Posts tagged ‘AEI’

Administrative Bloat

Administrative bloat is a natural tendency of organizations.  I am not entirely sure why, though I understand some of the drivers.  Never-the-less, I have seen it in nearly every organization I have worked in or consulted for.

Even the best-run private companies still have this problem.  To remain competitive, then, they have to come through every few years and wield the ax on these growing staffs, almost like trimming back a hedge that keeps trying to overgrow your house.  I spent a depressing amount of time as a consultant helping them.  It is uncomfortable, sometimes heartbreaking work, and one wonders the whole time why there is not some better way to keep staff in check.  To my mind, there is a still a great academic work to be written on this topic some day.

The alternative, in organizations that can get away with it, is administrative bloat.  Like, for example, in this public institution:

via Mark Perry, now at AEI

That staff adds up to an incredible billion dollars in administrative salaries, or nearly $21,000 a year per full-time student.  And remember, if this is just salaries, the actual cost is much higher because they all need offices, supplies, travel, etc.

Stock Up on Meeses and Gippers

The CBO, which Democrats frequently tell us to pay close attention to only when it is giving them the answers they want, is not particularly sanguine about the US budget deficit:

President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.

In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.

Bruce McQuain, as always, has some good analysis.

States, apparently, are not in much better shape:

Pension plans for state government employees today report they are underfunded by $450 billion, according to a recent report from the Pew Charitable Trusts. But this vastly underestimates the true shortfall, because public pension accounting wrongly assumes that plans can earn high investment returns without risk. My research indicates that overall underfunding tops $3 trillion.

The problem is fundamental: According to accounting rules adopted by the states, a public sector pension plan may call itself "fully funded" even if there is a better-than-even chance it will be unable to meet its obligations. When that happens, the taxpayer is on the hook. Yet public pension plans ignore market risk even as they shift into risky foreign investments, hedge funds and private equity....

In a recent AEI working paper I've shown that the typical state employee public pension plan has only a 16% chance of solvency. More public pensions have a zero probability of solvency than have a probability in excess of 50%. When public pension assets fall short, taxpayers are legally obligated to make up the difference. The market value of this contingent liability exceeds $3 trillion.

Productive people in this country are about to get plastered with huge new taxes.  Hang on.