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Archive for April 20th, 2011

Bureaucrat’s Salaries, Qualifications, and Incentives

Reading about the Agency-Expansion Hypothesis on pg. 343 I ran across the passage that shows how bureaucrats are “budget maximizers (footnote)”. Not only do they consciously and/or subconciously compete for larger budgets and de facto create a larger government (I would argue that this fact is isdisputable) than the United States had at inception, or even a hundred years ago, but recently they have been seeking to increase their own pay.

Growing up I always understood government jobs, or federal bureaucratic positions in our case, as extremely secure, stable, and relatively easier than private sector counterparts yet less financially lucrative. The rationale seems to be that because your job is easier, more secure, and offers enormous benefits  just for showing up to work every day (or only for 4 days a week as Utah recently decided) you may not have to be as qualified and hence receive less pay. This old model seems fair and predicts why the bureaucracy is inefficient–unmotivated workers being paid less than their more efficient counterparts in the market. I can live with that.

Today that is not the case however. Federal bureaucrats, in particular, are making salaries much higher than they used to be (even though their is an automatic graduate pay scale for government) and many statistics show them making more on average than private sector workers, before, even, their immense benifits.

Here is a link to an insightful Cato Institute, albeit it is conservative, article about the problems with overpaid bureaucrats.I highly recommend reading it (particularly the idea that having the best workers in government is an opportunity cost on the economy).

While I’ll let you look into the actual data yourself, I’d like to look at the effects and outline the benifits Federal employees receive, and i’ll conclude by analyzing how the incentives here are misaligned.

Federal Employees maintain the following: Comprehensive Health Care Coverage, 30+ combined paid sick, leave, and vacation days, huge retirement benefits, and a firing rate of only 1 in 5,000 non-defense workers(see Cato article).

With our status quo then wouldn’t it seem reasonable for the bureaucracies to actually be efficient? The combination of being paid better onaverage than any other sector, huge benefits, and incredible job security should be bringing the best, most skilled workers to government (if they are rational individuals). It appears  the bureaucracy is now occupying the worst of both worlds (unless of course you are a federal bureaucrat)–it is inefficient and expensively growing. The current incentives will facilitate faster expansion of government, less “real value” being added to the economy from private sector jobs lost to federal work as an unseen opportunity cost, and undeserving higher paid bureaucrats adding to the deficit. While I do believe the bureaucracy has a purpose (see my last post) something needs to be changed here.

Bureacracies are inefficient, but its government trying to make human nature more efficient.

In the case of the EPA, findings were delivered to that particular agency showing a correlation between carbon dioxide and the rising global temperatures. The state of Massachusetts and some other states then sue the EPA for not asserting jurisdiction. The EPA refused to regulate the emission of carbon dioxide, because of the vastness of the undertaking. Regulation of not just automobiles, but “… apartment buildings, large homes, schools, and hospitals…”. Maybe the EPA was hoping that a newer agency would be formed to handle that kind of work load, or out of the professional opinion of Administrator it just wasn’t something that could be budgeted right away.

Now, the agencies inefficiency comes from a lack of knowledge. If the EPA had known that carbon dioxide was going to be an issue maybe it could have started regulating from the agencies inception. Unfortunately, that information wasn’t available. Inefficeincy is a cost that comes from a lack of information. As humans we don’t have understand all of the consequences of our actions, and sometimes we are inefficient because of it. The real inefficiency happens when we are in flexible and try not to fix the problems with our mistakes. That’s why the EPA was in trouble. To the outsider, with his limited understanding of what was happening in the EPA’s minds, being the government of Massachusetts and others. Government is an organized effort to make collective action more efficient. As long as there is continued flexibility in changing in the government efficiency will follow.

Bureaucratic Incentives

Bureaucrats seem to be a source of inefficiency based on the reading and also our class discussion. After studying about incentives and rationality I really can’t understand why these positions exist in the way that they do. I understand that there needs to be delegation by congress in order for it to function in a proper manner; however, I really don’t understand why these positions aren’t opened up to the general public more often. Efficiency would demand this in certain circumstances but in others economies of scale would kick in to minimize costs for government agencies.

Last semester I had the privilege of writing a paper on the privatization of fleet services in Utah. It was interesting to see how certain agencies across the country actually applied competitive bidding in order to give bureaucrats incentives to reduce costs for fear of losing their jobs. In one example the mayor actually gave the bureaucratic agency a time horizon to become more efficient before he opened up the positions to the private sector. This incentive led the bureaucrats to cut back on “management costs” to the point that they underbid several private agencies.

If more pressure was applied by threat of privatization, I believe the bureaucrats would have the needed incentive to be more efficient. Another tactic that I read about that worked was profit sharing by bureaucratic agencies. One particular mayor proposed giving the workers and managers a certain percentage of saving back in the form of an annual bonus. This incentive increased efficiency drastically.

