Voters express preferences through elections
Special interest groups provide additional information and advocacy for lawmaking
Politicians create laws reflecting voter and interest gorup preferences
Bureaucrats implement laws according to goals set by politicians
Bureaucrats create regulations to implement laws written by legislators
The bureaucrat's problem:
Choose: < rules >
In order to maximize: < ??? >
Subject to: < restrictions set by legislature >
The President's Cabinet
Sometimes called the "4th branch of government"
Today, an overview of bureaucracy
The President's Cabinet
Sometimes called the "4th branch of government"
Wednesday, challenges of the rise of "the administrative State"
The President's Cabinet
"Bureaucracy," "Bureaucratic," and "Bureaucrat" all have a negative connotation
Let's be positive (analytical), not normative (judgmental) about this
Bureaucrats & bureaus are people and organizations too!
Understand their incentives, how they work, and compare to other institutions
Bureaucrats are career government employees that work for various government agencies
Point is: isolated from politics
"Boss Tweed" of Tammany Hall
Weak or underdeveloped States suffer from political patronage, clientelism, or the "spoils system"
Politicians appoint their friends, allies, and cronies to public offices regardless of qualification
Most modern democracies have very developed bureaucracies
Divorce politics from administration
1 Most have staggered terms that extend beyond a Presidential administration, so a President cannot appoint entire Commission.
Ludwig von Mises
1881-1973
von Mises: "profit management" vs. "bureaucratic management"
Bureaucracy is not an evil, the only alternative to profit management
To the extent collective choice is necessary, so is bureaucracy
Uses prices and profits, managers can be left to do as they please to maximize organization profits
Capital allocated according to profitability, comparisons to alternative uses in the economy
Does not use prices or profits, cannot determine efficient use of capital
Managers cannot be autonomous--abuse funds and no way to verify efficient use
Thus, managers must comply with specific rules about use of money and activities, often determined by legislature
William Niskanen
1933-2011
Niskanen's hypothesis: bureaus maximize (discretionary) budget
"Income" of bureau is almost entirely from Congressional grant, not sales to consumers
William Niskanen
1933-2011
Responses to Niskanen:
Bureaus cannot maximize budget, in competition with other agencies for budget
Choose: < rules >
In order to maximize: < utility >
Subject to: < restrictions set by legislature >
u(z,c)
u(z,c)
"Zealots" want to maximize rules made to reshape the world in their ideal vision
Truly believe that existing market equilibria are wrong
Note: this ≠ socially optimal regulation (necessarily)
u(z,c)
"Climbers" want to maximize own career prospects or perks
Want promotions, high salary, good work environment, more respect/clout, more subordinates to manage, directing more resources (bigger budget)
Again, also ≠ public interest
Recall the "revolving door" between the public and private sector
Legislators & regulators retire from politics to become highly paid consultants and lobbyists for the industry they had previously "regulated"
Again, source for regulatory capture of agency by industry
A bureau that accomplishes its mission or sees it as less important → budget cuts
Bureaus have an incentive to overplay the importance of their mission and the severity of the problem
Mission creep: attaching new (and tangential) goals to the bureau's original mission
President submits a budget request to Congress for fiscal year (October 1)
House and Senate pass their own budget resolutions ("appropriation bill")
Appropriations Committees in each house mark up the bills
Houses reconcile their differences, send to President
President signs budget into law
Note: often Congress fails to (agree upon and) pass their appropriations bills in time
Government shutdowns
Congress has "power of the purse"
All government agencies are funded by Congress' budget allocations process
Exchange between an agency and Congress is a year of total output for a year of funding
Bureaucracies as demanders of government spending/regulation
Congressional budget is a tragedy of the commons
Asymmetric information between Congress and agency
Only the agency knows its true costs and social benefits
Congress must deal with many many agencies, each agency only has to deal with Congress
Bureaus can try to "oversell" Congress importance and need for budget
Holdout, "Washington monument syndrome", Pandacam
Niskanen's budget-maximizing hypothesis
Dwight Eisenhower
1890-1969
"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed...The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement."
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