Tag: bureaucracy

The Fatal Conceit Continues

President Barack Obama recently sat down with the Today Show’s Ann Curry to discuss jobs and private sector hiring.  Curry asked him why during a time of “record profits” for corporations they had only spent 2% more toward hiring new workers but 26% percent more on new equipment.

Obama explained how structural economic changes have shifted businesses toward using more equipment and technology, explaining how “businesses have learned to be more efficient with fewer workers” in response to the recession. He provided some examples: “You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

Much coverage of the interview falsely claimed that Obama blamed technology, or ATMs for high unemployment. This is simply untrue. He did not claim that technology is driving unemployment, but instead that employment is changing as technology increases the productivity of labor.

The interview did reveal that his alleged solution to the problem is more government control of the economy, administered by a panel of experts: “What we have to do now, and this is what the jobs council is all about, is identifying where the jobs for the future are going to be, how do we make sure that there’s a match between what people are getting trained for and the jobs that exist, how do we make sure that capital is flowing in those places with the greatest opportunity.” This may sound good in theory, yet the question remains: how does he know where the jobs of the future are going to be, and how can he determine which job training will prove most valuable, and how can he know which areas have the greatest opportunity, and how can he know where to send capital?

It is not likely that the President’s Council on Jobs and Competitiveness, made up of about two dozen bright and capable business men and women, will have sufficient knowledge either to determine where capital should flow or where the future jobs will be, or what job training will be best rewarded. Private investors, risking their own capital, cannot consistently predict what markets will succeed or which technologies will flourish. How can we expect a council of political appointees wagering other people’s money to do any better?

Nobel laureate FA Hayek discussed the problems associated with central economic planning in his seminal American Economic Review article, “The Use of Knowledge in Society” and in his book The Fatal Conceit. Hayek argued that the economy is a very complex system, fueled by the knowledge and actions of millions of independent actors. Hayek warned that any plan to centrally control production would be doomed to inevitable failure because central planners lack sufficient information to ensure that supply equals demand in every market in the economy. The abysmal standard of living and collapse of the Soviet Union validated Hayek’s theory of the impossibility of planning something as complex as a country’s economy.

Clearly, Obama is not suggesting anything nearly as extreme as centrally planned production. Nevertheless, President Obama makes his assumptions clear in this interview that he believes this jobs council holds the capacity to gain sufficient knowledge to help guide capital investments and encourage job creation in the areas they identify. Instead of having our President and a few smart individuals making decisions with limited information, we could allow the market mechanism, made up of millions of individual decision markers, to transmit the information and knowledge necessary for market actors to guide capital appropriately.

For President Obama to assume that he and or his council have the knowledge sufficient to make these determinations is a fatal conceit.

Turns out State Schooling Isn’t Communist after all…

Albert Shanker, long-time head of the American Federation of Teachers union, said back in 1989 that:

It’s time to admit that public education operates like a planned economy, a bureaucratic system in which everybody’s role is spelled out in advance and there are few incentives for innovation and productivity. It’s no surprise that our school system doesn’t improve: it more resembles the communist economy than our own market economy.

But hang on a minute! Doesn’t the following description sound a lot like the work rules in our public schools:

Promotion was determined by the Table of Ranks…. An official could hold only those posts at or below his own personal rank…. [S]tandard intervals were set for promotion: one rank every three years from ranks 14 to 8; and one every four years from ranks 8 to 5…. This meant that, barring some heinous sin, even the most average bureaucrat could expect to rise automatically with age…. The system encouraged … time-serving mediocrity

That, ladies and gentleman, is not a description of the work rules of the communist-era Russian bureaucracy. It describes the rules in the Tsarist Russian bureaucracy (see Orlando Figes, “A People’s Tragedy,” p. 36).

The funny thing is, according to Figes, “By the end of the [19th] century, however, this system of automatic advancement was falling into disuse as merit became more important than age.”

So the modern U.S. system for promoting public school teachers was discarded as inefficient and unworkable… by the Tsars.

Everything You Need to Know about Whether State and Local Bureaucrats Are Over-Compensated, in One Chart

The showdown in Wisconsin has generated competing claims about whether state and local government bureaucrats are paid too much or paid too little compared to their private sector counterparts.

The data on total compensation clearly show a big advantage for state and local bureaucrats, largely because of lavish benefits (which is the problem that  Governor Walker in Wisconsin is trying to fix). But the government unions argue that any advantage they receive disappears after the data is adjusted for factors such as education.

This is a fair point, so we need to find some objective measure that neutralizes all the possible differences. Fortunately, the Bureau of Labor Statistics has a Job Openings and Labor Turnover Survey, and this “JOLTS” data includes a measure of how often workers voluntarily leave job, and we can examine this data for different parts of the workforce.

Every labor economist, right or left, will agree that higher “quit rates” are much more likely in sectors that are underpaid and lower levels are much more likely in sectors where compensation is generous.

Not surprisingly, this data shows state and local bureaucrats are living on Easy Street. As the chart illustrates, private sector workers are more than three times as likely to quit their jobs.


This helps explain why the unions are treating the Wisconsin debate as if it was Custer’s Last Stand. The bureaucrats know they have comfortable sinecures and they are fighting to preserve their unfair privileges.

