RSS Feed MenuI appeared on Larry Kudlow’s show last night and we had a bit of a tussle about how much deficit reduction could be achieved by cutting federal salaries.
Larry argued that a 5-10% pay cut for federal civilian employees like that imposed by Ireland could have a major impact on the federal budget deficit. (Larry was greatly influenced by this WSJ oped.)
I had come prepared to talk about a different subject, and so didn’t have the relevant figures at hand, but I suggested that his math sounded incredible. Looking it up this morning, it IS incredible.
While I could find no single source for the total budgetary cost of federal civilian pay, I did find this sophisticated calculation at this academic website.
The total annual cost of all federal civilian pay and benefits can be estimated at about $260 billion.
A 5% across the board pay cut would save no more than $13 billion , and in fact much less: remember, federal pay is unusually benefits-heavy.
To put it another way: even if we fired every single federal civil servant and shuttered the entire non-defense federal government, three-fourths of the budget deficit would still be with us.
Does this really come as news to Larry Kudlow, a very smart man and a former deputy to David Stockman at the Office of Management and Budget?
Chekote // Apr 8, 2010 at 6:33 pm
Interesting Chart summarizing why it is so politically difficult to cut spending
Why Cutting Spending Is Hard
ottovbvs // Apr 8, 2010 at 6:45 pm
Chekote // Apr 8, 2010 at 6:31 pm
“Do what I suggested and you may just be the next Madoff…. or Ottoff.”
……..you missed one fundamental difference…..I’m not the Federal govt nor was Madoff…..which is why the SEC (your go to source along with Reich is not issuing warrants)……until this simple but pivotal difference permeates your brain I’m afraid you will remain mired in your deeply simplistic comic book beliefs.
ottovbvs // Apr 8, 2010 at 6:48 pm
Chekote // Apr 8, 2010 at 6:33 pm
“Interesting Chart summarizing why it is so politically difficult to cut spending”
…..exactly…..and also why myths about small govt are total nonsense
balconesfault // Apr 8, 2010 at 6:56 pm
Social Security is only a Ponzi Scheme to the extent that the whole Federal Budget, operated on a perpetual deficit basis, could be viewed as a Ponzi Scheme.
As long as the government intends to pay benefits, your point #2 2) the money collected is being used for things other than what represented to the investors is no longer valid.
The American public – the investors in your presumed Ponzi Scheme – have been well aware (or at least they should have) that the money has being used in large part over the last 30 years to fund tax cuts. Presumably, given supply side economic that took over in 1981, with the idea that those tax cuts represented an investment that would recoup greater returns.
The investors have kept, by and large, electing officials who diverted money from Social Security. OK – the majority of Americans voted for the LockBox guy, but that’s besides the point. We have not demanded of our elected officials that they protect Social Security from being used to hide debt.
There was no subterfuge on the part of our elected officials – they did it right out in the open. Hell, Reagan enacted a huge tax cut, then when the damaging effects of the tax cut on the economy were becoming apparent, he pushed through a big increase in the Social Security payroll tax to offset the high bracket tax cuts he’d enacted. This was right out front and center.
We knew damn well what the tax cuts were being used for. They were used to buy magic beans – supply side economics – that would grow so much more money that the investment would repay itself many times over.
It’s not Social Security’s fault. It’s the politicians who couldn’t keep their hands off the money, the wealthy people who bought the politicians to funnel it to them, and the idiots who kept electing said politicians.
balconesfault // Apr 8, 2010 at 6:59 pm
By the way – I voted for the lockbox guy, even thought Saturday Night Live skits were making fun of him for it.
Did you?
ottovbvs // Apr 8, 2010 at 7:07 pm
balconesfault // Apr 8, 2010 at 6:56 pm
“It’s not Social Security’s fault. It’s the politicians who couldn’t keep their hands off the money, the wealthy people who bought the politicians to funnel it to them, and the idiots who kept electing said politicians”
…..Essentially true, but given that they’d have had to borrow the money from somewhere anyway at a higher coupon to fund the tax cuts, wars etc it actually made more sense to borrow it from their own citizens don’t you think?…….and yep I voted for the lock box guy because as he himself is alleged to have said “I can’t believe I’m loosing to this guy”
Chekote // Apr 8, 2010 at 7:11 pm
Otto
So you are saying that the federal government should be held to different standards? In your book, if the King does it then it is right since it is above the law. You are a Brit if I remember correctly and in Britain the government belongs to the Queen not the people. Not here babe.
