I was reading Business Week today (love the new layout btw) and felt the urge to write about something I feel very strongly about. It is efficiency, particularly at the government level. I also think this topic is especially relevant considering the movement to reduce budgets and government payrolls across Europe and to a lesser extent in the USA.
Whenever you hear a debate about the budget it always boils down into two arguments: Spend less or tax more. I offer a 3rd solution, one that I think no one in the government much likes. It is called become more efficient. Private businesses know this all too well. Margins decrease, customers are hard hit, you either cut your costs or lose business. Since government has the power to tax and is basically a monopoly this concept of becoming more efficient is a dirty word.
For me, becoming more efficient is cutting off the fat. Fat for this government (and many others) is a bloated federal workforce. I won’t even touch states, but they are a little better since a few states are actually attempting to address this. There is much more that can be done. but improving a process, speeding up delivery and automating all results in less workers. Unless you are willing to cut the fat you can never do the other things necessary to make things more efficient.
Why do I dislike federal workers so much? It is simple. They essentially have life time jobs, reward seniority over competency and have benefits far superior than any private employer. Can I ask why? Risk and reward is supposed to be the law of the land. The more risk you take on the more potential reward (or disaster). Federal workers are rarely laid off, have amazing benefits and pensions. Compare that with private workers who are hired “at will” and are stuck with 401(k)’s. How is it possible that government employees are now making more than private workers?
http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm
It is because of bloat. It is also because the amount of federal workers has grown so large that they now have political influence. Oh heaven help us.
In the above quotes article it says the average federal employee makes are 67K per year. This does not include lucrative benefits which amount to over 40K a year. I went to Wikipedia and looked up Social Security. They employ 62,000 workers. Without factoring in pensions and using a conservative 60K that amounts to a $3.72 billion dollar payroll.
http://en.wikipedia.org/wiki/Social_Security_Administration
Now in light of the overall budget for Social Security that is a miniscule figure. With that said, multiply that across the government, add in life time pensions and you will start to see how big it is. Now I am not totally against federal workers, but considering that once you hire them you rarely get rid of them I think anything that increases their numbers should be carefully considered.
One of the reasons Europe has a high unemployment (not the only reason mind you) is the level of protection workers have. Firing them is nearly impossible. This is a wonderful feel good measure, but economies expand and contract and so does the need for specific employees. The preventing of workers from being fired in tough times simply increases the use of temps who seldom share the same level of benefits and salaries as full time employers. Granted, this is not how the USA acts, but I feel this is happening on a small scale with the federal government.
My solution. Well I really don’t have one. I do not expect this to change, but that doesn’t mean I can’t complain about it. If I had my way I would do much like the auto industry did with their unionized work force. I would buy out peoples pensions and make new hires contribute into a 401(k) or it’s replacement just like the rest of Americans. There is simply no reason for government workers to be a protected class in todays environment.
Once you reduce the work force you can automate many processes. You can streamline the system. You can reduce future pension burdens. Anyone who wants to know about the burden a defined benefit plan can put on a company only has to look at the “big 3″ and see how underfunded their pension plans are. I can only imagine what our unfunded pension obligations would be.
This is all I ask. Don’t always cut the budget, don’t always raise taxes, simply squeeze more from what you have. Anyone who tells me there isn’t fat to cut in the federal government is blind, deaf and dumb. Lets stop cutting things which we know will outrage people and start looking at ways to reduce costs while still maintaining programs which benefit us all. Every household in American is familiar with stretching a buck, the federal government should know how to do it to!
Tags: Anthony DeAngelis, big government, budget deficit
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Yeah, I hear you man. Not saying all government workers are bad, but there is really no incentive for them to maximize output. That is my big issue with the government. Their only goal is to garner votes, not efficiently use the money we give them. Considering all the waste is directly paid for out of our collective pockets you would think there would be more of an outrage. It seems to me whenever the efficiency argument is brought up people look like you are a penny pinching old woman.
