Why would Congress spend $100 million a year to store helium gas in underground caverns in the Texas panhandle? What's that? You haven't heard about that program?

Or how about $35 million for a monorail in Altoona, Pennsylvania.

Or how about $25 billion dollars in subsidy payments given to American farmers through programs like the following:

Millions of dollars for the underground storage of helium gas (to prepare our forces for the imminent Russian blimp invasion?); a monorail for Altoona, Pennsylvania (to alleviate the traffic congestion around this metropolis?); and cash subsidies for farmers not to grow crops (no comment). And this is only the tip of the iceberg. The list goes on and on. How is it that elected officials--popularly chosen by democratic majorities--can engage in such massive squandering of taxpayers' money? Why can't they just say no to wasteful spending? In this section, we want to show the inescapable logic that underlies these wasteful uses of public funds.

Let's consider a particular resource transfer, say the storage of helium gas in underground caverns in the Texas panhandle. Let's assume there are a hundred voters in the economy and that it costs a $100 to purchase and store the helium gas--$50 to buy the helium and $50 to rent the land under which the helium is stored. Thus, each voter would have to pay $1 in taxes to fund the program.

To keep it simple, we assume that everyone in the economy agrees that there are absolutely no social benefits to storing helium gas. However, some voters do receive a financial benefit from this government program. These are the landowners--we'll assume there are five of them--from whom the government will rent the land to store the helium. If the government didn't rent this land, these five landowners could each receive $6 by putting their land to some other purpose (say drilling oil). But if the government goes ahead with the helium gas storage program, it will pay these five landowners $10 each to use their land. Accordingly, each of these five landowners would receive a $4 financial gain from the program. Now suppose we held an election to determine whether we wanted the government to store helium gas. The table below reports how this election would go.

The electorate--in its infinite wisdom--chooses not to support the helium gas storage program. The vote is 5 in favor and 95 against. And that's great. Because the helium gas storage program would decrease society's happiness by $80. Why $80? First there is the withdrawal of helium gas which costs $50. The price of the helium gas tells us that this gas would produce $50 of happiness elsewhere in the economy if it wasn't stored under the Texas panhandle. On top of that, the helium gas storage program would have withdrawn $6 of land from each landowner. Therefore, we know that this land could have produced a total of $30 of happiness ($6 times 5 landowners) if it were used for something else--like cattle production. Thus, the $100 cost of the program consists of an $80 decrease in society's happiness plus a $20 wealth transfer ($4 times 5 landowners).

But, unfortunately, we have left out an important part of the story. Suppose that voting took some effort. That is, a person had to leave work and drive to the polling booth or find a babysitter to watch the kids while she went off to vote. Let's suppose that this effort made each voter worse off by $2. Now let's reconsider our election results. First the "Landowners": If this bill gets passed, each landowner will be made better off by $3 (see the "Profits" row). Even with a $2 cost to voting, it still pays for the landowners to go to the polls and vote in favor of the storage program.

But now consider the "Other Voters": if the bill passes, each of these voters is made worse off by a $1. This dollar loss is small compared to the $2 cost of voting. As a result, these voters stay home, or at work, and don't turn out to vote. That is, the loss that they suffer from this program is too small to justify protesting against it. The final election result? 5 in favor and 0 against. The helium gas storage program passes in a landslide! Welcome to the LAW OF CONCENTRATED BENEFITS AND DISPERSED COSTS.

That's crazy, you say. It doesn't work like that. It doesn't? Okay, here's a little test for you. Now that you know that the government is stockpiling a hundred year's worth of helium gas under the Texas panhandle--and assuming that you don't live in the Texas area--what are you going to do about it? Are you going to contact your congressman (what's his name?) and demand that he put an end to this program?

Part of the problem is that the funding for this program is buried somewhere deep in the federal budget (and since the federal budget contains over 200,000 line item accounts and is well over a thousand pages long, it could be very deep). This means that there is no House or Senate legislation entitled "The Precious Gasses Conservation and Storage Act" which your congressman could argue and vote against. Rather, he'd have to lobby his colleagues on the respective budget appropriations committees to have this item removed from the federal budget. But why should he?

Your congressman has only so much time in the day. If he spends his time lobbying against funding for this program, that's less time he has to work on other issues. And relative to most of the issues your congressman faces, this program is hardly worth noticing. Because the reality is, as federal programs go, $100 million is only a drip in the public bucket. It amounts to less than 1/15,000th of the total federal budget! It's so small that it might not even appear as a separate item in the federal budget. So even if your congressman wanted to do something about wasteful federal spending, it wouldn't make any sense for him to focus his efforts on this measly, little $100 million federal program.

But why would your congressman want to work hard to eliminate specific programs that waste taxpayers' money? Are you going to vote against him if he doesn't? Let's try and figure this out. As a rough approximation, let's say there are about a 100 million, taxpaying households in America. Assuming you are an average American household, how much is this program costing you? About a dollar a year. One dollar. A hundred pennies. That's it. We repeat the question: Now that you know that the government is stockpiling a hundred year's worth of helium gas under the Texas panhandle--and assuming that you don't live in the Texas area--are you going to badger your congressman to do something about this? And if you're not, who will? We should hardly expect congressmen to wage battle against wasteful government programs if the elimination of these programs is of such small concern to ordinary voters.

