All Commentary
Sunday, August 1, 1993

Paying Bureaucracies to Run Amok

Dr. North is president of The Institute for Christian Economics in Tyler, Texas.

Before retiring from the U.S. Senate, William Proxmire used to give a monthly presentation, The Golden Fleece Award, to a spending project he thought wasteful and unproductive. The recipients of the award always defended their research as important to the national interest, compounding their silliness.

When I wrote a newsletter for Congressman Ron Paul in 1976, I imitated Proxmire. I read the regular reports issued by various government agencies to see what kind of projects they were funding. I was looking for obvious waste. Government research projects were always the most ludicrous.

After each issue of the newsletter appeared, people would write some variation of the following letter: “Normally, I agree with everything you say, but in your recent newsletter you attacked the government’s support of _________. In my view, this is a very important project, well worth the money.” Almost without exception, the individual who sent the letter was employed either by the government agency that gave away the money or the institution that received it.

No matter how silly, no matter how wasteful, there is always someone inside a bureaucracy who will defend a particular government expenditure. While Proxmire received a lot of publicity for his Golden Fleece Award, and while the column in Congressman Paul’s newsletter amused thousands of readers, the bureaucratic nonsense has not only continued, it has escalated. The federal government is today running a $300 billion annual deficit—$4,000 per American family—and still the nonsense continues. The bureaucracy has clearly run amok.

To Destroy Our Freedom

It is not just that the bureaucrats are spending tax money on things which the voters would never voluntarily choose to buy with their own money. The bureaucrats are also preventing the American people from spending their own money on the things they do want to buy. No one has monitored this more effectively and amusingly than James Bovard.

In his book The Fair Trade Fraud, Bovard offers us hundreds of pages of horror stories: examples of special-interest-motivated laws that favor (in the short run) American producers at the expense of American consumers. Bovard notes: “Foreign nations are routinely prohibited from sending more sweaters to the U.S. each year than are sold by a single New York department store. The U.S. government decreed on April 8, 1988, that Sri Lanka could ship only one dozen men’s and boys’ cotton coats to the U.S. in the following seven months” (p. 39).

I ask: Why even bother granting to a foreign nation’s producers the right to export duty-free to the U.S. a grand total of a dozen coats ? Why require the U.S. Customs Service and the foreign government’s bureaucrats to go to the expense of identifying those initial dozen coats to be allowed in, “no strings attached”? I would estimate that the total cost of administering the red tape for the exemption is much greater than the value of several dozen imported Sri Lankan cotton coats.

Bovard writes: “The U.S. now imposes over 3,000 separate quotas on clothing and textile imports from forty nations” (p. 36). It should be obvious that the bureaucrats have a vested interest in maintaining as many regulations as will provide continuing employment for bureaucrats. Those U.S. producers who oppose imports have an operational alliance with the entrenched bureaucracies that administer the restrictions.

It is the utter absurdity—from the point of view of U.S. national interests of the specific restraints that Bovard discusses that makes his book a powerful indictment of tariffs and quotas. By no stretch of the imagination is the national interest of the United States defended by the 1989 decision of U.S. Customs to prohibit the importation of a shipment of 30,000 pairs of tennis shoes from Indonesia because the shoe boxes contained an extra pair of shoelaces. A Customs Service agent decided that the extra pair of shoelaces required a separate quota license, and his decision established a precedent for the Customs Service. Customs declared that the import of the extra pair of shoelaces would have been legal if: (1) the extra pair had been laced into the shoes; and (2) the extra pair had been color-coordinated with the shoes.

The only good thing we can say about this system is that it is relatively small: The average tariff is now around $ percent. But tariffs range as high as 458 percent on some items; there are 8,000 different taxes; and they cost each family $1,200 a year.

In the Name of Fairness

This seemingly ethics-based word, “fair,” is used to justify political policies that are in fact manifestly unfair to American consumers and foreign producers. How fair would it be for the government to place restrictions on exporters? Would voters regard this as fair? Yet this is what the result of”fair trade” always must be. A restriction on imports of some items is inevitably a restriction on exports of other items. A barrier in is always a barrier out. If foreign producers cannot earn dollars from selling their goods to Americans, then foreign consumers cannot buy these same dollars from those foreign producers in order to import goods from America.

