Big Government is Eating Our Lunch

     Liberal Democrats love to increase the size of all level of governments – from the municipal to the state and to the federal. Why? For two main reasons. First, liberal Democrats believe that citizens cannot properly manage their lives, that is, ordinary citizens need to be guided and led by the nose by those better equipped to decide how to run our lives, i.e., by the elite liberal establishment and their bureaucratic minions. Second, government employees owe their jobs and the associated benefits to these liberal Democrats and therefore vote Democratic and donate funds to their Democratic benefactors. The relationship between government employees and the liberal Democratic establishment is considered by many to be highly incestuous.

     ”Over the past two years, the Obama administration has constructed a maze of executive orders, directives, regulations and findings all for the purpose of reversing more than a decade of outsourcing government work to the private sector.” (Ref. 1) At the same time, private sector jobs have disappeared in the economic downturn and job creation, primarily in the small business sector of the economy, has dried up. As has repeatedly been stated, the primary source of new jobs in the American economy is the small business sector – not big government. To exacerbate the problem still further, the government workforce has been gobbling up tax revenues at an alarming pace. Government pay and benefits at all levels have far outpaced pay and benefits in the private sector and the resulting tax burdens have placed many municipal and state government in severe straits, with the threats of default and bankruptcy rearing their ugly heads. Citizen push-backs have now begun, as evidenced by the attempts in Wisconsin and elsewhere to curtail or eliminate collective bargaining for state or municipal employees.

     Under the present Democratic administration, “The policy is now insourcing, which is the replacement of private sector workers with government employees. The overall effect is that tens of thousands, maybe even hundreds of thousands, of jobs that were once in the private sector have migrated into the public domain with all the attendant disruption of ongoing work and additional cost.” (Ref. 1) While private sector jobs are created and eliminated in response to economic conditions and the success or failure of the business employing the workers, government jobs tend to be forever. Even when a government job is ended, typically through retirement at an early age, the costs to the taxpayer continue at rates much higher than in the private sector.

     When all is said and done, a lot of our money goes towards paying the government to do whatever it does for us. We pay income taxes, FICA, Medicare taxes, sales taxes, and hidden taxes everywhere, because every middle-man builds taxes into his cost as does every service provider. A good portion of these taxes fund the jobs and benefits of the millions of government employees. In many socialistic countries, a significant segment of the workforce is employed by the government rather than by private enterprise – the chickens are now coming home to roost in many of these countries, as typified by the recent economic meltdown in Greece. Many would argue that the U.S. is now moving in the same direction as these failed socialized regimes.

     The main problem with government employment is that people in government have a built-in incentive to spend more money, whereas people in the private sector strive to spend less. For example, if you are hired into an entry-level government position, it may be into a position that initially doesn’t pay much. To advance, you either get promoted, or you find out a way to hire an assistant, because, the more people you manage, the higher your pay. The process gets repeated several times until you need a secretary just to help you manage all these people. Then you need support staff and so forth. Soon you have a department of 10’s of people working for you, spending lots of money, which implies that you must be doing a lot of work. Consequently you advance up the bureaucratic ladder and receive higher pay and more benefits.

     You may ask why government bosses don’t crack down on such abuses. They don’t crack down because the more people you manage, the more people they manage. The more people they manage, the higher their positions, salaries and benefits – it’s a self-perpetuating spiral. Just look at the government bureaucracies in countries like France and Greece.

     “Contrast this with the private sector. You get an entry-level job. You want to climb the ladder. What do you do? You work hard and produce results so that you can get promoted. As you get promoted you get management opportunities. And management gets paid more.
     “Either way, the way you make more money is to get people under you. In government, you do it by bringing in new people and sticking them under you. In the private sector, you do it by climbing over the ones who are already there.” (Ref. 2) Over time, government becomes more and more bureaucratic.

     Why is government so inefficient compared to the private sector? The answer is profitability, that gap between what an organization brings in and what it spends. Profitability creates incentives, and in order for someone to receive an incentive there must be accountability, or the ability to measure performance. There is simply no profit motive in government, and as a result, little meaningful accountability. In government, it’s keep quiet, don’t make waves, don’t screw up and wait for retirement. In the private sector, it’s be productive or lose your job.

     In private industry, the decision about hiring additional people revolves around the question of whether or not hiring people will aid or hinder profitability. In government, there is no such thing as profitability, so the question is will hiring more people help tasks get done. The answer is always “yes”, and so people will always get hired. Of course, hiring people adds to the budget, but budgets in government always get spent, and the next year there will be a request to include more money in the budgets.

     In the private sector, bosses don’t easily let those he manages hire more people, because he knows he’s going to have to justify it in terms of profitability. In industry, the good mangers get rewarded for doing more with less, because higher productivity is what generates larger profits, and ultimately management steps in and makes sure money is only being spent where it needs to be spent. The top management in a company knows that if they’re more profitable that means higher pay and larger bonuses for them. If they’re a public company, they know they’ll be punished by the stock market if they’re not profitable, and they may lose their jobs.

     In the private sector, there is a natural pattern of correcting influences that keep companies from becoming uselessly bureaucratic. That’s the beauty of a capitalistic society or a market-driven economy. In government, there is no naturally occurring incentive to keep costs down. The only way this happens is for those at the top to create systems of forced accountability (as opposed to natural accountability) and to focus on hiring people who are self-accounting. This is not only not easy but virtually impossible to implement and manage. (Ref. 2) This is why socialism failed in the Soviet Union. Their government became totally inefficient and so did their businesses. As a result, the entire Soviet economy fell apart.

     “In 2009, Secretary of Defense, Robert Gates . . . announced a major policy shift that sought to reduce the (defense) department’s reliance on private contractors and increase the number of government employees involved in oversight, management and planning of defense activities and procurement programs.
     “One stated objective of the secretary’s program was to save money by shifting work done by the private sector into the public defense industrial base.” (Ref. 1)

     “Central to the logic that underpinned the Defense Department’s insourcing campaign was the assertion that such work could be performed more cheaply by the public defense industrial base. Pentagon sources estimated an average savings of $44,000 a year for every contractor it replaces with full-time federal personnel. ” (Ref. 1)

     “Yet, readily available public data strongly refutes assertions that the public sector work force is cheaper than its private sector counterparts. A study by the Cato Institute using federal government data concluded that in 2009, the average federal civilian wage was $81,258 per year, compared with $50,462 in the private sector.” . . . “Not only do federal workers receive higher salaries than their private sector counterparts, but they also receive more in benefits. USA Today reported that based on data from the Bureau of Economic Analysis, federal workers ‘earned average pay and benefits of $123,049 in 2009 while private workers made $61,951 in total compensation’ . . . According to the Center for Data Analysis, the average private sector employer pays $9,882 per employee in annual benefits, while the federal government pays an average of $32,115 per employee.” (Ref. 1)

     Additionally, “Federal workers also have access to an array of benefits rarely matched in the private sector. These include:

• FEHBP Health Care (no waiting period or eligibility requirements)
• Thrift Savings Plan + 5% Agency Match
• FERS Defined Pension Benefit Program (Full retirement and pension at age 56 possible with 30 years service)
• Leave (0-2 years: 13 days; 3-15 years: 20 days; >15 years: 26 days)
• Holiday Pay (10 days per year)
• Service Credit for Unused Sick Leave
• Public Transportation Reimbursement
• Life Insurance
Long-term Care Insurance