George Will makes a good point in his latest column: Democrats maintain a peculiar “conviction that whatever government programs exist should forever exist because they always have existed.” Will’s observation centers around the shameless Democratic attacks on Rep. Paul Ryan’s (R-WI) proposal to reform Medicare and Medicaid.

According to Will, “Ryan’s plan would alter Medicare. But Medicare has existed in its current configuration for only 46 of the nation’s 235 years.” Actually, “current configuration” isn’t quite accurate. For example, Medicare’s prescription drug component added by Republicans, which Ryan voted for, went into effect only five years ago.

Regardless, I agree with Will that so-called “progressives” have a “constricted notion of the possibilities of progress”:

The hysteria and hyperbole about Ryan’s plan arise, in part, from a poverty of today’s liberal imagination, an inability to think beyond the straight-line continuation of programs from the second and third quarters of the last century. It is odd that “progressives,” as liberals now wish to be called, have such a constricted notion of the possibilities of progress.

Yes, Ryan’s plan displays “imagination” and I would add that it took political guts to suggest the reforms knowing that the left would nail him to the cross. However, let’s not forget that Ryan’s plan would also further cement these twin pillars of the federal welfare state. For all the silly accusations that Ryan is proposing to “privatize” Medicare, his plan repeatedly states that his aim is to “save” it:

Letting government break its promises to current seniors and to future generations is unacceptable. The reforms outlined in this budget protect and preserve Medicare for those in and near retirement, while saving and strengthening this critical program so that future generations can count on it to be there when they retire.

I wasn’t born yesterday, so I understand Ryan’s assurance to “those in and near retirement” that Medicare as they know it won’t be touched. However, I can’t square Ryan’s reference at the outset of his plan to the “timeless principles of American government enshrined in the U.S. Constitution – liberty, limited government, and equality under the rule of law” with his intention to strengthen “this critical program so that future generations can count on it be there when they retire.”

Now that Ryan’s plan has taken its inevitable beating from demagoguing Democrats, the GOP appears to be upping the “save Medicare for future generations” rhetoric.

Here’s tea party favorite Sen. Marco Rubio (R-FL) as reported by Politico:

‘I understand the benefits that Medicare brings to America. It should be a part of our country,’ Rubio added. ‘I want Medicare to exist in a way that is unchanged for people that are in Medicare now. I want Medicare to exist when I retire. I want Medicare to exist when my children retire. And I don’t want Medicare to bankrupt itself for our country. And Medicare, as it’s currently structured, will go bankrupt.’

If that’s what Rubio, Ryan, and the rest of the congressional Republicans desire, then thank you for being honest. But please stop wrapping the intention to maintain for eternity a gigantic federal welfare state in the mantle of individual liberty, limited government, and the Constitution.

Support for the Eternal Federal Welfare State Is Bipartisan is a post from Cato @ Liberty - Cato Institute Blog

Over at National Journal‘s National Security Experts blog, this week’s question revolves around the health of the U.S. economy, and its relationship to U.S. power. 

The editors ask: 

How serious a threat is the mounting debt to the nation’s standing as the world’s only superpower? Can the U.S. continue to spend more than all other countries combined on its military forces given burdensome debt levels? In what other ways does the mounting debt undermine the country’s strategic position? [...]

My response:

Our long-term fiscal imbalance, which increasingly amounts to a massive intergenerational wealth transfer, is clearly a sign of our decline. But it is a decline that has been a long time coming. (I first wrote about the insolvency of the Social Security system as a college sophomore, 23 years ago.) As such, it is tempting for people to assume that we’ll figure our way out of this mess before a complete collapse. Let’s call them, at the risk of a double negative, the declinist naysayers. And, even if they are willing to admit to the problem in the abstract, the naysayers can point to the more serious, and urgent, imbalances between pensioners and those who pay the pensions in Europe or Japan and say “At least we aren’t them.”

