“Freezing spending does nothing!”
by Steve Rathje on Friday, May 4, 2012 at 8:02am
Below is a piece I wrote as a Guest Column for the Cedar Rapids Gazette dated December 5, 2010. I’m reposting it due to its relevance after hearing comments made toward Gov. Romney and his role in doing what was necessary to ‘save’ companies while being employed by Bain Capital. After you read this piece, I think you’ll be asking yourself why some choose to belittle capitalism (however unintended), rather than explain as I have what really needs to be done. Gov. Romney did for Bain Capital exactly what my consulting firm does for some of it’s customers. When companies are going under and find themselves no longer able to compete in the ‘Free Market’ there are but a few choices to make, of which ‘no one’ wants to. I hope you’ll take a moment to read this and afterwards please drop a comment as I’d really like to know what you think.
On November 29th, President Obama announced that he was imposing a two-year freeze in the wages of federal employees, with the intention of saving $60 billion over the next 10 years.
Question; How does freezing wages at their current level actually provide a savings?
Answer; It doesn’t! To actually provide a ‘physical savings’ cuts not freezing, need to take place. Otherwise, what is being described as savings is merely, in all reality, preventative spending, two very separate things. This freeze as they call it is nothing more than a shell game to get taxpayers to believe that the government is serious about saving money and reducing spending.
Let’s look at this from a common sense point of view. Let’s say you own a company, and that company spends a million dollars a year on payroll, payroll that it can no longer afford. Do you freeze future wage increases to save or reduce capital expenditures? No! Rather, you cut current wages and benefits immediately while analyzing the necessity of the current labor force. All departments have to participate with unnecessary personnel from each department receiving a furlough. Duties are combined wherever possible. Feasibility studies are made to determine internal costs vs. subcontracted ones. Budgets are brought inline with revisions being made, and prices are cut to stimulate sales in order to boost profits and become economically solvent again.
Keep this in mind. The average wage of a federal employee is right at $100K p/year, that in and of itself is a recipe for disaster. Why, because federal employees produce nothing that can be sold at a profit. They are what we in business call indirect labor, that is labor that cannot pay for itself. This type of labor is what companies try to eliminate altogether or at the very least, keep to a bare minimum. Indirect labor merely adds to government overhead, which increases costs/taxes and doesn’t add anything to the GDP in the process.
Using 2009 numbers, which are more than likely, due to historical fact, the most accurate numbers we have that can be trusted, there are, as of January 2009, 2,748,978 civilian federal employees in the United States government. This is according to the Federal Employment Statistics published by the U.S. Office of Personnel Management. Employees with security agencies (CIA, NSA, etc) as well as the Military and National Imagery and Mapping Agency are not included in this number.
During this time, 97.6% of civilian federal employees worked in the executive branch of federal government with a total payroll that exceeded $275 billion per year.
So what should we do? First of all, let’s cut all federal employee wages, with the exception of the CIA, NSA, etc., as well as the Military, National Imagery and Mapping Agencies by 15% immediately. That in and of itself will save $41.235 Billion per year or $412.346 Billion over 10 years even if no reduction in federal employees ever takes place. In addition, all government pensions and benefits (except the aforementioned) must be reviewed and reduced to levels commensurate with industry standards. I would also strongly suggest a 25% reduction in federal employees once feasibility studies are completed by an independent agency or agencies, and a determination made as to how many federal jobs can actually be provided by private sector companies. Based once again on 2009 numbers, a 25% cut in personnel would reduce the number of federal employees by 687,244, with an income averaging $100K p/yr, reflects an annual savings of $68.724 Billion or $687.245 Billion over 10 years.
So to sum it up, reducing federal employees by 25% or 687,244, and immediately cutting the average wage by 15%, saves the American taxpayer $120.268 Billion p/yr or $1.203 Trillion over a 10 year period. Imagine the message that would send to friend and foe alike.
How many folks reading this article, have been laid off? How many of you have gone to work one day, only to find yourself being called into the office to receive a pink slip? No one, especially your employer, likes to be placed in this situation. But in order to remain in business and continue to produce a viable product to the public, drastic measures like these are unfortunately necessary.
We all know too well how the size of government directly affects the economic wellbeing of America. Government must be reduced wherever possible, spending must be reigned in and waste a thing of the past. The shell game that’s being played by our elected representatives must come to an end, because if it doesn’t, America as we know it will become nothing more than a pawn in a game of cat and mouse where there are no winners, only losers.