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What Obama’s Sequester Claims Says About the State of Public Administration

e21 | 03/07/2013 |

The sequester that began this month is likely to prove far more damaging to the credibility of the Obama Administration than the economy. The focus of Administration rhetoric has been maximizing public impressions of the pain inflicted by the sequester and then blaming Congressional leaders for allowing the catastrophe to happen. While the Administration’s claims about the magnitude of the damage caused by sequester and its origin have largely been refuted, what’s most troubling about the Administration’s PR offensive has been the insinuation that replacing sequestration with tax increases is cost-free. The public is supposed to believe that public agencies are so inefficient than a 1% cut in resources would deal a horrific blow to economic growth and the quality of public services, but there would be no consequence associated with debiting private bank accounts by the same amount.

Prior to sequestration taking effect, Obama Administration officials took to the airwaves to make unsubstantiated claims about the impact of sequestration (like the false claim about the looming cut in the pay of Capitol janitors). Perhaps most egregiously, Education Secretary Arne Duncan claimed that as many as 40,000 teachers could lose their jobs as a result of the $2.8 billion cuts imposed by the sequester. While the news media found that hard data backing this claim was utterly lacking – Duncan arrived at the figure by dividing the $2.8 billion by the average teacher’s salary of $70,000 despite no evidence that any such layoffs were forthcoming – it would actually be more troubling for the Administration’s case if it were true.

Consider that government at all levels will spend $820 billion in 2013 on education, of which $426 billion is for primary and secondary public schools. Of all of the elements of a classroom, one would presume that a teacher is the most important. Yet, officials in charge of administering what amounts to a 0.6% cut to primary and secondary education spending are so obtuse that the entirety of the $2.8 billion in cuts would be achieved by firing teachers? If so, this would be a grotesque testament to the inefficiency of public spending and the scale of the damage $3.5 trillion federal budgets impose on U.S. productivity.

Sequestration results in the permanent cancellation of budgetary resources by a uniform percentage across all budget activities in a given account. The allocation of the cuts in those activities – teacher salaries versus supplies, field trips, administrative staff, and facilities – is discretionary. Still, one could argue that the “meat cleaver” of sequestration’s across-the-board cuts is too formulaic and impedes good, commonsense governance. But increasing public administrators’ flexibility is not what the Obama Administration proposed! Indeed, the Administration formally threatened to veto a bill to do just that.

In its Statement of Administration Policy, the Administration explained “there is no way to cut spending this dramatically over a seven month period without drastically affecting national security and economic priorities (emphasis added).” The Obama Administration rejects the very premise that public administrators have the capacity to allocate cuts amounting to 1% of the federal budget in a manner that increases the productivity of public sector employees, or enhances the efficiency of public services. To the Obama Administration, there is no distinction between “public” and “private” resources. Therefore, one need not worry about predictable differences in the relative efficiency of public or private services, or whether the government can perform its functions at a lower cost to taxpayers.

In arguably the greatest teaching resource available on the web, Harvard Professor Andrei Shleifer uses the tuna sandwiches provided by the Harvard Food Services to demonstrate to his Economics 10 students what tends to happen to the quality of goods and services when they are delivered through the public rather than private sectors. Shleifer shows how the lack of market discipline causes the barely edible tuna sandwiches sold by Food Services to cost 10% to 13% more than the far more appetizing tuna sandwiches sold at a local tea shop, despite the fact that the tea shop must pay rent and Food Services does not. This amusing example proxies for the ubiquitous empirical evidence concerning the relative inefficiency of government services; any responsible steward of tax dollars should start from the premise that public services could be delivered more efficiency.

With no distinction between the private or public sectors, the Obama Administration focuses instead on the specific bank accounts that would get debited or credited. As it explained in the Statement announcing the veto threat, “no amount of flexibility can avoid the fact that middle class families will bear the brunt of the cuts required by this bill, nothing is asked of the wealthiest Americans.” From the Administration’s perspective, the key issue is that the sequester would reduce the amount by which the Treasury credits (popular) governmental accounts when it would be more equitable to instead increase the amount by which the Treasury debits (unpopular) household bank accounts.

This is entirely reasonable as a purely political proposition – particularly if one believes that it’s all public money anyway – but the Administration doesn’t stop there. It also argues that the reduction in the credits directed to the (popular) governmental accounts would have catastrophic effects on the economy, but the increase in debits of the (unpopular) household bank accounts has no effects. Given what we know about the relative efficiency of the public sector, this is precisely backwards: economic growth is not likely to be accelerated by debiting the bank accounts of households more likely to fund small businesses, invest in corporate equity, and provide the discretionary risk capital necessary for new technologies and business ventures. The evidence suggests that money in these bank accounts is much more likely to flow to a productive use if it remains there instead of being redirected to a governmental account.

The sequester debate is not simply about who’s responsible for it, or whether the Administration’s claims regarding its impact hold water. Through its rhetoric, the Administration is implicitly denying a distinction between that which is “public” and “private,” ignoring evidence concerning the predictable differences in these sectors relative efficiency, and absolving itself of any responsibility for managing public spending in a manner that reduces its ultimate costs on taxpayers. These are much bigger stakes than commonly supposed.

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