That is a pretty shoddy argument, but it seems to be ruling the day. We can talk about the obvious unsustainability of using taxes on current workers to pay benefits for retirees until we’re blue in the face. And my second grader can do the math on a system that was designed when workers outnumbered beneficiaries by 16.5 to 1, and in which, by 2030, that ratio will fall to 2 to 1. It simply doesn’t add up. (For more on this, much more, see my colleague Jagadeesh Gokhale’s latest.)

But this isn’t a math problem; this is a political problem. The incentive to kick the can down the road is overwhelming. The pain in attempting to deal with the problem in the here and now is, well, painful. It is hardly surprising, therefore, that members of Congress / Parliament / Bundestag / Diet, etc, have become very good at avoiding the issue altogether. And many of those who have chosen to tackle it are “spending more time with their families.”

What does all this mean for the United States’s standing as the world superpower? Less than you might think. Our difficulties in two medium-sized countries in SW/Central Asia have done more to puncture the illusion of American power than our political inability to deal with domestic problems. Our fiscal insolvency might convince other countries to play a larger role, if they genuinely feared for their safety. But other countries, especially our allies, are cutting military spending, while Uncle Sam continues to bear the weight of the world on his shoulders. In other words, our ability to maintain our global superpower status isn’t driven by our economic problems. But it is strategically stupid.

It is here that I take issue with Ron Marks’s contention that we spend less today than during the Cold War. While technically accurate, measuring military spending as a share of GDP is utterly misleading (as I’ve argued elsewhere.) If the point is to argue that we could spend more, I agree. But the measure doesn’t address whether we should do so.

We should think of military spending not as a share of the American economy, but rather relative to the threats we face. In real terms (constant current dollars), we spend today more than when we were facing down a nuclear-armed adversary with a massive army stationed in Eastern Europe and a navy that plied the seven seas from Cam Ranh Bay to Cuba. We spend more than during the height of the Vietnam or Korean Wars. Today, terrorist leaders are hunkered down in safe houses somewhere in, well, somewhere. In other words, what we spend is utterly disconnected from the threats we face, a point that is easily obscured when one focuses on military spending as a share of total output.

We spend so much today not because we are facing down one very scary adversary, but because we are facing down dozens or hundreds of small adversaries that should be confronted by others. After the Cold War ended, our strategy expanded to justify a massive military. Since 9/11, it has expanded further. Our fiscal crisis alone won’t force a reevaluation of our grand strategy. It will take sound strategic judgement, and a bit of political courage, to turn things around.

In the cover letter to his just-released National Security Strategy, President Obama acknowledged that it doesn’t make sense for any one country to attempt to police the entire planet, irrespective of the costs. Unfortunately, the document fails to outline a mechanism for transferring some of the burdens of global governance to others who benefit from a peaceful and prosperous world order. We should assume, therefore, that the U.S. military will continue to be the go-to force for cleaning up all manner of problems, and that the U.S. taxpayers will be stuck with the bill.

Fiscal Imbalance and Global Power is a post from Cato @ Liberty - Cato Institute Blog

Concern about the pay, benefits, and performance of government employees seems to be growing. Chris Edwards’s articles on how government pay is outpacing private-sector pay have generated media attention, cartoons, and angry rebuttals from the head of the federal Office of Personnel Management. Steven Greenhut has a new book, Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation, and is writing lots of newspaper articles on the high costs of government unions, also the topic of a recent Cato Policy Analysis. New Jersey unions are not finding much sympathy as they try to hold on to their raises, benefits, pensions, and work rules in the face of Gov. Chris Christie’s attempt to cut the budget. Liberal journalist Mickey Kaus is running for the U.S. Senate, trying to warn California’s voters and the Democratic Party about the excessive power and destructive influence of public employee unions.

