Our rolling lesson about big government

In a recent appearance on Fox Business Channel Dan Mitchell saw five lessons from the ongoing federal government “shutdown”:

The first lesson is that much of what the government does is irrelevant to America.

I pointed out that ordinary Americans don’t notice or care that departments such as Housing and Urban Development are closed because there’s no net value generated by such bureaucracies.

And polling data supports my assertion.

The second lesson is that some parts of government should be shut down permanently.

If people don’t care or notice that a department is temporarily closed, they probably won’t care or notice if it is permanently closed.

I think that message applies to bureaucracies that are affected by the current shutdown (such as HUD and Transportation) as well as to some of the bureaucracies that are unaffected (Education, Energy, Agriculture, etc).

The third lesson is that temporary shutdowns are not a money-saving exercise.

A shutdown does not alter the amount of entitlement spending and it does not change annually appropriated spending. And since bureaucrats always get back pay for their involuntary vacations, there aren’t any savings there, either.

Some argue (see here and here) that a shutdown gives the executive branch unilateral authority to save money. I actually hope that’s true, but I have very little reason to think the Trump Administration is interested in fiscal rectitude.

The fourth lesson is that a busy and productive Congress is a dangerous Congress.

I included the brief blurb by Senator Tillis prior to my interview because I don’t want a “productive” Congress.

I’m not being nihilistic. Instead, I’m making the simple point that America’s Founders had the right idea in creating a factionalism-based system that enables gridlock.

Last but not least, the fifth lesson is that bureaucrats should have less power over economic activity.

I mentioned that there wouldn’t be any threat of disrupted air travel if all airports got to use a privatized version of TSA.

But that’s just one small example. Tim Carney’s column in the Washington Examiner is a must-read on the issue of pointless bureaucratic impediments to commerce.

…the government shutdown is another lesson… Before now, if an out of state brewery issued a new seasonal, you could simply purchase it across state lines thanks to…Form 5100.31 approvals… Of course, if you’re a particularly skeptical type, you may have a question… Why in the world should a brewer need federal approval on new beer labels? Once we ask that question, a thousand analogous questions come to mind. And in the asking, we expose the trick in so many stories about the crucial work of our expansive federal government. The trick is that the government’s work is often made necessary only by needless federal meddling in the first place. …when some reporter tries to tell you to be grateful that the federal government is opening a gate for you, ask them why the wall is there in the first place.

Amen.

This is what I was trying to get across in the interview about business decisions being stymied until some bureaucrats signs off.

Speaking of “some bureaucrat,” Ryan McMaken adds:

Whether it’s CNBC, or The New York Times, or NPR, the mainstream media is clearly committed to using the current partial government shutdown to portray federal workers as beleaguered victims of the American political system.

But, in all cases I’ve encountered, these reports neglect to mention that on average, civilian federal workers make 17 percent more than similar workers in the private sector, according to a 2017-2018 report by the Congressional Budget Office. That’s total compensation, so we’re including both wages and benefits.

Considering that a year is 52 weeks long, an average federal worker would need to be completely without any income for nearly 9 weeks in order to just be reduced to equal standing with a similar private-sector worker. (17 percent of 52 weeks is 8.84 weeks.)

graph1.PNG

Source: Congressional Budget Office.

As of this writing, the current shutdown has only lasted three weeks, which means all those furloughed workers profiled in national news stories are likely still coming out ahead of their private-sector colleagues. Moreover, given that both Trump and Congress have committed to pay furloughed workers back pay, it’s a safe bet that federal workers will continue to enjoy a healthy advantage over private-sector workers when it comes to compensation.

Health benefits for most federal workers will also continue without interruption through the shutdown, as noted by NPR.

The Federal-Pay Advantage Is Larger for Lower-Income Employees

The disparity between private-sector work and federal jobs is largest at the lower end of the education scale.

According to the CBO’s report:

Federal civilian workers with no more than a high school education earned 34 percent more, on average, than similar workers in the private sector.

That’s just wages. They get far more in terms of benefits like healthcare and vacation time:

Average benefits were 93 percent higher for federal employees with no more than a high school education than for their private-sector counterparts.

The benefits for workers with a bachelors degree are 52 percent higher for federal workers than for their private-sector counterparts. Wages for federal workers in this group, however, are only five percent higher.

Only when we look at federal workers with PhDs and other advanced degrees, do we find some federal workers who actually make less than similar workers in the private sector. Wages among highly-educated federal employees were 24 percent less than in the private sector, according to the report. Benefits remained “about the same.”

So, most federal employees — especially the ones with less education — have a long way to go before facing the economic realities that private-sector employees — i.e., the net taxpayers — face on a daily basis.

Crowding Out Private Employment

Not content with manufacturing sympathy for federal workers, however, news organizations have also pointed to a decline in spending by federal employees as damaging to the economy.

A typical passage is one like this one from a CNBC article:

If the government shutdown lasts another two weeks, the total cost to the U.S. economy would exceed the price of building the proposed border wall.

Without federal spending, we’re told, GDP will suffer:

We estimated that this shutdown could shave approximately $1.2 billion off real GDP in the quarter for each week that part of the government is closed.

That might sound like a big number (to some people unfamiliar with federal finances), but it’s helpful to keep in mind that federal workers make up only 1.5 percent of the federal workforce. And not all of those are furloughed.

Moreover, since furloughed workers can eventually expect back pay, any bust in GDP right now will be followed by a boom in spending once the back pay is received.

The real cost to the private sector is in the form of industries that are paralyzed as a result of understaffed federal regulatory agencies. (As mentioned in this article about craft beer.) When the private sector isn’t allowed to function without regular certification and inspection from federal agents, that means shutdowns prevent the private sector from functioning. This, of course, isn’t an argument for more government spending. It’s an argument against a vast federal regulatory apparatus that can’t be counted on to perform the bare minimum of tasks it has promised to perform.

All of this is just a good reminder that these jobs should never have been federal jobs in the first place.  After all, many of these positions are already by definition “non-essential,” and from the national parks to the airports to the FBI, the federal workers are doing jobs that could easily be taken over by state and local authorities, or by the private sector.

Were that the case, no nationwide, system-wide shutdown all of countless nationwide agencies would be of any noticeable impact. The system would become less fragile, more flexible, more diverse, and less costly.

Also, many of the workers who now rely on federal paychecks would already be working in the private sector had the federal government not crowded these jobs out of the marketplace to begin with. Every time the federal government inserts itself as a monopolist regulator or service provider, federal agencies suck resources (in terms of both capital and human resources) out of the private sector. That means fewer new hires in the private sector, and it means lower wages for the employees left in the private sector who must foot the bills for federal agencies and employees. It also means higher prices for the private sector as government agencies bid up prices on everything from steel to petroleum.

Ultimately, all of the problems we’re being told about as a result of the government shutdown are problems caused by a federal government itself, which has inserted itself into every nearly every corner of daily life nationwide.

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