I know that the situations are a lot more complicated that this, but if the politicians really wanted to increase efficiency it could be done.

Read with a Grain of Salt, or whatever.

In class on Tuesday, our substitute said that the information he presented about the executive branch and the agencies was mostly explanatory and predictive.  More than knowing how we can fix anything, we can know how government currently operates, in practice not theory.  And yet hardly anyone argues that we can be basically satisfied with our government.

Stearns and Zywicki quote Anthony Downs that bureaucrats’ “views are based upon a ‘biased’ or exaggerated view of the importance of their own positions ‘in the cosmic scheme of things’” (363).  “In some settings, bureaucratic tunnel vision might create or exacerbate risks in one sector while seeking to eliminate or to reduce it in another.”  This is the same criticism often made of Congress–that representatives are tied so tightly to our interests that they sacrifice the national interest.  One suggested solution, though, to that problem is to extend the terms of Congress, or by some other means, render the Congress more insulated from us, the constituents.  But this describes the bureaucracy–insulated from the constituents.  So either way narrow interests are being pursued, sacrificing the greater public good.

It’s not a problem with bureaucrats, and it’s not a problem with our representatives that their ‘views are based upon a biased or exaggerated view of the importance of their own positions.’  That’s true of all people.  So maybe we can just be satisfied that government is representing us well–fickle, petty, and self-interested.  And benevolent–take Obama Care, for instance.

Agencies Are Inefficient

I agree with Brian503’s blog post. The major overlaying economic theme of this chapter is that bureaucracy is expensive. I think most of the political debates recently have been focusing on just how expensive bureaucracy has become. When the framers constructed the constitution they did not envision the huge administrative state that we have evolved into. When FDR created the new deal he did so in hopes of generating some economic growth. It is interesting how something that began as a mode of stimulating the economy has become one of the most expensive and inefficient aspects of our governmental system.

Brian 503 also pointed out that the chapter states that smaller agencies are more efficient than larger agencies. My first criticism is perhaps that there really is no such thing as a truly efficient agency. And I don’t necessarily agree that smaller agencies are more efficient. I think that in theory it sounds like it would be better to have fewer people working on a project and get rid of larger agencies. In practice perhaps this would create more confusion and miscommunications among not only the different agencies but also the individuals working in one agency. The confusion would only create more problems for the agency to solve that they would not have encountered before.

What’s an elected official to do?

All elected officials have two goals in mind.  One is that they really really REALLY, want to get re-elected.  Nobody want to go down in history as the one term congressman.  A measly two years in office doesn’t do much for ones reputation or their ego.  The second thing that elected officials want to do is to help the country.  You may call me crazy but I haven’t lost hope in our political leaders.  I don’t agree with many of their decisions but I choose to give them the benefit of the doubt and believe that it is what THEY think is best for the country.  The trouble comes when the two don’t go hand in hand.  When an elected official decides to pander to voters rather than do what would make the country better off we get in a huff and demand that we clean out the capital.  Same goes for when an elected official does the smarter thing and follows the rational economically smart thing rather than what you and I are clamering for.  We yell and scream and pout that their job is to do what we want them to do and they aren’t doing it so we should kick them out.

Either way it seems like politicians are stuck between a rock and a hard place, or on the horns of a dilemma.  Politicians don’t even have a third option of just not doing anything because the same results happen.  We kick them out saying they are wasting our time and money.  What is any rational thinking and self interested person supposed to do?  They do the only thing they can do, which is to upset the least amount of their constituents as possible, or to offend the same group each time.  By doing this, only a few people get upset about about their choices and they get reelected.  This thought popped into my mind while I was thinking about why the president seems to be more in favor of free trade and the congressman is not.  As the book says both have the same goals so why is there a difference?  The reason is that the president has a much larger constituency and can make choices that will upset more people than the congressman from the rural Midwest.  Lots of people will minimize the cost for the president so he can make right decisions for the country (like free-trade) and not have to worry too much about being run out of the white house in November.

Wait, libertarianism has costs too?!?

If government wants to maintain its existence, it has to create enough problems that its existence is justified in order to solve those problems. Yes, I know that not all problems come from government – government was instituted in the first place to address problems resulting from a lack of governance. But big government isn’t always necessary, and the bigger government becomes, the more it breeds irresponsibility, inefficiency, etc, which in turn necessitates more government. A great example of this is within our readings on page 365:

Bureaucrats are people too (shocking, I know), and people want jobs. People who have jobs generally would like to keep their jobs. So bureaucrats write “highly complex, detailed, and specific regulations” that require the ongoing services of the bureaucracy. This shouldn’t be anything shocking. If an agency were to adopt “more cost effective decentralized market-based schemes,” they’d be out of a job.

Wow. This presents a problem. How do we overcome such hurdles to reduce government? Has government ever gotten smaller? When was the last time an agency disappeared? I don’t know the answers to these questions. Off the top of my head, the only thing I can recall government doing is growing. It’s awfully hard to backtrack. While I sing the praises of deregulation, less government, freer markets, and libertarianism in general, can this actually be applied in our current world? And if we could all of a sudden reduce government, what would be the consequences?

