It’s no secret that I think we have too many government bureaucrats and I’ve shared very strong evidence that most of them are grossly overpaid.
I also have shown some data suggesting that they don’t work very hard, though I confess to mixed feelings about that factoid since I’d rather have some bureaucrats goofing off all day. After all, the economy would be even more burdened if they were being zealous and harassing additional people in the economy’s productive sector.
As an economist, one of my broad concerns is that taxpayers are picking up the tab for bloated bureaucracy. But I’m also worried for another big reason. We get less prosperity when too many people are being lured into government jobs. Simply stated, those people could be contributing to economic output if they instead were employed in the private sector.
In other words, our living standards depend on how productively we utilize labor and capital.
But we need to be careful about how we define “private sector.”
Why? Because not all private jobs are created equal. There are millions of government contractors, for instance, and many of those people should be considered part of a “shadow bureaucracy.” Too often, they’re doing things that are just as wasteful and inefficient as their bureaucrat counterparts, but they don’t show up in the Labor Department data as part of the government workforce.
Another example of the wrong kind of private employment is the so-called compliance sector.
Here are some excerpts from a report in The Hill about “compliance officers” hired by private companies.
A growing thicket of federal regulations under the Obama administration has contributed to an employment spike in at least one corner of the job market: the increasingly vital compliance industry. ObamaCare, the Dodd-Frank Act and other large federal undertakings have led to an outpouring of new agency rules derided by business groups and defended by advocates. But the regulations have also been a boon for professional compliance officers paid to help companies understand and adapt to the new requirements. …Data kept by the Bureau of Labor Statistics (BLS) shows an 18-percent increase in the number of compliance officers in the United States between 2009 and 2012.
The article continues, including data showing that the compliance sector is getting bigger, costing lots of money, and that the problem began before Obama took office.
At last count, there were an estimated 227,500 compliance officers employed in the United States, according to the BLS. The bureau defines a compliance officer as an employee responsible for evaluating conformity with laws and regulations. …Compliance officers make an average of just under $65,000 annually, a gross national labor cost of roughly $14.7 billion, according to the BLS data. …for small firms without the resources to hire their own full-time compliance staff, adapting to new regulations can be an expensive proposition, said Sam Batkins, director of regulatory policy for AAF. …The expansion of the compliance industry did not begin under President Obama and is not solely linked to the healthcare and Wall Street reform bills. The AAF analysis found a 122-percent increase of compliance officers over the past 10 years.
Gee, maybe we can get to the point where our entire economy is nothing but government bureaucrats and compliance officers. With enough of both categories, we could have full employment!
Of course, there would be one tiny little problem since nothing would get produced. And with nobody generating any income, there wouldn’t be any money to pay for the paper pushers from both government and the private sector.
But as we’ve seen from nations such as Greece, politicians generally don’t grasp this simple point until it’s too late.
Though let’s give a shout out to the former left-wing President of Brazil, who irritated his socialist supporters by making a seemingly elementary observation that you have to have production before you can have redistribution. Heck, even rock stars are beginning to realize that capitalism is the right approach if you want better lives for the less fortunate.
So maybe there’s hope.
Let’s close by issuing a couple of important caveats. Notwithstanding my occasionally overheated rhetoric, not all government jobs are bad jobs. Similarly, I don’t want to imply that all compliance jobs in the private sector are wasteful and inefficient.
To be more specific, I mean those statements in the narrow sense that companies doubtlessly are trying to adapt to all the new regulatory burdens in the least costly manner possible. So the jobs they are creating make sense, given the reality that firms are being buried under a blizzard of red tape.
But I also mean it in the broad sense that there are some regulations that pass a cost-benefit test, and compliance officers resulting from those regulations presumably are part of such calculations. Even a cranky libertarian like me, for instance, won’t lose sleep about compliance officers in a nuclear power plant or at a medical lab doing research on the Ebola virus.*
*But allow me to point out that a genuinely free market would have something akin to compliance officers because of “private regulation.” As I explained last year, “the profit motive creates mutually reinforcing oversight,” and we can be quite confident that market forces would do a better job of protecting us at lower cost.
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal). […]
[…] obviously good news for compliance bureaucrats, lawyers, and others who get fat and happy because of the regulatory state. But it can’t be good […]
[…] obviously good news for compliance bureaucrats, lawyers, and others who get fat and happy because of the regulatory state. But it can’t be good […]
[…] obviously good news for compliance bureaucrats, lawyers, and others who get fat and happy because of the regulatory state. But it can’t be […]
[…] inaccurately critical of government-run healthcare. Even in cases when the jobs being created are evidence of bad legislation rather than a good economic […]
[…] inaccurately critical of government-run healthcare. Even in cases when the jobs being created are evidence of bad legislation rather than a good economic […]
[…] inaccurately critical of government-run healthcare. Even in cases when the jobs being created are evidence of bad legislation rather than a good economic […]
Regarding the points on Compliance costs, there are entire industries such as tax preparation that are nothing but compliance costs. I spend 50 bucks every spring on Turbo Tax. It makes me more productive doing something entirely unproductive – figuring out how much money to send in to Uncle Sam. I realize the people who work for Turbo Tax consider themselves productive, but their work adds ZERO to the economy.
