Federal IRS workers at the Chamblee Building are often greeted by rats struggling to free themselves from glue traps set about the workplace. Workers at the Veterans Affairs building in Hilo, Hawaii, are having to deal with dangerous infestations of mold. Federal employees in several places, including the Food and Drug Administration building in Washington, DC, are being exposed to Legionella, the bacteria that causes Legionnaires’ disease.
In Washington, DC, forty percent of the headquarters of the General Services Administration have been declared unsafe, which means the GSA has had to relocate many of its employees. And the list goes on and on. The New York Times recently investigated the situation and found the situation to be in near-crisis proportions, as more than $50 billion of deferred maintenance is looking increasingly like no maintenance:
Rain has been seeping into an Internal Revenue Service building in Atlanta through leaks in the roof that have gone on for years. The mold in Veterans Affairs work spaces in Hilo, Hawaii, got so bad that visitors complained. And on any given day, people in an Oakland, Calif., federal building are at risk of getting stuck in one of its outdated elevators.
Across the federal government, employees are working in buildings that have persistent health and safety problems, in part the result of decades of backlogged maintenance that totals as much as $50 billion, according to one recent estimate by an oversight board. In several years, the cost is set to exceed the entire value of the federal government’s real estate portfolio, the Public Buildings Reform Board said earlier this year.
Certainly, the hypocrisy of the federal government comes to mind, as federal regulators would have no problem shutting down workplaces at private companies that provided similar accommodations for their employees. But this article is not about government hypocrisy, nor is it a clarion call for Congress to make the necessary appropriations to fix the problems.
Instead, we look at why we should not be surprised to see the government’s properties deteriorate, and why Congress fails to appropriate the funds that would be used to do the repairs. The answers have been with us longer than the buildings and properties that need fixing, as Ludwig von Mises pointed out in Socialism in 1920 and in Bureaucracy in 1944 the difference between bureaucratic management and profit management, and in that difference, we come to better understand why the situation exists with federal government facilities.
The key concept that explains this situation is economic calculation, which Mises wrote would be the downfall of socialism. He wrote:
The preeminence of the capitalist system consists in the fact that it is the only system of social cooperation and division of labor which makes it possible to apply a method of reckoning and computation in planning new projects and appraising the usefulness of the operation of those plants, farms, and workshops already working. The impracticability of all schemes of socialism and central planning is to be seen in the impossibility of any kind of economic calculation under conditions in which there is no private ownership of the means of production and consequently no market prices for these factors.
Mises went on to explain that economic calculation depends upon profits and losses and market prices:
Technology provides us with information about numberless possibilities in regard to what could be achieved by using this supply of natural resources, capital goods, and manpower for the production of consumers’ goods. Which of these potential procedures and plans are the most advantageous? Which should be carried out because they are apt to contribute most to the satisfaction of the most urgent needs? Which should be postponed or discarded because their execution would divert factors of production from other projects the execution of which would contribute more to the satisfaction of urgent needs?
It is obvious that these questions cannot be answered by some calculation in kind. One cannot make a variety of things enter into a calculus if there is no common denominator for them.
But what does this have to do with deteriorating federal office complexes? Mises has told us that without profits and losses and with the federal government not producing things for which there would be market prices, there is no common denominator and no way for government planners to make rational decisions to determine repairs. Furthermore, because there are no profits and real losses, there is no way to economically prioritize the repairs that need to be done first. Instead, the planners must rely upon political calculation, which in politics is based upon the marginal value of an action to a politician.
With a private firm, the emphasis is upon earning profits, looking for opportunities within current economic markets. Hunter Hastings explains:
Importantly, economic profits (returns higher than the cost of capital) are hard to achieve and even harder to maintain. Rothbard points out that, to succeed in this challenge, entrepreneurs must demonstrate superior foresight and judgment, and practice continuous dynamic improvement in their assembly and reassembly of assets to serve the consumer. This urgency is sharpened by the competition of new entrepreneurs who see the high returns that the pioneering entrepreneur has achieved and are willing to enter the same space for lower margins so long as returns remain higher than the going interest rate. Eventually, all the superior returns will be competed away—unless the first entrepreneur keeps changing and advancing to serve more and higher-valued consumer needs.