In contrast, there is a group of voters for whom these programs are very important. Now suppose you are a resident in this Texas panhandle district and a recipient of government funds from the helium program. You hear that Congress is thinking about axing this program. What are you going to do? Maybe you're making $100,000 a year from this program. Do you have an incentive to protest this cut? Yes indeed. At the very least, you'll phone your congressman's office and tell him you want him to fight this budget cut. Since losing this program means you're out a $100,000, you'll probably do a lot more. You might threaten your congressman that unless he stops this budget cut, you'll stop donating the thousands of dollars you contribute each year to his campaign. Maybe you'll hire a lobbyist--if you haven't already--to plead your case before the relevant congressional subcommittees. Your congressman gets the message: this program means a lot to his constituents. And now he'll fight like a dog to make sure this program is preserved.

How will this congressman mobilize support for this program? He won't do it by telling his colleagues on the budget committee that they should preserve this program because it's a huge boondoggle for you and your friends. No way. He'll give a rousing speech on the floor of the House that will sound something like this:

Haven't you heard this--or something like this--before? And when the committee that's in charge of considering the budget cuts sits down to deliberate--after they've heard speeches like the one above--they'll likely hear some more speeches. But this time not from politicians. Farmers, housewives and their children, small businessmen, all will be flown into Washington to testify before the committee about the great good this program has done for them. And there will be tearful pleas to the congressmen to preserve this program.

Who will be there to speak against this program? Where will the advocates come from to argue in behalf of the millions of Americans who have to pay for this? The fact is, there won't be many. It just isn't an important enough issue for any one voter or household to try to fight. It's not worth the effort. Just like it wasn't worth the effort for our "Other Voters" to show up and vote against this program in our hypothetical example above. When the members of this committee get together to decide the fate of this program after a hard day of hearing testimony, what do you think the vote will be? How about 5 in favor and 0 against?

Does all of this still sound too-farfetched? Consider the following. The political scientist James Payne, author of the book The Culture of Spending, spent several years in Washington, D.C. in the late 1980's. During that time he attended a large number of House and Senate appropriation committee meetings. He kept a running count of the number of supporters of federal spending programs; and compared this to the number of opponents of federal spending programs. What do you think the ratio of supporters to opponents was? Five to one? Ten to one? A hundred to one? Try 145 to 1! Of 1,060 witnesses who appeared before appropriation committees during this time period, 1,014 were supporters of or program or spending; 39 were neutral or mixed; and only 7 were opponents of programs or spending.⁴ How can we explain this? CONCENTRATED BENEFITS AND DISPERSED COSTS.

When the benefits of a federal spending program are concentrated on a relatively small percentage of the population, there is a great incentive to mobilize support for that program. When the costs are spread across the entire taxpaying population--as they are when programs are funded out of general tax revenues--there is little or no incentive to mobilize opposition against that program. In effect, the beneficiaries all vote in favor of the program while the taxpayers stay home and don't fight it. The result? A virtual landslide of electoral support in favor of individual spending programs! So everybody complains about high taxes and wasteful federal spending, but when it comes time to vote for their congressman, they reelect the ones who bring home the pork.

This very simple truth goes far to explain why we see Congress approving billions of dollars to special interest groups. When the congressional delegation from Texas fights hard for the preservation of the helium gas program, the congressmen from Pennsylvania and the Midwest farm states are easily won over. They agree to vote for the helium gas program. In exchange, the congressmen from Texas agree to vote for a monorail for Altoona, Pennsylvania; and agricultural subsidies for wheat farmers. These programs produce concentrated benefits for their respective constituents. And these constituents will reward their congressmen for preserving these programs by reelecting them to office. In return, since the costs of these programs are so spread out, no congressman from Texas is going to lose an election because he didn't fight a monorail project for Altoona, or an agricultural subsidy for wheat farmers.

It's a crazy system, but it all makes perfect sense. For the most part, it has nothing to do with corrupt politicians. It is not the character of the people who are sent to Congress. Rather, it is the incentive structure that exists when they get there. An incentive system imposed on politicians by their own voters. And if Congressman Smith tries to fight the system singlehandedly by voting against special interest legislation, what will happen to him? Chances are his colleagues in Congress won't be very willing to approve programs that provide special benefits for Mr. Smith's constituents. Perhaps after a few years, the voters in Mr. Smith's district will get disgusted with him for not bringing enough federal money back to their district. Perhaps they'll throw him out of office and replace him with somebody else who can do a better job.

If all this were a simple tale of wealth transfers between groups, it might strike one as unfair, but it wouldn't be a source of alarm. However, when wealth transfers to special interest groups result in resource misallocations, society as a whole becomes poorer. Think back to our example of voting for the helium gas storage program. A relatively small group of landowners was able to generate a resource transfer that made them $20 better off ($4 times 5 landowners), but lowered society's overall happiness by $80. Now multiply this example by thousands--tens of thousands--of special interest groups, each interested in increasing their share of the economic pie, but not concerned with the costs they impose on others, and one sees just how alarming this problem can be. BECAUSE OF THE LAW OF CONCENTRATED BENEFITS AND DISPERSED COSTS, DEMOCRATIC MAJORITIES HAVE AN INHERENT TENDENCY TO MISALLOCATE RESOURCES AND LOWER SOCIETY'S HAPPINESS.

As long as individual self-restraint, or constitutional restrictions, is able to discourage widespread feeding at the public trough, public sector interventions powered by democratic majorities are not likely to cause significant damages to society's happiness. However, once these constraints are relaxed, societies face the prospect of voting themselves poorer. A sobering insight. But not a new one. Not at all. The eighteenth-century Scottish historian Alexander Tytler wrote:

Think about it.