Tuesday, November 30, 2010

Draft Any Democrat 2012

Yesterday the White House announced that federal employees would not be eligible for raises as part of an effort to "tighten the government's belt" This pay freeze will cut an estimated $28 billion over the next five years, and is a continuation of the Obama administration's continuing efforts to deal with the deficit through executive action. In the words of the newly confirmed OMB director Jack Lew:
Already, the Administration has taken a number of steps in this regard as part of its Accountable Government Initiative from the President freezing the salaries for all senior White House officials and other top political appointees upon taking office to his efforts to get rid of $8 billion of excess federal real property over the next two years, reduce improper payments by $50 billion by the end of 2012, and freeze non-security spending for three years – which will bring non-security discretionary spending to its lowest level as a share of the economy in 50 years.
The Obama administration is working to eliminate fraud and waste in the budget. The common complaint in Washington is that no one pays attention to the M in OMB, but management is what former OMB Director Peter Orszag had been doing by getting agencies to tackle waste and root out fraud. The money saved through these programs had a loss for the economy; societally unacceptable fraudsters and inefficiencies soaked up a few billion dollars.

Halting raises to federal employees manages to cut exactly in the opposite direction. This is cutting spending in a way that hamstrings the effectiveness of federal agencies. Managers across the federal government will now lack the primary capitalist carrot for rewarding exemplary workers. Whereas the earlier programs provided incentives for federal workers to eliminate waste in their own departments with the promise of recognition, a raise, and a promotion, only pats on the back are left on the table. Freezing the pay of federal workers is a Republican idea, and an exceptionally bad one at that.

As the Obama administration kowtows to Congressional Republicans, he's withdrawing $28 billion from the pockets of federal employees, directly reducing their power to consume goods and services. The $28 billion in lost consumption may be a small drop in the US economic bucket, but this is in keeping with the Obama Administration's failure to heed Keynesian economic advice in favor of politically easy Hooverism. Lew's statement says it all: the White House is bragging that in the middle of the worst economic downturn since the Great Depression, domestic spending has reached its lowest point since 1960. Most of the American Reinvestment and Recovery Act money went to either states to patch holes in their budgets or into middle class pockets via the Obama tax cuts. Only a third of it went towards Keynesian stimulus. State aid is incredibly important. It prevents massive disruptions in the economy and governance, but it's not stimulus. Tax cuts for the middle class are popular, bu they are less effective at putting people to work than hiring citizens to build trails, libraries, schools, and housing.

If the Obama administration wants to act like a 1930s Republican, they should expect a primary from the Democratic wing of the Democratic party.

Update: It turns out that the pay freeze won't affect performance based bonuses so the federal workforce will still be laboring away for merit-based incentives. That's at least a good sign that Obama understands management, even if he has no clue on how to effectively negotiate with nihilists.

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