Obama on the Federal Wage Freeze

In case you haven’t seen it, Brian Buetler has a roundup of reactions to President Obama’s 2-year federal pay freeze. Ezra Klein has three ways of looking at the freeze. They are the non-mutually exclusive: 1) This is more unwise, unilateral bipartisanship, 2) This is a smart way to protect the federal workforce, 3) This is bad economics and bad policy.

I think we should discuss a fourth option:  President Obama thinks this is a really good idea and wants to spend political capital and energy to carry it out.  Rather than a piece of strategy to force concessions from the other side, this is instead something he wants his administration associated with and wants to take the lead in making it reality.  He’s asking for the middle-class to take the first suffering point, before bankers and before the richest, without asking for anything in return, in response to what he sees as a major short-term deficit problem.

When people refer to Obama doing this as self-defeating, or a political miscalculation, they are assuming away precisely what needs to be interrogated and challenged, which is that Obama isn’t weak on core liberal values, or that his version of liberalism isn’t far different than what was expected, or that he think this is worth fighting for. The reality might be simply that his administration wants different goals much more aligned with traditional centrist Democratic positions, prioritizes fighting for different objectives, and views the world in a different lens.  Bondholders over unions and public workers.

I see this with Treasury issues. The people I’ve met at Treasury are quite brilliant. I think they are wrong about a lot of what just happened, about what they prioritize and protect versus what they isolate or obscure, but I do not think it is because of ignorance.  They had a different vision of what should be done, and I think we are living through the consequences of that.  Obama is a smart person, smarter than me and probably smarter than you.  If your read of this situation requires one of the first moves to be “Obama is consistently making bad calls and is being mislead” you should rethink your position without assuming that and see where it leads you.

It would be one thing if this was an ambiguous part of Maritime law or something, but this goes to a core debate. Liberals think that the work government does is both worthwhile and crucial to the functioning of our country. Conservatives think it is not. Conservatives want to sow discord between factions of middle-class people to distract from lowering taxes and providing goodies for the rich, and this is precisely one avenue for doing this.

We talked about state and local government not being overpaid here. They are definitely not overpaid in salary. What closes the gap partially – but not entirely – are the facts that health care costs have spiraled out of control for many middle-class people and retirement risk has been shifted more aggressively to working-class people. We see a failure in benefits for private workers, and Republicans and now Obama want to convince you that this is normal. It isn’t.

Larry Mishel brings up the important point that Federal workers are clustered in major cities, where their pay lags private workers. When I first worked in the private sector in San Francisco, I received a pay bump that was clearly targeted for the higher cost of living there. I wouldn’t have if I had decided to work for a regulator. Here’s how shocking it is (table 4):

Again, benefits close that gap, but that is a failure of the private market for benefits. This failure in the market for benefits is anxiety producing for middle-class voters.  It isn’t surprising that it works as an effective lever against government.

Meanwhile, here’s the President of Third Way, Jonathan Cowan, sounding just like Obama:

As the former chief of staff of HUD, I’ve seen how crucial and committed the federal work force can be. But a pay freeze is the right thing to do. It shouldn’t be seen as a critique of their hard work, and federal employees should get behind it. We have a long-term structural deficit crisis and either everyone is going to contribute to spending cuts, or the United States will cease to be the number one global economic power. Federal employees can lead by example, showing the American people that they place the financial health of the country above a pay increase these next few years. If we’re going to trim Social Security and Medicare – which are essential steps to balancing the budget – we’re also going to have to show that we can bring the costs of running the federal government in line as well.

What’s the difference here?

So much for Ed Kane’s vision of stronger financial market regulators, more talented and more public-minded.   You simply won’t get that without being willing to invest in the people you hire.

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18 Responses to Obama on the Federal Wage Freeze

  1. EMS says:

    I’m a bit stunned. This is the first piece I’ve seen here that leaves me dazed and bewildered.

    Obama may be every bit as smart as he thinks he is. It’s even possible he’s as smart as you think he is, but that’s not a reason to think he may be right. It’s just a speculation that he’s smart.

    Smart people do dumb things all the time. Jimmy Carter comes immediately to mind.

    The Republicans have just announced they’ll block every piece of legislation until the Bush Tax cuts are taken care of. That means all the cuts, not just the ones Mr. Obama wants.

    This is in response to the freeze on salaries just announced. Your theory amounts to lighting the wick on the bomb fuse that someone has constructed just to blow you to pieces so that you’ll appear to be cooperative as you’re exploded to smithereens.

