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Posts Tagged ‘Bureaucrats’

Last year, I said the nation’s most important referendum was the proposal to emasculate Colorado’s Taxpayer Bill of Rights (I was delighted when voters said no to the pro-spending lobbies and preserved TABOR).

This year’s most important referendum is taking place in November in Illinois, where pro-spending lobbies are very anxious to repeal the state’s flat tax.

If they succeed, the steady flow of taxpayers out of Illinois will become a torrent.

That’s because the flat tax is the only semi-decent feature of the state’s fiscal policy. If it goes, there won’t be any hope.

My buddy from the Illinois Policy Institute, Orphe Divounguy, has a column in today’s Wall Street Journal about the dismal fiscal and economic outlook in the Land of Lincoln.

Long the economic hub of the Midwest, Illinois has lost more than 850,000 residents to other states during the past decade. The state has been shrinking for six consecutive years and suffered the largest raw population decline of any state in the 2010s. …Growing government debt and a crushing tax burden are depressing economic growth. State spending is up, but personal-income growth is lagging. Since 2000, Illinois’s per capita personal income growth has been 21% lower than the national average. …ratings firms are paying attention. Illinois’s credit rating is one notch above junk. …Illinois’s public pension payments already consume nearly a third of the state budget, yet the unfunded liability—which the state currently pegs at $137 billion, though others put the figure much higher—continues to rise. …Since 2000, Illinois has increased pension spending by more than 500%.

Orphe then points out that politicians in the state have been raising taxes with depressing regularity.

Needless to say, that never seems to solve the problem (a point I recently made when looking at fiscal policy in Washington).

Illinois has a culture of trying—and failing—to tax its way out of its problems. In 2011 then-Gov. Pat Quinn approved a temporary tax hike aimed at making a dent in the state’s $8 billion in unpaid bills. By 2014, Illinois still had a $6.6 billion bill backlog, and lawmakers were calling for families and businesses to give up more money. Another permanent income-tax increase came in 2017, but again more taxes failed to solve Illinois’s problems. The problems, in fact, got worse. In his freshman year, Gov. J.B. Pritzker signed into law 20 new taxes and fees totaling nearly $4.6 billion, including a doubling of the gasoline tax. Now Mr. Pritzker wants a progressive income tax he claims will really solve the issue.

The bottom line is that politicians in Illinois want ever-increasing taxes to finance ever-increasing pensions for state and local bureaucrats.

This cartoon from Eric Allie nicely summarizes the attitude of the state’s corrupt political class.

To be sure, there are plenty of states that have big fiscal holes because politicians have showered bureaucrats with overly generous compensation packages.

What presumably makes Illinois unique, Orphe explains, is that retired government workers get annual adjustments that are much greater than inflation.

Which means that there’s a simple and fair solution.

Illinois taxpayers can save $50 billion over 25 years, and dollars can be freed to support their eroding public services. Policy makers can finally shrink Illinois’s pension liability by reducing the main driver of its growth: the cost-of-living adjustment, or COLA. Currently, the COLA doesn’t reflect any actual cost-of-living increase, since it isn’t pegged to inflation. By simply replacing the existing guaranteed 3% compounding postretirement raise with a true COLA pegged to inflation, among other modest changes, Illinois can save $2.4 billion in the first year alone. No current retiree would see a decrease in his pension check. Current workers would preserve their core benefit.

P.S. I don’t know how long this policy has existed. If it’s a long-standing policy, Illinois bureaucrats actually were net losers in the pre-Reagan era when the U.S. suffered from high inflation.

P.P.S. The ultimate solution is to shift bureaucrats to “defined contribution” retirement plans, akin to the IRAs and 401(K)s that exist in the private sector.

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I’m not a big fan of bureaucracy, mostly because government employees are overpaid and they often work for departments and agencies that shouldn’t exist.

Today, motivated by “public choice” insights about self-interested behavior, I want to make an important point about how bureaucracies operate.

We’ll review two articles about completely disconnected issues. But they both make the same point about ever-expanding bureaucracy.

