# How High Is Up?

In a recent post at OTB, Steven Taylor, in a post on measuring the size of the federal government, includes a graph illustrating the number of federal civilian employees, remarking:

Now, this is just one metric of the size of government, but it is interesting to note that despite the narrative of uncontrolled growth, on this measure the government can be seen to be either relatively steady (in absolute terms) or actually smaller (in terms of employees as a function of the US population).

The obvious retort to this is that the figures used in the graph are derived from agency 113-A monthly reports. Here’s who that does not include:

The 113-A and 113-G reports must reflect Federal civilian workforce statistics and must not include private sector contractors.

In other words, the effective size of the federal government, as measured in workers, is no lower than the figure reported and might be two, three, or ten times as high when private sector contractors have been included. There’s no way to tell from the information supplied. Furthermore, I’ve tried to determine how many full-time, part-time, and temporary private sector contractors are employed by the federal government. The task is non-trivial and may even be impossible.

Additionally, does counting heads really determine the size of the federal government? If the you measure the size of government by percentage of GDP disbursed by government at all levels, that’s been increasing quite rapidly, particularly in recent years and right now it’s just around 40%. At the state and local level, much of that is spending on education. At the federal level, nearly all of the increase in spending can be explained by military spending and healthcare spending.

Rather than enter into the food fight that predictably erupted in the comments section of Steven’s post, I’ll ask a question. I think it’s obvious that zero percent of spending devoted to the government would not be conducive to optimal general welfare while 100% of spending disbursed by the government wouldn’t, either. If it were, people would have been breaking down doors to get in to the Soviet Union rather than the other way around.

That implies it’s a Goldilocks problem: 100% would be too hot, zero would be too cold, somewhere in the middle (not necessarily a single equilibrium point) is just right. I also think it’s reasonable to speculate that at some points between 0 and 100 spending more would be better while at others spending more would be worse.

Here’s my question: where are we now? Would spending more be productive or counter-productive?

This is actually a pretty complicated subject, touching on things like Ricardian equivalence (essentially, the observation that government spending either comes from taxes or future taxes), whether increasing nominal GDP will boost real GDP, and any number of other thorny subjects.

My view is that the web of government subsidies is now so thick it is impeding economic growth pretty substantially and that increasing the thickness of that web isn’t likely to help much. This is not to say that I think that government is bad—far from it. I think we need to make better choices.

• Icepick

Would spending more be productive or counter-productive?

Here’s another set of questions: If spending more would do more harm than good, would you still support spending more? This for the Dem/liberal/progressive crowd. For the libertarian/Rep/anarchist crowd, the question is: If spending less would do more harm than good, would you still support spending less?

And of course the big problem is this: How does one define the general welfare?

• And of course the big problem is this: How does one define the general welfare?

That is more tricky than Ricardian Equivalence. In fact, to do so is often regarded as impossible (Arrow’s Impossibility Theorem).

This is not to say that I think that government is bad—far from it. I think we need to make better choices.

The problem is I think the tendency is towards more not less. The discipline placed on government is very, very different than in other collective endeavors (e.g. businesses). Voters are a very imprecise check on government power and expansion.

• For the libertarian/Rep/anarchist crowd, the question is: If spending less would do more harm than good, would you still support spending less?

Given the dynamic I referenced above (i.e. more not less government over time) I’m in favor of constantly pushing for less…to counter the push for more.

• PD Shaw

I’m more concerned about getting less government for more money. That appears to be the dynamic that has emerged in the last few years.

• PD Shaw

I think I’ve made Taylor’s point to some extent several times here. He’s mentioning something obvious to someone who lives in a state capitol, there are simply fewer state workers here than 10-20 years ago. I am less certain about federal workers, but I know some of the offices have closed and merged into regional offices.