    Smart is as smart does, I suppose……….

  2. Even if Obama thinks a pay freeze is good policy, it’s hard to see that giving it up without getting something in return is good politics.

  3. save_the_rustbelt says:

    I would like to play poker with Obama. Worst negotiator ever.

    At best a meaningless symbolic gesture with likely unintended consequences.

    The federal work force is not going to get much sympathy from the private sector, where having a secure job is quite a treat, pay freeze or not.

  4. Chris Gaun says:

    “wants to spend political capital and energy to carry it out.”

    It is a popular move so I don’t see it as taking a lot of political capital. Granted, the base is split about the decision (look at the comments on the various Ezra Klein post saying he is wrong). However, is there a time when the Dem. base is not “split?”

    It is important that Obama makes politically popular moves (esp. ones that cost as little as $60B USD in 10 years) or liberals will get nothing with President Palin ’12 (vs. the 70% -80% of the agenda they are getting now).

  5. Bryan says:

    I think you guys are misunderstanding Mike’s point: Obama isn’t supporting this policy because he “wants something in return,” nor because it’s a strategic compromise or “symbolic gesture” to win over the centrists in the Republican party, he supports it because he believes it’s the right thing to do. That’s a much more damning criticism, but also way more depressing to come to terms with.

  6. Mike says:

    To clarify, by being “brilliant”, I mean in a “smartest guys in the room” kind of way. It reflects the financial system they came from.

    What Bryan said. I’d like to think that isn’t true – I phone banked for the guy over HR Clinton. But eventually the “boy he really miscalculated here” model can only hold for so long, and it shouldn’t hold for core issues.

    Chris Gaun – I’m going to go out on a limb and say that this doesn’t bring Obama any new votes or make him more “politically popular.” I’m not the most savvy elections guy, and maybe that’s wrong. But it better work very well, because he’s alienating a lot of people, and conceding major parts of the debate to the Right.

    • Chris Gaun says:

      Yeah, your guess is as good as mine on whether this will win votes, but it does poll well… although so do (most) tax cuts and he did not get any credit for the ones in the ARRA.

      Ezra later posted a letter from a woman who said she was not going to vote for Obama in ’12 because of this. Many people said the same thing during the rough primaries with Clinton though.

  7. lark says:

    It’s not simply that Obama is a Blue Dog Democrat. It is that he has given indications about his values and policy preferences that seem to come from a moral base, but his actions are without a moral basis, he and his people just the dots to keep the status quo going for another day.

    No vision.

    Hope and change promised vision, and that has not materialized.

    In particular, he seems to have absolutely no moral feel for the condition of America’s middle and working classes. It simply does not rate a passing second of indignation, to note the dominance of the elites, the ongoing scouring and diminishment of everyone else.

    Sometimes I think ‘Obama’ is a brand which does not imply any political philosophy (or ethics). It is intended to be a sort of ‘air freshener’ which when sprayed into a room, makes everybody vaguely agreeable and optimistic. It worked in the campaign, but reality and Congress have proved immune.

  8. lark says:

    One other thing.

    It is discouraging how he seems to be one note. Yes, the presidency has a learning curve, but where is the learning?

    Summers, Geithner et al reveal that he started with an insider bias. Then he keeps the same people, or replaces staff with insiders. He does not appear to like being challenged. What did he fantasize the presidency would be? An Obama festival of togetherness?

    Even as the conventional wisdom goes up in flames, he does not seem to re-think.

    By not wanting to lose, he never really wins. He remains a cipher, subject to the passing fancies of his most vehement and incoherent enemies.

  9. JCD says:

    With respect to the larger issue, I think this is an important insight. As Mike notes, if your theory of the Obama administration hinges on the administration repeatedly performing incompetently, I think you have to rethink your theory. Whatever other criticisms you might wish to level at members of the administration, they are certainly not incompetent.

    With respect to the more specific issue at hand, this is an incredibly complicated issue, both politically and economically.

    Politically, I suspect that angst driven by uncertainty in the private labor market makes this decision, and similar decisions, poll better than you would think offhand. Whether this should be the case is a separate issue.

    Economically, I do not pretend to have enough information to have an informed opinion one way or another, but the study noted above is unconvincing in establishing that, overall, public sector workers are underpaid.

    The average compensation values used in this study are based on average salary values (provided in a similar table in the study). A comparison of average income is incredibly misleading, as the average income is way above median income rates.

