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Worth Reading, Mostly Economics for April 8, 2010

Simple Answers to Troubling Questions

David Frum writes:

Kudlow’s Math: I appeared on Larry Kudlow’s show last night and we had a bit of a tussle about how much deficit reduction could be achieved by cutting federal salaries. Larry argued that a 5-10% pay cut for federal civilian employees like that imposed by Ireland could have a major impact on the federal budget deficit. (Larry was greatly influenced by this WSJ oped.) I had come prepared to talk about a different subject, and so didn’t have the relevant figures at hand, but I suggested that his math sounded incredible. Looking it up this morning, it IS incredible. While I could find no single source for the total budgetary cost of federal civilian pay, I did find this sophisticated calculation at this academic website. The total annual cost of all federal civilian pay and benefits can be estimated at about $260 billion. A 5% across the board pay cut would save no more than $13 billion , and in fact much less: remember, federal pay is unusually benefits-heavy.

And asks:

To put it another way: even if we fired every single federal civil servant and shuttered the entire non-defense federal government, three-fourths of the budget deficit would still be with us. Does this really come as news to Larry Kudlow, a very smart man and a former deputy to David Stockman at the Office of Management and Budget?

The answer is: Yes, it does come as news.

That is all.

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