A Bogus Bonus for Future Bureaucrats

A new school year is upon us, and the handwringing continues about debt loads that are burdening college graduates. The Obama administration has joined the chorus of complaint even as it continues to pump billions into the very student loan programs that are helping drive up costs in the first place.

To solve the problem it helped create, the administration created a program that wipes out some people’s college debt after 10 years of on-time payments. The Consumer Financial Protection Bureau has recently joined in to help promote the effort. Among those lucky enough to qualify for this preferential treatment are public sector employees.

What might sound like a noble way to encourage young people to go into public service instead further discourages students from pursuing careers that create the wealth that the public sector depends on to survive.

The insidious assumption underlying the Public Service Loan Forgiveness program is that those in the public sector are engaged in public service in a way that private sector employees are not. Whatever the intentions of workers in a truly free market, they can only earn a paycheck and their firms can only profit if they are creating value for others. Profits are earned by creating goods and services that people value more than the inputs necessary to make them. Profits reflect value creation, and value creation is serving the public.

There are many public employees out there doing good for society, but does that compare to the societal value of a Henry Ford or a Bill Gates? Private sector employees and the firms they work for have given us much more than we’ve given them.

Meanwhile, many public sector employees are engaged in activities that may involve the destruction of value. Do we really think that NSA employees are somehow serving the public better than the employees at Apple, Costco or a neighborhood small business? To argue that public employees are special or different because they are engaged in public service — while, in theory, the private sector benefits only itself — is to completely misunderstand the nature of market competition.

On top of that, the loan forgiveness benefit rests on a pervasive myth that public sector employees aren’t compensated as well as their private sector counterparts.

A 2007 Census Bureau study of California workers showed that the average public sector employee received nearly 32% more in salary than the average private sector employee, and a 2009 Bureau of Labor Statistics study found public sector total compensation (including various non-salary benefits) to be more than 44% higher than that of private sector workers. (That’s especially the case at the CFPB promoting the loan forgiveness policy, where more than 60% of its 1,200 employees earn over $100,000 a year — before bonuses.)

None of these studies take into account the much greater job security associated with public sector jobs, which increases the effective compensation level.

The 2000s saw a substantial increase in the number of government employees, a number that has been steadily growing for decades. Yet the last 10 years have also seen more evidence of the unsustainability of that growth as cities go bankrupt, states teeter on the edge, and the federal government continues to crush economic recovery. The last thing we need are more incentives for people to enter government work.

This economy will not recover until private sector investment returns, and that requires government to stop tilting the playing field in its favor.