I don’t know why John Tamny rubs me the wrong way but he does. I mean I believe in free markets and free trade, too. But I also believe that those things flourish best in the hothouse environment that only government can provide. They don’t occur in the wild.
His latest column at RealClearMarkets is a case in point. Consider this sentence:
What’s obvious to those who’ve won customers in the competitive markets is frequently glossed over by government workers shielded from market signals.
So, what’s wrong with that sentence? Isn’t it just Econ 101? What’s wrong with it is that I see no evidence from any bio I’ve ever read of John Tamny that he’s ever worked in “competitive markets”. How the heck would he know? It’s what people who do tell him? Who are these people? And do they actually work in competitive markets? If they got their jobs by virtue of their MBAs from Top 20 schools, work for big companies, work for companies that got where they are by virtue of intellectual property, or because of various other laws and regulations, they aren’t. That cuts out an enormous number of people. It’s possible that Mr. Tamny has never met anyone who worked in a competitive market.
The column itself is about Trump’s wage freeze on federal workers. As symbolism it’s fine. As practical policy it’s virtually meaningless. Relatively little of federal spending is on wages. It’s almost all transfer payments, defense, or interest on the debt. Under the circumstances I have no idea why the wages of federal workers matter to him. They could be cut to zero and we’d still run a deficit.
Unlike our political parties I don’t believe that we need less government or more government. I believe we need different government and nobody is proposing that so we’ll keep pursuing the same failed strategies as we’ve followed since the end of WWII.
He rubs you the wrong way because your ideas on markets and trade come from a reading of the classical texts and Tamny’s come from a PR firm.
Ben:
I’ve actually read On the Principles of Political Economy and Taxation, God help me. I think that David Ricardo was one of the cleverest of economists and he recognized that his theories of trade assumed that capital was immobile and that where capital is mobile international trade results in offshoring. I must have tried explaining that to economists and pseudo-economists 1,000 times.
I don’t know why they matter to him either, especially since the wage increase was passed by a GoP Congress and Senate.
Maybe he’s just an asshole who is against blanket raises generally? Who knows.
He rubs you the wrong way because he is a smug little scumbag, and smug little scumbags tend to rub people the wrong way.
The whole article reads as “We will freeze their pay, and they’ll be better off for it. They should be thanking us.â€
For someone who claims to think about competition, he doesn’t seem to realize that with low unemployment, the government is competing for workers.
Calling for freezes on govt worker wages is pretty common for conservatives. What I don’t think I have ever seen, is a call for a freeze on wages for govt contractors. Did I just miss that? It certainly isn’t common. Wonder why?
Steve
Because they’re on fixed bid or cost+ contracts.
“What I don’t think I have ever seen, is a call for a freeze on wages for govt contractors.”
Because contracting doesn’t work that way.
The government can’t set wages for contractors anymore than I can set the wages for the employees of the contractor I hire to paint my house.
Respectfully disagree. Based on my own experience, we hired a lot of contractors for specialties we did not have or where we were understaffed. (Not just docs but also nurses and techs.) Contracts were negotiated yearly, or renewed with built in pay increases. So, I think the proper analogy is hiring a baby sitter or nanny, where you have complete control over the hourly rate. (Fully understand that this would be difficult to do with many contractors and contracts, but for the many personal services contracts this would be doable.)
Steve
I have never seen federal government contracts handled that way and I have seen quite a few and even been involved in the management of quite a few. Could they be? Beats me.
I don’t think I’ve ever seen a federal government contract that was neither fixed bid nor cost plus. The agencies and/or departments with whose contracts I’ve been involved have been Defense, Treasury, Customs Service, and HHS. The Defense contracts were cost plus and the others fixed bid.
The Obama Administration announced in 2014 it would require federal contractors to pay a minimum wage of $10.10. If it can do that then it can also establish a cap, because it’s the monopsonist.
What actually happened with that? You can announce anything you care to. Grand announcements it was incapable of following through with were sort of a bad habit of the Obama Administration’s. That’s why it broke the record on having its cases overthrown by the SCOTUS.
I’m skeptical that any presidential administration could renegotiate contracts unilaterally without their actions being thrown out by the courts. For one thing the president does not have that power—it resides in the Congress and the Supreme Court has greatly limited Congress’s authority to do that.