Here’s a question for you Mr. Dan: If all jobs are not created equal, what, exactly does the GDP represent? It seems like someone ought to come up with a PDP (Productive Gross Product), which excludes government spending in particular, but should also exclude or discount other non-productive economic activity such as entertainment spending. In other words, toasters, cell phones, tractors, and automobiles make us (as a society) more productive, but money spent on NFL games does not.
Money is simply a measure of productivity. He who is more productive enjoys a higher standard of living, whether the “he” is an individual or a nation. Like a manufacturing company that stops investing in the factory and instead moves its investments to the office, a nation that takes money out of the productive private sector and gives it to the government, will either stagnate or fail altogether.
This goes even deeper than stated in this article. I know of several high-tech companies out there who exist for on other reason than the fact that they produce a product that helps their clients meet government compliance or the paperwork and data reporting involved. One has to wonder how much more productive things could be if this technology were instead targeted at optimizing the operations of their clients.
Then again- it could be possible that we have grow to such a tragedy that what I state- and what Dan contends- is entirely wrong. Perhaps these people are just non-productive anyway due to our poor education system, and government positions is the BEST we could hope for them.
What a shame from a country who used to produce Alexander Graham Bell’s and Thomas Edison’s. In today’s environment, those guys couldn’t even get a good invention to the market, let alone clear the regulatory burden to start up in their garages. Bell’s now-famous “Watson I need you” statement would have gone unnoticed as Watson was standing in line trying to apply for Obamacare… the cost of which would, of course cause Bell to fold his company before it ever started… oh well…
The level of “productivity” in the government workforce can vary dramatically by state. When compared to the private sector, North Dakota’s state and local government workforce is more “productive” than Nevada’s. You can see for yourself here: http://keypolicydata.com/index.php/government-workforce-data/
speaking of the security/industrial complex…
from tom dispatch:
“the Government Accountability Office released a report about a Transportation Security Administration decision to spend $200 million a year on a “behavioral screening program” involving 3,000 “behavior detection officers” at 176 airports. The GAO concluded that, $1 billion later, it worked “probably no better than chance.” Put another way, 3,000 specially trained TSA agents could rely on their expensive profiling techniques to pick twitchy passengers out of screening lines as likely terrorists, or they could look at you and flip a coin.”
inspiring………………….. no?
and let’s not forget the defense industry… even when pentagon brass chooses to kill an ongoing procurement program… often it does not die because members of congress continue to fund it… in order to enhance their electability… keep jobs in their districts… and keep the campaign contributions flowing… we can expect more of the same from the national security/industrial complex…
I don’t understand what you mean about their being a problem if the economy consisted solely of bureaucrats and compliance officers. Surely all we would have to do is get the government to pass a law mandating that every family must have a home, at least one car, a cell phone for everyone over the age of 10, etc. Then the problem would be solved. 🙂
But the people’s dream of directed prosperity through collective dirigistic control of the economy, via the political-electoral process, remains. Hence, decline continues.
One must also understand that it is not necessary to have a “blizzard” of red tape to trigger decline.
There are great discontinuities and non-linearities in the worldwide competitiveness spectrum. As you get close to the margin, at some point your international competitors gain the first small edge. Thus an additional 2-3% regulatory burden on businesses does not mean that things will be just 2-3% worse. It could very well mean that you lose top competitiveness to international competitors — at which point things start unravelling fast. There is some inertia in this process. By the time you realize the pendulum has started swinging in the opposite direction and you’re on your way down, you are too deep into the process and it is too late. Way too late. In a declining environment, it is virtually impossible to get the electorate to regurgitate all the HopNChange they believed on all these years just for the chance of returning to a previous point. In that desperate situation, more redistribution and more majoritarian dirigistic control of the economy are the universal voter reactions. The vicious cycle closes, and external actors observe in bewilderment at the population’s inability to react (as in France).
In other words, once the American environment starts becoming like Greece, Americans will start voting like Greeks. This process has already started. The electoral dynamics of this vicious cycle to decline have already been entered in America.
American voter-lemmings will be screwed in the bed they delusionaly made with great hope and fanfare. If you want to fare ok in the decline, you must adapt to this reality and start acting accordingly (a long discussion…)
Great point about the size of govt being understated due to the “hidden” part that is “privatized.” Which brings up the whole faux privatization that is govt contracting for services instead of getting out of that business entirely and allowing a free market solution to emerge and evolve. This “privatization” ends up being corrupt and inefficient which just gives ammunition to the statists to pin the blame on the “free market.”
And of course your other point boiled down is: Government is great for lawyers and accountants. Wonderful.