And now Saturday Night Live. The zeitgeist-riding comedy show had a truly harsh sketch this weekend about the “Public Employee of the Year Awards.” It touched every element of popular resentment toward government workers: “people with government jobs are just like workers everywhere – except for the lifetime job security, guaranteed annual raises, early retirement on generous pensions, and full medical coverage with no deductibles, office visit fees, or copayments” — “retirement on full disability” by an obviously young and healthy worker — “Surliest and Least Cooperative State Employee” — “3200 hours [a year] on the job, all of it overtime” — New York school janitors living in Florida — employees with two current jobs and full disability — an entire workday at the DMV without serving a single customer — no-work contracts –  surprisingly early closings — and “he’s on break.”

Time for unions to start worrying?

Furor over Government Employees is a post from Cato @ Liberty - Cato Institute Blog

The Associated Press reports:

Buyers, beware: President Barack Obama says his health care overhaul will lower premiums by double digits, but check the fine print…

The [Congressional Budget Office] concluded that premiums for people buying their own coverage would go up by an average of 10 percent to 13 percent, compared with the levels they’d reach without the legislation…

“People are likely to not buy the same low-value policies they are buying now,” said health economist Len Nichols of George Mason University. “If they did buy the same value plans … the premium would be lower than it is now. This makes the White House statement true. But is it possibly misleading for some people? Sure.”

Nichols’ comments are also misleading — which makes the president’s statement not just misleading but untrue.

Under ObamaCare, people would not have the option to buy the same low-cost plans they do today.  That’s the whole problem: under an individual mandate, everybody must purchase the minimum level of coverage specified by the government.  That minimum benefits package would be more expensive than the coverage chosen by most people in the individual market.  Their premiums would rise because ObamaCare would take away their right to choose a more economical policy.

Note also that the CBO predicts premiums would rise by an average of 10-13 percent in the individual market.  Consumers who currently purchase the most economic policies would see larger premium increases.

Finally, the Obama plan would also force millions of uninsured Americans to purchase health insurance at premiums higher than current-law premium levels, which they have already rejected as being too high.  Their premium expenditures would rise from $0 to thousands of dollars.  Yet the CBO counts that implicit tax as reducing average premiums, because those consumers are generally healthier-than-average.  Only in Washington is a tax counted as a savings.

AP: Obama Misleads Voters about ObamaCare’s Effects on Premiums is a post from Cato @ Liberty - Cato Institute Blog

Noting that premium increases, such as Anthem’s proposed 39-percent hike in California, have caused individuals and employers to purchase less coverage, Kaiser Family Foundation president Drew Altman writes:

Rising health care costs and insurance company practices are leading not just to more expensive premiums, but to skimpier, less comprehensive coverage as well; slowly redefining what we have known as health insurance. To be sure, some economists argue that this is precisely what should happen…But this is not likely how regular people see it. Appropriate cost sharing is one thing, but we may be reaching the point in the individual market where the policies many people have simply cannot be considered meaningful coverage.

Of course, this is the whole idea behind President Obama’s proposed tax on high-cost health plans: higher prices will cause people to purchase less coverage, which will temper health care spending.

But whether Altman is correct depends on what the meaning of “meaningful” is.  When individuals pare back the amount of insurance they purchase, they are revealing what they consider to be meaningful coverage.  (The same is true when employers opt for less-comprehensive coverage, though employers’ revealed preferences are obviously a poor proxy for what their workers value.)

If Altman thinks the coverage that individuals are choosing “cannot be considered meaningful coverage” (note the passive voice), he is implicitly stating that individuals are not the best judges of their own welfare.  And the only way to devise an alternative definition of meaningful coverage is through the political process.

It is difficult to argue that the political process does a better job of selecting meaningful coverage.  That process forces many consumers to purchase coverage that they don’t find meaningful (e.g., chiropractic, acupuncture, circumcision), that they find offensive (e.g., abortion, contraception, in-vitro fertilization), or for treatments that are downright harmful (e.g., high-dose chemotherapy combined with autologous bone-marrow transplant for late-stage breast cancer).

Letting consumers reveal their preferences is possibly the worst way to define “meaningful coverage.”  Except for all the others.

