One of the major recurring themes in American society for the past few decades has been that “the federal government is too big” and that we need to “shrink the number of bureaucrats” in America. While endless words have been written along such lines, it’s rare that someone actually takes the time to sort through the facts of what is, and is not, the reality inside the federal workforce. Recently, however, John J. DiIulio, Jr. (a senior fellow at Brookings) did just that in a post on Brookings.com. His findings and insights should be required reading for all U.S. citizens, and especially for anyone concerned with how taxes actually get spent.

In his piece, DiIulio set out to answer three questions about the federal government:

  1. How much it spends
  2. How much it does, and
  3. How many people it employs

There is no doubt that Washington is spending more. As the author notes: “Since 1960, annual federal spending (adjusted for inflation) has increased about fivefold: it doubled between 1960 and 1975, and doubled again between 1975 and 2005.”

As for the second question, he is certain this there is more government now, much more, than ever before:

  • Seven new federal Cabinet agencies have been established since 1960—from Housing and Urban Development in 1965, to Homeland Security in 2002.
  • Dozens of new sub-Cabinet agencies were also established, like the Environmental Protection Agency in 1970 and the Federal Emergency Management Agency in 1979.
  • Batteries of new federal laws, regulations, and programs were enacted on issues that were virtually absent from the pre-1960 Federal policy agenda—crime, drug abuse, campaign finance, sexual orientation, gun control, school quality, occupational safety, the environment, health care insurance, and others.

 

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His analysis notes that “as federal spending increased five-fold, the number of pages in the Federal Register increased about six-fold to more than 80,000 small-print pages.”

With the increases in spending and regulatory output, it’s logical that the average American would expect a commensurate increase in the number of federal workers. Funny enough, that increase, notes DiIulio, is nowhere to be found. Indeed, he notes that the U.S. has had about the same number of federal worker for almost 60 years: 1.8 million in the Kennedy era and about 2.2 million when Reagan was elected — a total that had actually decreased by 200,000 at the time Obama came into office.

When Ronald Reagan was reelected in 1984, there were about 2.2 million bureaucrats—nearly 200,000 more than when Barack Obama was elected in 2008.Indeed, as the Wall Street Journal noted back in 2014, as a share of the total workforce, “the federal government’s share of civilian employment is the lowest since World War II.
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OK, so if we are spending more and regulating more, then who exactly is spending the money? The answer comes in three parts:

  1. State and local governments
  2. For-profit businesses
  3. Nonprofit organizations

 

1. State Proxies

As federal spending has increased, the people administering that spending are often employed at the state level.

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This “sub-national” workforce, as the author calls it, has exploded in line with the increase in federal grants to states. As the WSJ noted in the same piece:

Local governments, in particular, have boomed from 4 million employees in the 1950s to over 14 million today. In the mid-1950s, state governments employed half as many people as the federal government. Today, state governments employ nearly twice as many.

 

2. Contractor Proxies

Even more remarkable is the explosion in federal for-profit contractors living off government spending today.

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DiIulio gives a few examples but the Department of Defense case is a good representation:

the military-industrial complex that President Eisenhower warned Americans about in 1961 is today the massive Defense Department-private contractor complex.  Over the last nine years or so, the Department of Defense has had the full-time equivalent of about 700,000 to 800,000 federal civilian workers, plus the full-time equivalent of between 620,000 to 770,000 for-profit-contract employees—nearly one full-time contract employee for every DoD civilian bureaucrat.

In fact,  the government spends more on defense contractors than it does on its own employees ($250 billion for the latter versus about $350 million on the former).

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Chart: Brookings

The problem, however, is not limited to DOD, of course. As a 2011 report by the Project On Government Oversight noted:

In 33 of the 35 job classifications POGO looked at, the average contractor billing rate was significantly steeper than the average compensation for federal employees. The two jobs where it was more cost-effective to hire contractors were groundskeeper and medical records technician.  So when the White House needs its lawn mowed, it shouldn’t hire in-house. Still, in every other case, it was cheaper for the government do the job itself.

In some occupations, the difference in price was so dramatic, any coupon-clipping soccer mom could easily have seen the government was getting ripped off. When the government hired a claims examiner for example, it paid the contractor nearly five times more than if it had gone with a federal employee.

