While bankrupt over indebted governments everywhere from Russia and the United Kingdom to Ireland move to cut the number of government employees and reduce salaries, America the leading debt basket case of the world just might freeze salaries for a couple of years. This is just election year politics two years early.
The actual savings of a pay freeze are negligible at best. The proposal will curtail a planned 1.4% pay increase for over 2 million federal employees.
Washington officials tell The New York Times, "The pay freeze will save $2 billion in the current fiscal year that ends in September 2011, $28 billion over five years and more than $60 billion over 10 years." Like all government statistics, these figures are overly optimistic as the freeze will last at best only to late 2012.
Of course, the Obama Administration is looking toward re-election in 2012 and they want to freeze the pay for all civilian federal workers to get ahead of the GOP election rhetoric in the coming election. What they don't mention is the freeze will not affect bonuses or step increases for federal employees.
The usual whining has already started with the unions where John Gage, president of the American Federation of Government Employees with 600,000 members described the decision as "a slap at working people." Most government employees can be described by many adjectives including dictatorial, useless, make-work employees, bureaucratic, parasitic, etc. but few Americans in the private sector would ever describe them as "working people". This would be an insult to millions of real working people in the private sector.
The sad truth is government employees get paid far more on average than their productive counterparts in the private sector. In addition, they are covered under two expensive retirement programs including a defined-benefit type plan and a plan similar to 401(k) plan. Is there any wonder their turnover rate is around 1%?
Sadly it is wishful thinking to believe the salary reductions will lead to a mass exodus of government employees to the private sector because most of these people are in government "service" because they cannot compete in the private sector. Still, salary and retirement benefit reductions will at least reduce their wasteful burden on the American people, our economy and our growing deficit.
A Simple Solution!
If we really want to get the deficit and national debt under control I might suggest a real alternative instead of more fake window dressing. Why not include Congress along with the rest of the federal civilian employees and cut all their salaries and the monthly federal retirement benefits for those already retired by 1.5% each month or 18% each year until the budget is really balanced including off budget items. This will force the unions representing employed and retired federal workers to lobby for a real balanced budget instead of remaining the major impediment to such legislation.
In two years, we will have reduced the government employee expense and the federal government will likely have a balanced budget. Also, with the reduced bureaucracy costs and economic burden of their functions lifted, the economy of the United States should rebound. We could also further benefit economic growth by retiring them early and paying them not to come to work as most are such a negative drain on our economy.
I believe if we cut the salaries and retirement benefits of the House and Senate by 1.5% a month, they will be up to the challenge. The success of these actions at the federal level would certainly help the states, municipal workers and teachers unions to see the light or else be subject to similar legislation.
The alternative is more failed Keynesian deficit spending and expanding Treasury debt on bureaucratic union and special interest bailout projects which certainly haven't worked so far. More of the same will bring depression, dollar collapse and national bankruptcy and I dare the Obama Administration to take real action and do this by Presidential Executive Order. At least this is a legitimate constitutional action by a president of the United States in times of crisis. This is far more than I can say about most of the actions and policies by either the Obama or Bush Administrations.
Join me in sending a message for real deficit reduction in Washington. Cut, don't freeze federal employee pay and retirement benefits plus include Congress if you want to return to a balanced federal budget.
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Ron Holland is a long-time advisor to international investors seeking secure, legally compliant strategies to protect and grow wealth. He currently serves on the Board of Advisors of a major Swiss wealth management firm and is co-editor of the successful financial report Mountain Vision and a contributing editor to the geo-political newsletter Freedom Matters, published by Appenzeller Business Press AG (ARBP). Ron brings 40 years of financial experience to readers of Freedom Matters as the former president of a Swiss-owned broker-dealer firm licensed in 47 states, head of a bank trust department, international retirement consultant, public speaker, stockbroker and author of three books (including Escape the Pension Trap) and numerous articles and special reports. He has developed a number of successful financial products directly relating to Switzerland and securing wealth - including the first Swiss-franc denominated portfolio in a U.S. variable annuity. He is a strong proponent of global investment diversification outside U.S. markets and the dollar as protection from America's exploding national debt. Ron is the Chairman of the Advisory Board for The Foundation for the Advancement of Free-Market Thinking (established by ARBP in 2010).
