I’d been meaning to work this little fact into a post but I’m tired of saving the link so I’ll put it into a post of its own. Why do people insist on measuring the size of the federal government in terms of how many federal employees there are? We don’t measure companies by how many employees there are or states by how many people they employ. According to Fortune Magazine, the largest company in the United States is Exxon-Mobil with revenues of $453 billion. Wal-Mart (Fortune’s second largest company with revenues of $447 billion) has the largest number of employees.
Federal spending, of course, is higher every year. Yes, the number of federal employees isn’t nearly as large as it was once upon a time. However, the federal payroll is higher than ever:
The size of the executive branch’s payroll is expected to near a record $177 billion in fiscal 2012 — almost $35 billion more than the compensation costs for fiscal 2008.
And even with the Obama administration’s two-year freeze on some pay raises for executive branch civilians, their direct compensation for 2012 is expected to be $9 billion — or 5 percent — more than in 2010. Much of this increase would result from a plan to grow the federal full-time workforce by 15,000 in 2012. Direct compensation includes base pay, premium pay such as overtime, locality pay, recruitment, retention and relocation bonuses, performance awards, and cost-of-living and overseas allowances.
That 5 percent two-year increase is lower than previous two-year periods. For example, between 2008 and 2010, direct compensation costs increased by $25 billion, or 18 percent.
When benefits such as health insurance, life insurance and retirement fund contributions are included, total executive branch personnel costs are projected to top $242 billion in 2012, about $12.7 billion, or 5 percent, higher than in 2010.
The government’s total personnel costs — including the legislative and judicial branches, the U.S. Postal Service and military service members — are expected to reach a record $461 billion next year.
I have no idea which U. S. company has the highest total payroll in United States or the highest median wage. It would be interesting but it’s hard to ferret out.
I do know that you can’t determine the size or influence of the federal government by counting heads.
Since we’ve had the feds take over divisions of state government that are not complying with federal mandates on federal programs administered by the state, I don’t see how one can tell the difference most of the time.
IIRC from an experience here in Illinois, a federal-state dispute can turn into a situation in which the feds take over the payroll of the state employees who still work in the same office with the same letterhead, but under federal management. When the conflict is resolved the traditional federal subsidies are resumed to the state.
I guess a related question would be, why do we care so much what the size is? Shouldn’t the question be whether government is doing what we want it to do? Or the inverse: is it doing things we don’t want it to do?
If it’s doing what we want it to do then we move on to questions of productivity. Is it doing what we want it to do in a reasonably cost-effective manner?
I have a suspicion that about 95% of what the government does is “what we want it to do.” SS, Medicaid, Medicare, VA, DoD, NASA, FDA, the intelligence community. There’s certainly not much of a constituency for seriously cutting any of those. I think most of the raging left-right debate is really about 10% of the EPA’s little slice of the pie and an equally small slice of foreign aid.
To put it in cable TV terms, we’re not sure we need Cinemax. In car buying terms we don’t need the floor mats. In restaurant meal terms: hold the parsley.
1) Why do we always do these in nominal dollars and ignore population growth?
2) I think this number is often emphasized because when people say “big government”, that is what they really mean. They want to exclude the DoD, SS and Medicare. Remember “Keep your government hands off my Medicare”?
Steve
Because of unintended consequences and the deadweight loss of government. Whether a government is financed by taxes, debt, or just creating credit, deadweight loss is produced by the actions of government. There is some level of government activity at which the rate of increase of deadweight loss of government exceeds the rate of economic growth. I think that will produce a death spiral in which declining growth forces more government activity which in turn reduces economic growth.
The bottom line is that it doesn’t matter what we want. We need to make choices.
Why is that relevant? Aren’t you implying that government has some sort of claim on a fixed (or growing) percent of GDP?
I am implying that it takes more time to manage a larger organization, usually, than it does a small one. It takes more people to get more work done as a general rule. Also, even if you assume that you could farm out all of these jobs to the private sector and use a market mechanism to set salaries, you will almost always have to at least keep up with inflation to retain employees. In short, we should be much more concerned about the real rate of growth and growth in per capita spending, rather than increases in nominal spending.
Steve
“Because of unintended consequences and the deadweight loss of government.”
There is the other side of the equation. Not enough, and we don’t have clean water, roads, education, public health and safety. Could we have had some of these absent government? In theory, maybe. In reality, we dont get antibiotics, computers, clean water, food and sanitation, property rights, vaccines and basic research w/o government. Some of these provide returns well in excess of their expenditures.
There needs to be a balance. Have we gone too far towards govt? Maybe, probably, but it is pretty difficult to sort it out. I think that is why we vote.