What Is ‘Meaningful’ Health Insurance? Who Decides?’ is a post from Cato @ Liberty - Cato Institute Blog

If you want to witness the clash of two worldviews on trade, check out the online debate I’m having with Ian Fletcher of the U.S. Business and Industry Council. A self-described protectionist, Fletcher has written a new book with the unambiguous title, Free Trade Doesn’t Work: What Should Replace it and Why. In the opposite corner, I argue for eliminating barriers to trade, drawing on my own recent book, Mad about Trade: Why Main Street America Should Embrace Globalization.

The debate is being hosted by the International Economic Law and Policy Blog. We’ve already filed two 600-word posts each, with a third to come at the end of this week and concluding arguments early next week.

A Clash of Worldviews on Free Trade is a post from Cato @ Liberty - Cato Institute Blog

Wouldn’t it be great if we could just get the state out of the marriage business? Perhaps. Marriage is fundamentally private, after all. It’s a matter for families, churches, and couples to decide for themselves.

Yet state recognition of marriage often acts to keep the government out of private life, to ensure family stability, and to give regular, orderly rules for all those times when, despite our best efforts, family and state still collide. Here are just a few of the things that the civil side of marriage does:

• If you’re happily married and you have children, you don’t have to worry for a moment about child custody law. Your children are yours to raise jointly, whether they are biological or adoptive.
• If you’re married and you die without a will, your spouse typically gets at least a share of your estate. You don’t have to do anything special for this to happen. It’s automatic, and I think this probably strikes most people as fair.
• If you’re married, you don’t need to do anything special to be able to make medical decisions for an incapacitated spouse. It’s presumed that you are competent to do this.
• You can sponsor your foreign spouse for U.S. citizenship.
• You can sue for wrongful death of a spouse.
• You can collect a spouse’s Social Security benefits.
• You can often keep joint personal finances without worrying that your spouse will bankrupt you.

Depending on where you live, some of these protections can be won outside of marriage, if you’re willing to go to a lawyer and spend a few hundred bucks. Others, like the last four, can’t be had without either a marriage or a blood relationship.

State recognition of marriage protects families, often from the state itself. If the state got out of the marriage business, the state would be a lot more in all of our private lives, judging, inspecting, regulating, forbidding, taxing, redistributing, and all the rest. Much of the state part of marriage is really a protection against the state.

All of this is a lead-up to saying congratulations to the same-sex couples who will now be able to marry in Washington, DC. Perhaps even more than other types of marriages, same-sex marriages need these protections. (Some, like sponsoring an immigrant or collecting Social Security, may have to wait for federal law to catch up.)

On the whole, same-sex marriage means that gays’ and lesbians’ private lives can stay private. It gives them a protection against the government, which has too often been used against them. It means that gays and lesbians can be treated the same as any other group of citizens. And it means that their basic right to be left alone is finally being honored.

Marriage, Private and Public is a post from Cato @ Liberty - Cato Institute Blog

Today, in what seems like an endless string of 3-2 votes, the SEC moved to restrict the ability of investors to short stocks, claiming that such restrictions would restore stability and protect our financial system.  The truth couldn’t be more different.  Short sellers have long been the first, and often only, voice raising questions about corporate fraud and mismanagement.  For instance, shorts exposed the fraud at Enron, WorldCom and other companies while the SEC largely slept.

Bush’s SEC, lead by former Congressman Chris Cox banned the shorting of various financial industry stocks during the crisis.  The SEC then, as now, would have us believe that Bear, Lehman, AIG, Fannie, Freddie and others were not the victims of their own mismanagement, but rather victims of bear raids by short sellers.  In another instance of Obama and his appointees reading from the Bush playbook, SEC Chair Mary Shapiro finds ever creative ways to expand Cox’s misguided policies.

Short sellers only profit if they end up being correct.  Sadly Washington instead believes in punishing market mechanisms that work and throwing increasingly more money at failed agencies, like the SEC.  Rather than attacking short sellers we should applaud them for doing the SEC’s job.  But then if we had more short selling, providing greater incentives for investors to root out fraud, we might start to question why we even have the SEC.

