Drag

I’m seeing a common theme emerging in a number of the posts and articles I have been reading today: the increase in the number, wealth, and power of people who work for the government. In the first article from Reason.com, Steven Greenhut remarks:

There was a time when government work offered lower salaries than comparable jobs in the private sector but more security and somewhat better benefits. These days, government workers fare better than private-sector workers in almost every area—pay, benefits, time off, and job security. And not just in California.

According to a 2007 analysis of data from the U.S. Bureau of Labor Statistics by the Asbury Park Press, “the average federal worker made $59,864 in 2005, compared with the average salary of $40,505 in the private sector.” Across comparable jobs, the federal government paid higher salaries than the private sector three times out of four, the paper found.

The second post is even more interesting. In it Walter Russell Mead chronicles the breakdown of what he refers to “the Blue Model”:

In the old system, both blue collar and white collar workers hold stable jobs, a professional career civil service administers a growing state, with living standards for all social classes steadily rising while the gaps between the classes remain fairly stable, and with an increasing ’social dividend’ being paid out in various forms: longer vacations, more and cheaper state-supported education, earlier retirement, shorter work weeks and so on. Graduate from high school and you were pretty much guaranteed lifetime employment in a job that gave you a comfortable lower middle class lifestyle; graduate from college and you would be better paid and equally secure.

Life would just go on getting better. From generation to generation we would live a life of incremental improvements — the details of life would keep getting better but the broad outlines of our society would stay the same. The advanced industrial democracies of had in fact reached the ‘end of history’: this is what ‘developed’ human society looked like and there would be no more radical changes because the picture had fully developed.

Call this the blue model, and the chief division in American politics today is between those who think the blue model is the only possible or at least the best feasible way to organize a modern society and want to shore it up and defend it, and those who think the blue model, whatever benefits it had in the past, is no longer sustainable.

This “Blue Model” is the same thing I’ve been railing about here for some time as “Fordism” (see here and here for some of my thoughts on the subject) and it is already all but dead in the corporate world. AT&T and the auto companies are shadows of their former selves and are likely to remain so.

The great bastions of the “Blue Model” today are government and its handmaiden industries. Mead continues:

The real crisis today is the accelerating collapse of blue government. It’s a colossal, multi-dimensional meltdown that affects our lives and our politics in many ways. Today there are three elements of the blue government meltdown in particular worth mentioning.

The three elements he refers to are the government’s role in sustaining the “Blue Model” which has run into serious financial trouble, the government’s maintaining that model in its own operations, and the reflexive “Blue Model” responses of politicians of both parties to a whole range of problems:

As long as the federal government can print money and find lenders to buy its bonds, it can bleed slowly. It can gradually watch its fiscal position erode, it can gradually become less effective and less popular. But state and local governments increasingly need vast transfers of cash from the federal government to keep their blue noses above the rising tide. California and New York are headed over the cliff without federal bailouts, and others follow close behind. Already, a substantial share of the ’stimulus’ spending is targeted less at New Deal-style infrastructure projects than at simply keeping unsustainable state bureaucracies and systems afloat for a few months or years longer. The stock market declines wiped out huge chunks of the wealth that state pension systems needed to have a hope of paying the pensions promised to government retirees under terms more generous than virtually any private employers now provide.

Government and its handmaiden industries present a peculiar challenge to the economy: not only do their jobs pay more, they also provide greater security in the sense that both their pay rates and the jobs themselves tend to be “sticky”. Not subject to the same pressures as other private businesses wages only rise, their numbers only grow.

To get some notion of the scope of this consider the following. According to the Bureau of Labor Statistics something between 20% and 25% of all workers work for governments and government’s handmaiden industries. Even as numbers have fallen outside these sectors they have grown within these sectors. Indeed, the only sectors that have shown growth over the last decade have been government and its handmaiden industries.

With that sort of size even a deadweight loss of 15% means as much as 2 or 3 points of GDP—that’s the difference between near stagnation and robust growth in a developed economy. And I haven’t even mentioned a related topic, the investment effects, something I’ve returned to from time to time.

Even if we all agreed that the drag that growing government (and its handmaiden industries) was placing on the remainder of the economy were intolerable, the escape route is far from clear. The obvious retort is that people are demanding the services that government provides but I think that’s only half the story. More services need to be provided with fewer inputs as has been the case outside of government for some time but without competitive pressures there’s little reason for government to begin that process and every political reason not to.