That America’s national debt now stands more than $28 trillion has done little to temper Democrats’ enthusiasm for more and bigger government programs, even as a 2020 poll by the Peter G. Peterson Foundation found that 73 percent of voters have become more concerned about the national debt.
We might surmise that while most voters recognize the soaring national debt to be a problem, many are willing to accept budget deficits if the resulting debt is the price of enabling the government to address what they see as problems. As reasonable as the idea of weighing fiscal prudence versus a more effective government may seem, the evidence that government is more capable of solving problems and meeting people’s needs than the private sector is lacking.
America’s per-capita health expenditures are the highest in the Organisation for Economic Co-operation and Development, and its per-student education expenditures are the second highest, yet our public schools and health-care system are often accused of performing poorly relative to others.
That a bigger, better-funded government wouldn’t necessarily solve our problems or help meet our needs shouldn’t come as a surprise. There are plenty of reasons bureaucracies are often unsuccessful at achieving economically optimal or socially desirable outcomes, especially when considering how incentives shape the goals and behavior of the bureaucrats who make up the federal government.
The incentive structures of bureaucracies may lead to cleavages between the goals of the public and the goals of the bureaucracy. Also, even where those goals are aligned, bureaucratic institutions are not designed to facilitate good performance.
The Self-Preservation Instinct
The basic incentive structure of bureaucrats and bureaucracies is as follows. The most vital objective of most bureaucrats is to protect their careers and, thus, the department in which they serve. No one wants to lose a job, and therefore people need the organization in which they work to survive, just as a rank-and-file private worker hopes the organization he works for will remain solvent and continue to employ him.
The chances of self-preservation increase in various ways. It is beneficial to persuade others that the work the department is doing is important, and ideally that its aims could not be achieved except or best by the department itself.
Increasing the size and scope of the bureaucracy also makes it more powerful, more influential, and thus more likely to survive. Therefore, the department will compete for additional funding through budget requests, spend its funds to hire additional personnel, and attempt to expand its activities.
Beyond the need to survive, bureaucrats also aim to advance their careers, moving up in the organizational hierarchy and earning more power—particularly discretionary power—to achieve their objectives. An assistant secretary hopes to earn a promotion to undersecretary, an undersecretary to a deputy secretary, a deputy secretary to a secretary, and so on. Furthermore, they would like to increase the relative power of their current positions in the hierarchy by expanding their portfolios.
All of This Is Only Natural
Clearly, the incentive structure outlined above is reasonable from the perspective of the department and the bureaucrats who compose it. However, nothing mentioned above suggests bureaucratic objectives and political objectives must be aligned, or that bureaucrats are more capable of achieving socially desirable outcomes than are other actors or organizations.
In other words, we should not expect bureaucracies to consistently share our goals, even if they have been appointed by politicians whose objectives we share. Even when they do share our goals, we should not expect them to be any better at achieving them than would be otherwise possible. There are a few reasons for this, including the following.
Because bureaucrats are hired and not elected, they are less accountable to the public than politicians. This was intended to preserve their neutrality, but the neutrality of the bureaucracy has become questionable at best and was suspect to begin with.
In order to provide stability and make use of their “expertise,” bureaucrats generally have excellent job security and discretionary power to spend tax dollars. Because they are playing with house money, they have less incentive to perform well, and are insulated both financially and professionally from mistakes.
Furthermore, their job security allows them to distort or obstruct the goals of elected leaders whose agenda they are supposed to be implementing; to create rules and regulations independently of the legislative branch; and to interpret laws independently of the judicial branch, making government less representative of the popular will.
Bureaucracies Want Forever Problems
Political logic dictates that funds be spent to solve problems as identified by the public and their elected representatives. Departments are created and funded to solve problems, but paradoxically this perverts their incentive structure.
If the problem no longer exists, or is seen as relatively minor, then additional funding would no longer be warranted; the department’s budget may be cut, or the department eliminated altogether. Therefore, the department itself is incentivized to exaggerate the public threat posed by the problem it is supposed to be combating.
Unlike the business world, in which money flees unsuccessful organizations and seeks successful ones, bureaucracies are more likely to gain additional funding if they are unsuccessful, as the public will begin to perceive the problem as becoming more severe and will become more receptive to requests for additional funding.
Because many departments and bureaucratic initiatives are not subject to market discipline, it is unrealistic to expect them to operate with the efficiency of the private sector, even when their goals are aligned with the public’s. Many bureaucracies are essentially monopolies, providing goods to a captive base of consumers.
Because they are funded by tax dollars, not voluntary transactions, it is also difficult to evaluate the desirability of initiatives, even for members of the bureaucracy themselves, and thus to evaluate how well they are performing their jobs. The “public services” they provide are based largely on bureaucratic preferences, rather than the preferences of the public as revealed through market exchange.
History also tells us that bureaucracies have a tendency to distort or massage the information used to evaluate their performance in order to achieve personal or organizational goals. Bureaucracies are often evaluated more on their ability to sell their achievements than on objective indicators of success or failure.
In conclusion, the incentives bureaucrats face may cause them to act in a way that is rational for themselves and their bureaucracies, but is not optimal from a social perspective. We should also consider that even when their goals are aligned with society’s, government intervention may not necessarily be the most effective way of achieving those goals.
Source: The Federalist
