Say's Law for Bureaucrats

Supply Creates Demand

Tove K writes,

There is always something that could work better than it does. The solution seems to be to make a person accountable for handling every little problem. They are tasked with checking that nothing goes wrong, in any area where something can go wrong. They become building inspectors who are supposed to make sure that people don't build things wrong, social workers that are supposed to make sure that people don't parent wrong, health inspectors who make sure restaurants don't poison people, environmental inspectors who are supposed to make sure the environment does not get degraded, animal inspectors who are supposed to make sure that animals are are not treated wrongly.

Her thesis is that there is an endless demand for bureaucrats. She argues that being a good bureaucrat requires high IQ, the supply of people with high IQ is limited, the demand for bureaucrats is rising, and therefore the quality of bureaucracy is declining. I think that her intuition is correct, although I have a somewhat different take on the market for bureaucrats.

The way I conceptualize it, a bureaucrat is not a decision-maker. A bureaucrat is there to try to stop other people from doing things that could go wrong.

When somebody tries to get something done, things could go wrong. When something goes wrong, it becomes really salient, and bureaucratic positions are established to prevent it from happening again. I say that the bureaucracy forms rules around past mistakes the way that oysters form pearls around irritants.

The bureaucrat is there to say no. Bureaucrats thrive on the responsibility for saying no. But I disagree with Tove K that bureaucrats have accountability. They try to avoid accountability like the plague.

Up to a point, bureaucrats are good. There really are mistakes that can be prevented by bureaucracy. Middle managers in organizations have many ideas, and trying to execute all of them would waste a lot of people’s time and also mean executing some ideas that cause harm. So a bureaucracy should sort through the ideas and try to pick only the best ones.

Bureaucrats serve a useful function when they efficiently reduce or eliminate preventable mistakes. We really don’t want unsafe food to be prevalent.

But there are a number of flaws in the market for bureaucrats. For one thing, bureaucrats naturally try to expand their scope and hire more bureaucrats. Andrew McAfee’s The Geek Way describes the way that executives in the tech industry try to fight this tendency. I wrote about the book and also had a lively discussion of it with James Cham.

For another thing, Tove K is right that we have been increasing the ratio of bureaucrats to producers. She suggests that this is because we have nothing else for some people to do. In that, she echoes my father.

My father grew up in St. Louis, where young boys would play corkball, a derivative of baseball played with a thin bat, a small ball, and only a pitcher and a catcher. I also played a lot of corkball, because I am old enough that I grew up when it was normal for children to play outside without supervision. Today, we have bureaucrats to crack down on that.

Anyway, my father used to look at the labor market (he would not have called it that) and see a trend toward excess supply, which he said threatened society with political instability. To keep people busy, he said, “We need to pay people to play corkball.”

The equivalent of paying people to play corkball is to give them bureaucratic positions. George Bernard Shaw famously wrote “Those who can, do. Those who can’t, teach.” But in fact those who can’t, become bureaucrats.

For example, there are DEI bureaucrats. Or bureaucrats in charge of enforcing zoning rules that stifle building or regulations that hamstring corporations.

For society, having too many bureaucrats is a problem for several reasons. One problem is that they overwhelm producers. The attempt to prevent mistakes goes too far, and they keep good things from getting done.

Tove K points to a second problem. That is, as you increase the share of the population in bureaucratic jobs, you lower the IQ of the average bureaucrat. So the performance of the average bureaucrat gets worse.

But I worry more about Say’s Law for bureaucrats. Jean-Babtiste Say argued that supply creates its own demand. People want to work in order to earn money to buy things, so the desire to work creates demand.

Say’s Law for bureaucrats is that supply creates demand because bureaucrats create more work for bureaucrats. If you have worked in a large organization, you probably have seen this evolve. Two units need to coordinate, so a bureaucracy is created to coordinate them. Then that bureaucracy needs to coordinate with other bureaucracies, so you need a bureaucracy to do that, and so on.

Bureaucratic growth is particularly endemic in non-profits, which are a rising share of the economy. Everyone who works at a non-profit has very little incentive to solve the problem that the non-profit is nominally intended to address. Instead, the incentive is to lobby to expand the scope of the problem and build up an empire to deal with this expanded scope.

In profit-seeking businesses, a company that gets too heavily bureaucratic will eventually lose money and have to cut back or go bankrupt. That provides a check on bureaucracy. But government interferes with this process by creating compliance requirements. These requirements force businesses to expand bureaucracy, and they provide a barrier to entry preventing new firms from coming in and competing on the basis of lower overhead. You cannot execute a lean startup in an industry that is heavily regulated.

If you are a government regulator, one of your alternative employment opportunities is working in compliance in your area of regulatory “expertise.” So your incentive is to maximize compliance costs. Another case of supply creating demand for bureaucrats.

Have a nice day.

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