See How This Law Corresponds With The Federal Deficit

“Work expands so as to fill the time available for its completion.” – C. Northcote Parkinson, Parkinson’s Law, p. 2

Last fall’s national elections showed that voters are increasingly wise to the basic truth that governments can only spend what’s been taken from them first. From that there’s developed a growing consensus inside the electorate that Washington must mend its profligate ways.

As a result, politicians on both sides of the aisle, at least for now, are paying lip service to the idea of reining in Leviathan. What’s unfortunate about their spending rhetoric is the seemingly bipartisan view within the political class that since spending cuts will be “painful,” they will require politicians to make a lot of “difficult” decisions. This line of thinking is very much overdone.

Parkinson’s Law makes plain that there’s little relationship between the size of bureaucracies and actual work accomplished. What this tells us immediately is that whatever the good or bad of government services, they could be delivered with a great deal less in the way of people.

Aside from the application of C. Northcote Parkinson’s theories to government spending, the Founding Fathers clearly intended that the Constitution should restrain the size and scope of government. A simple application of constitutional limits to government activities could easily achieve what Parkinson’s theories may not.

One spending solution that classical economic theory says might be the worst of all of them would be some form of “balanced budget amendment.” This should be avoided at all costs because it would legitimize excessive levels of spending that reduce the growth of the private economy.

Instead, the answer to the fiscal problems of the U.S. government is decidedly not tax increases or a balanced budget; rather it’s reduced spending across the board. Anything else ensures a continuance of our large and overbearing federal government.

Parkinson’s Law. While analyzing British naval history, author and scholar C. Northcote Parkinson revealed as false the widely held view embraced by politicians and taxpayers that the need for more civil servants will reveal itself through a growing volume of work completed. The truth is something quite different.

As Parkinson observed, “the number of the officials and the quantity of the work are not related to each other at all.” In his case, Parkinson witnessed the non-relationship up close through studies of the Royal Navy’s bureaucracy.

While the Royal Navy could in 1914 claim 146,000 officers and men served by 3,249 dockyard officials and clerks, plus 57,000 dockyard workmen, by 1928 there were only 100,000 officers and men, yet the number of dockyard officials and clerks had risen to 4,558. This, despite the fact that the number of British warships had declined from 62 to 20.

Parkinson went on to point that over the same period, the number of Admiralty officials had risen from 2,000 to 3,569. The British Navy had shrunk by 1/3rd in terms of men, and 2/3rds in terms of ships, thus forcing Parkinson to conclude that the growth in the number of workers for the Royal Navy “was unrelated to any possible increase in their work.”

Parkinson went on to lay out what he deemed two “motive forces” for the increase of bureaucracy alongside reduced work output. As he put it, “An official wants to multiply subordinates, not rivals,” and secondly, “Officials make work for each other.” If an official feels overworked, whether true or not, there’s little incentive to hire someone of similar stature, nor is there incentive to hire just one subordinate. Indeed, if the senior official were simply to hire one subordinate, doing so would effectively make the hire similar in stature to the individual who hired him.

The greater incentive is to hire two subordinates, separate the work assigned to each, and in doing so, make both hires less worthy of becoming rivals of the senior official. Then, if either of the subordinates becomes overworked, the same incentives apply on the way to many employees doing the work previously handled by just one person.

Applied to the myriad bureaucracies which dot the Washington, D.C. landscape, it then becomes apparent why our government costs more and more while achieving less and less. Government is not only intrusive today, but also very expensive thanks to bureaucratic incentives not driven by the profit motive to grow.

The Law of Triviality. Worse for taxpayers, Parkinson also asserts a Law of Triviality, according to which “the time spent on any item of the agenda will be in inverse proportion to the sum involved.” It implies that the political act of reducing expenditures is the most difficult of them all.

Applying this insight to politicians, they will sweat the small things they understand (this today is animated by abudant rhetoric about “earmarks”, but very little talk of reducing the big-ticket programs that actually matter), while spending little time on the large items. Parkinson explained this through the prism of a multi-million dollar expenditure for an atomic reactor that is voted on without much thought, versus a great deal of discussion concerning smaller, easier to understand line items such as annual spending on coffee for the government’s employees.

Bureaucracies can grow with great speed because all the incentives of employees not policed by investors tilt towards growth. The process is enabled by a political class that can’t possibly understand the activities of so many workers, some of whom live in their districts. The result is then unsurprising, as politicians vote for large expenditures with little regard to their merit.

To fix this, it is illogical for Congress and the President to go to the effort of understanding just what each federal department does on the way to surgical cuts. Better it would be to acknowledge Parkinson’s point that there’s very little correlation between employees and work output. Congress should skip surgical spending cuts in favor of across-the-board reductions that would hit every Washington function equally.

