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The Case for an Executive Re-Organization

Wednesday, January 11, 2012

The executive branch of the federal government is a sprawling collection of programs and agencies, many working at cross-purposes or to no good purpose at all. There has to be a better way.

Political commentators can, and will, argue about whether government responsibilities should increase or decrease. That debate has two sides. But when it comes to waste and ineffectiveness, there is nothing to debate. What government does, it should do well.

In this essay, I want to propose a re-organization of the executive branch of the U.S. government. The executive branch is a sprawling apparatus that is likely to proceed on autopilot unless there is a drastic shakeup. A re-organization could make it more responsive to democratic priorities and more effective at achieving the taxpayers' objectives.

As an example of careless organizational structure, consider that prior to the financial crisis the Federal Reserve Board was responsible for consumer protection with respect to mortgages, while the Department of Housing and Urban Development was responsible for the safety and soundness of the nation's two largest financial institutions, Fannie Mae and Freddie Mac. As far as the core missions of the two agencies are concerned, it should have been the other way around. It seems likely that HUD would have been more institutionally inclined to police sub-prime mortgage lending, while the Fed would have been more careful about scrutinizing risk practices at the housing giants. Holding all else constant, such a simple and obvious re-organization of responsibilities might have been sufficient to prevent most or even all of the disaster that ensued.

The lack of coordination in today's programs means that some people fall through the cracks while others face extremely high effective tax rates, as many of these benefits phase out near the same income level.

In my experience in business, re-organizations tend to be superficial. You cannot solve a fundamental problem with a re-org. Nonetheless, the current structure of government strikes me as so unmanageable that a reorganization seems necessary in order to give citizens any chance at all of a decent return for their hard-earned tax dollars.

Today, there are 15 cabinet agencies, which is already too many. However, in addition to the cabinet departments, there are another 69 independent agencies and government corporations, 69 boards, commissions, and committees, and 4 quasi-official agencies.

Add all this together and the total number of executive entities is 157. I cannot think of any corporation in which the CEO has so many direct reports. This number ought to be fewer than ten.

I propose that the executive branch should consist of the following departments:

Defense: As is, with the addition of the CIA and NSA.

State: As is.

Financial Operations: Includes Treasury, Office of Management and Budget, the Social Security Administration, and Medicare operations. This department would be responsible for government financial transactions as well as monetary policy.

This department would also administer all programs that involve contingent obligations of the government, including guaranteed loans (FHA, student loans, small business loans, green energy loans, and so on) and entities such as the FDIC and the Pension Benefit Guaranty Corporation. I think that contingent obligations (commitments, such as government guarantees of private debt, that may give rise to spending) are particularly dangerous. I wish that as many as possible could be eliminated. Other mechanisms, such as on-budget subsidies, would be better substitutes. Meanwhile, they ought to receive close attention.

Today, there are 15 cabinet agencies, 69 independent agencies and government corporations, 69 boards, commissions, and committees, and 4 quasi-official agencies in the executive branch.

Infrastructure: Includes transportation (currently under the Department of Transportation), the electric grid, telecommunications (the Federal Communications Commission would disappear), the payments system (check-clearing, wire transfers, the ATM network, and the like), air and water quality, and emergency management. The government's role should be to set standards for the reliability of the central components of infrastructure, while leaving implementation to the private sector and local governments.

Economic Opportunity: Coordinates policies on taxes, transfer payments, and voucher programs in order to maximize their effectiveness in helping people in need. The lack of coordination in today's programs, including food stamps, Medicaid, education programs, housing programs, and so on, means that some people fall through the cracks while others face extremely high effective tax rates, as many of these benefits phase out near the same income level. The total number of programs should be much smaller than today, and policies should encourage more decision-making at local levels, particularly by the recipients of the aid. The aforementioned Department of Financial Operations would administer these programs, while the Department of Economic Opportunity would focus on setting policy. There would be no departments of housing or education, nor would there be agencies dedicated to veterans or Native Americans. Those functions would all be folded into this department.

Science and Statistics: Support for research in basic science, medicine, energy, and so on. Obtain and publish important data on demographics and economics. There would be no Department of Energy. Any space program would fall under this department, but privatization of space exploration would be encouraged.

Consumer Safety: Responsible for safety of food, drugs, consumer products, and services.

Homeland Security: I think this should look more like the old FBI than the current DHS. I would move the Coast Guard and Federal Emergency Management Agency to Infrastructure. I think that this department should be subject to a very powerful auditing team, both to curb tendencies toward intrusion on privacy and to question the effectiveness of policies and practices. Such an auditing team would have the authority to challenge the value of the “security theater” that takes place at airports.

Consider that prior to the financial crisis the Federal Reserve Board was responsible for consumer protection with respect to mortgages, while the Department of Housing and Urban Development was responsible for the safety and soundness of the nation's two largest financial institutions.

No re-organization can eliminate all overlaps. Departments will need joint committees to track some issues. For example, the departments of Economic Opportunity and Financial Operations will need a committee to ensure that payments to Social Security and Medicare recipients follow policy. Homeland Security and Infrastructure will need a committee to focus on protecting the electric grid.

One approach to implementing a re-org would be to map every existing entity to one of the eight departments proposed here. However, it would be interesting to try another approach. Have the head of each of the eight departments choose existing organizational entities (sub-units of the current 157 departments, boards, and so on) the way team captains on a playground choose their teams. The department heads would make their choices based on the functions that they are supposed to perform. My guess is that under this approach many existing entities would not be picked at all. If so, then this would suggest that those entities can be phased out altogether.

I do not claim to have come up with the perfect re-organization. In fact, I am inclined to believe that there is no such thing. However, I believe that in its current state, the U.S. government is set up to fail. It is a sprawling collection of programs and agencies, many working at cross-purposes or to no good purpose at all. The American taxpayer can ill afford this burden.

Arnold Kling is a member of the Financial Markets Working Group at the Mercatus Center of George Mason University. He writes for EconLog.

FURTHER READING: Kling also writes “The Political Implications of Ignoring Our Own Ignorance,” “What If Middle-Class Jobs Disappear?” “What to Do with Super-Achievers?” and “The Soothsayers of Macroeconometrics.” Peter J. Wallison contributes “Fannie, Freddie Caused the Financial Crisis.”

Image by Rob Green | Bergman Group

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