First, the Economist has an article about central banks, specifically looking at how they employ thousands of bureaucrats. What makes the numbers so remarkable, at least in most of Europe, is that they no longer have currencies to manage.

Central bankers around the world have long pondered why productivity growth is slowing. …But might central banks themselves, with their armies of employees, be part of the problem? …many central banks in Europe look flabby. Although the euro area’s 19 national central banks have ceded many of their monetary-policymaking responsibilities to the European Central Bank (ECB)—they no longer set monetary policy by themselves, for instance—they still retain thousands of employees… the Banque de France and the Bundesbank each employ more than 10,000 people… The Bank of Italy employs 6,700. All told, the ECB and the euro zone’s national central banks boast a headcount of nearly 50,000. …The Board of Governors in Washington, DC, where most policy decisions are made, had about 3,000 staff at last count. When the Fed’s 12 regional reserve banks are included, the number rises to more than 20,000.

I actually wrote about this issue back in 2009 and mentioned the still-relevant caveat that some central banks have roles beyond monetary policy, such as bank supervision.

That being said, this chart suggests that there’s plenty of fat to cut.

What I would like to see is a comparison of staffing levels for countries that use the euro, both before and after they outsourced monetary policy the European Central Bank.

I would be shocked if there was a decline in the number of bureaucrats, even though monetary policy presumably is the primary reason central banks exist.

By the way, there’s a sentence in the article that cries out for correction.

Although central banks have become more important since the global financial crisis, it is not clear why they need quite so many regional staff.

It would be far more accurate if the sentence was modified to read: “…have become more of a threat to macroeconomic stability since the global financial crisis that they helped to create.”

But I’m digressing.

Let’s now look at the next article about bureaucracy.

John Lehman, a former Secretary of the Navy, recently opined in the Wall Street Journal about bureaucratic bloat at the National Security Council.

The problems that plague the NSC trace to before its founding in 1947. The White House has long sought to centralize decision-making to overcome the political jockeying that often takes place within the national-security establishment. …The NSC was established in the 1947 National Security Act, which named the members of the council: president, vice president and secretaries of state and defense. …under President Nixon…, Mr. Kissinger grew the council to include one deputy, 32 policy professionals and 60 administrators. …the NSC has only continued to expand. By the end of the Obama administration, 34 policy professionals supported by 60 administrators had exploded to three deputies, more than 400 policy professionals and 1,300 administrators. The council lost the ability to make fast decisions informed by the best intelligence. The NSC became one more layer in the wedding cake of government agencies.

Wow.

A bureaucracy that didn’t exist until 1947 and didn’t even have a boss until 1953 then grows to almost 100 people about 20 years later.

And then 1700 bureaucrats by the Obama Administration.

Needless to say, I’m sure that the growth of the NSC bureaucracy wasn’t accompanied by staffing reductions at the Department of State, Department of Defense, or any other related box on the ever-expanding federal flowchart.

Whenever I read stories like the two cited above, I can’t help but remember what Mark Steyn wrote almost ten years ago.

London administered the vast sprawling fractious tribal dump of Sudan with about 200 British civil servants for what, with hindsight, was the least-worst two-thirds of a century in that country’s existence. These days I doubt 200 civil servants would be enough for the average branch office of the Federal Department of Community Organizer Grant Applications. Abroad as at home, the United States urgently needs to start learning how to do more with less.

As always, Steyn is very clever. But there’s a very serious underlying point. Is there any evidence that additional bureaucracy has produced better decision making?

Either in the field of central banking, national security, or in any other area where more and more bureaucrats exercise more and more control over our lives?

Maybe there is such evidence, but I haven’t seen it. Instead, I see research showing how bureaucracy stifles growth, creates waste, promotes inefficiency, crowds out private jobs, delivers bad outcomes, acts in a self-serving fashion, and bankrupts governments.

P.S. The best example of bureaucrat humor is this video.

