Federal Follies 200 Years before Ex-Im

Anyone who thinks that Washington waste is something new should examine the history of the Bureau of Indian Affairs (BIA). This essay discusses the mismanagement, corruption, and failures of the BIA since it was created in 1824.

As early as 1828, Indian expert H. R. Schoolcraft concluded: “The derangements in the fiscal affairs of the Indian department are in the extreme. One would think that appropriations had been handled with a pitchfork … there is a screw loose in the public machinery somewhere.”

By the 1860s and 1870s, New York Times editorials were railing against the “dishonesty which pervades the whole Bureau,” and arguing that “the condition of the Indian service is simply shameful.”

In their recent book, Uncle Sam Can’t Count, Burton and Anita Folsom describe the failure of a major Indian policy even before 1824. Here is the basic story:

• Unhappy that British fur traders were out-competing American traders, Congress appropriated $50,000 in 1795 to create frontier posts stocked with American goods to trade with the Indians for furs.

• These government-run fur “factories” were supposed to earn a return, but they “were so poorly run that many Indians held them in contempt and refused to trade there.” Congress had to heavily subsidize the system to keep it operating.

• Rather than respond to the market demands of the Indians, as private traders did, the official running the government system, Thomas McKenney, tried to push products on the Indians that he thought they ought to have.

• The government set up its trading posts at substantial distances from Indians. By contrast, private fur trader John Jacob Astor had his agents build close relationships with Indians, and he made trading easy for the tribes.

• Astor instituted pay for performance, while the government paid its fur bureaucrats fixed salaries.

• Astor watched international fur markets closely and adjusted his operations and marketing accordingly. The government ignored markets, and simply dumped furs in Washington for auction.

• Thomas McKenney was embarrassed by the government’s falling market share and the huge success of Astor. So, in 1818, McKenney began lobbying Congress to ban private fur traders. When that attempt at monopolization failed, McKenney lobbied to impose large fees on private traders and to boost taxpayer subsidies for the government system.

• Despite a new fee on private traders in 1820, the government system was falling apart because of plunging sales. An official report exposed the huge inefficiencies of the government system, and Congress finally voted to end it in 1822.

Long before Solyndra and the Export-Import Bank, politicians should have learned some basic lessons about why Washington ought to stay out of business. Unfortunately, each new generation of politicians are tempted to believe that enlightened federal planners can run the economy better than businesspeople and markets. Rather than wasting hundreds of thousands of dollars as it did two centuries ago, Congress blows billions of dollars today on new versions of its fur-trading folly.