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Thanks for highlighting that story, Daniel. I think the key paragraphs are:

Consider this from William R. Dougan, president of the National Federation of Federal Employees and chairman of the Federal Workers Alliance. “If I can leave you with only one message today, let it be this,” he said at the hearing. “You do not measure the size of government by the number of federal workers, you measure the size of government in dollars and cents.”

The reason? Reducing the number of employees doesn’t necessarily mean smaller government. It may mean hiring private contractors for the work.

It’s not an easy answer. Here are a couple related discussions on GovLoop:

Salaries vs. Services: Which Line Item Would You Cut First?

GovHelp: Budget Crunch – What Government Programs Ought to Be Axed?