P.P.S. If you want more, we have a joke about an Indian training for a government job, a slide show on how bureaucracies operate, a cartoon strip on bureaucratic incentives, a story on what would happen if Noah tried to build an Ark today, a top-10 list of ways to tell if you work for the government, a new element discovered inside the bureaucracy, and a letter to the bureaucracy from someone renewing a passport.

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When I did this video about public-sector compensation almost 10 years ago, I focused on why it is unfair that bureaucrats get much higher levels of compensation than people working the private sector.

Today, let’s consider the economic consequences of excessive bureaucracy.

And what will make this column particularly interesting is that I’ll be citing some research from economists at the International Monetary Fund (a bureaucracy which is definitely not an outpost of libertarian thinking).

The two authors, Alberto Behar and Junghwan Mok, investigated whether nations lowered unemployment rates by employing more bureaucrats.

The contribution of this paper is to investigate the effects of public hiring of workers on labor market outcomes, specifically unemployment and private employment. In particular, does public hiring increase (“crowd in”) private employment or decrease (“crowd out”) private employment? …It is arguably the case that a private-sector job is more desirable than a public-sector job from a public policy point of view…there is evidence that a large government share in economic activity can be negative for long-term growth because of the distortionary effects of taxation, inefficient government spending due in part to rent-seeking or lower worker productivity, and the crowding out of private investment. …Crowding out could occur through a number of channels. Derived labor demand can be affected through crowding out of the product market, possibly via higher taxes, higher interest rates, and competition from state-owned enterprises. It can occur through the labor market, where higher wages, more job security, or a higher probability of finding a public-sector job can make an individual more likely to seek or wait for public-sector employment rather than search for or accept a job in the private sector… Finally, it can occur in the education market, where individuals seek qualifications appropriate for entering the public sector rather than skills needed for productive employment

As you can see, the authors sensibly consider both the direct and indirect effects of public employment.

Yes, hiring someone to be a bureaucrat obviously means that person is employed, but it also means that resources are being diverted to government.

And that imposes costs on the economy’s productive sector.

So the real question is the net impact.

In their study for the IMF, the authors cite other academic research suggesting that government employment crowds out (i.e., reduces) private employment.

…there is prior evidence that crowding-out effects are sufficiently large to increase unemployment in a number of advanced countries. However, there has hitherto not been a thorough investigation of how public employment affects labor market outcomes in developing countries. We fill this gap in the literature by investigating the effects of public employment on both private employment and on unemployment. An important part of our contribution lies in the assembly of the dataset to expand the number of non-OECD countries… The most related and relevant work to this paper is by Algan et al. (2002), who explore the consequences of public-sector employment for labor market performance. Using pooled cross-section and annual time-series data for 17 OECD countries from 1960 to 2000, they run regressions of the unemployment rate and/or the private-sector employment rate on the public-sector employment rate. Empirical evidence from the employment equation suggests that the creation of 100 public jobs crowds out 150 private-sector jobs.

In the study, the authors look at two main measures of public sector employment.

And, as you can see in Figure 4, they look at data for nations in different regions.

They wisely utilize the broader measure of public employment, which includes the people employed by state-owned enterprises.

We have collected data for up to 194 countries over the period 1988–2011. …Our contribution to the literature includes the assembly of data on public and private employment and other indicators for a wide range of developing and advanced countries. …Definitions of “public sector” are different across countries and organizations, so we choose two definitions and generate corresponding public employment datasets, namely a “narrow” measure also referred to as “public administration” and a “broad” measure. …This dataset includes not only governmental agencies but also state-owned enterprises (SOEs). We call this the ‘broad’ measure of public employment, preserving the term ‘public sector’.

In Figure 7, they use a scatter diagram to show some of the data.

The diagram on the left is most relevant since it shows that private employment (vertical axis) declines as government jobs (horizontal axis) increase.

And when they do the statistical analysis, we get confirmation that government jobs displace employment in the economy’s productive sector.