Ban on Short Sales Benefits Banks and Hurts Investors is a post from Cato @ Liberty - Cato Institute Blog

That’s the slogan the Transportation Security Administration is apparently using to entice people to apply for jobs as airport screeners. Now that they’re preparing to expand the use of whole body imaging scanners, which can produce moderately detailed nude images of travelers, maybe they should consider a tagline that doesn’t sound like it’s designed to recruit voyeurs.

‘A Career Where X-Ray Vision And Federal Benefits Come Standard’ is a post from Cato @ Liberty - Cato Institute Blog

The state of California recently received $60 million in U.S. Department of Labor stimulus funds to upgrade its 23 year-old unemployment benefits system. But according to the Associated Press, California is yet to spend $66 million it received from Labor in 2002 to upgrade its system. The price tag isn’t whopping by federal standards, but it is another reminder of the need to return to fiscal federalism.

Apparently, the Department of Labor couldn’t care less:

The federal government has no plans to sanction or fine California for not completing the original technology upgrade. The Labor Department said it was more concerned that new stimulus funding is used in a way that will allow more workers to qualify for unemployment assistance.

At the same time, California’s unemployment insurance fund is $7.4 billion in the red, which has forced it to “borrow” $4.7 billion from the federal government. According to an editorial in the Oakland Tribune, California increased the generosity of its unemployment benefits when the economy was healthy, but now that the economy is stagnant spendthrift policies are creating a fiscal crisis.

Alan Reynolds reminds that the federal stimulus package “bribed states to extend benefits — which have now been stretched to an unprecedented 79 weeks in 28 states and to 46 to 72 weeks in the rest.” When you subsidize something you get more of it—federal subsidies prompt more state subsidies to the unemployed, which generates more unemployment. Alan concludes that “the February stimulus bill has added at least two percentage points to the unemployment rate.”

California’s unemployment rate of 12.5 percent is the state’s highest since the end of the Great Depression. Once again we see that when the line of responsibility between federal and state government is blurred, the result is more of both and poor policies compounded.

California Illustrates Need to Revive Federalism is a post from Cato @ Liberty - Cato Institute Blog

Yahoo News is highlighting the story “10 Jobs With High Pay and Minimal Schooling.” Topping the list: air traffic controllers, who work for the federal government.

These workers make sure airplanes land and take off safely, and they typically top lists of this nature. The median 50% earned between $86,860-142,210, with good benefits. Air traffic controllers are eligible to retire at age 50 with 20 years of service, or after 25 years at any age.

Huge salaries and retirement after 20 years — sweet deal!

Air traffic controllers seem to provide a good illustration of my general claim that federal workers are overpaid.

I don’t know what the proper pay level for controllers is, but I do know that we should privatize the system, as Canada has, and let the market figure it out.

Federal Wages Fly High is a post from Cato @ Liberty - Cato Institute Blog

The National Park Service announced Friday that it has removed its superintendent at Gettysburg National Military Park and reassigned him to work in a cultural resources office as an assistant to the associate director. His job duties have not yet been determined.

John A. Latschar said Thursday that his demotion was in response to the public disclosure of Internet activity in which he viewed more than 3,400 “sexually-explicit” images over a two-year period on his government computer — a violation of department policy. The misconduct, which Latschar acknowledged in a sworn statement, was found during a year-long investigation by the Interior Department’s inspector general and was documented in an internal Aug. 7 report obtained by The Washington Post.

The reassignment came after a Post report Monday about the results of the investigator’s forensic analysis of Latschar’s computer hard drive, which showed “significant inappropriate user activity” and numbered the “most sexually-explicit” images at 3,456….

David Barna, spokesman for the National Park Service, said Latschar’s annual salary of $145,000 and his pension will not be affected. The cultural resources office is based in Washington, but Latschar will commute from his home in Gettysburg to a Park Service office about 30 miles away in Frederick, Barna said.

