StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Bowles-Simpson Deficit Reduction Plan Doesn't Add Up

11 Nov 2010
Posted by Stan Collender

I decided to wait 24 hours for the dust and the entirely predictable massive overreaction to specific proposals to settle down a bit before commenting on the deficit reduction plan released yesterday by commission co-chairs Erskine Bowles and Alan Simpson. 

My assessment: The plan definitely...and maddeningly...doesn't add up.

What Bowles and Simpson released was really nothing more than their own version of the annual report the Congressional Budget Office publishes on deficit reduction options.  It's the co-chairs laundry list of spending and revenue alternatives. But, for the most part, it's not a coherent plan that embodies a vision of what the government should be and do to match the fiscal constraints.

For example...The plan calls for a substantial reduction in federal employees.  A reduction in employees generally results in the government relying on more outside consultants to get the work done but, in addition to the recommended reductions-in-force, Bowles-Simpson also calls for a significant cuts in the use of contractors.

The combination of those two seems to indicate that the now smaller number of federal employees will have to do everything that was done before, that is, that they will have to be much more productive. But Bowles-Simpson also calls for a three-year freeze on federal employee salaries and that almost inevitably means an increasing number of federal workers will quit.   That will reduce rather than increase productivity as new and less experienced workers replace the more senior folks who will have left for greener pastures.

In other words, Bowles-Simpson projects substantial savings based on the expectation that a less experienced and much smaller federal workforce will be more productive and just as effective than the more experienced and larger workforce it replaces.  That makes absolutely no sense.

Bowles-Simpson seems to have been put together backwards.  Instead of starting with a plan about what the federal government should no longer do and then determining the savings from the smaller number of employees that would be needed to do what's left to be done, with limited exceptions the plan focuses on the reduced workforce but makes few assumptions, suggestions, or recommendations about what services the government should no longer provide.  The assumptions it does make don't appear to justify the cuts in the number of employees and contractors.

The type of proposals that are needed are: Should the government stop prosecuting and jailing as many criminals and should the sentences be shorter for those it convicts?  Should it fund less or no research on cancer and similar diseases?  Should the FBI no longer investigate white collar crime?  Should the military not be prepared to conduct as many operations?  Should veterans health care be eliminated?

I also find it hard to understand where the $3 billion annual reduction in farm subsidies comes from.  Is this a partial decision to get the federal government out of that business?  If subsidies to farmers are being cut, is that based on a decision to stop providing subsidies to all industries?  If not, what's the justification for singling out farmers?

Bowles-Simpson also doesn't add up because it relies on a variety of what in the past would have been ridiculed as budget gimmicks, such as mandating limits on certain costs without providing any real way of actually making that happen. 

The most egregious gimmick, however, and the one that is a clear golden oldie in the federal budgeting world, is assuming $11 billion in annual savings from domestic discretionary spending by creating a committee to recommend the cuts.  This is nothing more than a modern-day version of the magic asterisk in unspecified future savings that David Stockman and Dick Darman relied on in 1981 to make the numbers in Ronald Reagan's first budget work.

Without this vision, without embodying an overarching concept for what the government should no longer do, Bowles-Simpson is just a series of one-off proposals that are a plan only in the sense that they are listed in the same document. 

That makes each proposal relatively easy to criticize individually...exactly what's happened since the plan was released.

I love this analysis. Is the

I love this analysis. Is the concept that with fewer employees, fewer contractors, and lower pay, the government might actually do less so radical it cannot even be considered? Once you introduce that concept the proposal hangs together rather well.


Not Radical, Bass Ackwards

The question is:
what, specifically,
will/should government be doing less of?
Simpson-Bowles doesn't say,
or at least what little they do say
doesn't add up to a 10% head count reduction
+ fewer contractors
at lower pay
and lower productivity.

Alternately,
if the less the government is to do
is not much more than what is proposed,
then how does a smaller,
less experienced,
demotivated,
work force
achieve the necessary productivity gains
to execute the expected
governmental work load?
Magic?

So what do you propose?

The proposal doesn't hang together at all
until/unless those questions are answered.
Like many parts of their 'plan'.

