The Reverse Externality of Bureaucracy
“The assumption that agents are rational provides the intellectual foundation for the libertarian approach to public policy: do not interfere with the individual’s right to choose, unless the choices harm others.”
- Daniel Kahneman, Thinking Fast and Slow
The conceit of libertarian philosophy is that people are able to make their own decisions. The bedrock assumption of bureaucracy is that they are not.
The word able here suggests that individuals not only have the knowledge and the judgment to come to the correct conclusion, but they also possess the wherewithal to act. Bureaucracy may question the intelligence of the individual if the subject is difficult or controversial. Bureaucracies believe, correctly or not, that their myriad rules embed insight that the people do not or cannot possess. Such understanding is deemed to be the sole province of a select group of vetted specialists. Individuals may also lack sufficient will to act. It is the self-appointed duty of the bureaucracy to nudge their subjects into taking correct action.
To the libertarian, everyone is responsible for themselves. They can do what they like as long as it does not harm another.
The bureaucrat is adept at seeing (or inventing) externalities that justify intervention. Look hard enough and you will see whatever you want to see. It takes a village to do anything, no matter how private.
A key feature of bureaucracies then is that often they purport to be the expression of expertise. They claim credibility from the superiority of their process or the quality of their credentials. To these brahmins, it is necessary to impose rules upon the people when the subject matter is too complicated for the layman to comprehend. Of course, the libertarian will be the first to point out that it is the individual who bears the consequences of the expert’s opinion.
For an explosively controversial example, consider the policy response to Covid 19.
The CDC went all-in on mask-wearing.
“We are not defenseless against COVID-19,” said CDC Director Dr. Robert R. Redfield. “Cloth face coverings are one of the most powerful weapons we have to slow and stop the spread of the virus – particularly when used universally within a community setting. All Americans have a responsibility to protect themselves, their families, and their communities.”
See the complete certainty in this message. You were endangering your community and your family if you didn’t wear a mask. Efficacy required universal compliance. This is the language of externality.
There was little to no contemporaneous serious discussion of the costs to the individual. It wasn’t just masks. There was also general, population-wide isolation seemingly regardless of the mental health implications for individuals, particularly children, or the economic impact on individuals. “The” science was clear.
But, three years after the lockdowns, here is the Cochrane Review with findings like this:
“Compared with wearing no mask in the community studies only, wearing a mask may make little to no difference in how many people caught a flu‐like illness/COVID‐like illness (9 studies; 276,917 people); and probably makes little or no difference in how many people have flu/COVID confirmed by a laboratory test (6 studies; 13,919 people).”
Mistakes were made.
Ironically, there is a sort of reverse externality that can be present. In seeking to put in place rules that mandate conduct for the ostensible good of the commons, there can be negative ramifications for the individual that bureaucracy downplays and discounts significantly.
The beauty of these kinds of regulations is that the rule maker can claim improper execution should the results disappoint. This is a cliched example of the No-True-Scotsman logical fallacy.
Bureaucracy is not scientific. Politically, it exists in a realm beyond falsification or accountability. Perhaps the masks didn’t work because people were insufficiently compliant. There was less-than-universal uptake of the masking policy. Or maybe, people used the masks incorrectly. Here’s the Cochrane Review again:
“The observed lack of effect of mask wearing in interrupting the spread of influenza‐like illness (ILI) or influenza/COVID‐19 in our review has many potential reasons, including: poor study design; insufficiently powered studies arising from low viral circulation in some studies; lower adherence with mask wearing, especially amongst children; quality of the masks used; self‐contamination of the mask by hands; lack of protection from eye exposure from respiratory droplets (allowing a route of entry of respiratory viruses into the nose via the lacrimal duct); saturation of masks with saliva from extended use (promoting virus survival in proteinaceous material); and possible risk compensation behaviour leading to an exaggerated sense of security (Ammann 2022; Brosseau 2020; Byambasuren 2021; Canini 2010; Cassell 2006; Coroiu 2021; MacIntyre 2015; Rengasamy 2010; Zamora 2006).”