Indeed, quick glimpse at the top 100 IT vendors to the government has quite a few people-based business:

  • Booz-Allen: $3.4 billion
  • CSRA: $4.6 billion
  • SAIC: $2.5 billion
  • Accenture: $1.9 billion
  • Leidos $1.8 billion

These are companies whose employees are primarily proxies for missing government staff and who often spend the totality of their careers in proxy-government roles.

 

3. Non-Profit Proxies

As for the nonprofit sector, in 2012 it employed about 11 million people and reported more than $2 trillion in revenues to the IRS.

Of course, DiIulio does the math and presents his best estimate of what the real federally-supported workforce is:

  • With one-third of its revenues flowing from government, if only one-fifth of the 11 million nonprofit sector employees owe their jobs to federal or intergovernmental grant, contract, or fee funding, that’s 2.2 million workers.
  • As noted, the best for-profit contractor estimate is 7.5 million.
  • And the conservative sub-national government employee estimate is three million.
  • That’s 12.2 million in all, but let’s scale down to call it 12 million.
  • 12 million plus our good-old two million actual federal bureaucrats equals 14 million.
  • And how many were there back in 1960? The feds had some administrative proxies even then, maybe as many as two million, plus two million actual federal bureaucrats.
  • So, let’s call it 14 million in all today versus four million back when Ike was saying farewell.

 

So there you have it: as the author notes, the key takeaway from his analysis is “that ‘Big Government’ in America today is both debt-financed and proxy-administered.” This conclusion raises two important questions:

  • Why have we been ok with a national model that grows federal spending but not the federal workforce?
  • Is this model acceptable or does it post any risks in an of itself?

On the first question, the author is clear in his response. We are OK with this model because Americans, whatever they say publicly, love government handouts. However, they prefer to get those handouts not from Uncle Sam directly but by a proxy. This allows politicians to claim that they are controlling the “growth of government” by limiting the workforce while at the same time dishing out subsidies to their constituents via alternate channels. As DiIulio wryly notes: “Congress, the keystone of the Washington establishment, has spent half a century promising us that, so to speak, we can all go to heaven without needing to die first.”

The answer to the second question is a resounding yes, according to the author. The refusal to add more workers has left many government agencies understaffed and overwhelmed. He lists a few examples and their impact:

  • The short-staffed IRS fails to collect $400 million in taxes per-year.
  • The skeleton-staffed EPA has thousands of toxic waste sites that have been on the clean-up list forever, gives provisional approval to scores of pesticides that it has not the staff capacity to fully examine before allowing to go to market, and even at one point had to contract out a congressionally mandated report on what it should not contract out.
  • The SSA is losing a third of its veteran workforce at a moment when its beneficiary population is booming and its disability claims are exploding. Nearly 180,000 people visit SSA offices and another several hundred thousand call SSA offices each day, and within the next decade, the agency will disburse nearly $1.8 trillion per year!

Where does all this analysis leave us. Again, the author does not hold back in his conclusions. As he notes, there is plenty of blame to go around:

So, let’s not kid ourselves, or let politicians in either party or at either end of Pennsylvania Avenue, kid us:

  • America has over-leveraged, not limited, government. Our debt-financed and proxy-administered system has been growing for a half-century under both parties.
  • Freezing our federal workforce, which is the same size today as it was in 1960, will have no significant impact on federal spending.
  • To “drain the swamp” in Washington, D.C. would mean draining state and local governments, private contractors, nonprofit grantees, and middle-class entitlement beneficiaries like most Medicare beneficiaries.
  • Debt-financed, proxy-administered, poor-performing, American-style “Big Government” now represents about 40 percent of the nation’s GDP.

So there you have it. As a libertarian, I am strongly for reducing government spending, but to do so we must look beyond red herrings such as the size of the (directly-employed) government workforce. If we are serious about curbing all government spending and our national debt, the place to focus is not someone trying to do his or her job at the SSA or IRS, living with minimal wage increases while having to endure politicians telling them they are the problem. Rather, we need to at the massive flow of taxpayer money to the states, the government contracting industry and the not-for-profit sector, all of which have exploded in line with federal spending. As the author correctly points out, the real “Big Government” in America is sub-national and prefers to live in the shadows. Kudos to DiIulio and Brookings for reminding us of this fact.

 

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Posted by Carlos Alvarenga

Carlos Alvarenga is the Executive Director of World 50 ThinkLabs and an Adjunct Professor at the University of Maryland's Smith School of Business.

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