• Bureaucrats are career government employees that work for various government agencies

  • “Civil service”
  • Field of “Public administration” (MPAs, etc.)

• Point is: isolated from politics

  • Not elected, very hard to fire
  • Focus on administration and rule-making, not public opinion

• 1883 Pendleton Civil Service Reform Act

• Most modern democracies have very developed bureaucracies

  • Meritocracy and expertise over political connections
  • Rational rules over loyalty
  • Very difficult to fire bureaucrat (insulated from politics)

• Divorce politics from administration

  • Conversely, anti-democratic

• Federal Departments
  • Part of executive branch under U.S. President
  • Cabinet-level secretaries (leaders) are appointed by the President and confirmed by Senate
  • serve "at the pleasure of the President" i.e., the President can fire them at any time, for any reason

• Independent (Regulatory) Agencies
  • Established by Congress via a statutory grant of authority
  • Most have 5-7 Commissioners appointed by President and confirmed by Senate¹, most required to be bipartisan
  • "Independent" of President

• 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

1. Choose: < rules >

2. In order to maximize: < utility >

3. Subject to: < restrictions set by legislature >

• Bureaucrat maximizes own utility

$$u(z,c)$$

• Two ideal types of bureaucrat (or hybrid):
  • "Zealots"
  • "Climbers"

$$u(z,c)$$

• "Zealots" want to maximize rules made to reshape the world in their ideal vision

• Truly believe that existing market equilibria are wrong

• Note: this $\ne$ socially optimal regulation (necessarily)

  • Zealot may be mistaken, have unique preferences, etc.

$$u(z,c)$$

• "Climbers" want to maximize own career prospects or perks

  • May involve passing more rules (to put on resume)

• Want promotions, high salary, good work environment, more respect/clout, more subordinates to manage, directing more resources (bigger budget)

• Again, also $\ne$ 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 $\to$ 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

• Exchange between a producer and a consumer is a price for a marginal unit
  • Wide set of choices about how many units to purchase, how much of substitutes to purchase, purchase none at all, etc.

• Exchange between an agency and Congress is a year of total output for a year of total budget

1. President submits a budget request to Congress for fiscal year (October 1)

2. House and Senate pass their own budget resolutions ("appropriation bill")

3. Appropriations Committees in each house mark up the bills

4. Houses reconcile their differences, send to President

5. President signs budget into law

• Note: often Congress fails to (agree upon and) pass their appropriations bills in time

  • “Continuing Resolutions” (CR) to keep budget items from last year

• Government shutdowns

  • 13 since 1980
  • Longest was Dec 2018-Jan 2019 (35 days)

• 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

  • e.g. an "all or nothing" transaction

• Bureaucracies as suppliers of government spending/regulation
  • Bureaus produce regulation, spend government money, implement desires of Congress

• Bureaucracies as demanders of government spending/regulation

  • Bureaus get almost entire income from Congress
  • Each bureau is its own special interest seeking to lobby Congress

• Congressional budget is a tragedy of the commons

  • Competition between each bureau over rivalrous, scarce budget

• Asymmetric information between Congress and agency

  • Congress: generalists, agencies: specialists

• 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

• Over 20^th Century, Congress offloaded most real law-making to the agencies
  • Acts of Congress and hearings are more media spectacles for the politicians
  • Real governing and law-writing is done in the administrative state
  • unelected, unaccountable, bureaucrats
  • Can Congress delegate legislative power to executive agencies?