as opposed to those expenditures authorized by existing laws.

With Agriculture, the “big spend” is SNAP, the Supplemental Nutrition Assistance Program, formerly and commonly known as “food stamps.” So there are some “apples and oranges” in the data below, but the distinctions also prove my point about “big bucks” going out the door. Even that large SNAP spending pales by comparison to other departments.

The difference between “budget” versus “actual spend” is also a difficult distinction to nail down on official websites. At any rate, take them or leave them, here are the best numbers I could come up with for 2019 budget requests by Cabinet department:

Federal Budget

Source: official department web pages

A word on the largest budgeted department, Health and Human Services: this budget includes Medicare and Medicaid spending, totaling some 87% of that budget, but not Social Security. While this is larger than the Department of Defense budget, the spending is spread out against a much larger number of recipients, directly benefiting 60 million senior Americans on Medicare alone. More on WFA in that budget later. In addition, much of the Veterans Affairs and Homeland Security budgets would, in many other countries, be classified as “Defense,” and so by that measure, this chunk of the federal budget gets very close to the HHS budget in size.

The Department of Defense budget accounts for some 2.5 million soldiers getting paid as a big spending chunk, as well as maintenance of military facilities. But the general patterns of spending are generally much different from those at HHS. While Medicare and Medicaid involve relatively-small checks going out to hundreds of millions of people and businesses, a large proportion of military spending is concentrated in very large contracts funneled through a relatively small number of vendors. Huge expenditures for “off-budget” wars in years past (Afghanistan and Iraq in particular) fall into this category as well. A lot of money goes to building weapons and ammunition that we blow up or use up (and sometimes never use), and we spend even more money to replace what we destroyed.

After last autumn’s Hurricane Michael hit to the Florida Panhandle, I wrote about reports of between $5.8 billion and $7.5 billion worth of F-22 Raptor stealth fighter jets left on the ground as the base was abandoned. That entire F-22 program has been hounded by reports of technical problems and what the late Senator John McCain called a “lack of mission.” We are talking here about a problem which is six more zeros, or six orders of magnitude, bigger than Ben Carson’s dishwasher, but press coverage of this massive waste of money has disappeared into the “news hole.”

The federal budget by orders of magnitude

One way to get a different look at these budget numbers is to change the scale on the left axis into a logarithmic one. In one sense this makes the departments look closer together in budget, but when you grasp that left scale as a measure of orders of magnitude, or powers of 10, the differences between departments,and the opportunities for “funny business” become much more clear.

Federal budget log scale

For instance, this chart tells us that the money spend in the Department of Defense would fund 100 Labor or Commerce departments. A single “power of 10” is a huge difference in spending and its accompanying opportunity for financial mischief. In reality, the greater part of DOD expenditures can be considered, “rent-seeking,” which is the pursuit of government contracts by “private” individuals and corporations (and the topic of this recent post), and funded via taxpayer collections.

While hundreds of millions of people benefit directly from most of HHS spending (essentially “recycling” tax dollars back into the economy for direct, widespread “public good,” much of the DOD spending simply increases the concentration of wealth into a few companies, their industries, and their investors, giving in return a sense of national security that may be more psychic than real. Congress fears cutting of even the worst abuses for fear of “looking soft” on national security.

The major lesson to me in this data is found in the massive opportunity cost, which is the economic concept of “what could have been.” We see today this “what could have been” in what the broader social benefit in shifting away from military spending has done for much of Europe, especially the Nordic countries. With China, on the other hand, we see what public infrastructure “could have been” in the United States if we had focused on “building stuff” rather than blowing it up over the last generation. The Chinese transportation systems and public works now put our aging infrastructure to shame.

And what about that massive HHS spending?

There is no doubt that there is also a large level of WFA in the funds disbursed by the Department of Health and Human Services, but this is a different type of waste detection, mostly in much smaller amounts multiplied over many more places. These are the types of expenditures that beg for the transparency of a classic financial audit. And yet, the HHS Office of Audit Services took a 14% cut in budget authorization from 2017 to 2018, from which it has yet to recover. We are constraining audits and auditors here (and in the IRS) at the same time we are increasing spending in this part of the economy. Standardized auditing with statistical sampling and risk assessment almost always pays for itself many times over in rooting out this type of corruption, as long as you have the political will to expose the “outliers.”

When the corrupt take power, the auditors are often the first persons to go, along with other knowledgeable people in government like the scientists in the Environmental Protection Agency. Rationality and mathematics themselves become the enemy.

4 thoughts on “Waste, fraud, abuse, and orders of magnitude

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