I think there are a number of reasons for this, but none of them have to do with spending less. Technology has reduced lower-level clerical jobs, and I suspect many of them graduated to higher paying classifications as managers or quasi-professionals. Total compensation for public employees has gotten so high across most OECD countries, that they outsource more. (That simply cannot be measured about persons employed; it has to be \$)

As I mentioned over at OTB, I don’t think people understand how much federal government directs state actions in a variety of areas. I know state workers, when asked to explain what they are doing and why, say they take their orders from the federal government– their paying the bills. That demarcation is not transparent.

• Drew

I see that several observations I would make were already in the essay and comments.

Putting my finance hat on I would note that the ability to finance spending MUST be considered. That is, we have alraeady answered part of the question in that the political and financial ability to finance through taxation has long since passed. Hence our borrowing binge, which has ultimately required the Fed to step in with QE. And also hence our current Preident’s class warefare approach of lying about the ability of “the rich” to pay for it all.

As for what is the “right” amount…..who knows? I would obviously argue “less.” Not just a kneejerk response, but because of what Steve V points out: govt has no correcting mechanism like profit motive and necessity to attract capital. Just look at the current political debate and you know its hopeless. And I’m glad Dave concluded with “better choices” such as they are with government.

Intuitively I think the “right” number – at all levels combined – might be between 25% – 30%, probably closer to 25%. How did I get there? Its admittedly a SWAG, but……..I have a lot of experience with corporate budgets. Most businesses, inherently more efficient than government, can be cut at least 10%. The bigger the corporation the more. I’d suggest government enterprises could be cut 20%. That’s 8 points on 40%. Then get them out of certain activities and actually let them do things like defend, provide a safety net etc. That’s got to be 5%. Viola! 27%. Contrary to the food fighters at OTB, I’m not a crazed libertarian or anarchist. I just don’t think government is the vehicle for “better choices” and efficient operation. If it was we would have implemented the negative income tax long ago instead of what we have: reliable voting employees and rent seekers.

BTW – do some “man in the street” interviews and ask people what percent of an American’s income should be taxed away. You almost always will get 10% to 15%, except for the hated groups, which are minorities. Reconcile that with 40% in spending.

• Andy

Couple of thoughts.

First, over the years I’ve noticed that “size of government” means different things to different people, so I don’t find it a very useful frame for discussion. For some it’s about the amount of taxing and spending. For others it’s about government stepping on civil liberties. Or it’s about government intrusion in various parts of the economy, or number of workers, or various combinations. Often it’s just a sense that government is this big, unquantifiable yet oppressive force you just can’t get away from.

Secondly, I think you ask some good questions in your post Dave, but I think the questions about spending amounts are insufficient as are questions about the effects of spending more or less. I think we are at the point where how much is spent is now less important than how it’s spent. Preaching to the choir here, I know, but we get very poor value for money for our healthcare spending, to use just one example.

To get on my hobbyhorse again, I think we some serious governmental reform. As you noted, at the federal level, almost all the increase is from military and healthcare spending – two areas, not coincidentally, in dire need of serious reform.

PD mentions outsourcing and compensation. Defense has seen a lot of this. Some of it will be rolled back in the next two years and a lot of contractors will lose their jobs. Just as one example, the major military commands are all being realigned with major staff reductions (one major command will lose over 2/3 of its current workforce). Almost all the contractors (currently anywhere from 20%-50% of the staff) are going away and this transition is expected to be complete in 2014. This will result in the loss of thousands of contractor jobs but a modest increase in civil service jobs.

• steve

1) If the number of workers have not changed, but we have increased the number of contract workers, that needs to show up in the budget somewhere. What we see is that non-defense discretionary spending, what most people think of when they talk about big govt., has actually stayed pretty stable. (Up a bit under Bush but projected to fall). What is actually growing is entitlement spending.

2) We should figure out what we want govt to do, then fund it. When we underfund it, as has been the norm since 1980, we promote more spending. Govt. should be as small as possible so we pay less taxes. So people can use their money they way they want.

Steve