‘Breathtaking’ Waste and Fraud in Hurricane Aid

That’s the front-page headline in today’s New York Times. Eric Lipton begins this way:

Among the many superlatives associated with Hurricane Katrina can now be added this one: it produced one of the most extraordinary displays of scams, schemes and stupefying bureaucratic bungles in modern history, costing taxpayers up to $2 billion.

A hotel owner in Sugar Land, Tex., has been charged with submitting $232,000 in bills for phantom victims. And roughly 1,100 prison inmates across the Gulf Coast apparently collected more than $10 million in rental and disaster-relief assistance.

There are the bureaucrats who ordered nearly half a billion dollars worth of mobile homes that are still empty, and renovations for a shelter at a former Alabama Army base that cost about $416,000 per evacuee.

And there is the Illinois woman who tried to collect federal benefits by claiming she watched her two daughters drown in the rising New Orleans waters. In fact, prosecutors say, the children did not exist.

The tally of ignoble acts linked to Hurricane Katrina, pulled together by The New York Times from government audits, criminal prosecutions and Congressional investigations, could rise because the inquiries are under way. Even in Washington, a city accustomed to government bloat, the numbers are generating amazement.

Some of us are impressed but not exactly amazed. When an institution with no incentive for cost-cutting, and little risk of anyone being fired or demoted for malfeasance, sets out to spend money on the principle “It’s going to cost whatever it’s going to cost,” then you can expect plenty of waste, fraud, and abuse.

I noted last September that

Congress passed a $51.8 billion Katrina relief bill on the very day the Associated Press released a study of where the $5 billion small-business relief money after 9/11 went. It found that the funds went to a South Dakota country radio station, a Virgin Islands perfume shop, a Utah drug boutique, and more than 100 Dunkin’ Donuts and Subway shops–“companies far removed from the devastation.” Fewer than 11 percent of the loans went to companies in New York and Washington.

The more things change, the more they remain the same. Big boxes of government money will not be spent wisely. That’s why it’s a good idea to keep as many of society’s resources in the private sector as possible. Private owners have incentives to cut costs, save money, and have more money to spend later. Employees of private companies know that they could be fired for waste and malfeasance, and they know that their company (or even their nonprofit) could go out of business if its costs aren’t managed. Those incentives are almost entirely lacking in the government sector, where resources are acquired coercively and no one has his or her personal funds at stake.

The logical result? “Breathtaking … stupefying … amazing” amounts of boondoggles and bungles.