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Possibly some readers are wondering what to make of the Auditor-General’s recent finding that the federal government paid nearly $5-billion in COVID emergency benefits to people who were ineligible to receive them; that at least another $27-billion in payments were suspicious enough to warrant further investigation; and that the Liberals made no serious effort to verify recipients’ eligibility then or since.

My reaction: I’m against it.

Sorry, but it’s difficult to say much more with these kinds of stories. As a general rule, governments should not waste money. If they do, they should stop. There’s room for some forgiveness, granted, where the pandemic benefits were concerned: in such an unprecedented crisis, with much of the economy shut down, the priority was clearly to get the money out the door as fast as possible rather than to ask too many questions up front. It’s the failure to follow up after the fact that is more damning, and $32-billion is worth a lot of time in purgatory.

If I seem less exercised than the situation warrants, it is out of a concern to avoid seeming to endorse what I might call the Accountant’s Fallacy: the notion, implied by every Auditor-General’s report and even more by the media and political reaction that follows, that the only wasteful and fraudulent government spending consists in that which everyone can agree is waste and fraud – the colourful stories of bridges to nowhere and double-charging for services that pepper the typical AG report, fodder for days of gleeful Opposition questions in the House.

Don’t misunderstand me. This sort of thing is obviously wrong, and it obviously matters. People who dismiss relatively minor examples of government extravagance – your $16 orange juice here, your $100,000 in-flight catering bill there – as unimportant, trivial bits of misspending set beside a federal budget of nearly half a trillion dollars, miss the point: we got to half a trillion, in part, by the accumulation of thousands and thousands of such trivial bits of misspending. It is not the amount, but the attitude it reveals, that is significant.

But that is only part of the problem, and far from the greatest part of it. The trouble with focusing on the obvious examples of waste and fraud is precisely that they’re obvious. No one is in favour of such explicit and egregious squander; certainly no one is going to say they are. Whereas the bulk of government waste occurs not by negligence or incompetence, but deliberately and carefully – and, what is more, with the support of much of the public.

The Auditor-General can only inquire into whether a given block of public funds was spent in line with the purpose for which it was approved, and how far it went to achieving that purpose. But in most cases the problem is the purpose: the use of public funds for purposes that are at best unnecessary and at worst actively harmful.

Despite the cherished popular cliché about bickering economists, there is in fact a high degree of consensus in the profession about what counts as a “public good,” the sort of thing people value and would be willing to pay for but which, for one reason or another, private markets fail to provide – a gap that must therefore be filled by government.

There is nearly as much consensus on the sorts of spending that distorts economic choices – that interferes with markets rather than corrects for market failure – and should therefore be avoided. But what is uncontroversial to economists is very often exotic heresy to politicians. And even where they might understand and agree that a given item of spending did not serve the broad public interest, they are beset by well-organized sectional interests arguing loudly in its favour, with an influence that vastly exceeds their numbers.

In the worst case, then, the government might have doled out $32-billion in COVID emergency benefits to people who didn’t need them – a one-time waste premium on top of a much larger and clearly justified program. Whereas the same government wastes many multiples of that every year on programs that work exactly as intended. Consider, as just one example, the roughly $15-billion the federal government shells out annually in subsidies to business, only a tiny fraction of which would meet even the loosest definition of a public good.

This sort of targeted subsidy – payments to some businesses but not others, for some purposes but not others – causes businesses to allocate capital based, not on sound economic considerations, but purely in pursuit of subsidy. As such it makes us all poorer. By contrast, the COVID emergency benefit programs sprayed money in all directions at once, indiscriminately. That’s more wasteful in one sense, but less so in another.

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