“Is it possible that the zeal for deregulation will be applied without adequate consideration of the costs of removing regulatory protections already in place?” (Page 366)

Yes, my friends, there is even a cost to deregulation.

The Viscious Cycle of Finger Pointing

In my last blog I talked about the idea of voting and how when elections come around voters thought process should be about issues they believe in when determining who to vote for.  But over the years it has become seemingly less on the issues and more on just getting the current administration out of office.  I’m not saying that the issues aren’t there, just that the people are fed up with government in general and want any type of change.  In class on Tuesday we talked about an interesting idea on why we have agencies when we already have a government to do certain jobs.  They are there to do their job they were put in place to do of course, but also a way for government to expand law, and to be there to point the finger at when things don’t go as planned. 

It is an idea like this that has got me thinking about all governmental bodies and how in our system of legislation that is all you get, somebody to point the finger at.  I’m not trying to say that the government doesn’t play a necessary and important role in society.  In theory, our government doesn’t give any one person specific power over any situation.  I use the term “in theory” because there are countless examples of individuals wanting more power in government and doing their best to get it.  This makes it easy for a small number of people to make a decision but to put the blame on somebody else or onto a specific agency when it doesn’t work; look at the Iraq war for example.  Everybody in congress had the same paperwork to read about going to war in the first place with Iraq over weapons of mass destruction; the majority of congress voted to invade.  But when it came down to finding out that there were no WMD’s the president is the one that takes all the heat, along with people that voted to intervene providing a great deal of criticism. 

Situations like this happen all the time in government and it is these reasons why it is better to be the fixer of problems rather than the preventer of problems.  The preventer of problems goes unnoticed, while the fixer of problems can point the finger at previous administrations/agencies, ride in on the white horse and be the person portrayed as the one who saved the day.  It is reasons like this that I think voters have lost confidences in government, but they have brought it on themselves.  The people want that person that is going to come in and fix all the problems, that is who they are going to vote for.  They don’t care about what somebody has potentially prevented.  Most of the time that goes unnoticed and often times ridiculed , look at Bob Bennet with Y2K.  But then on the other hand you now have a media output coming from the government that consist of nothing but what is wrong in the government and things that need to get fixed, which in the end leaves the voter unconfident with their administrations.  This is one problem with society that I for one don’t see anybody riding in on a white horse and fixing.

The cost of bureaucracy

Reading through this chapter, I am only finding one overlaying economic theme. Bureaucracy is expensive, and inefficient. It is expensive when there are large agencies, and these large agencies are not very efficient. Part of the chapter states that the smaller the scope of the agency the more efficiently it can operate. This makes me wonder why we have very large agencies when there are clearly better ways to do accomplish the same goals. Is there a economic incentive to keep the agencies as large are they are? I don’t think so, if your still going to need the same number of people to get the same job done, you are not saving on any labor costs, and the only incentive I can see to keeping organizations so large is for the low cost of information sharing. So if you divide up the number of people in the larger organizations into smaller more focused ones, then you will see efficiency rise, this is because of many different reasons. Another unforeseen bonus to these smaller agencies, is that they will save time doing things, also they will save resources from being wasted on useless things. I think that the cost of these bureaucracies is very high, and that the government is throwing away a lot of money trying to keep them up and running. If they would break them down and make them more efficient everyone would win.

Why Congress Brings Home the Bacon Even Though it’s Bad for You

Under positive theories of delegation in chp. 6, the authors of Public Choice present three interesting points of view on agricultural subsidies by economists. One claims that the Pres. will not delegate enough power over agriculture to avail himself of bribing power to congressman who need the ag subsidies for constituents. Two claims that ag subsidies are as important for the Pres. as they are for congressmen.  Three states that the President is more careful with ag subsidies because government performance reflects more directly on him than it does on legislatures.  Stearns and Zwyicki then pose the question, “Can you explain why Presidents tend to be more supportive of free-trade than Congress?” I agree with the authors of both one and three, and say that there are several reasons to explain this phenomenon (all of which are my amateur observations).

I’m pretty sure that everyone in Washington took a beginning economics course somewhere along their road to glory.  They all know that government subsidies are an inefficient use of tax money, they throw off supply and demand in the market sense (meaning farmers want to grow corn because the government will pay them not because it’s needed), and decrease options for consumers.  They all know these things.  The difference is that if the President supports free-trade, he is more likely to receive a favorable economy, and thus more likely to get re-elected.  Those same voters however, are in charge of electing congressman.  Important primaries are held in mid-western and agricultural states, and you can bet that they will not support a candidate who will not promise those subsidies.  Those voters are ignorant, the candidates are not.  Even if they know it will not help the economy, Legislators will support subsidies out of self-interest to get re-elected.