Death on the Installment Plan

Bureaucracy is the road to collapse.

In his Wall Street Journal oped “Why is policy making so bad?,” Holman Jenkins has a comment on Peter Thiel that struck a chord.

“Peter Thiel once theorized that Washington thinks capitalism so sturdy that it can sustain any burden placed on it.”

When he refers to “Washington,” I presume Thiel means the bureaucratic-political elite that constitutes our federal establishment, many of whose constituents have no experience working in the private sector.

Imagine a politician who graduated from university, worked a couple of odd jobs, and entered Congress at a young age, with an attractive face and some other intangible charms. Occupying a safe seat, our prodigy grows wealthy in office despite the paltry salary because … reasons.

These people are influencers, really. They measure their impact in votes and views and dollars raised and crowds. They exist in a unique plane of existence, in parallel to the quotidian dimension most of us occupy with jobs, mortgages, responsibilities, and consequences. The politician’s post-electoral wealth and elevated status detach him from the vicissitudes of our plebeian, workaday lives.

The politician calls for additional regulation of industry and individuals, falsely confident that these marginal moves will have little to no pejorative impact on anything positive that comes from this activity; it will only affect the negative stuff, of course. Intention is his reality, the stuff that builds his political capital. If he is sufficiently cynical, he doesn’t care what happens. Companies will still innovate and supply things because, hey, what else are they going to do? We will always enjoy a monotonically increasing standard of living, right?

This is partial equilibrium thinking. The true purpose of the regulation or rule is to enable the politician-regulator to imprint his control over the economic interactions of different players, converting it into the currency of personal status. It ignores the possibility that all of these moving pieces exist in the context of a complex adaptive system where actions have unpredictable consequences.

The politician thinks he is playing checkers when, in fact, he is playing four-dimensional Jenga.

Regulations distort the decisions individuals make. If it ends up as a distortion to correct some externality, then great. If it’s a distortion absent such externalities, then we’ll probably end up with an outcome that falls short of the socially optimal outcome. There will be less to consume; we won’t have as many resources to help the less fortunate. The bureaucrat fails to acknowledge this even as he justifies his intervention by citing the putative improvement in welfare he avers his recommendations will enable. You can’t prove that things would be better absent his interference. There is no counter-factual, or at least one he would acknowledge.

The politician-regulator lobbies for higher taxes on the rich and intensified fiscal and monetary stimulus, touting theories like Modern Monetary Theory that fly in the face of economic praxis.

“Modern monetary theory or modern money theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can pay interest by printing money. MMT argues that the primary risk once the economy reaches full employment is inflation, which acts as the only constraint on spending. MMT also argues that inflation can be controlled by increasing taxes on everyone, to reduce the spending capacity of the private sector.”

This notion that resources are something the state creates out of thin air is the kind of sophistry peddled by fabulists that passes for policy these days. Its high priestesses are like the fakir who tells his wealthy sponsor that he can conjure diamonds from whole cloth for the sponsor’s benefit. The universe, the infinite intelligence, will provide, if only we ask, bringing balance to all things. Om Shanti.

It’s not just government where this misunderstanding of the fundamental questions of the nature of value and the means by which it is created are weaponized to serve the interests of the enlightened Brahmins who emerge to prey on success wherever it appears.

Call it the Bureaucratic Law of Large Numbers.

Imagine you were the founder of a startup and its product struggles to sell until one day it starts to fly off the shelf. You don’t know why. You can’t explain it. You didn’t predict it. (Well, you told everyone it would happen, but you didn’t really know.)

The kids call this product-market fit.

Think Google. It launched a search engine when there were several super-successful search engines in the market already (Yahoo!, AltaVista, AskJeeves, etc.). It took off with word-of-mouth. Its growth was exponential: slowly, slowly, then quickly. The more people who used Google, the faster was its growth rate in terms of new users.

Look at Google now. It’s bloated and bureaucratic. It is the Jabba-the-Hut of technology companies with all manner of hangers on in HR, DEI, and attendant non-productive functions. It invented the Transformer Generative AI model, but other companies are dancing circles around it in exploiting the opportunity. Google is a prisoner of its prior success.

Bureaucracy compounded like cancerous tumors on the healthy body of the firm as it indulged in a sugar-heavy diet of moonshots, diversity, internal political battles, crazy benefits, and a culture of entitlement. The functionaries convinced everyone they could print higher stock prices with their administrative overhead machine. Call it Modern Management Theory, the other MMT.

Google stopped being a startup and became a corporation long ago. Its ability to continue generating cash and developing new things is a testimony to the strength of its core technological DNA; its disappointing performance versus its potential reflects its entrepreneurial atherosclerosis. It’s like seeing a fat man run a marathon. Good for you, Bob. I remember when you were captain of the track team in college.

