New: Accounting for State Capacity

Have I painted my 6,500 word masterpiece?

I’ve worked on this piece for years.

The project kicked off when, quite some time ago, I discovered a remarkable fact: Congress had received better oversight information on government spending in the 1930s than it does today. It received literally hundreds of pages of reports itemizing spending in every possible way – much more elaborate information than Congress gets now. And Congress received these reports weekly. To top it off, this experience had apparently never been discussed in any secondary literature.

This discovery raised two main questions. How could this possibly have been true? And if Congress had received better information 90 years ago, what the heck changed?

I looked into it. American Affairs published what I learned. Here’s some of it:

The introduction

The debates over the Department of Government Efficiency have revealed, if nothing else, that the federal budget is obscure even to the political combatants ostensibly responsible for developing and overseeing it. In the executive branch, Elon Musk highlights that billions of dollars of payments are processed by the Treasury without even a memo line. Meanwhile, in Congress, Republican politicians highlight the incompleteness of the bureaucracy’s spending records, while Democrats bemoan the Trump administration’s dissimulation in ceasing to share budgetary guidance documents. The camp followers of these obscure programs are thousands of federal contractors, pursuing vague goals with indefinite timelines. As soon as the ink on a bill is dry, it seems, Congress loses sight of its initiatives until their eventual success or their all-too-frequent failure.

Contrast this with the 1930s, when the Roosevelt administration provided Congress with hundreds of pages of spending reports every ten days, outlining how tax dollars were being put to use in minute detail. The speed and thoroughness with which these reports were produced is hard to fathom, and yet the administration was actually holding its best information back. FDR’s Treasury had itemized information on hundreds of thousands of projects, down to the individual checks that were written. Incredibly, politicians had better dashboards in the era of punch cards than we have in the era of AI. The decline in government competence runs deeper than our inability to match the speed and economy of New Deal construction: even their accounting was better. What happened? […]

The 1930s: Accounting Rebuilds America

In the 1930s, the United States faced a once-in-a-lifetime cataclysm. After the stock market collapse in 1929, unemployment rose to 25 percent. Cities and states were functionally bankrupt. FDR’s landslide victory against Herbert Hoover gave his administration a mandate for aggressive reform and experimentation. The administration proposed unprecedented spending for economic recovery, and from 1935 to 1937 was granted the then stunning amount of $8.5 billion for infrastructure investment alone—roughly $200 billion in today’s dollars.

This New Deal spending built roads and bridges, while the need to account for the spending spree built state capacity. To keep track of these staggering sums, the Treasury Department created an accounting system that provided nearly real-time information on more than two hundred thousand individual projects, down to recording every last check within ten days of it being written. This information was shared with both the White House and Congress, who invested in the bureaucracy due to the trust this information generated. Achieving this unprecedentedly good oversight required teamwork in the form of an alliance between Treasury Department bureaucrats and New Dealer academics. The Treasury bureaucrats were interested in better accounting for its own sake—it was their job, and they wanted to do it well. For FDR’s academic advisers, however, these reforms were a means to an end: increasing executive power. […]

The 1950s: Revenge of the Gray Flannel Suits

To 1950s businessmen, the dream of rolling back the size of government seemed like a lost cause. The federal government undertook a range of responsibilities that would have been unthinkable before the Great Depression and which had become unchallengeable after war’s end. Democrats had won nearly uninterrupted control of Congress since 1932, and the Republicans only won the Presidency by nominating the war hero Dwight D. Eisenhower, who professed his acceptance of the New Deal.

Conservatives had lost the hearts of the voters but hoped they might yet win the hearts of government accountants. Their suggested reform was program budgeting, which aimed to measure the total cost of government programs more comprehensively than before. This ap­proach won the endorsement of the landmark Hoover Commissions and was ultimately enacted in law. These reforms, however, inadvertently decreased state capacity. To measure costs in a broader way, agencies had to expand the role for budget offices at the expense of technical experts. This cost data was not useful or even desirable to the politicians in Congress who oversaw agencies. It did appeal to its backers, however: an alliance of accountants and businessmen. […]

The 1960s: The Slide Rule Reformers

Liberals of the 1960s were ready to break with the stodgy conservatism of the Eisenhower era. From closing the missile gap, to improving national education, to dealing with southern racism, the U.S. political system they took control of appeared unable to confront issues of dire importance. In one significant area, however, liberals doubled down on conservative reforms: the accounting and budgeting procedures with which they intended to fund a more vigorous government.

The government was confronting a daunting set of crises, and in their view, it was time to get down to brass tacks. The bureaucracy had to escape the squabbling of politics and figure out what to tackle head-on. It had to set its long-run goals and ruthlessly prioritize its programs to achieve them, an approach they called Planning, Programming, Budgeting (PPB). Robert McNamara, the secretary of defense in the Kennedy and Johnson administrations, pioneered this approach in the Department of Defense, eventually persuading Johnson to mandate it governmentwide. Unfortunately, far from achieving reformers’ ambi­tious goals, the approach dealt a lasting blow to government competence: PPB effectively centralized power with the planners and froze out technical experts, eventually leading the government to farm out policy to contractors and NGOs. The ultimate results were the last thing in the world its supporters—businessmen and the military’s social scientists—would have wanted. […]

What else, you ask?

Beyond these excerpts, the piece also includes such key details as: an overlooked public interest film, questionably qualified urban reformers, a statute with a suspicious job description, the annoyingly complicated way that items from the National Archives are cited, cattle research, one of GSA’s many scandals, military contractors moonlighting as education consultants, the vagaries of the Coast Guard’s budget, and why DOGE ought to learn three things and also have a movie night.

Read the rest of Accounting for State Capacity at American Affairs.