Punting on answering the question
is almost as big a punt
as the mystical *and then magic happens*
at the center of their Medicaid/Medicare
non-proposal(s).
Wish I could balance budgets
with magical assumptions
instead of real dollars, too.
My mortgage company
might not appreciate it, tho.

Simpson-Bowles = punting prestidigitators.

Old adage remains true:
Assumptions
make an ass
of u and me.

Moreover,
the broader point was about
what a deficit reduction plan
ought to be and/or
how it should be constructed.
Wish lists
are not plans.
A real deficit reduction plan
should start with deciding
what things government
should not do any longer.

Priorities first,
what works, what doesn't,
what doesn't HAVE to be done,
and what still does.
Then - and only then -
can anyone determine
head count & contractor & productivity
requirements.

Also, consider secondary effects:
how do an additional 443,000
unemployed people
(not counting contractors)
help with job growth?

Job uncertainty
is the primary driver
of reduced aggregate demand
which in turn is the primary driver
of reduced business investment.

$1.8+ trillion of corporate cash
still sitting on balance sheets,
and trillions more
in excess reserves,
large chinks of which
would surely be used
to create productive capacity
and increase workforce
if businesses saw the demand
or banks the opportunity
to lend at higher returns
than de minimus yielding Treasuries.

This part of plan
seems like recipe
for sticky high unemployment
and anemic GDP growth.
Perhaps because mandate exceeded?
How does capping government revenues/receipts
contribute to deficit reduction, per se?
It doesn't.
It does, however,
resurrect the old "Starve the Beast" canard.
How'd that work out for
Ronnie Raygun's deficit?


Monkeys Throwing Darts (With Apologies to Monkeys)

...could have come up with a better plan. Any "bipartisan" plan, in theory, would suggest ideas that work within the current government structure. This reeks of a teabag-type approach. Until WHERE the debt came from is acknowledged, no meaningful plan can happen.


Krugman

Krugman claims the long term savings depend on unspecified cost controls on health care. If true this report is a fraud and we are being conned. Can you comment on that claim?


Increased User Fees is One Option Not Mentioned

A number of Federal agencies rely on industry paid user fees to partially fund activities. I suspect that we will begin seeing these increase if there is a serious attempt to cut the Federal payroll. The pharmaceutical industry already pays about 65% of the FDA's review budget; why not 100%? I'm not saying this is necessarily good policy but it is fiscally pragmatic to force the uses to pay the full freight. Out sourcing of key activities is likely not to be cheap in the long run and runs into a myriad of other problems. Everyone likes to think that Federal payroll can be squeezed but they haven't looked closely to see what the consequences might be.


Magic asterisk

I had that reaction too when I read their chart of cuts. If the Bush Tax cuts dies, however, the only real need for a commission is to do something about Social Security by 2030 or so - and raising the amount of income subject to tax takes care of that problem in the medium term.


And can anybody

tell me why Erskine Bowles, the former SBA Administrator, threw the SBA into Commerce? That one is so old, so hairy and so pointless as to not even seemingly have been noticed.


That's how it works in the private sector, why not government?

Yes, you can reduce the federal workforce and get increased productivity.

In 2008, my company had 26 employees, 2 contractors, and $6.3 million in revenue. Then we canceled the contractors and laid off 15 people. In 2009, my company had 11 employees, no contractors, and $5 million in revenue. So reduction in force produced a doubling of productivity. Nearly all private employers experience a less dramatic version of the same thing when they do layoffs. So can government.

I agree that government probably can't do exactly what it does now with a much smaller workforce. But if private sector experience is any guide, it can do nearly everything of real value that it does now.


Collender is Wrong

As part of the oft maligned federal government I regretfully must admit that we earn our poor reputation. Mr. Collender says that some work will have to be undone if their are mass layoffs of both the civilian and contractor workforce. This would be so if those that are laid off are doing something presently and thus their absence would leave something undone. Unfortunately for the taxpayer this is all to often not the case. Job security is practically ironclad once you leave the realm of the SES. And even at the higher ranks what happens is people will get shuffled around. In my office the Director's way of getting around canning a branch chief is to create a new branch of one for them. They keep the title, pay, and lose the responsibility. I think if you made firing easier, undid some of the wage compression at the top, you could get enhanced productivity out of the federal workforce. This is not to say that there are not dedicated federal employees. They are legion, but they just happen to be carrying an obscene amount of deadweight.


