Washington’s Budget Process Is Central Planning by Another Name

Every year the same slow-motion disaster unfolds. A shutdown deadline appears on the horizon, Congress kicks the can with a continuing resolution, and then, in the middle of the night, a monster omnibus bill lands on desks - thousands of pages nobody has read, packed with provisions nobody debated, funding programs nobody voted on individually. The political press calls it dysfunction, and the reformers promise to fix it with a new supercommittee or a balanced-budget amendment. What almost nobody says out loud is that the entire federal budget process is a form of central planning, the very thing free societies are supposed to reject. The real crisis isn't a failure of procedure. It's the fatal assumption that a few hundred people in Washington can wisely decide how to allocate a fifth of the American economy.

The Knowledge Problem Meets the Budget

Friedrich Hayek's most important insight, laid out in his 1945 essay "The Use of Knowledge in Society," is that the information required to run an economy - or to spend its resources sensibly - never sits in one place, in one mind, or in one committee room. It is scattered across millions of individuals, each holding local, timely, often unspoken knowledge of what he needs, what a service is worth to him, and what actually works on the ground. Free markets coordinate all that fragmented knowledge through prices, which adjust instantly and signal value without anyone having to gather the facts. A central planner, no matter how intelligent or well-intentioned, cannot replicate that. He simply does not know what he needs to know.

Now apply that insight to the federal budget. Congress appropriates more than four and a half trillion dollars each year through a byzantine process of hearings, markups, and backroom negotiations. The idea that 535 elected members - supported by staffers and lobbyists - can determine the best use of that money across every community in the country is, on its face, absurd. They cannot know whether an extra twenty million dollars for a grant program in Ohio produces more good than leaving that twenty million in the hands of the taxpayers who earned it. They have no way of measuring whether a smart-city pilot in Nebraska is genuinely more valuable than local families deciding their own priorities with their own money. What Congress responds to is pressure, not demand. Lobbyists and interest groups simulate a market signal, but it is a pale imitation: instead of millions of consumers voting with their wallets, a few dozen advocates vote with their influence. The resulting budget reflects not the real needs of the American people but the interests best organized to elbow their way to the front of the line.

This is central planning dressed up in a blue blazer and a flag pin. We are living through a five-year plan, the kind of thing that would make a Soviet commissar blush, except we comfort ourselves that the planners were elected. The conceit is the same: a small group, confident it can outthink the spontaneous order of free individuals, imposes its priorities on everyone else. Hayek called it the fatal conceit, and it is alive and well in the appropriations process.

The Seen and the Unseen in Every Line Item

The budget process is not only built on a knowledge problem; it is also deliberately blind to the full cost of its decisions. Henry Hazlitt, in his classic Economics in One Lesson, taught us to trace a policy's effects beyond the immediate and visible. Government programs are masters of the visible. When Washington funds a new bridge or a green-energy startup, the ribbon-cutting makes the evening news, and the politician gets the credit. The taxpayer sees the shiny output, the jobs supposedly created, and the grateful community. But he does not see the unseen: the business that didn't expand because its capital was vacuumed up by taxation, the charity that lost donors, the young family that postponed buying a home because their paycheck shrank. Every dollar Congress spends is a dollar removed from the private economy, where it would have been deployed by people who actually understand local conditions. The budget process is designed to make that unseen chain of losses invisible.

The accounting gimmick that seals the deal is baseline budgeting. Agencies do not start from zero when their funding is debated; they start from a projected increase over what they got last year. So when a program receives a three percent bump instead of a five percent bump, the press reports a cut. The Congressional Budget Office scores bills against that inflated baseline, meaning that a fifty-billion-dollar spending plan that "saves" five billion from a projected path gets celebrated as fiscal restraint. No household could run its books this way and stay solvent. If your income rose by four percent and you spent five percent more, you would not be applauded for slowing the growth of your debt. Yet this is exactly how Washington keeps the true scale of its spending hidden. Hazlitt would recognize it immediately: the whole machine is rigged to put the seen benefits on a spotlight and sweep the unseen costs into the dark.

