Archive for the ‘Tax and Budget Policy’ Category
Data in New World Bank Report Shows that Large Public Sectors Reduce Economic Growth
When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.
And when I discuss my work on the economic impact of government spending, I often get the same reaction.
This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.
- The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
- A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
- The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
- A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”
This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance.
That’s an exaggeration, of course. There are still holdouts pushing for more statism in Pyongyang, Paris, Havana, and parts of Washington, DC.
But maybe they’ll be convinced by new research from the World Bank, which just produced a major report on the outlook for Europe. In chapter 7, the authors explain some of the ways that big government can undermine prosperity.
There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).
In other words, government spending undermines growth, and the damage is magnified by a poorly designed tax policies.
The authors then put forth a theoretical hypothesis.
…economic models argue that the excess burden of tax increases disproportionately with the tax rate—in fact, roughly proportional to its tax rate squared (Auerbach 1985). Likewise, the scope for self-interested bureaucracies becomes larger as the government channels more resources. At the same time, the core functions of government, such as enforcing property rights, rule of law and economic openness, can be accomplished by small governments. All this suggests that as government gets bigger, it becomes more likely that the negative impact of government might dominate its positive impact. Ultimately, this issue has to be settled empirically. So what do the data say?
These are important insights, showing that class-warfare tax increases are especially destructive and that government spending undermines growth unless the public sector is limited to core functions.
Then the authors report their results.
Figure 7.9 groups annual observations in four categories according to the share of government spending in GDP during that year. Both samples show a negative relationship between government size and growth, though the reduction in growth as government
becomes bigger is far more pronounced in Europe, particularly when government size exceeds 40 percent of GDP. …we provide new econometric evidence on the impact of government size on growth using a panel of advanced and emerging economies since 1995. As estimates can be biased due to problems of omitted variables, endogeneity, or measurement errors, it is necessary to rely on a broad range of estimators. …They suggest that a 10 percentage point increase in initial government spending as a share of GDP in Europe is associated with a reduction in annual real per capita GDP growth of around 0.6–0.9 percentage points a year (table A7.2). The estimates are roughly in line with those from panel regressions on advanced economies in the EU15 and OECD countries for periods from 1960 or 1970 to 1995 or 2005 (Bergh and Henrekson 2010 and 2011).
These results aren’t good news for Europe, but they also are a warning sign for the United States. The burden of government spending has jumped by about 8-percentage points of GDP since Bill Clinton left office, so this could be the explanation for why growth in America is so sluggish.
Last but not least, they report that social welfare spending does the most damage.
Governments are big in Europe mainly due to high social transfers, and big governments are a drag on growth. The question is whether this is because of high social transfers? The answer seems to be that it is. The regression results for Europe, using the same approach as outlined earlier, show a consistently negative effect of social transfers on growth, even though the coefficients vary in size and significance (table A7.4). The result is confirmed through BACE regressions. High social transfers might well be the negative link from government size to growth in Europe.
The last point in this passage needs to be emphasized. It is redistribution spending that does the greatest damage. In other words, it’s almost as if Obama (and his counterparts in places such as France and Greece) are trying to do the greatest possible damage to the economy.
In reality, of course, these politicians are simply trying to buy votes. But they need to understand that this shallow behavior imposes very high costs in terms of foregone growth.
To elaborate, this video discusses the Rahn Curve, which augments the data in the World Bank study.
As I argue in the video, even though most of the research shows that economic growth is maximized when government spending is about 20 percent of GDP, I think the real answer is that prosperity is maximized when the public sector consumes less than 10 percent of GDP.
But since government in the United States is now consuming more than 40 percent of GDP (about as much as Spain!), the first priority is to figure out some way of moving back in the right direction by restraining government so it grows slower than the private sector.
No Budget in 1,000 Days? No Budget Ever!
Around the time of President Obama’s State of the Union speech two weeks ago, Republicans and their allies came out arguing that the Democratic Senate hadn’t produced a budget in 1,000 days. Senate Budget Committee chairman Kent Conrad (D-ND) disputes the charge.
Is it true? The new budget season started Monday, so it’s a great time to examine that question.
Budget season really did start Monday. The Congressional Budget Act has a timetable in it (at section 300) that says the president submits his budget on or before the first Monday in February. We’re underway!