Hey, can I get that deal? If I download 3,500 pornographic images on my office computer, can I get reassigned to a telecommuting job with no defined duties at my current salary and pension? As superintendent of a very visible national park, Latschar had a job with a lot of pressure, lots of criticism, management challenges, etc. Now he’s going to be some sort of undefined “assistant to an associate director in a cultural resources office,” but he won’t have to actually go to the cultural resources office, and he’ll still get the same pay and benefits he was getting for doing a real, stressful job. Does anyone in the federal government ever get fired?

Your Tax Dollars at Work is a post from Cato @ Liberty - Cato Institute Blog

Governments love to promise benefits.  But politicians prefer not to have to raise the funds necessary to provide the promised services.  The result for nationalized medical systems is political rationing … and long waiting lists.  The Mackinac Institute, located in Michigan, has produced a series of videos on Canadians speaking about how their system works.  The British Columbia Automobile Association even developed medical access, or wait list, insurance, before abandoning the program under pressure.

In Canada You Need Wait-List Insurance! is a post from Cato @ Liberty - Cato Institute Blog

The Washington Post has an interesting story today on the program of the Cuban government to transfer idle state-owned land to private farmers so they can resurrect the dilapidated agricultural sector on the communist island. As Ian Vásquez and I wrote in the chapter on U.S. policy toward Cuba in Cato Handbook for Policymakers, before this reform, the agricultural productivity of Cuba’s tiny non-state sector (comprising cooperatives and small private farmers) was already 25 percent higher than that of the state sector.

At stake is an issue of incentives. Collective land doesn’t give farmers an incentive to work hard and be productive, since the benefits of their labor go to the government who distributes them (in theory) evenly among everyone, regardless of who worked hard or not. While with private property, “The harder you work, the better you do,” as a Cuban farmer said in the Post story.

The country’s ruler, Raúl Castro, recently declared that “The land is there, and here are the Cubans! Let’s see if we can get to work or not, if we produce or not… The land is there waiting for our sweat.” However, it’s not a matter of just having land and lots of people. It’s also a matter of incentives to produce. Failing to see this, as in the case of Cuba’s failed communist model, is a recipe for failure.

The Land Is There, the Cubans Are There, but the Incentives Are Not is a post from Cato @ Liberty - Cato Institute Blog

As Michael Cannon discussed in an earlier post, the White House is trying to claim that health care “reform” does not mean higher taxes. This is a two-pronged issue. First, there is a mandate to purchase health insurance. Second, there is a tax (the White House calls it a fee) on people who fail to purchase a policy.

The White House claims this mandate is akin to state-level requirements for the purchase of health insurance, and that the newly-insured people will be getting some value (a health insurance policy) in exchange for their money. These assertions are defensible, but that does not change the fact that a tax is being imposed.

It might be plausible to argue that the mandate is not a tax if the value of the insurance policy to the individual was equal to the cost. But since these are people who are not buying policies, their behavior reveals that this obviously cannot be true. So this means that they will be worse off under Obama’s plan and that at least some of the cost should be considered a tax.

The Social Security payroll tax allows a good analogy. Labor economists correctly argue that the payroll tax functions, in part, as a “premium” for what can be considered a government-provided annuity. As such, when we try to measure the disincentive effect of the payroll tax, it is appropriate to include the perceived value of future Social Security benefits (for most Americans, especially with average or above-average incomes, the “rate of return” is very low or negative, so a substantial share of the payroll tax is a tax both in the legal sense and economic-distortion sense). The same is true of a mandatory health insurance policy (even if the money does not go through the government’s hands).

On the broader issue of paying money and getting something of value in return, another analogy is helpful. A share of the gasoline excise tax is used for road construction and maintenance. We all benefit from roads, even if we don’t drive (let’s set aside issues such as whether the benefits equal the costs, whether the federal government should be involved, etc). Does that somehow mean the gasoline excise tax is not a tax? Of course not.