When Good Intentions Produce Bad Results

Thomas Sowell often reminds us to judge a policy by its results, not its rhetoric. The budget process is a cathedral of good intentions. Every line item comes with a noble label: investing in our children, securing our energy future, ensuring access to care. But the outcomes tell a different story. Real spending on the Department of Education has climbed dramatically over decades, yet reading and math scores have flatlined or fallen. The 2021 infrastructure law poured sixty-five billion dollars into a broadband-for-all initiative; years later, miles of fiber remain unlaid, rural communities are still waiting, and the money is tangled in bureaucratic planning mazes. Meanwhile, private internet providers have been quietly expanding service with their own capital, because they know where real demand exists and have every incentive to meet it quickly.

The defense budget offers its own library of unintended consequences. Congress routinely funds weapons systems the Pentagon did not request, purely because the factory sits in a powerful member's district. A committee chairman can insert funds for a tank upgrade the Army doesn't want, siphoning resources from genuine readiness. The planners in Washington, lacking the on-the-ground knowledge of commanders or market signals, produce a budget that satisfies political factions, not one that aligns with actual security needs. The mismatch between intention and result is not a fluke; it is the natural output of a central planning system.

There is also a deeper failure: the absence of what Sowell calls tragic feedback. A private business that mismanages money goes bankrupt, and that failure sends a clear, painful signal to do something different. A government program that fails simply gets its baseline bumped again, because the only yardstick that matters in Washington is whether enough political muscle and media attention keep the money flowing. The process insulates agencies from the corrective signals that make markets adaptive. The result is a permanent, self-perpetuating layer of spending that no amount of good intentions can make efficient.

A Budget Process Without Constitutional Limits

The entire enterprise rests on a constitutional framework the Founders would not recognize. The Constitution grants Congress a short list of enumerated powers - national defense, a postal road, a federal judiciary, and little else. Article I, Section 9 states clearly that no money shall be drawn from the Treasury except in consequence of appropriations made by law. That was a restraint, a deliberate choke point against the growth of an overbearing central government. The original vision was a budget small in scope, tied to specific legitimate functions, and debated openly.

Over the centuries, the appropriations power has become a blank check. Today the federal government funds education, health care, housing, local grants, and countless other activities the Constitution left to the states or to the people. Mandatory spending, permanent appropriations, and emergency supplementals have put two-thirds of the budget on autopilot, immune to any annual debate. The remaining "discretionary" part expands through gimmicks like off-budget accounts and disaster declarations that are anything but emergencies. The budget process is now the engine that drives an unconstitutional Leviathan, funneling money and authority to Washington year after year without restraint.

Justice Antonin Scalia championed originalism: the Constitution means what its text meant when it was enacted. If a spending item does not fit within the original enumerated powers, it should not be there, no matter how long it has existed or how popular it may be. Yet the modern budget process is a machine designed to evade that principle entirely.

A Real Alternative

The fix is not another balanced-budget amendment full of loopholes, nor a new supercommittee to rearrange the deck chairs. The fix is to admit that the budget process is central planning, and then to dismantle it and replace it with something constitutionally sound and economically humble. Congress should be required to build a budget from zero, with no baseline and no automatic increases, and to justify every single dollar as directly connected to a legitimate enumerated federal function. Defense, courts, treaties, the postal clause - those are fine. Everything else - the grants, the social engineering, the local "investments" - belongs with state governments or, better yet, in the pockets of the free people who earned the money.

The knowledge problem does not exist for the local school board or the individual family. They actually know what they need. Let them decide. Decentralization is not a radical idea; it is the original American republic, before the planners in Washington forgot they were not supposed to be running a command economy. Milton Friedman understood that economic freedom is the foundation of political freedom. A budget process that concentrates spending decisions in a distant capital robs both. The cure is to let resources flow where free people, not committees, choose to send them.

The annual budget drama will continue as long as we pretend that 535 people can outsmart the collective intelligence of a free nation. The most honest thing we could do is admit the whole enterprise is a Hayekian nightmare and begin unwinding it - not through another round of budget negotiations, but through a return to first principles. Governments are not wealth creators. They are allocators, and they are terrible at it. It is time to let the American people, armed with their own local knowledge and their own earnings, do the real planning.