Economists across the ideological spectrum largely, if not entirely, agree that the United States has a “mixed economy.”
In other words, our economy operates somewhere between the polar extremes of the classical liberal free-market capitalism that prevailed during the early decades of our republic and socialism, under which the government directs economic production. One possible label for our system is bureaucratism—a system in which the state has absorbed some segments of the private economy while influencing many remaining private enterprises via extensive regulation.
The Economics of Bureaucracies
Economically, few would dispute the statement that bureaucracies are wasteful and inefficient. We’ve all heard stories about government bureaucracies spending large sums of money on absurd, if not outrageous, programs. We know that heads of bureaucracies go on spending sprees buying nonessential items in the last month of the fiscal year so that Congress won’t conclude that the bureaucracy is overfunded and can get by on a smaller budget appropriation.Unlike in the private sector, where profit-seeking enterprises seek to contain costs to improve their profit margins, bureaucracies disregard costs. They don’t want to be perceived as holding back on performing their assigned task. In the private sector, a firm that does a poor job loses customers and profits and possibly goes out of business. By contrast, when a bureaucracy does a poor job, its managers tell congressional overseers that they need more money for additional personnel, equipment, and so forth, and they usually get it.
Consider one of our oldest and largest bureaucracies: the Pentagon. The reports you might have heard about $600 toilet seats and weapons systems being canceled after billions of dollars have been spent on them are true. The anti-American left relishes publicizing such incidents. I agree with the left that the Pentagon is hugely wasteful. I disagree with the left that we should dismantle national defense. Sorry, but in our dangerous world, we need a robust national defense, despite the inevitable bureaucratic waste.
And I disagree with my libertarian friends when they say defense could be privately funded and controlled. Sorry, but do you really want a Bill Gates or George Soros controlling private armies? No, the proper lesson to derive from Pentagon waste isn’t that we should abolish or privatize national defense, but that no country can afford too many bureaucracies. Every bureaucracy is a drain on a nation’s economy, funded by taxes laid on the wealth-generating private sector.
Despite mounting economic costs, for the better part of two centuries, the federal government has been adding departments and agencies that deal with matters clearly beyond the scope of its enumerated powers in the Constitution. The 10th Amendment—which was supposed to prevent Uncle Sam from getting involved in agriculture, education, energy, health care, retirement planning, housing, labor markets, and so forth—has been systemically ignored. Consequently, the federal government today plays a colossal (and colossally expensive) role in many spheres of economic activity that the private sector could handle with much greater efficiency.
The Politics of Bureaucracies
As Mises pointed out in his book, bureaucracy is the mechanism of tyranny, whether you look at the ancient Egyptians or today’s Chinese Communist Party. (China’s economy has grown explosively since the reforms of the 1980s permitted a considerable amount of profit-seeking activity, but the people are being suffocated by ever-tighter bureaucratic controls, such as social credit scores, facial recognition technology, and so forth). The monsters whose names are recorded in our history books—pharaohs, emperors, Stalin, Hitler, Pol Pot, Mao, and so forth—could never have held power over societies without the complicity of an army of faceless bureaucrats willing to destroy the lives of fellow citizens in exchange for a secure position in a government bureaucracy.Bureaucratism is fundamentally anti-democratic and illiberal. Unelected bureaucrats, rather than elected legislators make decisions that greatly impact their fellow citizens. In fact, it has gotten to the point where, in a typical year, more than 90 percent of the rules that Americans must live by (or else be fined or otherwise punished) are promulgated by bureaucrats rather than enacted by legislators.
Once again, the very structure of bureaucracies leads inevitably to problematic outcomes. Since a bureaucrat’s job is to regulate, he or she regulates. The bureaucrat is paid to achieve a particular goal, so he or she pushes toward that goal, even if the costs it imposes on the private sector are crushing.
I knew a man whose family had produced mushrooms in a cave they owned for several generations. A bureaucrat from the Occupational Safety and Health Administration (OSHA) fined him $10,000 for improper electrical lighting in the cave.
The owner said, “How about $5,000?”
“OK,” replied the bureaucrat. Obviously, the fine was—like many of the regulations themselves—arbitrary and capricious. The owner finally wearied of bureaucratic molestation and closed down his business. The United States now imports those mushrooms from abroad.
The march of bureaucratism received a welcome setback when the Supreme Court slapped down a flagrant usurpation of power by the EPA with its West Virginia v. EPA decision, but the whac-a-mole regulatory state continues to grow. The Supreme Court seems to be awakening from its long-time somnolence in the face of executive branch expansionism. Will a Republican Congress in 2023 begin to reclaim its constitutional prerogative of writing the laws of the land, or will it throw the country to the howling wolves of creeping bureaucratism? Will that creeping bureaucratism culminate in the total bureaucratic control of society, that is, socialism? We shall see.