…all coefficients indicate a very strong negative relationship between public- and private-sector employment rates. For example, 100 new public jobs crowd out 98 private job… Taken together with the unemployment results, public employment just about fully crowds out private-sector employment regardless of the definition, such that a rise in government hiring would be offset by decreases in private employment… Regressions of unemployment on public employment and of private employment on public employment, each of which is based on two definitions of public employment, find robust evidence that public employment crowds out private employment. …Public-sector hiring: (i) does not reduce unemployment, (ii) increases the fiscal burden, and (iii) inhibits long-term growth through reductions in private-sector employment. Together, this would imply that public hiring is detrimental to long term fiscal sustainability.

The final part of the above excerpt is critical.

In addition to not increasing overall employment, government jobs also increase the fiscal burden of government and undermine long-run growth.

So the long-term damage is even greater than the short-run damage.

P.S. The IMF isn’t the only international bureaucracy to conclude that government employment is bad for overall prosperity. A few years ago, I shared research from the European Central Bank which also showed negative macroeconomic consequences from costly bureaucracy.

P.P.S. While I’m usually critical of the IMF because it has a statist policy agenda, it’s not uncommon for the professional economists who work there to produce good research. In the past, I’ve highlight some very good IMF studies on topics such as spending caps, the size of government, taxes and business vitality, fiscal decentralization, the Laffer Curve, and class-warfare taxation.

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An utterly depressing statistic is that the Washington, D.C.-area is now the richest region of the country.

At the risk of understatement, that wealth is largely unearned. It’s mostly a reflection of overpaid bureaucrats, greedy politicians, fat-cat lobbyists, beltway-bandit contractors, and other insiders who have their snouts buried in the federal trough.

I’m not a fan of class warfare, but there’s one exception: It’s galling that lower-income and middle-class taxpayers across the nation are subsidizing a gilded class in Washington.

That’s the type of redistribution that should be ended first.

So what can be done to address this inequity? Is there an approach that will curtail D.C.’s entitled, self-aggrandizing elite?

In a column for the Wall Street Journal, Terry Wanzek, a state legislator from North Dakota, makes the case for new legislation that would shift government bureaucracies from Washington to the hinterland.

The Hawley-Blackburn bill calls for moving Agriculture and its more than 100,000 employees to Missouri. Other departments would go elsewhere: Commerce to Pennsylvania, Education to Tennessee, Energy to Kentucky, Health and Human Services to Indiana, Housing and Urban Development to Ohio, Interior to New Mexico, Labor to West Virginia, Transportation to Michigan, and Veterans Affairs to South Carolina. …The bill’s sponsors pitch their legislation as an employment program…but the main benefit would come from putting regulators into proximity with the people whose lives and businesses they regulate. …This would be a government “of the people”—something that is lacking as the administrative state inexorably grows in Washington, D.C.

This is an interesting proposal. But does that mean it’s a good idea?

Clyde Wayne Crews of the Competitive Enterprise Institute is not overly impressed.

In today’s Wall Street Journal, he opines that it would backfire.

The bill’s sponsors, Sens. Josh Hawley of Missouri and Marsha Blackburn of Tennessee, would send the Agriculture and Education departments to their respective states. Eight other federal departments and most nondepartment agencies would also be dispersed throughout the land, often to places intended to suit their functions—for example, the Transportation Department would be sent to Michigan to be near the auto industry. …The only understandable part of this plan is conservatives’ visceral desire for revenge. People across the county can see the massive houses Washington bureaucrats and consultants occupy, walled off in single-party strongholds like Fairfax, Va. …But since when did Republicans accept the idea that the federal government ought to be a premier job creator? The GOP insisted for decades that many New Deal agencies and subsequent government bodies should never have been created in the first place, and that their red tape and interference is a dominant cause of economic inefficiency. …It will be impossible to uproot or at least prune the bureaucracy once its seeds are spread to every state. …Would legislators from the “lucky” chosen states ever have the gumption to slash funding from agencies that employ thousands of their constituents and pay them generously? The HIRE Act would tie Middle America inextricably to big progressive government, remaking America in Washington’s image.

So who is right?

I wrote about this topic back in 2016.

Part of me liked the idea, though mostly for punitive reasons.