'waste & fraud'

I doubt if Collender thinks that there is no "waste and fraud" in government. Rather, he recognises what you don't---that just about every politician that has ever been elected has campaigned against bureaucratic "waste and fraud", and found that little or nothing can be done about it.


waste and fraud

"Rather, he recognises what you don't---that just about every politician that has ever been elected has campaigned against bureaucratic "waste and fraud", and found that little or nothing can be done about it."

Politicians routinely campaign as if reducing waste, fraud and abuse were a silver bullet to the deficit wows. This is obviously false. However, serious savings can be made. I never get this notion that some seem to have that savings are impossible, that the federal workforce doesn't have an ounce of fat, as if it were the leanest, most efficient workforce ever to grace the face of the earth. This defies reason.

I would argue that sometimes less is more. Working in an office with people who don't do anything, who you have to beg and plead to do their job, can be dispiriting and a waste of time. At the margins the bad apples contaminate the good apples not the other way around.


Lowering health care costs

End Medicare for everyone under 35 right now, and offer reduced coverage for everyone up to 55. Start taxing health insurance plans paid for by an employer as regular income. Let every single American use a health savings plan. Let Americans buy insurance across state lines. Do not require doctors to accept any insurance, government or private.

We must remove the disconnect between medical care and cost experienced by individual Americans. Until Americans realize how much medical care actually costs you will never see the cost of care decrease.

All of so-called proposals are shams.


Agreed

I agree 100% with everything the previous commenter says.


Anti-trust

Don't allow people to buy insurance across state lines. That will just undermine state regulations and start a rush to the bottom like in the credit card industry. If you want more competition, get rid of the anti-trust exemption for insurance companies.


So, you think the problem is people enjoy getting healthcare?

Knock on wood, I have good health (currently), haven't been to a doctor in almost 2 years and that was for some kind of flu and I didn't even get an antibiotic (which was disappointing). I am happy to say that I even donate blood every 2 months.

But I could be diagnosed with leukemia tomorrow and have to spend a month in a bone marrow unit. The bills would be over $300,000 (but my insurance company's negotiated rates would bring it down to about $80,000). All that healthcare would be a horrible, terrifying experience and I would have no control over the costs. I know all this from experience being a family member of a leukemia patient. I'd have several emergency room trips, too, several of which would turn out to be not medically necessary but several others would be the difference between life and death because something was very wrong. How do you know the difference? I know of one family where the mother died from loss of blood leading to a heart attack shortly after the leukemia diagnosis. She had not gotten treatment soon enough because it wasn't diagnosed by the family doctor who did not even take a blood test. If only she'd gone to an emergency room sooner, because they always take a blood test.

How will you save money where it really adds up, very sick people, unless you're going to discourage them from getting treatment by high deductibles and other financial sticks? And then a lot of them will most likely die.

Believe me, it could be any of us or our loved ones.


I agree with whuh. The

I agree with whuh. The previous commentators ignored the primary motivation for reform: Getting every citizen decent health care.

As for being able to do this and save money. Has anyone heard of Europe?


If you believe that the

If you believe that the 'large' government workforce is productive and effective, you must be smoking medical marijuana.


Not much value added...

If the substance of the conversation is "big government sucks," I can't see that that helps in making specific choices about how to close the deficit.

I think Stan's right: a big part of the question is "what would you stop doing?" Saying you'll do double-sided copying is not going to cut it.

And every private sector firm knows that it can cut people and temporarily raise productivity. But if market conditions don't improve, you place a tremendous load on those that stay, and you run a big risk of degraded quality work and the best people leaving as soon as the market picks up.

As for healthcare: you can comparison shop for a car, and if you want to buy something a bit cheaper and you're satisfied, good luck. If you're not satisfied, you can trade it in in a while, no long term harm done. If you comparison shop for elective surgery (for example knee operations), you'd better be sure you're getting the very best quality as well - because if you don't, it's yours for life.


Agencies will 'tighten their belts'?

