The Practical Rules of Bureaucracy

To Hegel, bureaucrats were the "universal class" whose interests were identical to those of the state. This was questioned by Marx, who expected that bureaucrats simply pursued their own interest, regardless of that of the state, or of anyone else. Now this is a large part of modern economics, Public Choice Theory, which is discussed here with Rent Seeking. I was in a candidate forum, running for California State Assembly, in the mid-90's, when one of the participants asserted that things done by government are always done more efficiently than when done by private business. There were so many ways in which this assertion was preposterous, but I did want to be able to give one essential reason why it was impossible. This first rule of bureaucracy provides us with that reason.

1. Spend Your Budget. This is the most important rule of bureaucracy and starkly differentiates bureaucracy from the purposes of private business. Of course, when a business becomes large enough, we start getting a bureaucratic dynamic within it -- as we often see in the "Dilbert" cartoons, such as the one above. But in a private business, of course, anyone with the welfare of the business at heart will want to cut costs in order to increase profits. Every dime saved is profit earned -- or it can be used to lower prices and sell more of one's product, which can increase profits on volume. In a bureaucracy, however, profit is not an issue. If you don't spend your budget, you may be congratulated on your economy, but then the reasoning will be that now you don't need that extra money in your next budget. So your budget will shrink, without any other benefit accruing to you. A shrinking budget then means shrinking power in the bureaucratic system. This is the last thing that a bureaucrat wants. Therefore, you must always spend your budget, and economizing is a sin devoutly to be avoided. Spending your budget, you can proceed to the next step, which is:

2. Fail. Whatever it is that your bureau is supposed to be doing, if you don't do it very well but can produce a reasonable argument that your failure is from lack of money (or enough power), then you can (if you've spent your budget) always ask for more money, i.e. to be "fully funded." In private business, this is a delicate matter, for there is always the danger that your protestations will not be believed and that your office or project might simply be abolished -- or you fired. Even if a private business is bureaucratized, as the level of responsibility rises, you will always reach a point where someone realizes that they need to worry about costs and profits. This may be addressed in a foolish way, to conceal costs and fraudulently inflate profits, but a day of reckoning will eventually arrive and the deceptions will be unmasked. Management may be fired, the company may be bought out, or the company may go bankrupt. In government, you are much safer, for your superiors are just as likely to be in the business of increasing their budget as you are, and they are perfectly willing to take your arguments and make them in turn to the next higher level of authority and funding. In government, this can easily go all the way to the top. Thus, in the United States we have a political Party, the Democratic, whose approach is to claim in every area possible that the government doesn't have enough money and that taxes always need to be increased to provide absolutely essential services. This claim is made the most consistently and openly in relation to public education, whose failures are conspicuous, notorious, and perpetual, but whose only problem from a political point of view is claimed to be lack of money. Of all the ways to show the vacuity of these claims (e.g. better funded districts, like Washington, DC, do much worse than poorer distracts, as in Utah), the best example has been the Court ordered spending on the Kansas City public school system. Some of the highest levels of school funding in the country, mandated by the Court, were unable to improve the performance of the schools at all. The whole story of this is discussed in a Cato Institute paper. However, nothing like actual facts or outcomes has inhibited in the least the political claims that public education is not "fully funded." Indeed, there is a symbiosis between the ignorance of the public, products of public education, and the ease with which falsehoods can be uttered with impunity both by politicians and by media organs who are in league with the politicians. The success of such deception, of course, is the fruit of the next rule:

3. Cover Your Ass. If you are a bureaucrat, you want to be sure that nothing is ever your fault. If it were, and if you were not simply starved for the money and power that you are seeking, then the reckoning might actually cost you money, power, or even the existence of your job. One of the best jobs of ass covering in history was accomplished by the Federal Reserve System at the beginning of the Great Depression. The System had been created principally to ensure the liquidity of banks in credit collapses and banking panics. Since banks only hold a fractional reserve of their assets in cash, a panic can result in a run on banks, with all the reserve cash being withdrawn, which means the bank defaults, "breaking" the bank. The first line of defense against that had been the ability of banks to call in loans. However, borrowers quite often, especially at the time of a credit collapse, are unable to immediately repay their loans, which simply means that as the banks go bankrupt, they pull down the borrowers with them. Another line of defense, which was used in the panic of 1907, was the banks simply refused to pay cash. You could close your account and withdraw your money, but you could only get a check for it. As long as other banks accepted the check, this might annoy hard money customers, but it did not affect in the least anyone's liquidity or solvency. Unfortunately, the practice was illegal -- banks were required to pay out cash on demand. The Federal Reserve was supposed to regularize an equivalent practice. If a run on a bank threatened its solvency, it could simply call up the Reserve and ask for more cash. A new form of money, Federal Reserve Notes, was created specifically for this purpose. Federal Reserve Notes could be redeemed in gold, but it was stipulated that this could only be done at the Treasury in Washington (where the Treasury itself only held a fractional reserve). This certainly limited the practicality of cash payouts in the event of a panic, and it lifted the onus of payment suspension from the banks. Unfortunately, when the day came, mostly importantly late in 1930, that the banks really needed support, the Federal Reserve suddenly had an attack of financial caution, reasoning that banks that needed emergency cash probably were not very well run anyway, to be in such circumstances. Better that they should fail. Unfortunately, this attitude of sober caution allowed the whole banking system to collapse, taking the economy down with it. Who was being protected by the Federal Reserve? Certainly not the banks. Certainly not the economy. Certainly not the nation. No, all that was being protected was the Federal Reserve System -- protected in a wholly gratuitous way, since the Fed could simply create money; it wasn't borrowing it from anyone else. Nevertheless, did the Federal Reserve succeed in covering its ass? Yes indeed. Few people knew what the purpose of the System was supposed to be, or that it had manifestly failed in its mission. The result was that the Federal Reserve System was given more power than it had before by the Roosevelt Administration. Eventually, Federal Reserve Notes became the only currency in the United States. Fortunately, under Volker and Greenspan, the Federal Reserve has had a better idea of what it ought to be doing, but the fact remains that the Fed possesses an irresponsible authority that it was not originally supposed to have and that can easily be misused with changes in politics and leadership. The only institutional change that would make the Fed do its job is if it were answerable to the member banks. However, in the present, continuing climate of political hostility to finance, banks, and corporations, the consensus is to support irresponsible bureaucratic control over the banks.