…it wouldn’t be a bad idea. …locate some bureaucracies in the dodgy parts of cities such as Detroit. Especially departments such as HUD and HHS since they helped cause the economic misery in inner cities. And the Department of Education could be placed somewhere like Newark where government-run schools are such awful failures.

But I concluded it would be a bad idea.

Shouldn’t we focus on shutting down counterproductive bureaucracies rather than moving them? …If we move bureaucracies (whether they are necessary ones or useless ones), does that create the risk of giving other parts of the nation a “public-choice” incentive to lobby for big government since they’ll be recipients of federal largesse? Will we simply get duplication, meaning a new bureaucracy somewhere in America without ever really getting rid of the original bureaucracy in Washington, DC?

So I’m siding with Mr. Crews over Mr. Wanzek.

P.S. I’ve already identified bureaucracies that should be terminated.

Looking at this list, it reminds me that I need to make the case for the abolition of some other bureaucracies.

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The Bureaucrat Hall of Fame recognizes government employees who go above and beyond the call of duty in terms of getting over-paid or being under-worked.

Or both.

Adding insult to injury, many recipients of this award are employed by bureaucracies that shouldn’t even exist.

Today we’re going to look at the Oakland police department, which is a part of the government that presumably should exist (though Camden, NJ, shows that maybe we shouldn’t make that assumption).

The Oakland PD is notorious for being over-compensated, but one cop stands out.

Eric Boehm of Reason has the sordid details.

When Oakland, California, police officers are needed at Golden State Warriors basketball games and other special events, Malcolm Miller is the officer in charge of making those assignments. Often, he assigns himself. As a result, Miller has become one of the highest paid officers in the department. He’s earned nearly $2.5 million over the past five years—most of it overtime pay—according to data collected by Transparent California, a watchdog group.

What a scam.

It’s highly likely that Mr. Miller is a basketball fan, so he’s figured out a great racket.

He basically gets a big pile of money for going to the games.

He and his colleagues are making out like bandits.

…he’s hardly the only officer to take advantage of poor oversight and a general lack of accountability. According to the audit, 217 officers worked roughly 520 hours of overtime last year, helping to cost the department more than $30 million in overtime pay—about twice as much as had been budgeted. Over the past four years, overtime expenditures have ranged from $28 million to $31 million. Proper documentation of overtime work was lacking in 83 percent of cases, the auditors found.

Though Officer Miller might not be the worst of the group.

One officer was paid for more than 2,600 hours of overtime—equal to 108 days of round-the-clock work—in just a single year.

So how do cops get away with this scam?

Simple, they make sure to negotiate contracts that have sweetheart provisions that they can exploit.

And why does Oakland agree to such contracts?

Well, as Michael Ramirez illustrated, bureaucrat unions give lots of money to state and local politicians, and those politicians then conspire with the unions to give them contracts with the sweetheart provisions.

Let’s close by looking at an example of this kind of scam.

Perhaps the most stunning part of the audit is the explanation of a department-wide policy that allows Oakland cops to accrue 1.5 hours of “comp time” for every hour of overtime worked. When an officer cashes in that comp time and isn’t working, other officers have to work overtime to fill the gap. That creates a cascade of additional overtime pay—10 hours of overtime creates 15 hours of comp time, which some other cop has to work, earning 22.5 hours of comp time (if they’re also working overtime), and so on.

Here’s the accompanying illustration.

How ridiculous. Extra money for overtime, combined with being able to work fewer hours in the future. Which then gives other cops an opening to rack up more overtime pay.

Everyone wins…except for taxpayers.

P.S. Some bureaucrats earn admission to the Bureaucrats Hall of Fame by misbehaving. Often in very strange ways.

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When I gave readers an opportunity to select their favorite political cartoonist back in 2013, they picked Michael Ramirez.

And I can understand, given the excellent options that I shared (here, here, here, and here).

But I now think I overlooked his true masterpiece, at least if salience is an issue. The cartoon he produced on politicians and bureaucrat unions perfectly identifies the problem that has produced gaping fiscal shortfalls in so many states and communities.