Steve
How does one go about calculating the evils of deadweight loss versus the goods of government-created stability and confidence in things like drugs and food, safety in transportation? I mean, yes, I pay some amount of my air travel dollar to the government which makes the air travel market less efficient than it might be. But if I didn’t pay the government to run the air traffic control system and the FDA and the NTSB and the related international watchdogs, I’d never get on a plane, so it would be an efficient system of no use to me whatsoever.
How can we speak of a loss when the loss in question is necessary? Do I want to save money on un-inspected sausage? Or do I want sausage not to kill me? How is it a loss if lacking that “loss” the sausage market ceased to exist? I realize it’s an economics term of art, but in a practical sense isn’t NTSB money or FDA money a very important plus?
@steve
… we dont get … property rights … w/o government …
The government has a prior claim on all property and its use. “Property rights” are a fiction, and most people are oblivious until the government asserts its right. I realize that I am in a very small group of people. I prefer my reality unfiltered, but it is not for everyone.
The government is not the only problem. I do not own the music I purchase, the software I purchase, the video game I purchase, and the list is growing.
I guess that’s why so many manufacturing and services companies are producing more than they did thirty years ago with fewer employees than they needed thirty years ago.
Washington is stuck in the 1950s due to a combination of law, preference, and ignorance. Time to come into the late 20th century if not the 21st century.
Michael:
I think that we can pay for as much government as we need but obviously not as much as we want. “Obvious” because we’re not paying for it now to such a large degree.
The choices are not between going back to the 19th century or letting government grow without bounds. Why isn’t there means testing for Medicare? Why do we subsidize agriculture? Why do we spend more on defense than so much of the world in aggregate? Are all of those expenditures absolutely indispensable? I don’t think so.
I also don’t think it’s necessary for Illinois to pay some of its retired civil servants in excess of $400,000 per year in pensions. That may be what we’ve got but it’s neither what we can afford nor what we need.
Tastybits:
You need to read Locke’s Third Treatise on Property, if only to understand where other people, both now and in the past, are coming from.
The number of federal employees has stayed fairly constant since about the 50s, while our population has doubled. That would also suggest increased productivity. If government is doing more, too much as many complain, then it is even higher, though I think you are correct that they could be better. (I think the correct comparison is with services, not manufacturing. Hmm, have never looked up productivity gains for services vs manufacturing. Good project.)
Steve
Steve
I have no doubt that we can cut some government without suffering much. (The sequester doesn’t seem to have unleashed the apocalypse.)
Hmmm, FAA not FDA. Unless we’re talking airline meals. And let’s not talk airline meals.
The GAO has issued several reports over the past few years documenting government waste, especially highlighting the duplicity in so many government programs. Such fiscal sloppiness is also often noted by Senator Coburn, one of the few Congressional champions of government waste, who has come up with a staggering number of $364 billion in wasteful government spending, saying that much of this is due to not voting to “kill a program but to add another on top of it.†Consequently, the word ‘layering’ is appropriate, in describing the functions of government, because once a government program is put into place, it rarely leaves, no matter how inefficient or how little it adds to the overall benefit of the people.
A good book I’ve cited before is ‘National Suicide,’ by Martin Gross, which goes through the “mismanagement, malfeasance and incompetence” in an A to Z fashion. But, it seems that no matter how much the ineptness of government expenditures is brought up, very little is done to curb the mistakes and frivolous uses of other people’s money by the government. The appetite for more only grows.
The whole “size of government” thing is pretty hard to nail down. I haven’t found a good measurement criteria that accounts for all the important variables. Dave makes an important point about deadweight loss and highlights the need for efficiency and restrained spending. I also think he’s correct that much of our government structure is living in the 1950’s – the DoD certainly is.
More than that though, I think the scale of government authority has increased and there should be more of a wall between government and private functions. Overall, I would like to see a government that does more regulation with fewer regulations and any citizen with a High School education should be able to at least understand the basics of what is being regulated and why.
Moreover, I think we need to ditch the “privatization” and public-private partnership efforts built up over the last several decades – they have, IMO, proven to be little more than vehicles for corruption and rent-seeking.
So, to sum up, I’d say this post gives an idea of what I’m talking about. Here’s a taste:
Overall, I would like to see a government that does more regulation with fewer regulations and any citizen with a High School education should be able to at least understand the basics of what is being regulated and why.
That’s a paradoxical concept, Andy —> “More regulation with fewer regulations.” Do you mean more regulation by better oversight?
The rest of that excerpt, about being able to understand the basics, I’m interpreting as having less weighty legalese in regulations, such as what is seen in the continuing ACA saga of 20,000 pages of regulations. Even the new immigration bill is said to be 1,500 pages in length. A lot of extraneous stuff can be added into a bill, or a set of regulations, when the verbiage is so long and complicated.
