Running Out of Other People's Money

from the Striker Report:

USA Today recently reported that the number of federal employees making salaries of $100,000 or more increased from 14% to nearly 20% of civil servants in the first year and a half of the recession. The average federal worker's pay is now $71,206, compared with $40,331 in the private sector, according to the article.

These numbers seem likely to arouse taxpayer ire, at least among workers in the private sector.

The Obama Administration has countered these charges by observing that federal civilian workers are on average better educated then their private sector counterparts. By some estimates twenty percent of federal workers have a master's, professional or doctorate degree, compared with only 13 percent in the private sector.

Nevertheless, job growth in government has far exceeded that of the private sphere even as federal and state deficits have soared. In fact, the U.S. private sector has shed over 200,000 jobs in the last decade, while government employment has expanded.

British Prime Minister Margaret Thatcher once famously observed that "the trouble with socialism is that sooner or later you run out of other people's money to spend".

While the American economic system is currently far from socialism, the trend toward increasing public domination of the economy will likely give pause to advocates of private enterprise.

Some economists have become concerned that Washington�s policies may be 'crowding out' private investment; after all, why should banks loan money to risky private businesses when they can park it at the Fed and receive a safe rate of interest?

Business Week's Adrian Slywotsky has written that of the 130 million or so jobs currently in the U.S., only 20% pay more than $60,000 a year, while the other 80% pay an average of $33,000.

Meanwhile, the number of Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, according to USA Today.

This brings us back to Mrs. Thatcher's question: where is the money going to come from to pay for the expanding Federal and state payrolls?

The problem is compounded by health care and pension issues.

California Governor Arnold Schwarzenegger recently told the Sacramento Press Club that over the last 10 years, state pension costs have gone up by 2,000 percent from $150 million per year to $3 billion a year, not including health care costs.

What's more, the number of public employees in California collecting $100,000-plus pensions has risen from about 2,500 in 2004 to 15,000 currently. State Treasurer Bill Lockyer told lawmakers they needed to reform the pension system or face bankruptcy.

A further concern is the composition of the public expenditures; California taxpayers are on pace to spend more on incarceration then on public universities by 2012.

California is hardly alone in its budget woes. A study by the Pew Charitable Trusts found that U.S. states in general have promised at least $2.73 trillion in pension, health care and other retirement benefits for public employees over the next three decades. While the study showed that the states have saved enough to cover 85% of this amount, they have only enough to cover 3% of the health care and non-pension benefits, and are still short $731 billion.

One possible clue to the origins of these shortfalls may be found in the changing nature of unionization. According to the Fresno Bee, the number of union members in the public sector exceeded their private-sector counterparts for the first time last year, while unions nationwide lost 10 percent of their private-sector members, the largest drop in more than 25 years.

Given the disparities in hiring, benefits and pay, it's becoming increasingly hard to see why workers would choose the private sector over the public, a trend that does not bode well for private industry in the United States.