How inefficient is the US government?
Measuring government efficiency with tech firm metrics
There's been a bunch of talk from DOGE about inefficient government and some fear about mass firings as a result. What I'll say is that I don't necessarily agree with the scorched earth approach, but I do think that we need to think in a non-partisan way about how to make govt more efficient.
All that said, what if we approach this from a first principles perspective - is our government actually "inefficient" when it comes to federal government employee base? How does it compare to other countries? How does it compare to companies?
To run that analysis, let's introduce a new metric we can use to measure effectiveness for governments, by borrowing from my tech company background - revenue / employee. To measure revenue, I'm going to use the tax revenue generated by a typical country government in a given year and compare that to the best documented source for number of employees. It's not a perfect measure by any means, but it's accessible and easily measurable. It's essentially the annual "revenue" that funds the government so it tracks.
So what does this look like for the United States (US)? - Federal tax revenues in the US were around $5T for 2024. - The US has almost 2.2M US federal employees. So we're looking at a KPI of $2.2M in revenue generated per employee.
Comparing that to the all-in compensation for a federal employee ($137K avg base + $70K benefits, pension = $205K / federal employee. So we're already talking about a 10x ROI per employee.
But how does this compare to other developed countries. Here's that comparison in USD for some other developed countries: Again the US is the most efficient purely in terms of Revenue / Employee (and I'd bet it's similar or better in terms of ROI).
Okay and what about compared to tech companies? Even compared to tech companies the US govt fares pretty well with only NVIDIA, Netflix and Apple outpacing and not by much.
So where does this leave us? I still think it's important to figure out how to make the government more efficient and headcount might be a place to start. But this seemingly ham-fisted approach that's cutting key departments left and right (RIP CFPB, RIP IRS Directfile) seems counterproductive and likely unnecessary given where we stand benchmarking-wise. What do you think?
I love the idea of using quantifiable metrics to make sense of the seismic shifts happening in government. I completely agree that absent any concrete data it's very easy to devolve into unfounded partisan hackery. Coming up with useful metrics also prompts us to ask more profound questions about what we actually want from our government.
Taking Rev / Employee Count is obviously a highly indicative statistic in the business world. I'm not sure the indicator holds the same way for a government agency. In the private sector revenue implies success because it means people chose freely to buy your product at presumably market rate. If you're able to improve the ratio of revenue:employees, it's a clear indicator of efficiency, or in other words, a clear indicator you've provided some value.
However, in government the process is inverted. We pay our taxes BEFORE we know what the "product" is. The consumer has (basically) zero agency on wether or not to "buy" the product, and therefore revenue is not an indicator of the products success, and it's role in the efficiency calculation breaks down.
What if we replace revenue with an index of things we think the government should do: public infrastructure, social services, job creation, economic stability. The Does Our Government Equitably Distribute Our Taxes (DOGEDOT). Now we have DOGEDOT / employees. If DOGEDOT / Employees can be improved then we can agree our government is efficiently doing what we want it do to.