Jan,
To put it simply, I think that compliance with government rules in any area shouldn’t require an army of specialists – or should require as few of them as possible. Regulation should be simple and therefore easier to enforce. Simple, easily enforced regulations results in “more” regulation. Complexity does the opposite – adding regulations doesn’t result in more or better regulation, it results in uneven and worse regulation. The reason is that under complex regulatory regimes, expertise and deep pockets become the way to minimize the regulatory burden (ie, it results in less actual regulation). That’s partly why there’s a revolving door – hiring someone from the “inside” who understands not only the rules but also the bureaucracy that interprets and enforces those rules, becomes a necessary strategy and invites corruption. But not everyone can do that, so regulation is uneven, unfair, is open to “lawyering” for those with the resources and is a minefield to those without resources because the regime is too complex.
This concept is one of the main reasons why I’m skeptical that Dodd-Frank and the PPACA will do what their proponents say they will. They are adding complex systems onto existing complex systems and I don’t think even experts can really predict what is going to happen a few years down the road to implementation.
Something like Social Security is, by contrast, relatively simple. Imagine if Social Security were written like Dodd Frank or the PPACA? You’d probably see a bunch of “HR Block” firms spring up to, for a price, help people navigate the system.
In short, simplicity is value we need to emphasize much more than we do.
[I took the liberty of correcting an unclosed tag.—Dave]
Andy:
It’s almost an engineering problem, isn’t it? A weel-engineered consumer product doesn’t need a manual, it’s self-explanatory. Like an iPhone — complex and yet no manual.
One way to simplify might be to impose draconian penalties. As in, we’re not going to tell you how to keep your chicken safe and clean Mr. Purdue, but if anyone gets salmonella we’re going to seize your assets and throw you personally in jail for six months. You’d get some safe (and probably expensive) chicken.
Andy,
A simple and well understood response. Thanks!
One way to simplify might be to impose draconian penalties.
Sounds like the kind of ‘simplicity’ one could expect under a tyrannically-run government.
Michael,
Penalties have to be significant enough that most will seek to comply. Draconian penalties are not necessary except in egregious cases. The problem isn’t really penalties though – the problem is that what is ok and what is not ok is too often a moving target or not clear to begin with. Again, simplicity should be a virtue and I like your example of an iphone.
And safe chicken? Chicken isn’t safe – everyone knows almost all of it is infected and so it must be thoroughly cooked. There are all kinds of regulations about when, where, how you can raise chickens for meat – yet a basic health and safety problem like salmonella is so common its not even controversial anymore.
Thanks for the tag fix Dave.
Enmeshed with the size of government is the unavoidable higher cost incurred with it’s growth. Currently, no matter how you want to wring out the positives or negatives of maintaining a greater government bureaucracy, we are nonetheless: 1) spending more than we are producing; 2) borrowing 46 cents on every dollar spent; 3) growing deficits at a pace we’ve never experienced before; 4) have a shrinking work force; 5) a stalled economy that is said to be in ‘recovery’ mode — just a few of the many red flags out there, as many continue to express unquestioning, optimistic support for this recovery .
In the meantime, a syndrome called the Normalcy Bias comes to mind when reviewing a chart such as this: S&P 500 compared to previous recoveries.
I believe penalties have to be very serious and personal, involving actual culpable executives. Otherwise they’re just a cost of doing business and they’re passed along to consumers.
A CEO in jail for 30 days is way scarier than a 10 million dollar fine. Rich old guys don’t want to do time.
Michael,
As I said, penalties have to be significant enough that most will seek to comply. If they amount to just a cost of doing business, then they aren’t significant enough. But again, I think that problem is secondary to the problem of determining what is illegal and what isn’t. If that CEO needs an army of lawyers to tell him/her where the line is, then that’s a pretty big problem, especially for the little guy that can’t afford an army of lawyers.
I don’t like paying taxes.
Look at the bright side, PD. That you’re having such an experience shows that you’re part of the elite. Of the roughly 140 million returns filed, roughly half pay no federal income taxes.
Since I’m self-employed, my grumbling is often directed at the 13.30% to 15.30% self-employment tax.
Reihan Salam has a nice piece on the original topic today:
“Right now, we’re stuck in a political debate in which a federal government that spends, say, 24 percent of GDP represents tyranny while a federal government that spends 19 percent of GDP represents a free society, irrespective of state and local expenditures, tax expenditures, off-balance-sheet activities, and the cost of regulatory initiatives. The end result is that we have endless debates over spending levels while ignoring, for example, the shadow nationalization of the mortgage market and the perverse buck-passing dynamic created by cooperative federalism programs that fuels the growth of state and local government.
All other things being equal, I’d prefer a federal government that spends less rather than more, but not if it means that the federal government instead uses credit guarantees to expand its influence, or that it will use some combination of bribes and mandates to compel state and local governments to implement programs dreamed up in Congress. If our goal is to allow civil society to flourish, we ought to focus more on the scope of government and not just its scale”
http://www.nationalreview.com/agenda/345505/brooks-bargain-reihan-salam