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BureaucracyOne of the largest mysteries of the universe and its surrounding areas (possibly all other parallel universes) is the exact amount of money that governments pay to their apparatchiks. We are not talking about individual salaries but as a percentage of the wealth that we produce and it is stolen from us. Bureaucracy is deadly because it inflicts the old "One-Two" punch:

1 - They produce nothing while consuming our wealth with their salaries

2 - They force us to waste our precious time, money and resources creating paperwork

The amount of damage that these two processes inflict is staggering. No wonder the world economy is dying!

1 - WEALTH DESTRUCTION

Some time ago the people from the International Monetary Fund (IMF) created a document titled "Evaluating Government Employment and Compensation". You can download the PDF from their site or from our site (we attached a handy copy at the bottom of this article). If you wade through the document you will notice that even the almighty IMF had problems getting this data to a point that they had to use some estimates of their own. If the IMF can't get this data, what are our chances we mere mortals?

Percentage of what?

This document contains a very handy table which we reproduce below, we a few minor add-ons of our own.

Government Employee Compensation

As you can see, the average expenditure of governments for salaries (and other compensations) for all their employees (including the military -yes- military people are government employees) is about 9% of GDP.

Now, let's step back for a second and consider this number. The GDP is the total amount of goods and services a country produce; this is, the total amount of goods and services that you produce, not the government. In other words, the total amount of goods and services that the government plunders from. The GDP is not, repeat not, the wealth governments produce since they don't produce anything. As such, measuring against GDP is disingenuous. It is like comparing your expenditures against all the added income in your city. Would this make any sense to you? Is that your money to dispose of? Of course not! It's like saying that a given bank robbery is irrelevant by comparing it to all the assets of all the banks in a country.

If this is so, then why would anybody compare against GDP? Because it is a handy measurement that confuses people and provides neat numbers that can be used to prove anything. It's like "proving" that you are very short by comparing your height against the distance from the Earth to the Moon. Yes indeed dear reader, you are very short! This is nothing but the best bullshit apparatchiks can concoct.

How much is that?

Let's now go a step further. The world GDP is in the order of 70 Tera USD (or Trillions for you yanks). Of that, 9% is 6.3 Tera USD thrown into the garbage every year just in appartchik so-called "compensations". Incidentally, "compensated" for what? It's not like they are actually performing any job that creates wealth… but we digress. Now, let's add the correct number of zeros to that number.

6.3 Tera USD = 6,300,000,000,000

This means that in every recent year all the governments of the world destroy about 6,300,000 million USD of wealth that you produced.

Is this much? Consider this. The total world-wide bank bailout for the 2008 debacle was about 40 Tera USD (to day and counting). This money is, of course, gone! If we then divide 40 by 6.3 we also get 6.3. What this means is that:

The governments of the world have been subjecting people to the equivalent of the 2008 debacle every 6.3 years in salaries alone!

And now since we are at it and just because we feel like it, let's compare average government expenditure with the 2008 bailout. If we do so we get 40 divided by 19.6 which gives us roughly 2. What this means is that:

The governments of the world have been subjecting people to the equivalent of the 2008 debacle every 2 years!

But, fair is fair. No everything the government purchases goes to waste. There are goods and services that we do use. We must take those into consideration. To do this is relatively easy. We know that governments are exceedingly inefficient. A grossly optimistic estimate of their inefficiency is 50%. Now assuming the best case scenario (this is that all the money they spend is actually directed at goods and services we actually use) and then applying the 50% inefficiency rate, we reach the final conclusion that:

The governments of the world have been subjecting people to the equivalent of the 2008 debacle every 4 years!

And they have been doing this for decades going back. Is then a surprise that the world-wide economy is in the garbage? Actually, with this kind of drainage it is a miracle and a testament to the markets that we have economic improvements and growth at all!

Fair payment? For whom?

And then we have the people (government employees) that scream as loud as they can that their salaries are not fair and launch themselves into endless debates and arguments as to how they don't make enough.

Enough!

The following graph was also extracted from the same source (IMF) and it very plainly shows that the average apparatchik earns about 40% more in salary than the average person actually making useful stuff.

Government Employee Compensation Comparison

Sure, the same apparatchiks earn 30% less than employees in the financial sector, but what percentage of the work force comprises the financial sector? Not too many. In other words, there will always be some smaller sector in the economy that earns more than apparatchiks, what is important is that the majority of the workers earn less, substantially less.

Not done yet

And now let's compare yet another interesting pair of numbers from the same table. Notice that the average expenditure is larger than the average revenue by 3%. How is this possible? It's a miracle!!! Well…yes. Sort of. It's the miracle of the unholy trinity (tax, borrow and print). Not content with destroying our wealth through spending, governments have been cheating on us through inflation (see for example Inflation Inflation Inflation) and the destruction of our future wealth (see for example Happy Breakeven Year).

Summary

The wealth destruction that governments impose on us originates to a large degree from so-called salaries and other compensations for apparatchiks. These are not trivial sums by any stretch of the imagination (a 2008 debacle every 6.3 years). We pay for this "privilege" not only with our current wealth but, more importantly, with the future wealth that will now never happen because the required capital is gone. And remember, these numbers are from the IMF, hardly a bastion of Libertarianism and Austrian Economics!

2 - WEALTH WASTE

We have written about this subject in the article The High Costs Of Government Benefits where the take away information is this: the amount of capital destroyed by government bureaucracy oscillates between a "low" of 4% to a high of 180%. This means that in certain countries, there is no more capital for investment because the government destroyed it all and then some!

THE THEORY

But there is a simple theory that explains why bureaucracies continue to grow. It is called the Budget Maximization Model which simply states that bureaucrats will seek to increase budgets in order to increase their salaries, privileges and standings. This means that there is no way to obtain a "reasonable" and "streamlined" bureaucracy because its natural tendency is just the opposite. Which means that government expenditures in salaries will continue to grow as they have done ever since.

To be fair, there is an opposing theory called the Bureau-shaping Model. This theory says that bureaucrats won't want to maximize budgets but to shape their agency to maximize personal benefits. Sure. So a bureaucrat will prefer a smaller organization with a smaller budget to a large organization with a large budget. And the question is this: in which planet? Because this most certainly won't happen on earth. The primary principle is simple: the more money there is available more money you can spend. No money no spending. Simple, right? Sure, some high-level bureaucrats will avoid risks by diminishing the size of bureaucracies, but then again, most bureaucrats are not high-level. Money still talks loudly than risk, besides, if you have enough money you can solve almost any problem, particularly if it is bureaucratic in nature.

CONCLUSION

The amount of our wealth that is burned away in salaries for apparatchiks is staggering. Politicians and bureaucrats are always taking about "fair compensation" and "civil servants" and "social equality". However, where is our "fair compensation" for the wealth that we create? Why do we even need "civil servants" to serve us things we don't want or need and the ones that we do are much better, faster and cheaply provided by free markets? And why on earth would we want "social equality" if it only diminishes everybody's wealth (see Piketty Fences or Austrian Economics In Pictures or Corollary Austrian Economics)?

But these are only our thoughts. Yours will be different and that is your choice. Just one thing; as the world economy continues to circle the drain and is flushed into sewers by politicians and bureaucrats, don't forget we told you so. In advance. With time.

Note: please see the Glossary if you are unfamiliar with certain words.

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