The true cost of bureaucracy

"The advantages which officials advocate are those which are seen. The benefit which accrues to the providers is still that which is seen. This blinds all eyes. But the disadvantages which the tax-payers have to get rid of are those which are not seen. And the injury which results from it to the providers is still that which is not seen, although this ought to be self-evident."

— Frédéric Bastiat, That Which Is Seen, and That Which Is Not Seen, III. Taxes

If the various government administrations were simply useless, everything would be so simple. We could ignore them, laugh occasionally, and move on. A perfectly useless body would have no effect on the society that maintains it, other than the salary paid to the administrators.

The reality is darker, however, and the cost to the economy is much higher precisely because their actions are not null; they have a cost, as do all actions we take in our lives. The question is not whether these people are useful in an administrative sense. The question is at what price.

There are three possible answers.

How norms slow society down

"Their main concern is to comply with the rules and regulations, no matter whether they are reasonable or contrary to what was intended. The first virtue of an administrator is to abide by the codes and decrees. He becomes a bureaucrat."

— Ludwig von Mises, Bureaucracy (New Haven: Yale University Press, 1944), p. 41

That's the first level of reading, the simplest. It's the level of the bureaucrat who hinders progress through norms. After all, every bureaucrat wants to produce norms; it's their role. Likewise, every politician wants to leave behind "his law," the one that will bear his name and secure his place in administrative history. The result, over a long enough period of time, is quite disastrous. Why? Because the bureaucratic system works like a ratchet. It can only advance, never retreat. The movement is always towards more regulations, never less, and any attempt to go back is considered an attack on the system itself.

This is the opposite of entrepreneurs, who must constantly adapt and aim for optimal performance, even if it means going back, failing, and moving forward. In this logic of pure economic calculation, with the guiding star of profits and losses, surplus is difficult to imagine.

In bureaucracies, the guiding star of economic calculation is absent. The bureaucrat is not under the economic imperative to find the most appropriate solution to each problem; rather, his task is to adhere to the regulations, even if they are absurd. The norm becomes both the product of the bureaucrat and the justification of his existence, as well as the shield behind which he protects himself.

"The lack of standards which could, in an unquestionable way, ascertain success or nonsuccess in the performance of an official's duties creates insoluble problems. It kills ambition, destroys initiative and the incentive to do more than the minimum required. It makes the bureaucrat look at instructions, not at material and real success."

— Ludwig von Mises, Bureaucracy, p. 56

Note that this complexity is no accident. Making the administration and the practice of politics intentionally vague, technocratic, and illegible is an old technique of the bureaucracy to protect itself. It protects itself from internal reform by introducing a discouraging legislative and administrative inertia. It also protects itself from democracy by discouraging outside actors from getting involved. The administrative bureaucracy is not a malfunction. It is a wall, built over decades, behind which a caste preserves itself, which has every interest in keeping the leviathan incomprehensible to non-initiates.

The taxpayer pays for this

Let's dig deeper. The second level of interpretation of the real cost of bureaucracy is what Bastiat already denounced in his time. The bureaucrat does not merely hinder individual action through positive law. He also hinders it in another way, which is not directly visible: through the salary that the taxpayer pays him. This salary comes from the victims of the bureaucrat themselves.

"When an official spends for his own profit an extra hundred sous, it implies that a tax-payer spends for his profit a hundred sous less. But the expense of the official is seen, because the act is performed, while that of the tax-payer is not seen, because, alas! he is prevented from performing it."

— Frédéric Bastiat, That Which Is Seen, and That Which Is Not Seen, III. Taxes

In the tradition of Bastiat, each time the state confiscates capital from an individual, that individual loses opportunities and alternative uses that would have been productive. He is penalized, just like the invisible third party who could have lived, produced, and created through an alternative use of the dispossessed taxpayer's income.

This could be called the semi-visible. It requires considering the "invisible," the opportunity costs, and what could have been, and therefore what has been prevented. Every euro taken from the taxpayer to finance non-productive activities is a euro lost three times over. First, it is lost to the taxpayer, who will not use it for a truly productive purpose. Second, it is lost to the entire market, which loses a series of small opportunities that could have led to great things with each euro wasted.

Finally, it is lost to society, which unwittingly funds a privileged caste that is completely disconnected and thinks it creates wealth by living off legal spoliation. Redistribution by the State is, by design, a suboptimal method: it requires intermediaries to collect, allocate, and distribute, and the salary of these intermediaries is already a measurable, non-creative loss. Bastiat denounced this 175 years ago. Nothing has changed since.

Unproductive lives

“As soon as one of them found himself in possession of a small amount of capital, instead of putting it to use in trade, he immediately used it to buy an public office. This wretched ambition has done more harm to the progress of agriculture and commerce in France than even the guild monopolies and the taille tax.”

— Alexis de Tocqueville, The Old Regime and the Revolution, trans. John Bonner (New York: Harper & Brothers, 1856), Book II, ch. IX, p. 118

Let's delve deeper. The third and final level of reading is the invisible yet real loss of seeing individuals waste their time and energy in bureaucracy. This is certainly the most powerful and difficult level to conceptualize.

Since bureaucratic missions are inherently unproductive and harmful when they escape the market test, each time an individual engages in this path, it is an individual who will not produce wealth themselves, in addition to actively impeding the ability of others to create it, via norms, or use it, via stolen wages.

"It is evident that youth is the first victim of the trend toward bureaucratization. The young men are deprived of any opportunity to shape their own fate. For them there is no chance left. They are in fact "lost generations" for they lack the most precious right of every rising generation, the right to contribute something new to the old inventory of civilization."

[...] Government jobs offer no opportunity for the display of personal talents and gifts. Regimentation spells the doom of initiative. The young man has no illusions about his future. He knows what is in store for him. He will get a job with one of the innumerable bureaus, he will be but a cog in a huge machine the working of which is more or less mechanical."

[...] He will enjoy security. But this security will be rather of the kind that the convict enjoys within the prison walls. He will never be free to make decisions and to shape his own fate. He will forever be a man taken care of by other people."

— Ludwig von Mises, Bureaucracy

Murray Rothbard went even further: public employment is not a problem of "bad allocation"; it is institutionalized predation. A worker in the public sector cannot produce economic value ; they consume capital that is extracted by force from productive actors, who create value. As a consequence, speaking of "bad allocation" is to believe that a good capital allocation by the State is possible. It is not.

Without price signals, profits, and losses, no administration can know what the confiscated capital would have produced. "Administrative compensation" does not measure the quality of the service provided or the commitment of the public servant. It measures nothing. Only the market-based compensation measures the service actually rendered to others. The customer is sovereign; he consumes only what he consents to consume and constantly arbitrates his choices.

We should be alarmed by all these bureaucrats, not only because of the visible nuisances they create, but also because of their wasted lives, which contribute nothing to society. Consider all the talent and productive capacity that is lost and will never be fully realized by society, and all the young people who could contribute to civilizational progress but don't.

Each time a talented young person passes a high-level administrative exam, consider the net loss to society: an entrepreneur who will never have the opportunity to create value for others. Mises spoke of lost generations. He was right.