Edward Lotterman The issue of whether, when and how government should take actions within an economy goes back some 400 years, yet remains a hot one today. Indeed, there are few news articles not involving it. So a quick historical review is helpful. From the mid-1600s, the ideas of Jean-Baptiste Co lbert, a French prime minister, dominated economic views: Economies needed government action to grow and produce prosperity. Then in 1776, Adam Smith, a Scottish philosopher, argued the exact opposite: Spontaneous economic interactions between people, each pursuing their own self-interest, created incentives that led to resources being allocated efficiently. Smith’s ideas dominated economics for 150 years. Their core remains powerful today. It became clear, however, that there are exceptions. Free private markets might lead to optimal production of buggies and beef roasts, but not of bridges or schools. Moreover, without government actions, polluting industries harm others and waste resources. Bridges and schools have “external” or “spillover” benefits to society in a way that their costs cannot be captured entirely by tolls or tuition. Not enough bridges are built or schools opened to meet our needs without government action. Pollution and other negative side effects of some economic activities impose real damage to society, the costs of which polluters would never have to pay. Without government, people will face too many of these external costs without having been responsible for their cause. So consensus wisdom now is that government must act to produce “public goods,” such as education, transportation and health, whose benefits spill over to all in society. Government should limit activities with external costs like pollution. If regulation to stop polluting activity is not practicable, government rather should subsidize activities that mitigate harms. That leads to a discussion specifically of U.S. agricultural policies and government-supported scientific research. The “dust bowl” days in the 1930s showed soil erosion was an environmental problem. Blowing soil from farms harmed millions downwind. Congress set up a Soil Conservation Service within USDA and appropriated money annually to subsidize conservation measures. The 1996 farm bill authorized and funded a new Environmental Quality Incentives Program (EQIP) that, among other measures, paid 75% of the cost of improvements needed for farmers and ranchers to implement rotation grazing systems. Such grazing reduces erosion, slows water runoff and creates habitat for wildlife and varieties of endangered native plant species. This benefits society as a whole. Rotation grazing also produces more forage for livestock, a direct benefit to farmers and ranchers. But this practice requires fences to subdivide pastures and piped water systems so these paddocks need access streams. Farmers contract to implement rotational grazing in return for USDA reimbursing part of their infrastructure costs. Once the contract is signed, a farmer carries out construction and then presents invoices for the partial reimbursement. The 1996 Farm Bill establishing EQIP had been a GOP-written and sponsored bill. It passed with overwhelming Republican majorities in both houses of Congress plus a majority of House Democrats and nearly half of Senate Democrats. Admittedly, EQIP was only one program in a complex bill. The GOP wanted continued crop subsidies with fewer controls. Many Democrats more money for food assistance to the poor than the bill provided. But EQIP itself was strongly supported by both parties. It has been re-funded in every farm bill since. Based on those appropriations, in 2024 farmers signed contracts with USDA and paid for construction, spending as much as $200,000 on large ranches. All with the expectation that the government would keep its side of the deal. Yet now, several thousand of them are not getting payment for work already done because the newly created Department of Government Efficiency repudiated the contracts. A parallel problem has arisen in scientific research. Government-funded research has been important historically in developing almost all new technologies — from integrated circuits to heart valves to lasers to CRISPR gene-splicing to robots to the internet. Corporations do some applied research on their own. They and autonomous nonprofit laboratories also do government-funded research, but most takes place in laboratories at public and private universities. The economy, and myriad private industries, benefit. Lab equipment, materials and components are expensive. So are lab facilities. Federal grants through the National Institutes of Health, Defense Advanced Research Projects Agency, NASA, USDA’s Agricultural Research Service and other agencies pay for fixed and operating expenses. Such federal “grants” for research are not freebies. They are contracts to perform work much like contracts with construction firms to move earth or lay pavement on federal highway projects. Of course, measuring progress in pathbreaking scientific research is not as easy as tracking cubic yards of concrete poured rebuilding 20 miles of Interstate 90. But grant funds are disbursed in tranches as work is actually done. Labs must report on activities and achievements. Labs that produce little in the way of scientific results get fewer new grants. Competition can be intense. Educating graduate students and post-doctoral fellows is understood as a spillover benefit of a grant. It is also understood that a university doing much research with private as well as public funding has administrative overhead costs. A portion of any grant contract goes to cover that. Moreover, while no promises are made in grant contracts and although government priorities do wax and wane over time, there is a general understanding that the federal government will continue to fund scientific research. Yet now, abruptly, with a new administration, thousands of grant contracts involving hundreds of millions of dollars have been canceled. Laboratories have purchased expensive equipment, hired skilled people, built expensive labs and test facilities. Some of this was paid for with funds already received. Yet a great deal remained to be paid with funds expected after the submission of satisfactory progress reports. Now that all is up in the air. Bio-medical research dependent on continued maintenance of lab animals or cultures is in an especially hard bind. There are at least three issues for both the soil conservation and scientific research dilemmas: • Should the federal government pay private entities for soil conservation or scientific research? • If Congress authorizes such programs and appropriates money for them, can the executive branch simply refuse to carry out what Congress mandated? • If an executive branch agency signs a contract that is binding on a private sector farmer or university, can it unilaterally refuse to pay for services received? Looking back over U.S. history, the answers are yes, no and no. Yes: The programs DOGE is repudiating meet justifications for government economic activity. They are long established, some dating back more than a century. They have broad bi-partisan support. They have never been challenged constitutionally. No: In 1974, the Supreme Court ruled that President Richard Nixon did not have a right of “recission.” He could not refuse to spend money that Congress had appropriated in bills that he had signed. Finally, no: Legal experts agree that farmers who have laid out their own money on EQIP facilities will win if they are forced to sue the government for reimbursement. The situation for university and autonomous research labs is more complicated. Most work already done on existing grant contracts eventually will be paid for, but future funding is up in the air. Abruptly ceasing established research will create tremendous financial problems for the institutions affected. And applied generally, these alternatives also pertain to the age-old question of what role government can and should play in fostering “spillover” economic benefits, and mitigating external costs, vis-à-vis the private sector. Some in the current administration might say no role, even though past Congresses would have disagreed. Some in the current administration might also say that tort law, Supreme Court rulings, separation of powers or even the moral obligations of promises made don’t apply anymore, but all that must be subjects of another column. Yes, there certainly are legitimate questions raised by DOGE of which activities funded by the federal government may involve “corruption, waste or abuse.” There are tools to deal with that, from congressional hearings to the Congressional Research Service, General Accounting Office and other agencies. Do these need overhaul? Well, if so, it is up to Congress to do it. The U.S. Constitution has long provided us with a just and efficient government. It can again if we want it to. But the haphazard, scatter-shot cancellation of useful programs that foster benefits and mitigate damage is bad economics, and will only hurt us in the long run.Related Articles Ed Lotterman: Attacking Denmark about Greenland is wrong, dumb and damaging Real World Economics: Tariffs raise questions, here are some answers Real World Economics: Stagflation bullets are already in the air Real World Economics: U.S. heath care model provides a teaching moment Real World Economics: Playing chicken with egg prices St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com. ...read more read less