Bureaucracy infects success. The bigger the target, the more likely it is to attract bureaucracy in both self-regulation and externally-imposed control. The company then must implement its own internal compliance administration. In turn, this sickens the patient.

If you take this assumption that the private sector will continue to be dynamic and responsive no matter how fulsome the constraints our establishment enthusiastically imposes to its logical extreme, you get socialism. This is what Thiel means, I think.

Deconstructing things to the level of the ridiculous, you come to believe that a nut-less monkey could run a company successfully, that corporate decisions are irrelevant. The universe will provide, as it always does. Om Shanti.

In that case, it doesn’t matter who is running the firm, so it might as well be the workers. If management is value-less, then let the masses run the factories. Or your brother-in-law, Billy. Or your buddy from the gender studies track at Harvard.

Of course, this doesn’t work. We end up with a society that only makes left shoes in size 13, while people queue up for rations of bread.

Here, China’s experience is instructive. Having failed with the deconstructed model, they decided that they could have their cake and eat it, too. They implemented an industrial policy focused on domestic growth, one in which the country would be the factory to the world, as long as the Communist Party stayed in control. The Party essentially outsourced the management of industry to a quasi-private sector. China would get the rest of the world to pay for its development, exploiting the excessive consumption of the First World, even as the Chinese government financially repressed its own people to fund this agenda and limited foreign competition in its domestic markets.

In a country with almost perfect competition, all Party leadership has to do is to signal its strategic interest in global domination of category X, say solar panel manufacturing, and voila, hundreds of companies jump at the chance to take advantage of subsidies and government favors and government promotion on the world stage. If any individual entrepreneur forgets their subservience to the state and the Party, well, they can be disappeared. What was Jack Ma doing in Thailand for so long? How many Chinese billionaires have been arrested as part of the rolling “anti-corruption” scandals?

Business serves the interest of the Communist Party, not least of which is the preservation of control for the party elite. And business is (or has been) very, very good. China’s problem is that they may have been too successful. They now face tremendous imbalances and they don’t know what to do.

Are bureaucrats in the West different? Not really.

Our tow-headed politician-regulator is focused on control for the personal financial and other non-pecuniary benefits it confers. For example, flying first class or, even better, private, as they go from rally to rally is necessary for them to spread the Good Word, after all.

In the end, the true, pure source of bureaucratic power is envy, the original, supremely primitive sin. Regulators can sell the marginal rule or the incremental tax or the casual criminal enforcement as retribution for the presumed unearned good fortune of the wealthy and the successful. After all, these people happened to win the lottery, right?

Good intentions will descend into socialist mismanagement unless the people can see through it.

It is more difficult for this philosophical weed to take root in an envy desert, a society in which the culture is individualistic and optimistic. If people think that hard work, education, traditional values, and a little bit of good luck give them a shot at being one of those nut-less monkeys, they are less likely to envy the rich. They are more likely to try to become wealthy themselves (or to create the conditions for their children to succeed financially and personally).

For this culture to persist, there has to be opportunity. People from every background need to have access to good education. Social mobility needs to be possible; it can still be difficult, but it cannot be outside the feasible set. Moving up must be seen as possible.

People need to understand and respect traditional values. Individual liberty needs to be a vital cultural touchstone for broad swathes of the population. There needs to be a shared understanding that one gets ahead by improving the lives of others with provided goods and services sold at a reasonable price, not from knowing the latest shibboleths to preach from the safety of a luxurious distance.

For the politician-regulator to succeed in exploiting envy, the masses need to be frustrated in their ability to run their own race. The game must be perceived to be zero-sum, not positive-sum. To the extent that the regulator’s distortionary rules inhibit opportunity, so much the better for the prospects of the bureaucrat’s long-term, genetic imperative to dominate. Like birds flying South in the winter, the regulator does these things without knowing why, in service of the grander, embedded functional imperative to exchange deconstructed chaos for power.

China was ripe for it, given its collectivist, Confucian tradition.

In the Western countries, our budding bureaucrats first need to salt the ground by attacking anything traditional. Take over the educational institutions so that the canon containing Western wisdom is marginalized as anathema under a host of slippery, contrived dimensions. Turn envy into a religion and give it a vector for widespread adoption like social media, even as the legacy media replaces the traditional role of Church, Synagogue, and Temple with its sermons preaching sybaritic, self-centered indulgence.

It happens without any organized plan. After all, the beneficiaries will be people who come along decades after these moves are set in motion.

But make no mistake. Bureaucracy and socialism are kissing cousins.