Federal spending and the Constitution. There is another avenue Congress and the President could travel down: returning the functions of government to those laid out in the Constitution.

About the Constitution, it should be said that it was written first to authorize the creation of a federal government, and then to severely limit its power. Indeed, far from a document meant to list our rights as citizens, the amendments within the Constitution were unquestionably written to lay out the strict parameters governing federal activity. Whatever one’s views of the proper role of government now, the Constitution which gave the federal government legitimacy was a very limiting document.

If this is doubted, we need only reference the 10th Amendment, which states that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Far from an inkblot, this clause was inserted into the Constitution to clarify beyond a shadow of a doubt that powers not enumerated to the federal government do not exist.

From a spending perspective, it quickly becomes apparent that much of what the federal government actually does extends well beyond the strict limits set by the Founders. It’s then easy to suggest that the federal spending burden could be reduced significantly through the application of the 10th Amendment to the federal budget.

Some will argue that the Constitution’s General Welfare Clause allows for extra-constitutional activity by the federal government, but the mere suggestion is at odds with the Founders’ intentions.

Why write what is clearly a limiting document only to insert a clause that would make all those limits irrelevant? Had the General Welfare Clause meant what some modern theorists and politicians suggest, there’s quite simply no way the Constitution would ever have been ratified. Rather, the General Welfare Clause was inserted to limit the federal government’s role; specifically that the general welfare of the citizenry had to be considered when the federal government used its limited, enumerated powers.

Many argue that the Constitution was written for an old world that no longer exists. But it can’t be stressed enough that the Founders made provisions for changes in the document that would allow the Constitution to adjust.

Specifically, they allowed for an expansion of the enumerated powers of the federal government through the amendment process. The Constitution is surely rigid, but it’s malleable if the electorate seeks to ascribe more power to the federal government, including spending power. The problem today is that the document’s limiting nature is not adequately acknowledged by either political party.

But if the goal is spending cuts, reducing the size of government through the abolishment or privatization of federal activities with constitutional limits in mind seems a pretty simple task. Barring across the board cuts a la Parkinson, applying the 10th Amendment to the federal budget seems the way to go, particularly when we consider that all elected politicians swear to uphold the Constitution upon reaching office.

A balanced budget amendment? Some economists and politicians argue that since Washington has shown an inability to control spending regardless of the party in power, the way to rein in spending is to pass a balanced budget amendment. This would be an unwise path.

As Hauser’s Law makes very plain, the federal government collects revenues amounting to little more than 18% of GDP no matter the rates of taxation imposed by Washington. In that sense, the productivity of the American workforce would ensure for Congress quite a lot of spending power if a balanced budget amendment were the law of the land. It would also give Congress a free pass when it comes to reining in out-of-control bureaucracies, not to mention upholding explicit constitutional principles that demand a very limited federal government.

From an economic perspective, we have to ask whether we’d prefer a $1 trillion annual budget deficit with $1.5 trillion in annual spending, or a $3 trillion budget with no deficit. Classical economic principles suggest the former, simply because it signals quite a bit more capital remaining in the private sector.

To try to differentiate deficit spending which requires selling Treasuries (NYSE:TLT) from spending paid for out of general revenues is to make a distinction without a difference. However the funds are raised, all government spending is a tax in the sense that each dollar spent is one that has been extracted from the more productive private sector.

A balanced budget amendment would legalize high levels of spending that empirical and anecdotal evidence reveal time after time to be the opposite of economic stimulus.  That in mind, the last thing a productive citizenry should want is a spending program that promises to consume all the revenues that reach the U.S. Treasury thanks to their productivity.

Conclusion. Parkinson’s Law helpfully reminds us that expensive, employee-heavy government bureaucracies do not correlate with increased output. Instead, unproductive work tends to expand with the amount of time and employees available to fulfill it. It follows that the answer to expensive government isn’t surgical cuts meant to root out waste. Rather it is substantial cuts across the board that will require bureaucracies to force cost reductions on their activities.

While the Constitution has been largely ignored over the last 80 years, the document is very real, and its purpose is clear: to limit greatly the powers of the federal government. If Congress proves unwilling to force indiscriminate cost reductions on government then it should apply constitutional principles to the budget whereby government functions not enumerated in the Constitution are abolished, privatized, or passed to the states.

A balanced budget is decidedly not the answer to the spending/deficit problem. American productivity promises gargantuan annual revenues for the Treasury, so to take the easy route of a balanced budget amendment would be to authorize the federal government’s continued growth. This would weigh down productive economic activity. It would also perpetuate the waste of human capital employed to fulfill government mandates in a way that is neither efficient nor authorized by our nation’s founding document.

John Tamny is a senior economic advisor to Toreador Research & Trading, a senior economist with H.C. Wainwright Economics, and editor of RealClearMarkets and Forbes.