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CLINTON'S UNBALANCED FEDERAL EMPLOYMENT POLICY

(Updating Rolling Back Government: A Budget Plan to Rebuild.America, The Heritage Foundation, 1995.)

"Today our federal [work force] is 200,000 employees smaller than it was the day I took office as President." -President Bill Clinton, State of the Union Address, January 23, 1996 President Clinton wants to convince the American people he has pared back the bloated federal work force. The American people certainly have every reason to resent the large number of federal bureaucrats whose apparent mission is to turn their daily lives into the sort of nightmares described in the novels of Franz Kafka. These bureaucrats include auditors from the Internal Revenue Service (IRS) scrutinizing tax returns, regulators from the Environmental Protection Agency (EPA) undermining productive enterprises, and agents of the Bureau of Alcohol, Tobacco, and Firearms (ATF) trying to seize the guns of law-abiding citizens. Reducing the numbers of these bureaucrats should and will be popular with the American people. The disturbing thing is that most of the eliminated positions cited by President Clinton are not coming from the IRS, the EPA, the ATF, or similar regulatory or enforcement agencies. The vast majority of the po- sitions being eliminated belong to the people who helped win the Persian Gulf War. In short, most are from the Department of Defense. For example: mw Some 60 percent of the 200,000 eliminated q ositions cited by the President come from a sin- gle department, the Department of Defense. mw Personnel reductions at the Pentagon are even more severe than the President would have Americans believe. The personnel reductions cited by President Clinton include only federal civilian employees, including those at the Department of Defense, but not active duty or reserve component military personnel. In fact, total federal employment, including both civilian and military personnel, as of the end of fiscal 1997 will have dropped by 849,000 positions from levels prevailing at the end of FY 1992.2

1Office of Management and Budget. Budget of the United States Government (Analytical Perspectives), 1996, Table 10- 1. Employment is measured in full-time equivalents. 2Department of Defense, Annual Report to the President and the Congress , 1996, p. C 1, and National Defense Budget Estimatesfor FY 1997, 1996, Table 7-6. This covers a period somewhat longer than that described by President Clinton in his State of the Union Address insofar as it compares military positions existing at the end of FY 1992 with projected levels at the end of FY 1997. These figures include both full-time and part-time positions.

sound, its economic analysis is not. Interest rates have been Fall In Short-Term Interest Rates falling steadily since 1989. Part of Long-Term Trend Moreover, interest rates during that time fell even though the budget deficit was 10% ield for 3-Month Treasury Bills nearly doubling. Why did interest rates fall 8 ...................... ..................................... ......................................... and why do they remain low now? Simply stated, the Federal Reserve Board (the 6 .................................. ... ............................... ............................ nation's central bank) has done a stellar job of bringing 4 the inflation rate down and convincing financial markets that the Fed intends to keep a 2 close eye on the money supp- 1983 1985 1987 1989 1991 1993 ly. As dresult, financial in- stitutions and other lenders Note: Yields are for newly issued T-Bills. have significantly reduced the 1 Source: Council of Economic Advisers. inflation premium on interest rates. This progress has nothing to do with Clinton's tax increase (though the White House should be com- mended for not following the example of the previous Administration, which constantly pressured the Fed to adopt an inflationary monetary policy).

The economic and budget outlook after President Clinton's first year in office is not positive. Not only did the President fail to reverse Bush's disastrous tax-and-spend policies, he compounded the damage by imposing a record tax increase of his own. The economy's continued slow growth and anemic levels of job creation are a direct result.

Daniel J. Mitchell McKenna Senior Fellow in Political Economy