Anthony DeAngelis, 1 year agoI worked for the FDIC in summer 09 as a college intern after my freshman year at SMU. Though they are not directly taxpayer funded, they function as a federal agency in every other manner. They spend exorbitant amounts of time and money on compliance. I almost worked there again this summer (hired last minute at I-bank for PE 2ndary market) and I had to do the same set of pre-employment paperwork as the previous year (about a week's worth). The majority of my time at the FDIC was spent sitting around without work, traveling to Pittsburgh for 1 day/night and making a week's wages, and going to the mid day ice cream socials.
sstuartsmith19@gmail.com, 1 year agoYou guys are most likely to see all your contribution to SSA gone long before you are legible to retire. I'm not going to sit here and wait for Uncle Sam to bail me out 30 years from now.
Andy Nguyen, 1 year agoI'm suggesting we all start our own business, save the money for a rainy day. If you are in finance, there aren't any pension or job security so you save what you made. If you are in your twenty, now is the best time to be an entrepreneur and there is no better place than the US of old.
Good article, and great way to look at it, but you do realize Medicaid, Medicare, Defense and Social Security payouts account for more than 50% of the budget, right. The fact is the budget deficit is not created by inefficiencies with its employees, because I really doubt $1.5trillion deficit is created by inefficiency. Yes, inefficiency is a natural part of gov’t, but that accounts for its employees payroll, which is a significantly small portion of the gov’t budget. Think about it this way, SS is 20% of the budget, yet you talk about a $3.72B payroll for its employees. You could create efficiency in gov’t, but I doubt it will significantly lower the budget. Also, gov’t is supposed to be the watchdog, everything from FDA to the SEC and yes they might not be the most ideal examples, but guess what will happen if you cut a regulators salary to $40K.
non target, 1 year agoGood article, and great way to look at it, but you do realize Medicaid, Medicare, Defense and Social Security payouts account for more than 50% of the budget, right. The fact is the budget deficit is not created by inefficiencies with its employees, because I really doubt $1.5trillion deficit is created by inefficiency. Yes, inefficiency is a natural part of gov’t, but that accounts for its employees payroll, which is a significantly small portion of the gov’t budget. Think about it this way, SS is 20% of the budget, yet you talk about a $3.72B payroll for its employees. You could create efficiency in gov’t, but I doubt it will significantly lower the budget. Also, gov’t is supposed to be the watchdog, everything from FDA to the SEC and yes they might not be the most ideal examples, but guess what will happen if you cut a regulators salary to $40K.
non target, 1 year agoYou are correct in your assumption that salary alone is a small part of the deficit, but my point is that a lot of waste can be cut if efficiency is increased. It is more then just head count, it is automating various parts of the budget, shutting certain parts down, maybe privatizing some things. All I am saying is many of these things cannot be done because of the governments desire to simply never fire anyone.
Additionally, pension benefits stretch far into the future. Here is a link with a budget break down.
http://www.cbpp.org/cms/index.cfm?fa=view&id=1258
Here are some articles talking about pension issues and the costs associated with them.
http://money.cnn.com/magazines/moneymag/moneymag_archive/1994/10/01/89168/index.htm
http://www.taxfoundation.org/blog/show/26577.html
I also believe that there are many cost overruns, complete wastes, pork spending and the like. The government will never be totally efficient, but a continual movement towards that would do a lot to lower the tax burden while maintaining a certain standard of living.
Anthony
Anthony DeAngelis, 1 year agoYou are correct in your assumption that salary alone is a small part of the deficit, but my point is that a lot of waste can be cut if efficiency is increased. It is more then just head count, it is automating various parts of the budget, shutting certain parts down, maybe privatizing some things. All I am saying is many of these things cannot be done because of the governments desire to simply never fire anyone.
Additionally, pension benefits stretch far into the future. Here is a link with a budget break down.
http://www.cbpp.org/cms/index.cfm?fa=view&id=1258
Here are some articles talking about pension issues and the costs associated with them.
http://money.cnn.com/magazines/moneymag/moneymag_archive/1994/10/01/89168/index.htm
http://www.taxfoundation.org/blog/show/26577.html
I also believe that there are many cost overruns, complete wastes, pork spending and the like. The government will never be totally efficient, but a continual movement towards that would do a lot to lower the tax burden while maintaining a certain standard of living.
Anthony
Anthony DeAngelis, 1 year ago