The only bit of semi-good news for Wisconsin taxpayers is that state and local bureaucrats are not as lavishly over-compensated as federal bureaucrats.

This Center for Freedom and Prosperity video looks at all of the data and reveals a pecking order. Federal bureaucrats are at the kings and queens of compensation. State and local bureaucrats are like the nobility. And private sector taxpayers are the serfs that worker harder and earn less, but nonetheless finance the entire racket.

The video closes with a very important point that the right pay level for many bureaucrats is zero. This is because they work for programs, departments, and agencies that should not exist.

This Week in Government Failure

Over at Downsizing Government, we focused on the following issues this week:

  • Taxpayers received a rare, albeit small and temporary, victory when a pork-laden omnibus bill died in the Senate. We’re now about to find out how serious Republicans are about cutting spending.
  • Chris Edwards looks at breastfeeding and argues that bigger isn’t better when it comes to subsidies.
  • “The nearest earthly approach to immortality is a bureau of the federal government.”
  • Former President George W. Bush defends his abysmal spending record in his book Decision Points. Upon further review, perhaps the book should be retitled Deception Points.
  • A new Cato essay discusses the problems of the U.S. Postal Service and concludes that taxpayers, consumers, and the broader economy would stand to gain with reforms to privatize the USPS and open mail delivery up to competition.

Government Program Immortality

Who said: “A government bureau is the nearest thing to eternal life we’ll ever see on this earth.”?

As political junkies know, that was Ronald Reagan at the 1964 Republican convention. The Internet attributes other similar quips to Reagan.

Reagan apparently borrowed the idea from Senator James F. Byrnes, who stated on the floor of the Senate in 1933: “The nearest earthly approach to immortality is a bureau of the federal government.”

My source is “Reorganization of Federal Administrative Agencies,” Congressional Quarterly, September 17, 1933. The article is a reminder that concerns about government waste, duplication, overlap, and inefficiency certainly did not start with Reagan. Government failure has been around a long time.

The CQ article notes that the 1932 Democratic platform called for “an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance, to accomplish a saving of not less than 25 percent in the cost of the federal government.”

Alas, that leaner-government policy was not exactly the approach followed by FDR.

Wikileaks Sheds Light on Government Ineptitude

For years I have told anybody who would listen how U.S. efforts to stabilize Afghanistan contribute to Pakistan’s slow-motion collapse. Well it appears that my take on the situation was not so over-the-top. Amid some 250,000 confidential diplomatic cables released by online whistleblower Wikileaks, former U.S. ambassador to Pakistan Anne W. Patterson warned in cable traffic that U.S. policy in South Asia “risks destabilizing the Pakistani state, alienating both the civilian government and the military leadership, and provoking a broader governance crisis without finally achieving the goal.”

On one level, this cable underscores what a disaster American foreign policy has become. But on another level, the leak of this and other cables strikes me as completely odd and slightly scary. How did Pfc. Bradley Manning, who stands accused of stealing the classified files from Siprnet and handing them to Wikileaks founder Julian Assange, obtain access to these files in the first place? How does a young, low-level Army intelligence analyst gain access to a computer with hundreds of thousands of classified documents from all over the world?

After 9/11, the government made an effort to link up separate archives of government information. In theory, anyone in the State Department or the U.S. military can access these archives if he has: (1) a computer connected to Siprnet, and (2) a “secret” security clearance. As Manning told a fellow hacker: “I would come in with music on a CD-RW labeled with something like ‘Lady Gaga’ … erase the music … then write a compressed split file. No one suspected a thing… [I] listened and lip-synched to Lady Gaga’s ‘Telephone’ while exfiltrating possibly the largest data spillage in American history.” Manning said he “had unprecedented access to classified networks 14 hours a day 7 days a week for 8+ months.”

I’m all for less government secrecy, particularly when U.S. officials are doing bizarre things like tabulating the biometric data of various UN officials, the heads of other international institutions, and African heads of state. That these supposedly “confidential” communications were so easily leaked highlights the appalling ineptitude of our unwieldy national security bureaucracy. Indeed, the phenomenon of Wikileaks says as much about government policy as it does about government incompetence.

Russian Government Announces 20 Percent Reduction in Number of Bureaucrats

I’ve already commented on Cuba’s surprising announcement to slash the number of government workers. And I’ve complained about the federal workforce expanding in the United States. This is not what one would expect when comparing policy developments in a communist nation and a (supposedly) capitalist nation. Well, Russia wisely is following the Cuban approach on this issue (I never thought I would type those words!) and plans to get rid of 100,000 bureaucrats over the next three years.
Russia will cut its army of bureaucrats by more than 100,000 within the next three years, saving 43 billion rubles ($1.5 billion), Finance Minister Alexei Kudrin said on Monday. “We assume more than 100,000 federal state civil jobs will be cut within three years. The government has already included a schedule for cutting the number of federal civil servants in the draft budget for the next three years and coordinated it with ministries and agencies,” Kudrin told President Dmitry Medvedev, who in June ordered a 20 percent cut in the number of bureaucrats. Under the government plan, ministries and agencies will have to sack five percent of their staff in 2011 and 2012, and 10 percent in 2013. …In the last three years, the number of bureaucrats in the federal government had increased by nearly 20,000, in regional governments by 60,000 and at municipalities by 50,000, he said.