Unfortunately, this two-way effect of trade barriers is not understood by most people, especially the politicians who vote for import restrictions. These same politicians routinely vote for government export subsidies. They would rarely vote for export restrictions except in cases where national defense is involved, yet import restrictions are inevitably export restrictions. A practice that almost everyone in a nation would regard as economically foolish and morally unfair is the inevitable result of policies defended as fair.

The problem is, the bureaucracies that promote these policies almost never revoke them voluntarily. No matter how silly the policies become, no matter how oppressive, there is always a bureaucrat and a special-interest group that will defend it. Unless exposed publicly as an obvious moral outrage, or worse (from the bureaucrats’ point of view), as utterly ridiculous, and unless a politician makes its eradication part of his personal agenda, the policy will continue. Time and time again, the enforcement of the policy becomes more absurd and more unfair over time. The question is: Why?

A Question of Incentives

People rarely will admit publicly they have been foolish, immoral, or both. Without the threat of negative sanctions for wrongdoing and positive sanctions for righteousness, all men’s actions tend to drift toward the foolishness of their own hearts. Christians call this original sin. Economists call this the pursuit of short-term self-interest. The fact is, the tendency exists.

In 1944 Ludwig von Mises wrote a little book titled Bureaucracy. In it, he discussed two forms of management: profit management and bureaucratic management. Profit management is driven by the pursuit of profit and the avoidance of loss. The seller of goods and services must meet the demands of consumers or else be forced out of business. The system is driven by sanctions in the hands of consumers: money.

Bureaucratic management is also driven by money. But this money is not in the hands of consumers. It is in the hands of those who act through the state. The state is not a voluntary agency facing open competition in a free market. The state is a legal monopoly of violence. So, the rule of bureaucratic management cannot be “profit and loss.” A bureaucracy is governed by two things: its budget and its rule book.

The state taxes people, and the money must be spent according to “the book.” The primary goal of the bureaucrat is two-fold: (1) to persuade the politicians to increase the budget; and (2) to persuade the politicians to turn the book-writing task over to the bureaucracies that enforce the rules. They have been successful in both respects over the last eight decades.

The more rules, the larger the budget necessary to enforce them. So, as time goes on, the “iron law of bureaucracy”—not Mises’ words—if left unrestrained by outside pressures, will lead to a growing number of rules. The “book” gets larger, more complex, and more incoherent. The general rules for spending this money are written by the politicians, but the rules governing the implementation of the politicians’ general rules are written by the bureaucrats themselves. Each year, the Federal Register publishes over 30,000 pages of fine-print rules. This is in addition to all the rules that have already been published, and many that have never been published (executive emergency orders).

In the United States, disputes over the enforcement of these rules are initially set-tied by “administrative law judges,” who are in fact employees of the very bureaucracy which enforces the rules. Should we expect impartial judgment from such people? Or should we expect them to do what they are paid to do: to expand the authority of the bureaucracies that employ them?

Mises warned that bureaucratic management must be limited to the enforcement of generally known rules. If bureaucrats can make the rules so complex that only they or skilled lawyers can understand them, the state will become arbitrary and tyrannical as it expands its power. This is why Mises warned that the state must be drastically limited to enforcing laws against violence and fraud. If it extends its reign to the area of “positive sanctions” trying to make men good in addition to restraining evil acts—it will inevitably become arbitrary and tyrannical.

The Solution: Personal Responsibility

Mises put the blame where it belongs: on the front doorstep of the voters. “The plain citizens are mistaken in complaining that the bureaucrats have arrogated powers; they themselves and their mandatories have abandoned their sovereignty” (p. 120). By electing men to office who have voted to expand the powers of the state, voters have thereby expanded the power of bureaucracies over them. The consumers’ sovereignty over what is produced is thwarted by the bureaucrats’ rule books and the taxes necessary to finance the enforcement of these rules.

The answer is the reduction of taxation and the elimination of thousands of volumes of official rules. We need smaller government budgets and fewer laws. In their capacity as voters, consumers must restrain themselves in their quest for legislated perfection on earth—a perfection promised by those who seek to tax and regulate those societies whose voters are unwise enough and immoral enough to listen to such promises.

  • Dr. North is president of The Institute for Christian Economics in Tyler, Texas. He was FEE’s director of seminars in the early 1970s and has served as a member of the board of trustees.