HPRgument Blog — December 17, 2010 4:31 am

Orszag, Progressivism, and Public Sector Pay

By Alex Sherbany

Sam makes some fair points, but I don’t think Wilkinson was saying that anyone in general can get rich on Wall Street now that Washington is so powerful. What he actually said is a little different:

[I]t really isn’t the Citizens United decision that’s about to make Peter Orszag a minor Midas. It’s the vast power of a handful of Washington players, with whom Mr Orszag has become relatively intimate, to make or destroy great fortunes more or less at whim. Well-connected wonks can get rich on Wall Street only because Washington power is now so unconstrained.

The point is not that “Wall St. pay goes up as Washington power goes up” but that the more powerful Washington is, the more lucrative the nexus between Big Business and Big Government seems to get. It’s not just the revolving door and regulators cashing in on their insider knowledge. That is important, and it’s more prevalent than people think. But it’s also a broader phenomenon. Companies will spend their money on K Street – high-powered lawyers, lobbyists, and PR firms – if it is more profitable than opening up a new factory or investing in research and development.

This isn’t necessarily a “fatal flaw” in progressivism, but it is not inconsequential either.

I’m also skeptical of Sam’s solution of “paying public employees more, not less.”

When comparing public sector pay to private sector pay, some progressives clearly have “high school teacher” and “investment banker” in mind.

I know this is a shocker, particularly if you go to Harvard, but most private sector people don’t work on Wall Street. Most of the data I’ve seen says that public sector employees get paid more on average than private sector employees, for less work.
http://www.bls.gov/news.release/pdf/ecec.pdf

This also seems to be true in the UK.

I wouldn’t go as far as Ben Franklin, who thought public servants shouldn’t be paid at all, but it takes gall to suggest that we should actually increase public sector pay.

And if you regret that public sector employees can’t make Wall Street salaries, try Main Street salaries. The police chief in my suburban town of 80,000 rakes in over $300,000 a year, not including benefits. Over 50 police officers make in excess of $100,000 a year. They do a great job keeping the Four Loko off our streets, but this kind of thing is what drives municipalities to the brink of bankruptcy and destroys public confidence in government.

Thanks to the power of public sector unions, this is happening in cities and states across America.

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Author: Alex Sherbany '11 was the Managing Editor for the Harvard Political Review from 2009 to 2010.
  • Sam Barr

    Alex,

    For what it’s worth, that BLS report you linked to contains this disclaimer: “Compensation cost levels in state and local government should not be directly compared with levels in private industry. Differences between these sectors stem from factors such as variation in work activities and occupational structures. Manufacturing and sales, for example, make up a large part of private industry work activities but are rare in state and local government. Management, professional, and administrative support occupations (including teachers) account for two-thirds of the state and local government workforce, compared with two-fifths of private industry.”

    In other words, the industries just aren’t directly comparable. They do different things. You have to compare apples to apples: people in both sectors with the same levels of education and experience.

    I think what probably causes our disagreement is that pay is structured differently in the public sector than it is in the private sector. Managers and leaders don’t earn astronomically bigger salaries than their workers. An assistant attorney general in the DoJ probably makes a nice high five-figure salary. His secretary: probably mid five-figures. Eric Holder? Less than $200,000. In the private sector, the differentials are much wider, and so the incentives for highly educated, wonky types are arguably much higher.

    So your post is well-taken, but I see it as a bit off-topic. I’m not talking about federal employees writ large. I’m talking about: How do we retain the “best and brightest” (yes, I realize that phrase was coined ironically) in government when they can (yes, they really can) make so much more money in the private sector?

  • Sam Barr

    I also simply did not impute to Wilkinson the view that “anyone in general can get rich on Wall Street now that Washington is so powerful.” I quoted his line about “well-connected wonks” directly. It still seems backwards to me: Wall Street salaries took off only when Washington stopped regulating the financial industry.

  • Alexander Sherbany

    I’ll take your point that it’s difficult to do a perfect comparison, but even within many of the same professions you see the public sector getting more pay on average:

    http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm

    http://articles.cnn.com/2006-10-11/us/cb.government_1_government-salaries-government-workers-government-employees?_s=PM:US

    This also doesn’t include the very generous health and pension benefits that government workers receive (Bureau of Economic Analysis says $40,000 public vs. $9,800 private for benefits), or the differential in performance level (it’s often much more difficult to get fired in the public sector).

    As for retaining the “best and the brightest” at the highest echelons of government, I really don’t think we need to pay the Eric Holders and Peter Orzsags of the world any more than we already do. Of course they could get much higher pay in the private sector, but it’s called public service for a reason. As Obama rightly said, public service is a privilege:
    http://news.bbc.co.uk/2/hi/americas/7843594.stm

    Not to mention all the power and prestige you get when you are, say, OMB Director, Attorney General, or Supreme Court justice.

    So I don’t think I’d characterize what happened with Orzsag as a “retention problem” that can or should be solved with higher pay. I’m not sure you would either.

    Like you suggest in another part of your post, we could expect a little more “civic virtue” from our public servants. That means not doing what Orzsag just did, and like you say, “blaming a fella” when he does. On the other hand, concentrating so much power in Washington has made the revolving door that much more tempting to walk through. I like your idealism, but I also like Wilkinson’s hard-headed assessment of the underlying problem.

    I think you end up in a place where we can agree: “it’s not fair to ask the American people to have faith in a government that doesn’t demonstrate fidelity to the very idea [of public service].”

  • Sam Barr

    I’m not saying that the problem of retaining talented people in relatively low-paying public service careers can be “solved” simply by upping their pay some. I think that Peter Orszag was probably driven to his decades of public service despite the knowledge that he would make much less money than he would elsewhere, and he was okay with that.

    All I’m saying is that, on the margins, I think you can retain talent by rewarding talent, and considering what some people’s talent can go for in the private sector, I don’t really think public service is on a fair footing. (Note that I’m talking about genuine talent, not the “talent” that Orszag is providing to Citigroup—which is mostly just connections and insider experience.)

    This is hardly idealistic. If it were up to me, public service would be, as Obama says, a “privilege” and even a sacrifice. And as I said elsewhere in the post, we should work towards instilling that sensibility, which I think has gone totally untended. But it’s not realistic to demand unending self-sacrifice of people.

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