Budget Fight: What Public Employees Really Cost

On Sept. 6, 1791, a government worker named Robert Johnson rode his horse through a Pennsylvania forest. An unlucky man, Johnson. He was assigned to collect the first domestic tax ever imposed by the U.S. government — a whiskey tax designed to help pay down the nation's mounting debt.

That night, 15 or 20 of Johnson's fellow Americans came thrashing through the trees, stripped him naked, cut his hair and tarred and feathered him. It was the first raid in what would come to be known as the Whiskey Rebellion — an uprising that ended only when President George Washington sent 13,000 troops to restore order. (See "40 Under 40: The Rising Stars of American Politics.")

Since the beginning, Americans have resented government workers' asking for money. The distrust ebbs and flows, but the less financial security we have, the angrier we get. Since the 1970s, the only recession that has not been accompanied by a spike in distrust of the government was the one in which the 9/11 attacks occurred.

Right now, it may feel as if we are living through just another trust contraction. The air is charged with fiscal obscenities — some of which are true. State pension systems are underfunded by $1 trillion to $2 trillion, depending on who is doing the guessing. But this time is different. The American government worker is at a crossroads, and what happens next will determine the long-term competitiveness of the whole country. Both sides of the debate, the unions and the GOP governors, are furious. One side is filing lawsuits, comparing elected officials to Egyptian dictators and demanding promises be kept, markets be damned; the other is calling for an end to collective bargaining for workers, sweeping cuts and, most of all, revenge. (See a TIME video of Americans discussing spending cuts.)

But the opportunity before us is not to shrink or grow government: it's to make it smarter. Over the past three decades, nearly every other job in America has gone through the productivity wringer. Starting with manufacturers and moving through retail and professional services, we have had our jobs galvanized by technology, stripped bare by efficiency metrics and honed by competition. It has been a grueling journey, but it's the primary reason America still has the largest, most prosperous economy in the world.

Now it's the government's turn. If we seize upon this crisis to make basic changes — to start rewarding public employees in part on the basis of how effective they are, for example — we could do more than just stabilize our budgets; we could raise our entire economy.

For now, the efficiency gap between the public and private sectors is holding us all back. The U.S. ranked 68th (out of 139 countries) in terms of wastefulness of government spending in the 2010-11 World Economic Forum report on global competitiveness. Experts put our public-sector productivity about 10 years behind that of the rest of our workforce. If public workers could halve that gap, the annual savings would ring in at $100 billion to $300 billion, according to a new study by the McKinsey Global Institute. That would mean the equivalent of a recurring stimulus package every three to eight years.

See an infographic about America's budget-cut balancing act.