What Collender misses is that the cuts are not backwards. It has long been a tenet of low-tax, low-regulation, pro-business libertarians that you start with the administrative cuts before you decide which functions of the federal government are priorities. What they have said for years is that, just like a business that has its investors come in and make a 30% cut, federal agencies be forced to find a way to deliver the same programs and services to American citizens and businesses at 30% less cost. They truly believe there not only is 30% waste but that it will naturally be "washed out" once a much lower admin budget forces agency managers to make those tough calls.


Public and private bureaucracies

What's the basis for assuming that public bureacracies are less productive or more inefficient that big private bureaucracies? I don't deny for a minute that process improvements, etc., aren't possible in both arenas. But it would be helpful to stop demonizing the public sector and lionizing the private sector.

In terms of bureaucratic efficiency, I have no idea of how Citigroup compares to the SEC. The SEC has never been bailed out and I think it has made a profit on recent occasions, that it is not allowed to keep (or pay out in executive compensation). I know the Blackwater guys were a great deal more expensive that their military counterparts (at least in terms of direct compensation). I have no idea if the average healthcare company's staff is more or less productive per capita than the staff of the FDA. Are the private security guards on the Walmart payroll better or worse than TSA employees? A Weyerhauser timber cruiser vs. a U.S. Forest Service ranger?

Beats me.

But I do know this. This is not where the money is. It is a side show in terms of deficit reduction.

If you care about deficits (and I'm not sure I do) the current problem is a revenue collapse, not out of control spending. So, true fans of deficit reduction should embrace the Churchillian injunction to tax, tax, and tax more until we hear the pips squeak. I believe that was in reference to some kind of levy on oranges.


Where the Money Is

The Money is in SS, Medicare, Defense, Medicaid, Tax Expenditures, and raising tax rates. You will get most of the way from these but not all the way and that is why you will have to find money elsewhere. Firing the least productive federal workers is a relatively costless way of producing savings so long as you don't simply replace them with contractors. Again, I don't understand this but firing someone who doesn't do anything or not much of anything doesn't cost you.


Simple Solution to Deficit

Congress and the president shall receive "no raises" as long as Social Security COLA is refused and jobs for Americans continue to be threatened!

The RICH should pay their fair share of taxes; both FICA and Income tax!
Corporations should pay a high tax for every job sent out of the US, and their imports should be heavily taxed. Make it cost prohibitive for them to outsource jobs and do business in foreign countries. After all, our tax dollars are helping to pay the bill for outsourcing jobs; that is outrageous!

Why should we sacrifice our "mortgage interest" tax deduction; NO we won't! What government can eliminate is as a savings is their "travel expenses" on tax payer dollars. You can pay for your own so called business trips out of your wages!

Quit giving our money away to foreign countries who hate us! You are enabling them to build weapons which they can use against us...
Regulate Wall Street and the Banks! They were the ones who created this mess along with the elected officials who took payoffs and allowed this corrupt behavior to drag us down.

President Obama you need to bring our troops home from Iraq and Afghanistan. They are in a no win situation over there and it's costing us lives and billions a year. Quit invading countries and trying to establish a democracy that mirrors ours. We are safer with the troops at home guarding our own borders!

Illegal Immigration is costing us millions/billions a year! Start enforcing existing Immigration laws and get rid of the Birth Right Citizenship ruling which is being abused and creating even more expense and obligation to American tax payers daily!

Regulate all insurance companies instead of giving them free rein to refuse care and make premiums unaffordable. My son recently checked on rates to insure him, his wife and his daughter (Blue Cross/Blue Shield) it would cost them $900 a month! So, I suggest that our elected officials use the same health care providers that we do. If the present health care bill is so good, why did our government officials exempt themselves from participating in the plan?

Change the tax codes to establish a flat tax rate or a national sales tax. That way everybody pays; corporations not excluded, they need to pay their fair share of taxes too!


Bowles-Simpson Deficit Reduction Plan

Deficit reduction recommendations formulated by the deficit commission employed by the Obama administration were completed Wednesday.

I found this here: Deficit commission submits final report for panel vote on Dec. 3

To cut into deficit spending by as much as $4 trillion over ten years, the deficit commission statement outlines systemic tax and spending revisions. The offer titled “Moment of Truth” isn't expected to be regarded as such by politicians.




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