Turning now to the excise tax, the Administration’s argument that this is a fee is even less defensible. The Baucus legislation in the Senate Finance Committee explicitly references an excise tax. Equally revealing (and even more ominous), the IRS is charged with collecting the fee. The White House can argue that the tax – in the economic sense – is lower than the fee if something of value is exchanged. But the tax is still there.

Rather than play games, the White House should make an open argument for bigger government. The fact that the Administration prefers to be deceptive says a lot about the underlying merits of their proposal.

The President’s Health Care Tax is a post from Cato @ Liberty - Cato Institute Blog

What do workers in finance, energy, and the federal government have in common? Very generous compensation packages, according to data from the Bureau of Economic Analysis.

When I posted federal compensation data last week, I received a flood of comments that disputed my contention that federal workers are overpaid. A common retort was that “federal workers are not burger flippers.” That’s true, but workers in the computer systems design, computer manufacturing, and chemicals industries are not burger flippers either, yet those folks also earn less than federal workers, on average.

The Bureau of Economic Analysis presents compensation data for 72 industries that span the U.S. economy (Table 6.2D). Figure 1 shows the 20 industries with the highest levels of average compensation, including wages and benefits. It also shows the average for all U.S. private industries and the average for the industry with the lowest compensation, which, indeed, includes burger flipping. (I’ve simplified the names of the industries in some cases).

Federal civilian workers have the seventh highest average compensation of 72 industries. Compensation in the federal civilian workforce is topped only by compensation in three finance-related and three energy-related industries.

Should federal compensation be so high? We are always told that the 1.9 million federal civilian workers are “public servants,” implying that they are selflessly sacrificing for the good of the nation. I’m sure that most federal workers are dedicated employees, but looking at these compensation levels, I don’t see much sacrificing going on.

It is true that there are some elite agencies in the government that need to have high compensation levels. But the bulk of the federal workforce is in sprawling bureaucracies such as the U.S. Department of Agriculture, which has a huge army of about 100,000 workers. The main job of USDA workers is to administer farm aid, food stamps, and other subsidy programs. That sort of paper-pushing work is not rocket science.

The other point I made last week is that the BEA data makes clear that federal compensation has skyrocketed this decade. Figure 2 provides more support for that claim.

Federal civilian workers had the fifth highest average compensation increase among 72 industries between 2000 and 2008. Average federal civilian compensation increased 57 percent, which compared to the overall average increase in the private sector of 31 percent.

Let’s slow this freight train down. Federal pay ought to be frozen for a period of years, at least until the economy recovers and private sector pay starts catching up.

Wall Street, Big Oil, and Federal Workers is a post from Cato @ Liberty - Cato Institute Blog

My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:

First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).

Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.

Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.

Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.

A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).

That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.

Federal Pay: Response to the Critics is a post from Cato @ Liberty - Cato Institute Blog

The Bureau of Economic Analysis has released its annual data on compensation levels by industry (Tables 6.2D, 6.3D, and 6.6D here). The data show that the pay advantage enjoyed by federal civilian workers over private-sector workers continues to expand.

The George W. Bush years were very lucrative for federal workers. In 2000, the average compensation (wages and benefits) of federal workers was 66 percent higher than the average compensation in the U.S. private sector. The new data show that average federal compensation is now more than double the average in the private sector.

Figure 1 looks at average wages. In 2008, the average wage for 1.9 million federal civilian workers was $79,197, which compared to an average $50,028 for the nation’s 108 million private sector workers (measured in full-time equivalents). The figure shows that the federal pay advantage (the gap between the lines) is steadily increasing.

Figure 2 shows that the federal advantage is even more pronounced when worker benefits are included. In 2008, federal worker compensation averaged a remarkable $119,982, which was more than double the private sector average of $59,909.