4. Pass the Buck. An excellent way to cover your ass is to deny you have responsibility, not just for things that go wrong, but for the whole issue. Thus, the Federal Reserve System escaped accountability for its role in creating the Great Depression because it could blame the banks, i.e. the banks were responsible for their own liquidity, not the Fed. This was especially outrageous because (1) the Federal Reserve System was created specifically to support the liquidity of the banking system, (2) the Fed had lowered reserve requirements during the 20's precisely because banks would not need as much in the way of reserves with the System to back them up, and (3) the Fed required banks to hold their reserves even when that was all the money they had left, which meant that from a banking point of view, the reserves were actually useless -- they served no role but to provide assets to pay off the creditors of broken banks. In poker this whole process is called "sandbagging," i.e. tempting someone into an exposed position by giving them false confidence in their strength or security. Then you reveal the true weakness of their position and destroy them. The Federal Reserve would have no rational ground for doing this. It certainly happened out of a shear bureaucratic dynamic. The Fed was answerable to no one who was going to have to worry about the cost of the business, and the failure of the entire banking system hurt the Federal Reserve itself not in the least. On the contrary. At the same time, deflection of responsibility from the Federal Reserve provided a very useful tool for politicians. Franklin Roosevelt could blame the Depression on the banks, on finance, on "speculators," in short, on capitalism. If the agency or responsibility of the government for the Depression could be obscured, then a reasonable case could be made for giving the government greater power, raising taxes, etc. This has driven American politics ever since. Conventional wisdom about the Great Depression, even from (economically illiterate) historians, continues to assign responsibility to banks, finance, etc., and this continues to support political programs that disparage capitalism and promote more power for government. The evil long term consequences of this have thus been incalculable.

5. Don't Rock the Boat. An excellent way to avoid responsibility in bureaucracy is not to be noticed. That is one meaning of not rocking the boat, or not making waves. And, of course, an excellent way of not being noticed is to pass the buck. Most Americans have by now probably had the experience of dealing with a government agency or a large corporation where it was all but impossible to find anyone actually willing to admit that your problem falls under their authority. One form of this is long waits on the telephone, after being put on hold, while someone transfers a call to whoever can actually deal with you, only to be told by them that you need to talk to someone else. And, as often as not, that someone else isn't there -- they are on vacation, have a day off, left early, aren't at their desk, are on the line with another person, etc. So, after hours of frustration, who in particular can you complain about? Another meaning of not rocking the boat, however, concerns the chain of command. Your superiors are in charge of your evaluations and your budget. If you have succeeded in spending your budget and avoiding responsibility, the evaluation of your work is probably going to depend on personal and political considerations. In a real business, with a bottom line, this is deadly. When a private business gets large enough, however, either the internal dynamic is completely bureaucratized, or it may be possible for your superiors to take credit for your good work, perhaps without your even realizing what they have done. In a small enough business, where enough of management is personally familiar with more of the workers, it is more difficult for someone to take credit, and conceal that, for something they have not done. In a vast, impersonal, governmental bureaucracy, there may be no genuine credit for anyone to take; and the accomplishment of the office or the program may consist of a tissue of sophistry and babel, which conceals the pointlessness and futility of whatever it is that is going on. An entirely fictitious system of useless goals and purposeless criteria is liable to be created. There is a saying to this effect that originates with one of the great modern bureaucracies, a peacetime military. Thus, we hear that "There is the right way, the wrong way, and the Army's way," i.e. this is the way that the Army does it, even if it doesn't make any sense. This sort of thing, of course, can get a lot of people killed in the event of an actual war. Without war, though, the follies can accumulate almost without limit. In such a climate, personality and politics are everything. Not rocking the boat or making waves thus means avoiding anything that will annoy or embarrass the superiors, or create any kind of problem for them. They are not going to like problems that you create and will probably retaliate. On the other hand, not creating problems, but helping out in the overall project of bureaucratic empire building will be rewarded -- with a greater, if still subordinate, place in the empire. The great exception to this, on the other hand, is if you can go over the head of your superiors and destroy their credibility with the next level of management. This can move you up in the management hierarchy. Such an action can be called Machiavellian, or Byzantine, the former as an example of the raw exercise of power (where economic considerations like costs, profits, etc. are irrelevant), the latter as an example of the only successor of Imperial Roman bureaucracy in early Mediaeval Christendom. "Byzantine" itself is thus an excellent term to use in relation to the bureaucratic dynamic.