But I hope you weren’t holding your breath waiting to get a glimpse of the president’s budget. The White House has kicked back its release by a week—an unfortunate symbol of how both ends of Pennsylvania Avenue flout budget processes in ways large and small.
Now to the question: When was the last Senate budget?
Let’s start with a preliminary question: What is a “budget”?
Unemployment Insurance Fraud: Chile Has Solution
Like other government hand-out programs, the unemployment insurance system suffers from a substantial fraud problem. The Washington Post reports that 90 D.C. city employees and 40 former employees are being investigated for grabbing UI benefits to which they were not entitled. The cost of this fraud has been about $800,000 since 2009.
It’s not hard to rip-off federal subsidy programs, and UI is no exception. The Post reports that “the alleged fraud is not complicated, nor is it uncommon in unemployment insurance programs: Workers apply for checks and receive them legitimately for a time but fail to inform authorities when they go back to work.”
Other sources of UI fraud include the misreporting of earnings, the provision of false ID to gain benefits, and falsifying reasons for employment termination. Nationwide, the Department of Labor estimates that the improper payment rate for UI is about 11 percent, which amounted to $17 billion of wasted taxpayer money in 2010.
What’s the solution? The nation of Chile appears to have found it. In 2002 it created a system of UI personal savings accounts to replace the traditional government hand-out system. The new system built on the success of Chile’s Social Security personal account system. UI personal accounts help solve the fraud problem because workers would only be stealing from their own accounts if they took unjustified benefits.
There are other benefits to the Chilean system. A detailed study in 2010 found that the nation’s savings-based UI system helped improve work incentives and reduced unemployment. Such accounts can also add to the long-term retirement savings of workers.
For a full analysis of the failures of our UI system and possible reforms, see my co-authored essay on DG here.
Another Log for the Government Spending Multiplier Fire
At the center of the debate over efforts by policymakers to “stimulate” the economy with government spending is the issue of fiscal multipliers. Some economists argue that government spending can be a free lunch: an additional dollar of government spending increases GDP by more than one dollar. Other economists say that government spending is not so free: an additional dollar of government spending increases GDP by less than one dollar or even reduces it.
My non-empirically based view is that the mainstream media tends to treat the free lunch position as gospel. Why that appears to be the case I’ll leave to others to speculate, but it is decidedly irritating. Back in 2010, my colleague Alan Reynolds noted that a survey conducted by an economist at the Federal Reserve Bank of San Francisco counted several studies that concluded that the multiplier effect of government spending is less than one.
We can now add to the list another study that found a multiplier of less than one.
From a National Bureau of Economic Research working paper by economist Valerie Ramey:
For the most part, it appears that a rise in government spending does not stimulate private spending; most estimates suggest that it significantly lowers private spending. These results imply that the government spending multiplier is below unity. Adjusting the implied multiplier for increases in tax rates has only a small effect. The results imply a multiplier on total GDP of around 0.5.
Note: For readers who are interested in real world examples of how government spending hinders economic growth, check out DownsizingGovernment.org.
Earmarks are a Symptom of the Problem
A Washington Post investigation identified dozens of examples of federal policymakers directing federal dollars to projects that benefited their property or an immediate family member. Members of Congress have been enriching themselves at taxpayer expense? In other news, the sun rose this morning.
According to the Post, “Under the ethics rules Congress has written for itself, this is both legal and undisclosed”:
By design, ethics rules governing Congress are intended to preserve the freedom of members to direct federal spending in their districts, a process known as earmarking. Such spending has long been cloaked in secrecy and only in recent years has been subjected to more transparency. Although Congress has imposed numerous conflict-of-interest rules on federal agencies and private businesses, the rules it has set for itself are far more permissive.
Lawmakers are required to certify that they do not have a financial stake in the actions they take. In the cases The Post examined, not one lawmaker mentioned that he or she owned property that was near the earmarked project or had a relative who was employed by the company or institution that received the earmark. The reason: Nothing in congressional rules requires them to do so, and the rules do not address proximity.
With the fox guarding the henhouse, the most one can hope to accomplish is to limit the carnage. Many pundits, politicians, and policy wonks argue that a permanent ban on earmarks would be an effective limit. Unfortunately, that’s just wishful thinking as earmarks are merely a symptom of the real problem: Congress can spend other peoples’ money on virtually anything it wants.