More specifically, Rothbard’s construct is that economic profit is the result of entrepreneurs identifying discrepancies in the capital structure where capital is overdeployed in the service of less acutely felt consumer wants and underdeployed in the service of some more acutely felt consumer wants. The function of entrepreneurship is to make the adjustment that consumers are demanding. Entrepreneurs buy factors that are underpriced because of the discrepancy and recombine them to serve currently underserved needs. The adjustments are always in the direction of higher and higher productivity. The prices of the new consumer goods and services generate a profit and a return that is higher in the new, adjusted arrangement of factors than in the prior arrangements.
Writes Murray Rothbard:
The capitalist-entrepreneur buys factors or factor services in the present; his product must be sold in the future. He is always on the alert, then, for discrepancies, for areas where he can earn more than the going rate of interest.
He continues:
What gave rise to this realized profit, this ex post profit fulfilling the producer’s ex ante expectations? The fact that the factors of production in this process were underpriced and undercapitalized—underpriced in so far as their unit services were bought, undercapitalized in so far as the factors were bought as wholes. In either case, the general expectations of the market erred by underestimating the future rents (MVPs) of the factors. This particular entrepreneur saw better than his fellows, however, and acted on this insight. He reaped the reward of his superior foresight in the form of a profit.
Thus, to the market entrepreneur, a profit comes about from being able to satisfy consumer needs using factors of production that temporarily are underpriced. Every factor of production within that production structure gains its value from the role it plays in producing these goods that satisfy the needs of others.
Contrast that with government projects, be they office buildings or the doomed “high-speed” rail project in California that is destined for failure. These office buildings are not deteriorating because Congress simply forgot to maintain them; they are deteriorating because they provide few, if any, political benefits to members of Congress. The New York Times explains:
In May, Mr. Edward Forst and leaders of 21 federal agencies asked the top Republicans and Democrats in the House and Senate to change the appropriations process and give the G.S.A. full access to the federal buildings fund, and to raise the threshold for how much the agency can spend.
So far, the lobbying effort has not had an impact, and Congress has kept in place the oversight requirement for the G.S.A. to submit detailed requests for projects exceeding $3.96 million. Mr. Forst asked Congress to raise it to $75 million.
Dan Mathews, a former head of the G.S.A. division that manages real estate, said that it was unlikely that Congress would change the law, in part because the state of federal buildings gets little attention. For lawmakers of both parties, spending money on government itself rather more tangible services for voters is not a top priority.
“It doesn’t fall that high, and it never will,” said Mr. Mathews, now a member of the reform board, which was set up a decade ago to identify federal properties that can be offloaded. “Government is a terrible owner of real estate.”
No business could survive by allowing its capital—including workspace—to deteriorate to the point where people could no longer do their jobs, but government is a different story. People don’t have to purchase anything from a private firm, but government is a different story. No matter how dilapidated government offices become, people still must pay their taxes and fees or go to prison. Furthermore, people are willing to hold government to a lower standard.
Take New York City voters, for example. There is ample evidence that the worst landlord in that city is the NYC Housing Authority, yet the NYC socialist government under Zohran Mamdani is actively trying to drive private apartment building owners into bankruptcy so that the city can seize the housing—with the city’s voters enthusiastically supporting their mayor.
What matters to Mamdani and his supporters are the political benefits they can receive for seizing housing. It does not matter that the city in no time will turn this “new” housing into rat-infested dumps, as the voters will never catch on, and neither will the NYT or most other journalistic outfits.
It is no mystery as to why federal government property is poorly managed and permitted to deteriorate. Taking care of it provides few, if any, political benefits to members of Congress. This is not something that will change, despite the promises that politicians make and will continue to make. Get used to working while a rat struggles nearby to escape a glue trap.
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