6. Join the Union. The dynamic of the bureaucrat is to be a rent seeker. The union is what you need to accomplish rent seeking in the most complete way. It used to be that people thought of labor unions as the way to sock it to the capitalists. The practical effect of the free market, however, is that unions are unnecessary, since real growth in wages (or other compensation) comes from increased production (see Say's Law), while merely driving up wages, as unions do, simply creates surpluses in the labor market, i.e. unemployment. Thus, a peak of union membership in the United States of 36% of the labor force in the 1940's has declined to less than 16%. However, much of the membership now is in public employee unions -- the very idea of which was anathema to union pioneers like Samuel Gompers. Unionization of the private work force is now, I believe, less than 8%. Since, as we have seen, increased productivity has little to do with bureaucracy, driving up wages is the only way to increase compensation for public employees. Thus, instead of socking it to the capitalists, the purpose of unions is now simply to sock it to the taxpayer. Of course, the rhetoric remains the same, at least when people pay attention to what they are saying. Attacking taxpayers for their greed and selfishness tends to be a loser at the ballot box. Leftist politicians have much better luck attacking corporations -- though the most powerful corporation in the country, the state, then never comes in for criticism. Teachers' unions do the best job of deceiving the voters, by constantly blaming the failures of public education on lack of money. The voters somehow have become more gullible to this approach, perhaps as the result of public education! Unions in the private sector are caught in a paradox. They are eager to unionize the illegal aliens that have flooded across America's borders, looking to derive a great deal of money and political power from them. However, if such workers were legalized and unionized, and succeeded in driving wages to the level that union officials remember from before illegal labor flooded the market, they would only succeed in eliminated the jobs that attracted the immigration in the first place! They can maintain their double-think only by not believing that increasing the amount a labor actually does drive down wages. Either way, their only real hope of maintaining the power of unions is through public employee unions and putting all their political power at the service of political parties, principally the Democrats, whose project is to promote the power and size of government, and of government employees, over the private sector and the taxpayers. At the same time, if legalized immigrants lose their jobs, then a new Welfare system can be created to support them, which will keep them dependent and voting for government in perpetuity.

7. Jerk People Around. Once bureaucrats have their rents and their power, what do they do with them? Well, they "serve the public." If they don't actually serve the public very well, there is not much that can be done about it, since they will have the protection both of the civil service system and of the unions, and it may be all but impossible to fire them. So why not have some fun in the meantime? Just say no. The public needs to be reminded that they are at your mercy, so you might as well make things as difficult for them as possible. It helps that an inefficient "spend your budget" bureaucracy is going to have tons of rules and regulations, where they are most likely to be incoherent and even self-contradictory. So you will have no difficulty quoting one rule to one person and another to another, requiring them to do different things, both of which can then be retroactively invalidated by a switch in the rules. James Madison wrote:

   It will be of little avail to the people that the laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is today, can guess what it will be tomorrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed? [Federalist Paper No. 62]

   The reasonable response of the bureaucrat (who isn't even of the choosing of the voters in the first place) to this would be, "Sounds like a good idea to me!" You do not want law or regulation to be a "rule of action," because then people would know beforehand what is required, prohibited, or allowed. Your power, to decide all those things arbitrarily, would be diminished. Indeed, looking at almost any part of federal or state regulations, no one can honestly deny that they "be so voluminous that they cannot be read, or so incoherent that they cannot be understood." This is not an accident. It serves a purpose. And we see something else. Regulations are not created by elected legislators. Politicians have covered their own asses by passing the power of making regulations to bureaucrats, creating the unconstitutional system of "administrative law." The irresponsible bureaucrat thus comes to rule the modern state. The only drawback of this is its twilight existence. The bureaucrat needs to be faceless, both so as not to rock the boat with superiors but especially so that he can play his essential political role. The politicians who give bureaucrats power will always take credit for whatever works but then will always blame the bureaucrats for whatever goes wrong. As long as those bureaucrats are kept faceless, and it is the "system" that is the problem, then we actually have blame without accountability and without consequences. Nothing need be done, unless, of course, it is to give the bureaucrats more money and more power, because, after all, what else could really be wrong?

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