    The study lists average earnings in the private sector for a professional degree at $152k and for a bachelor’s degree at $71k, while in the public sector it is only $88k and $48k respectively. I am sure that someone more informed than I could provide even more recent numbers, but a quick google search turned up 2006 census data that revealed that median personal income for full time employed persons 25+ (who will usually be earning more than someone younger) with a professional degree is $100k, and with a bachelor’s degree is $50k.

    The study completely ignores the fact that average income in the private sector is skewed by extremely high income individuals that drive the mean up. This is a factor that simply is not present in the public sector.

    Basically, I would posit that the top 1% of the private sector makes so much more than the top 1% of the public sector so as to overall make the average private sector income be higher than the average public sector income, but that this has absolutely no bearing on whether most public sector employees are under compensated.

    I also note that this theory would suggest that this is only a factor for workers having a bachelor’s degree and above, and this is exactly where the huge disparities in average income are seen in the study.

    I take no position on whether most public sector employees are, in fact, over or under compensated; instead, I merely think that using mean income poses problems.

    Overall, more granularity is needed. There are some public sector employees that are overworked and underpaid, while there are other public sector employees that are, unquestionably, overpaid. Similarly, there are some private sector employees that are underpaid, while there are some private sector employees who are overpaid. Unfortunately, because this study uses misleading mean incomes as a starting point, I cannot see how it is anything but misleading as a starting point for discourse.

    • Chris Gaun says:

      I tend to agree with JCD on some parts of his essay.

      Whether people in the public sector actually make more or less is not a conclusion that flows immediately from grouping people into education brackets. And I am surprised that you, Orzag, and other smart people use it without further evidence to make a conclusion.

      There are many problems that could stem from a simple break down of education and pay. For example, my old high school pays based on a scale of BA/BS + graduate credits. However, it didn’t matter what subject the teachers (etc.) got credits in. There were guidance counselors with post-graduate degrees in Egyptology because they would get paid more for the extra education. Now, obviously in the private sector someone cannot just go out and get a degree in Basket Weaving and expect to get paid more. That is just one example.

      I also don’t think that means the conclusion is wrong, but the evidence given (breaking down pay by education alone), definitely doesn’t allow one to reach the conclusion that it is correct.

      • Ron Alley says:

        Chris,

        I think the issue is one of perception, not one of reality. A “no-cut” contract at good pay and top notch benefits is what the average taxpayer believes government employees enjoy.

        In contrast the “average” worker constantly worries about whether his position will be cut, whether he or she will be dismissed and whether wages and benefits will be cut.

        My guess is that Obama is trying to address that perception.

  10. The Minority says:

    Mike,

    This post is right on. I have moved in and out of government over the years so label me biased, but the idea that there is some sort of systemic overcompensation of government employees is absurd. That normally reasonable people like Reihan over at National Review have not only been taken in my this, but trumpet it, is shocking. The state of the Republican party on economic policy generally calls for large quantities of middling scotch.

    Also, I agree with your use of average compensation values.

    What a mess.

  11. Americans who think they are prosperous, but receive most or all of their incomes from government wages or pensions are in for a shock in the coming years. Ironically, many government wage earners and pensioners began to view themselves as eager members of the Tea Party movement, when in fact, the Republicans are more than willing to freeze government wages and pensions indefinitely (watch and learn). With a Democractic President now advocating for Federal wages freezes, government workers are soon to find themselves without a champion. The fact is that government wages have enjoyed robust growth over the past decade — the coming decade will likely prove less lucrative for government workers and pensioners — my advice to those in government is look for work now in the private sector and leave the public sector on your own terms, before the real cuts in government spending arrive…

  12. Lee Hartmann says:

    JCD-

    Missing the bubble (Bernanke reappointed)?

    Not understanding the regulatory role of the NY Fed? (Geithner)

    Getting rid of regulation (Summers)?

    Not enough stimulus – not even trying for enough?

    If this is “competence”, I don’t want to see more of it any time soon.

    In my field, I’ve seen plenty of “smart” people who got the wrong answers
    repeatedly.

    The issue here is not whether Obama et al. are “smart”; the issue is whether
    they can competently deal with a slash-and-burn opposition, or even recognize
    it.

    And the essence of the post – that Obama thinks one should start with
    freezing federal worker pay in a time when we need much more stimulus,
    in order to fail to rescind the Bush tax cuts that we can’t afford – well,
    words fail me. If this truly is the case, smart, not so much.

  13. Pingback: Weekly Link Round-up For December 3, 2010 | Blueleaf

  14. Pingback: December 5, 2010 | kevintodd

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