Take the example of Rep. Candace Miller (R-MI):
In Harrison Township, Mich., Rep. Candice S. Miller’s home is on the banks of the Clinton River, about 900 feet downstream of the Bridgeview Bridge. The Republican lawmaker said when she learned local officials were going to replace the aging bridge, she decided to make sure the new one had a bike lane.
“I told the road commission, ‘I am going to try to get an earmark for the bike path,’” Miller said, recalling that she said, “If we don’t put a bike path on there while you guys are reconstructing the bridge, it will never happen.”
A member of the House Transportation Committee, Miller in 2006 was able to secure a $486,000 earmark that helped add a 14-foot-wide bike lane to the new bridge. That lane is a critical link in the many miles of bike paths that Miller has championed over the years. When the bridge had its grand reopening in 2009, Miller walked over from her home.
“People earmark for all kinds of things,” she said. “I’m pretty proud of this; I think I did what my people wanted. Should I have told them, ‘We can never have this bike path complete because I happen to live by one section of it’? They would have thrown me out of office.”
Forget how the federal money made it to Harrison Township, Michigan. As I’ve discussed before, the more important concern is that the federal government is funding countless activities that are not properly its domain:
There just isn’t much difference between the activities funded via earmarking and the activities funded by standard bureaucratic processes. The means are different, but the ends are typically the same: federal taxpayers paying for parochial benefits that are properly the domain of state and local governments, or preferably, the private sector. As a federal taxpayer, I’m no better off if the U.S. Dept. of Transportation decides to fund a bridge in Alaska or if Alaska’s congressional delegation instructs the DOT to fund the bridge.
As a taxpayer, it disgusts me that Rep. Miller steered federal dollars to a project in her district that she personally benefited from. But would I be any better off had the money for a bike path in Harrison Township, Michigan come from a grant awarded by the Department of Transportation?
If Harrison Township wanted a bike path, then it should have been paid for with taxes collected by the appropriate unit of local government. Better yet, a private group could have raised the funds. Either way, I don’t see how it’s possible to argue that the U.S. Constitution gives Congress the authority to spend taxpayer money on such activities. Invoking the General Welfare Clause doesn’t pass the laugh test as the bike path obviously doesn’t benefit the rest of the country. The Commerce Clause? Please.
For more on why the federal government should stop subsidizing activities that are properly the domain of the state and local government, see this Cato essay on fiscal federalism.
Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in Latin America
Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?
Please forgive all these questions. I’m trying to figure out why any organization—even a leftist bureaucracy such as the OECD—would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”
Not even Keynesians, after all, think higher taxes are a recipe for growth.
Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.
- The OECD has an anti-tax competition project designed to prop up Europe’s bankrupt welfare states.
- The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
- The OECD has endorsed Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”
- The OECD pulled off a hat trick of bad policy in a 2010 document, promoting a value-added tax, Obama’s global warming agenda, and failed Keynesian stimulus.
- The OECD endorsed Obamacare, as I explain in this video.
- The OECD even advocates higher taxes when nations are in the middle of economic crisis.
With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.
Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.
You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.
And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.
The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”
Let’s see what else the OECD had to say.
Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.
Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.
Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?
CBO Forecast Accuracy
Economic variables are key drivers of the numbers in CBO’s budget projections. I noted last week that CBO’s new outlook assumes substantially lower interest rates, which appears to produce more than a trillion dollars of savings over the next decade.
Policymakers should be aware, however, that macroeconomic forecasts are not very accurate, despite the sophisticated models available today. Consider how CBO completely missed the recent recession until after it had already started (in December 2007).
Figure 1 shows CBO’s January 2008 projection of real GDP growth (blue bars). The recession had already started, yet CBO projected that U.S. growth would strengthen substantially in subsequent years. Their forecast for just one year ahead (2009) ended up being a giant 5.2 percentage points off. (These are fiscal years).
The recession caught most economists by surprise, of course. We know now that the deflating housing sector was a key cause of the recession, but it is interesting that CBO missed the seriousness of that factor, even though they have huge models hundreds of equations in length. Housing prices had peaked in 2005-2006, and had already been falling rapidly for two years when CBO made its faulty January 2008 forecast.
The point here is not to pick on CBO, but to raise skepticism about macro forecasts and the policy prescriptions that stem from macro model simulations. Ezra Klein, for example, is convinced that reducing the deficit at this time would be bad for growth because that’s what (Keynesian) macro models predict. But where’s the real-world evidence that cutting deficits is bad for growth? I’ve noted that Canada cut spending and deficits sharply in the 1990s and its economy boomed—the opposite of what Keynesian models would have predicted.
