Years (actually decades) ago I lived in a New York University grad student dorm that housed mostly elite kids from other countries. Sons of African finance ministers, daughters of European bankers, that kind of thing. And the developing-world students all told the same story: Back home, people who wanted to get rich went into government while people who wanted to struggle with arbitrary regulation and excessive taxes went into business. It was clear to them who the first and second-class citizens were.
One of the things they loved about the US was the fact that it was different here. Entrepreneurs were the highest-order life form and government was the support staff.
But those days are apparently over. From last week’s Wall Street Journal:
A review of the nation’s capital turns up ample evidence: In a report released last month, Cato Institute budget analyst Chris Edwardscalculated that the average federal employee earned $84,153 in 2014—roughly 50% more than the average worker in the private economy. When you include benefits like health care and pensions, the average federal worker’s compensation rises to $119,934—nearly 80% higher than everyone else. “The federal government has become an elite island of secure and high-paid employment,” Mr. Edwards wrote, “separated from the ocean of average Americans competing in the economy.”
Pay for federal employees has grown significantly faster than for private employees. The percentage difference between the two has doubled in the past 25 years. Federal work is more lucrative than the average jobs in finance, information and professional fields.
Moreover, the number of federal employees salaried at more than $100,000 has grown by nearly 10% in the past five years, to more than 300,000. The 1,000 best-paid federal workers make a minimum of $216,000, with most of the highest echelon working at Veterans Affairs. Employees of little-known agencies such as the National Credit Union Administration and the Farm Credit Administration also top the list. The total cost to taxpayers of federal wages and benefits clocks in at $260 billion. Much of this is concentrated in and around Washington, D.C.—and it shows. Six of the 10 richest counties in the country surround the nation’s capital, according to the Census Bureau. The median household income in these counties ranges from about $98,000 to $118,000, excluding benefits.
It is nearly impossible to get fired from a job in D.C. A 2011 analysis by USA Today found that at many federal agencies—the Environmental Protection Agency, the Department of Housing and Urban Development, among others—you’re more likely to die on the job than lose it. Thankfully, there’s no waste, fraud or redundancy in the federal government, right?
Now compare the plush life of the bureaucrat with that of the average American. The median household income in September hovered a little above $56,000. That is only 1% higher than in 2009 when the recession officially ended, and 0.5% lower than before the recession began. Meanwhile, consumer prices increased 10.6% over the past six years. Small wonder that 62% of Americans are living paycheck to paycheck, according to a January analysis by Bankrate.com.
Yet Washington’s success has no doubt contributed to America’s troubles. The Competitive Enterprise Institute estimates that last year the ever-growing regulatory burden cost $1.88 trillion. This translates into about $15,000 a household. No one is spared from these hidden taxes, which lead to higher prices on everyday goods, fewer jobs, slower growth and more.
In other words, Washington, D.C., strides ahead while the rest of America falls further behind. The $142 million in bonuses at Veterans Affairs are only the latest reminder.
How did the public sector end up subjugating the private sector? Mostly through the following:
Globalization. What at first glance looks like the most capitalist, pro-private-sector policy imaginable ended up having the most powerful pro-government impact. As CEOs figured out that they could close domestic factories, ship the jobs to China, write off the cost of the transition and thereby increase net profits (and their own year-end bonus), US manufacturing was gutted, wages declined and pensions disappeared. Formerly-unionized workers fell from middle class to working poor.
Public sector unions. It’s important to note that even FDR, the patron saint of active government, thought public sector unions were a bad idea. Some relevant quotes:
All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.
The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.
The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters…The pay is fixed by Congress and the workmen are represented by the members of Congress in the fixing of Government pay.
But in 1961 President John Kennedy granted federal workers the right to bargain over working conditions (though not pay), and the rest is history. Public sector unions have since become a huge political force, campaigning for and frequently electing the people who set their pay and other perks. No surprise, then, that public sector salaries and especially pensions have soared and are now, as Chicago just learned, untouchable even under threat of municipal bankruptcy.
The printing press. Another of those “exactly what you’d expect” events was the 1971 conversion of the dollar from gold-backed to pure fiat currency. Thereafter Washington could create as much new currency as it wanted and never again had to prioritize. Naturally, federal hiring soared, pay rose, and public sector unions, in a classic positive feedback loop, got progressively better at obtaining more of the same.
Add it all up, and government, as the Wall Street Journal notes, is now where the cushy jobs are.
But of course this is a temporary condition. When government comes to dominate an economy, the engine of wealth creation (that is, private capital) goes on strike and society enters a downward spiral in which unemployed private sector workers demand more government aid, requiring the government to raise taxes and/or create more currency, until the old system collapses and everyone, public and private, finds themselves in a Third World nightmare. See Argentina, Venezuela, Brazil, and — let’s face it — much of Europe.