I have seen a lot of contracts in the DoD and know many people who work as contractors.
The government doesn’t hire individuals as independent contractors. To do business with the federal government, you have to go through a set of hoops and have an actual company, even if you are the only one in that company (I know a couple people who have done this). The company then bids on available contracts. This is very different from hiring an independent contractor directly where you can set their rate of compensation.
Furthermore, wages for people working for contractors go up and down considerably. Just this year several friends I know are working for a contractor doing intelligence work. Another firm won the contract for the next couple of years. What often happens in these cases is that employees just switch and start working for the other contractor that won the bid (because the employees are often hired by the contractor as independent contractors themselves and not as W-2 employees, but it varies). In this case though, those who did that saw their compensation reduced by about 25%. So this contractor won the contract by bidding low and is now adjusting wages accordingly. The risk to the contractor is that they won’t be able to hire enough qualified personnel to fulfill the contract at the lower wages.
A final point – federal government contracting is a mess. This old post from “The Spy Who Billed Me” is a perfect example:
http://www.thespywhobilledme.com/the_spy_who_billed_me/2008/05/excellence-in-i.html
Government contracts often cannot get the important details of the contracts correct. Once contract managers get experience, they often quit government service and flee to industry, leaving a large asymmetry between government and contractor firms in terms of knowledge about the complexities of government contracting.
While I suppose it’s possible that the government could try to dictate contractor wages as part of the contract itself (and I’m not sure this is even legal), I do not have any confidence that the government could possibly know what the wage limits should be.
Rather than attempting (and probably failing) to dictate wages, the government would be better served by creating a more competitive bidding environment.
Additionally, the government will have to deal with the normal supply and demand issues. If the government wants very specialist experience (ie. several areas in defense and intelligence support) then it is going to have to pay for those because that experience does not grow on trees.
Andy, my point was that once the contract has been let the executive branch doesn’t have the authority to renegotiate the contract unilaterally and even the Congress probably doesn’t.
It has been a bit over 25 years since I saw those contracts, but they did go to the actual corporation owned by the employed physicians. The docs came to our hospital and provided services at our hospital. In some cases it was an individual incorporated doc, in some cases a group of 4 or 5 docs. The amount negotiated went to the doc as salary. So while the contract may not have dictated a salary per se, I don’t see it making much difference as that is what it really was.
So back to my original question, why don’t we see a presidential directive saying that new contracts for personal services cannot go out at higher rates than prior contracts, assuming we do need to save money? We don’t even need to change existing contracts, just make sure that new ones don’t go out for more money.
“Additionally, the government will have to deal with the normal supply and demand issues.”
Wouldn’t this apply to federal workers? Freeze salaries for a while and don’t some leave to go work for contractors or elsewhere in the private sector?
Steve
Unless the wages being paid are over the market clearing price.
“Wouldn’t this apply to federal workers? Freeze salaries for a while and don’t some leave to go work for contractors or elsewhere in the private sector?”
Yeah, that sometimes happens. It really depends on a lot of factors. In some cases the federal systems has been too slow to react to compensation resulting in people fleeing to the private sector – which generates the need to put out contracts for services because there aren’t enough people in the federal workforce.
In other cases, because of political reasons, agencies have to be in certain congressional districts or states, regardless of the reality of the local workforce. The agency can’t move and they don’t have enough employees, so they are forced into contracting – and the contractors don’t always have to be where the agency is forced to be.
Another extreme example – say your a Pakistani barber working for KBR at a US base in Africa. What should they be paid, is that something that should be $10/hour or something else? This is a third country national working for a US company contracted to the US government which has leased land from another third country. Who gets to decide what this person is paid?
Or you look at the VA. There are currently around 40k job openings at the VA – yet the VA still has a ton of contract providers. Why? Maybe it’s because working for the VA sucks compared to the alternative in terms of any number of factors, not just pay.
Let’s look at your own profession – doctors. For the last several decades there have been quite generous bonuses to get medical professionals to join and stay in the uniformed military service. (Not everything can be contracted.) Those cash bonuses and incentives are necessary for the military services to compete for needed talent. Should we eliminate those? The result will be more contractors getting paid more money, not fewer contractors getting paid less.