Klein warns America not to follow Britain’s “austerity” policies: “Note the struggles of Britain, which has embraced austerity more fully than perhaps any other major economy, only to see its growth falter and its total debts rise.”
Apparently, Klein hasn’t looked at the actual British data. OECD data (Table 25) show that U.K. government spending soared from 37 percent of GDP in 2000 to 51 percent of GDP in 2010. Spending in 2011 and expected spending for 2012 is cut to about 49 percent of GDP. That’s the brutal “austerity” policy that is undermining British growth?
Here’s one more angle on CBO’s forecast accuracy. Figure 2 shows CBO’s January projections from recent years for fiscal 2011 growth. In the first few years shown, CBO was actually strengthening its view of 2011 growth. It wasn’t until 2010 that CBO’s models finally caught up with the reality of the recession, and the forecast for 2011 was sharply downgraded. In January 2012, CBO reported that actual 2011 growth was 2.1 percent.
Upshot: With respect to budget policies, policymakers should forget what the macro models are saying. What we know for sure is that the government is spending $1 trillion a year more than it takes in. That’s just crazy. We need to cut spending, and we need to start now.
Has Congress Cut Any Spending Yet?
It’s been a year since Republicans assumed control in the House in the wake of the 2010 elections, which were powered by Tea Party concerns about massive federal spending and deficits. With the more conservative House, has Congress made any progress on spending cuts yet?
Let’s compare the new CBO budget projections to CBO’s January 2011 projections. The new 10-year projections do look a little better, at least by Washington standards. A year ago, CBO’s baseline showed the deficit falling modestly from more than $1 trillion this year to $763 billion by 2021. CBO’s new baseline shows the deficit falling to just $279 billion by 2021.
The chart shows federal spending of $3.6 trillion this year and CBO’s projections for 2021 from last year and this year. Last year, 2021 spending was expected to be $5.726 trillion, but this year 2021 spending is expected to be $5.205 trillion. Thus, Congress will apparently be “saving” $521 billion in 2021 compared to what it had planned to spend, although spending is still expected to rise 45 percent over the next nine years.
One Year Later, Another Look at Obamanomics vs. Reaganomics
On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.
Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.
But perhaps that was an unfair comparison. 
Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.
So let’s look at the same charts, but add an extra year of data. Does it make a difference?
Meh… not so much.
Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed. Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.
Agriculture and Trade Links
- A very good editorial on Bloomberg.com on farm subsidies, and why the “let’s swap direct payments for crop insurance” proposal is a bad deal for taxpayers.
- American Farm Bureau Federation President Bob Stallman isn’t exactly a poster child for the farm program reform movement, but here he writes something I didn’t think would ever flow from his pen: “Not only would ["shallow loss"] programs be a nightmare for local Farm Service Agency offices to administer, but farmers would have the ability to cherry-pick which program works best for them. Because of distortions in price, we’d have a system of farmers deciding what to produce based on government payments rather than market signals.” [emphasis added] Uh, ok, but doesn’t that happen already, Mr Stallman?
- I’m not quite sure the LA Times gets the concept of federalism.
- United States Trade Representative Ron Kirk complains that “countries need to do a better job of explaining the benefits of trade in order to help sell ambitious trade deals to a skeptical public” [$]. I must have missed the part when Obama gave a detailed, principled endorsement of free trade in his SOTU address last week. Or, you know, ever.
New Congressional Budget Office Numbers Once Again Show that Modest Spending Restraint Would Eliminate Red Ink
Back in 2010, I crunched the numbers from the Congressional Budget Office and reported that the budget could be balanced in just 10 years if politicians exercised a modicum of fiscal discipline and limited annual spending increases to about two percent yearly.
When CBO issued new numbers early last year, I repeated the exercise and again found that the same modest level of budgetary restraint would eliminate red ink in about 10 years.
And when CBO issued their update last summer, I did the same thing and once again confirmed that deficits would disappear in a decade if politicians didn’t let the overall budget rise by faster than two percent each year.
Well, the new CBO 10-year forecast was released this morning. I’m going to give you three guesses about what I discovered when I looked at the numbers, and the first two don’t count.
Yes, you guessed it. As the chart illustrates (click to enlarge), balancing the budget doesn’t require any tax increases. Nor does it require big spending cuts (though that would be a very good idea).