What is going on here? Members of Congress who have large numbers of federal workers in their districts relentlessly push for expanding federal worker compensation. Also, the Bush administration had little interest in fiscal restraint, and it usually got rolled by the federal unions. The result has been an increasingly overpaid elite of government workers, who are insulated from the economic reality of recessions and from the tough competitive climate of the private sector.

It’s time to put a stop to this. Federal wages should be frozen for a period of years, at least until the private-sector economy has recovered and average workers start seeing some wage gains of their own. At the same time, gold-plated federal benefit packages should be scaled back as unaffordable given today’s massive budget deficits. There are many qualitative benefits of government work—such as extremely high job security—so taxpayers should not have to pay for such lavish government pay packages.

Update: I respond to some criticisms of this post here.

Update 2: Compensation data for federal workers vs. other industries here.

Update 3: In September, the government revised the data for private sector workers. On 9/30/09, Figure 1 and the related text were updated to reflect this change.

Federal Pay Continues Rapid Ascent is a post from Cato @ Liberty - Cato Institute Blog

Politico reports that the so-called “public option” provision could be dropped from the highly controversial health care bill currently being debated throughout the country:

President Barack Obama and his top aides are signaling that they’re prepared to drop a government insurance option from a final health-reform deal if that’s what’s needed to strike a compromise on Obama’s top legislative priority…. Obama and his aides continue to emphasize having some competitor to private insurers, perhaps nonprofit insurance cooperatives, but they are using stronger language to downplay the importance that it be a government plan.

As I have said before, establishing health insurance co-operatives is a poor alternative to the public option plan. Opponents of a government takeover of the health care system should not be fooled.

Government-run health care is government-run health care no matter what you call it.

The health care “co-op” approach now embraced by the Obama administration will still give the federal government control over one-sixth of the U.S. economy, with a government-appointed board, taxpayer funding, and with bureaucrats setting premiums, benefits, and operating rules.

Plus, it won’t be a true co-op, like rural electrical co-ops or your local health-food store — owned and controlled by its workers and the people who use its services. Under the government plan, the members wouldn’t choose its officers — the president would.

The real issue has never been the “public option” on its own. The issue is whether the government will take over the U.S. health care system, controlling many of our most important, personal, and private decisions. Even without a public option, the bills in Congress would make Americans pay higher taxes and higher premiums, while government bureaucrats determine what insurance benefits they must have and, ultimately, what care they can receive.

Obamacare was a bad idea with an explicit “public option.” It is still a bad idea without one.

Co-ops: A ‘Public Option’ By Another Name is a post from Cato @ Liberty - Cato Institute Blog

Inside Higher Ed features a terrific essay today by economist Michael Rizzo. Rizzo takes issue with President Obama’s goals to have all Americans complete at least one post-secondary year of education or job training, and for the nation to have the world’s highest percentage of college graduates by 2020. I’ve opined about this before, but Rizzo does it much more comprehensively, noting especially that - surprise! – education can suffer from “diminishing returns.”

Here’s the meat of Rizzo’s piece, but you really should read the whole thing:

More education has to be a good thing. After all, receiving more schooling can’t make you less productive, right? Education is like exercise, reading, spending time with one’s children, and sleeping – each of these is good for you. It is obvious that dedicating more attention to each of these is good. It is obvious … and wrong – for both individuals and societies as a whole.

While investing in each of these likely generates enormous benefits when starting from scratch, at some point each additional unit invested generates fewer benefits than the one before it – just as eating that fourth doughnut brings you less satisfaction than did the second. What if these so-called “diminishing returns” never set in for education? In a world of scarce time and resources, they must, albeit indirectly. Dedicating more resources to the production of educated workers must come at the expense of resources dedicated to creating other important capital goods, institutions, or consumption goods. An individual cannot dedicate 24 hours in a day to everything, nor can society dedicate all of its resources to everything. Put another way, if merely leading the world in educational attainment is desirable, why not aim to have every American receive a college degree? Better yet, why not aim to have every American earn a Ph.D.?

Education Has Diminishing Returns!? is a post from Cato @ Liberty - Cato Institute Blog