Maybe, true universal mask-wearing was never effected.
Covid may be a poor example. It was an urgent crisis with incomplete information. We were doing our best.
But, absent emergency conditions, what drives the proliferation of bureaucracy?
Consider this quote from a Wall Street Journal article describing the ways in which big technology firms inhibit innovation.
“The first few weeks after the acquisition, we began dealing with the bewildering corporate bureaucracy,” says Mr. Bardin. “What seems natural at a corporation—multiple approvers and meetings for each decision—is completely alien in the startup environment: make quick decisions, change them quickly if you are wrong.”
Too many cooks in the kitchen is not a recipe for making things happen. When everyone is an expert, does anything get done? The people at Google who sit on committees, discussing decisions instead of making them, are all highly compensated. They’ve got to justify that money somehow.
Nobody gets paid for getting out of the way.
A corollary implication relates to the supply and demand of expertise. The more experts there are, the more pressure there is to impose regulations.
This is troubling then when we consider what Peter Turchin describes what he calls the overproduction of elites. In the complex adaptive system that is modern life, there is an optimal size of the elite. Ideally, the system can absorb the elites that it generates, employing them (and rewarding them) in a way that does not destabilize or weaken overall well-being. Optimally, the elite contribute as much marginal value as they consume. (The elites consume a disproportionately high share of available resources, of course.)
Perversely, though, it is possible for the system to devolve onto a path where it produces too many claiming elite status. Too many means some number beyond the capacity of the system to sustain in terms of the resources they would consume and the effects of the influence they would have over others. Here is National Review discussing the implications:
“Elite overproduction generally leads to more intra-elite competition that gradually undermines the spirit of cooperation, which is followed by ideological polarization and fragmentation of the political class. This happens because the more contenders there are, the more of them end up on the losing side. A large class of disgruntled elite wannabes, often well-educated and highly capable, has been denied access to elite positions.”
Doesn’t this sound familiar?
The losers pound the table for more regulation and more experts and the concomitant expansion of roles for the elite class.
Of course, there can be offsetting systemic absorbers to defer this intra-elite competition, if we’re lucky. They provide alternative rents for the experts to seek.
One wag on Twitter recently suggested the over-hiring that took place during the 2020s tech bubble was nothing more than welfare for people “who went to the right schools.”
Interpreting his argument, it sounds as if he is saying that large companies like Google and Facebook performed a social service in hiring people with Ivy League pedigrees and paying them salaries commensurate with their putatively elite status. Many of these people did nothing substantial, as evidenced by recent large-scale layoffs including Musk’s infamous purge of the Twitter employee base. Tik Tok videos of a-day-in-the-life of so-called “product managers” were mind-boggling for the combination of luxurious benefits and the absence of any apparent actual work, drawing scathing comments from the put-upon hoi polloi. Only the biggest tech companies with the privilege of network effects and obscene, evergreen operating margins they hoped to obscure from public scrutiny could afford this kind of friction. Big Tech did us all a favor by mollifying these nabobs with make-work.
As these governor mechanisms fade, the logical prediction is that we will see more regulation, more bureaucracy, and more seats for the elites in public policy and other circles. Their successful penetration of a wider array of organizations will lead to greater pressure to create more members of these elites. One consequence of contemporary aggressive antitrust policy is that it may unleash pent-up regulatory furies in organizations that can afford them least.
Putting these theories together more broadly suggests that as societies grow wealthier, there is a natural tendency to overproduce elites who in turn drive an exponential increase in bureaucracy. Growth rates in regulation increase with levels of regulation, until the elites destabilize the political system and the bureaucracy they create renders the system brittle.
It’s not clear there is a solution that could short-circuit this vicious spiral. The equal and opposite reaction to this proliferation of oversight and direction may be emergent populism. In this view, populism may increase in proportion to the expansion of bureaucratic imperatives. None of this is stable.