Chekote // Apr 8, 2010 at 7:19 pm
Ottoff
You just gave me an idea. From now on I will advice broker dealers that as long as the SEC doesn’t prosecute them, it is not fraud. Thank you.
/sarc
ottovbvs // Apr 8, 2010 at 7:37 pm
Chekote // Apr 8, 2010 at 7:11 pm
Otto
“So you are saying that the federal government should be held to different standards? ”
…..No just that they are better source of credit than me or Bernie…..and of course the federal govt is constantly held to a different standard………..and as I explained above it was actually a better deal for the govt to borrow from it’s own citizens than the chinese…..the fact you’re reduced to all this nonsensical king and queen stuff and ‘advice to broker dealers’ reveals the essential silliness of your entire premise (and where did you get the idea I’m a brit, I’m married to one, lived there for awhile but that’s it)
Pouet // Apr 8, 2010 at 7:39 pm
How is it that Frum, who helped push these fairy tales through the media, is actually surprised that conservatives don’t know what they’re talking about?
ottovbvs // Apr 8, 2010 at 7:44 pm
Pouet // Apr 8, 2010 at 7:39 pm
“How is it that Frum, who helped push these fairy tales through the media, is actually surprised that conservatives don’t know what they’re talking about?”
…..Have to agree….he’s deeply complicit in the whole farrago of nonsense that came out of the Bush era.
Chekote // Apr 8, 2010 at 8:52 pm
Otto
Why can’t you admit that my characterization that Social Security functions like a Ponzi scheme was accurate? That doesn’t mean that the program is meritless. It doesn’t mean that you are wrong in saying that it makes more sense to borrow from citizens instead of the Chinese. It just means that it functions like a Ponzi scheme. For all your criticism of Republicans not been able to admit mistakes, you are just as bad. I have never seen you admit that you were wrong about anything. And you have said some pretty silly stuff.
Chekote // Apr 8, 2010 at 8:54 pm
How is it that Frum, who helped push these fairy tales through the media, is actually surprised that conservatives don’t know what they’re talking about?
That’s right. The conservative are all ignorant and stupid while the liberal/progressives are the only ones blessed with knowledge and intelligence.
/sarc
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ottovbvs // Apr 9, 2010 at 8:37 am
Chekote // Apr 8, 2010 at 8:52 pm
Otto
“Why can’t you admit that my characterization that Social Security functions like a Ponzi scheme was accurate?”
……..because it isn’t one……SS fails your test for a couple of reasons not least that it is not deliberately fraudulent as ponzis always are….I’ve pointed out to you several times every developed country in the world operates essentially similar programs the oldest going back to 1880’s Germany…..if our SS is a ponzi so are there’s……what you’re doing is produce a false continuum…..saying that because the way SS is financed bears superficial resemblances to how money is collected in a ponzi makes it the same thing…..it’s a bit like saying because organized religions share certain superficial characteristics with cults this makes the RC church no different from Scientology…….and I suppose silliness is in the eye of the beholder but if you’d like to tell me what I’ve said that is particularly silly I’ll respond because apart from a bit of levity aimed at the usual suspects I always try to stay grounded
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[...] Krugman: … Kudlow imagines that a pay cut for federal employees could have a huge impact on the deficit, when in [...]
Populist Resentment and Spreading the Misery « The Regimen // Apr 9, 2010 at 2:19 pm
[...] that cutting the pay of federal employees could significantly reduce deficit spending. (David Frum did the math, and concluded that a 5 percent cut across the board would save about $13 billion. A drop in the [...]
Pouet // Apr 9, 2010 at 6:17 pm
Chekote // Apr 8, 2010 at 8:54 pm
That’s right. The conservative are all ignorant and stupid while the liberal/progressives are the only ones blessed with knowledge and intelligence.
You missed the point of my post. Or, are you a liberal in disguise, trying to prove my point?
nhthinker // Apr 10, 2010 at 8:44 pm
I think Frum is inadvertantly pointing out that unlike the Irish government, the US federal budget is mostly about redistributing wealth to persons and private business instead of actually providing government services. That is what is incredible!
Chris Gaun // Apr 12, 2010 at 8:49 pm
Although the sentiment that you cannot eliminate the deficit simply by cutting the pay of public employees is absolutely correct, I feel that some might jump on a math error.
It might not apply to Kudlow’s argument, but naysayers will point out that one way to cut public wages is to, God forbid, fire a percentage of people. If this is the case then the math you used does not include the OpEx and CapEx that the goverment would save. If all the employees in a building were fired then we would also need to figure in the computer, electricity, building, etc. into the cost as well.
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