Even if we assume that the 2001 and 2003 tax cuts are made permanent, all that is needed is for politicians to put government on a modest diet so that overall spending grows by about two percent each year. In other words, make sure the budget doesn’t grow faster than inflation.
Tens of millions of households and businesses manage to meet this simple test every year. Surely it’s not asking too much to get the same minimum level of fiscal restraint from the crowd in Washington, right?
At this point, you may be asking yourself whether it’s really this simple. After all, you’ve probably heard politicians and journalists say that deficits are so big that we have no choice but to accept big tax increases and “draconian” spending cuts.
But that’s because politicians use dishonest Washington budget math. They begin each fiscal year by assuming that spending automatically will increase based on factors such as inflation, demographics, and previously legislated program changes.
This creates a “baseline,” and if they enact a budget that increases spending by less than the baseline, that increase magically becomes a cut. This is what allowed some politicians to say that last year’s Ryan budget cut spending by trillions of dollars even though spending actually would have increased by an average of 2.8 percent each year.
Needless to say, proponents of big government deliberately use dishonest budget math because it tilts the playing field in favor of bigger government and higher taxes.
There are two important caveats about these calculations.
1. We should be dramatically downsizing the federal government, not just restraining its growth. Even if he’s not your preferred presidential candidate, Ron Paul’s proposal for an immediate $1 trillion reduction in the burden of federal spending is a very good idea. Merely limiting the growth of spending is a tiny and timid step in the right direction.
2. We should be focusing on the underlying problem of excessive government, not the symptom of too much red ink. By pointing out the amount of spending restraint that would balance the budget, some people will incorrectly conclude that getting rid of deficits is the goal.
Last but not least, here is the video I narrated in 2010 showing how red ink would quickly disappear if politicians curtailed their profligacy and restrained spending growth.
Other than updating the numbers, the video is just as accurate today as it was back in 2010. And the concluding message—that there is no good argument for tax increases—also is equally relevant today.
P.S. Some people will argue that it’s impossible to restrain spending because of entitlement programs, but this set of videos shows how to reform Social Security, Medicare, and Medicaid.
P.P.S. Some people will say that the CBO baseline is unrealistic because it assumes the sequester will take place. They may be right if they’re predicting politicians are too irresponsible and profligate to accept about $100 billion of annual reductions from a $4,000 billion-plus budget, but that underscores the core message that there needs to be a cap on total spending so that the crowd in Washington isn’t allowed to turn America into Greece.
CBO Study on Federal Pay
CBO has released a study comparing the wages and benefits of private sector and federal non-military workers. The study uses statistical techniques to make comparisons with adjustments for education level, experience, and other factors.
Here are the overall results:
- The wages of federal workers are 2 percent higher than similar private-sector workers, on average.
- The benefits of federal workers are 48 percent higher than similar private-sector workers, on average.
- The total compensation (wages plus benefits) of federal workers is 16 percent higher than similar private-sector workers, on average.
CBO finds that the federal compensation advantage varies by education level. People with low and middle levels of education generally do better in the government, while people with doctorates generally do better in the private sector.
CBO’s results are generally in sync with my observations on federal pay. For example, I’ve pointed to the excessive pension and health benefits received by federal workers. The CBO says:
The federal government provides retirement benefits to its workers through both a defined-benefit plan and a defined-contribution plan, whereas many large private sector employers have replaced defined-benefit plans with defined-contribution plans. The federal government also provides subsidized health insurance to qualified retirees, an arrangement that has become uncommon in the private sector.
I’ve also noted that high job security is an important federal benefit that should be considered when deciding on federal pay levels. Federal workers get laid off and fired at much lower rates than private-sector workers. That benefit has value, and thus federal pay rates should be set somewhat lower than for otherwise comparable jobs in the private sector. The CBO notes:
…greater job security and less uncertainty about the size of pay raises tend to decrease the compensation that the federal government needs to offer, relative to compensation in the private sector, to attract and retain employees.
Given these results, I’ve proposed these action items for Congress:
- Continue the federal pay freeze for a number of years.
- Repeal the federal defined-benefit pension plan.
- Hire an outside accounting firm to audit the Federal Salary Council’s apparently erroneous “pay gap” method, which always seems to find that federal workers are grossly underpaid.
- Privatize as many federal activities as possible so that markets can figure out the appropriate levels of compensation.
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