Simply stated, politicians and bureaucrats have figured out how to gang up against taxpayers.

The Chicago Tribune recently opined on this horrific example.

…a controversial state law…allowed a lobbyist for the Illinois Federation of Teachers, David Piccioli, to become certified as a substitute teacher in December 2006 by working one day at a Springfield elementary school — and to buy pension credit for his 10 previous years working as a lobbyist. That sweet deal qualified him for a pension windfall from a teachers retirement fund that as of late 2018 carried an unfunded liability of more than $75 billion-with-a-B. Because he also draws a pension from a previous job as a House Democratic aide, Piccioli’s total pension income now rises to nearly $100,000.

Sadly, Illinois courts routinely acquiesce to this kind of scam.

…the court upheld a dubious loophole that allowed government employees who left those jobs to work for their union in the private sector to still qualify for a public pension — with payouts based on their much higher salaries in their union roles. One example: Former Chicago labor boss Dennis Gannon, who started out working for the city, was able to retire at age 50 with a city pension based on his union salary of at least $240,000. The Supreme Court upheld that arrangement too.

Perhaps those actually were correct legal decisions.

But, if so, that underscores my original point about politicians and bureaucrat union working together to fleece taxpayers.

This story underscores the unfairness of a system that provides much higher levels of compensation for government bureaucrats compared to those toiling in the economy’s productive sector.

But it also can be seen as a Exhibit A for why Illinois is a fiscal black hole. Which is, of course, why the state’s politicians are so anxious and determined to get rid of the state’s flat tax.

And this explains why productive people are leaving.

Needless to say, this won’t end well.

P.S. I’m not going to put Mr. Piccioli in the Bureaucrat Hall of Fame. That high honor is reserved for people who actually had government jobs for longer than one day (such as the Philadelphia bureaucrat who “earned” a $50,000 annual pension after being employed for just 2-1/2 years. As a consolation prize, I will instead offer him up as a potential candidate for Bureaucrat of the Year.

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I periodically will make use of “most depressing” in the title of a column when sharing bad news.

And new data from the Census Bureau definitely qualifies as bad news. It confirms what I’ve written about how the Washington region has become the richest part of America.

But the D.C. area didn’t become wealthy by producing value. Instead, it’s rolling in money because of overpaid bureaucrats, fat-cat lobbyists, sleazy politicians, beltway-bandit contractors, and other grifters who have figured out how to hitch a ride on the federal gravy train.

Anyhow, here’s a tweet with the bad news (at least if you’re a serf elsewhere in America who is paying taxes to keep Washington fat and happy).

Most of my friends who work for the federal government privately will admit that they are very fortunate.

But when I run into someone who denies that bureaucrats get above-market compensation, I simply share this data from the Labor Department. That usually shuts them up.

By the way, there’s strong evidence from the European Central Bank that overpaid bureaucrats have a negative impact on macroeconomic performance.

And the World Bank has produced a study showing how bureaucrats manipulate the political process.

…public sector workers are not just simply implementers of policies designed by the politicians in charge of supervising them — so called agents and principals, respectively. Public sector workers can have the power to influence whether politicians are elected, thereby influencing whether policies to improve service delivery are adopted and how they are implemented, if at all. This has implications for the quality of public services: if the main purpose of the relationship between politicians and public servants is not to deliver quality public services, but rather to share rents accruing from public office, then service delivery outcomes are likely to be poor.

Here’s my video explaining how bureaucrats are overpaid. It was filmed in 2010, so many of the numbers are now out-dated, but the arguments are just as strong today as they were back then.

But keep in mind that the bureaucracy is only one piece of the puzzle.

The D.C. metropolitan region is unjustly rich because of everyone else who has figured out how to divert taxpayer money into their pockets. That includes disgusting examples of Democrat sleaze and Republican sleaze.

Simply stated, Washington is riddled with rampant corruption as insiders get rich at our expense. No wonder many of them object to my license plate!

P.S. Here’s some data comparing the size and cost of bureaucracy in various nations.

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