Why Government Agencies Grow Year After Year

Abigail Hall Blanco,

Release Date
July 17, 2017


Debt and Spending Economics Government Politics & Policy

Prof. Abby Hall explains why government agencies have an “incentive to expand.” Dave Rubin asks if we can roll them back. 

    1. Public Choice: Why Politicians Don’t Cut Spending (video): Why do politicians usually fail to reduce the size of government did politicians cut a trivial amount of money in the recent budget agreement? Prof. Ben Powell explains why politicians don’t cut spending, as a general rule. Using public choice economics, or the economics of politics, he shows how the political system naturally leads to overspending. 
    2. Schools of Thought in Classical Liberalism, Part 3: Public Choice (video): Dr. Nigel Ashford explores the intellectual school known as “public choice theory” which believes that politicians are self-interested, meaning they have a vested interest in growing government. 
    3. “Why the Worst Get on Top” by F.A. Hayek (book chapter): In this chapter from Road to Serfdom, Hayek explains why there are so few politicians who advocate for reducing the role of government. 

Abigail Hall: If you have a for profit firm, they look at their financial statements at the end of the quarter, they’re earning a profit. That’s indicating to them that they are providing something that is adding value to society. A negative profit or a loss indicates the opposite. Bureaucracies, however, they’re not competing for profit or loss. They are competing for government resources so pieces of some larger budget. How do they convey that they should get a bigger piece of that budget, that they should have more personnel? By taking on more and more activities which are important to the powers that be.
If I’m a government agency and I go to you as the federal government and I say, “Hey, I can do the exact same job that I’m doing with 20% less money,” the next year, I’m going to have 20% less in my budget — which is not what you are incentivized to do as somebody operating a bureaucracy. Now, this doesn’t mean that the people who are working in the government are necessarily terrible people who are sitting there wringing their hands trying to get as much money as possible, but as an economist we look at that and we say, “Well, this is the incentive structure that they face.”
Dave Rubin: How did that system get built? I mean, how did this come to be? I’m not an economist, but it sounds quite ridiculous. I would want something that was slim and trim and took as little from the people as possible and that could every year become more efficient and need less resources and all that. That’s quite literally the reverse of what we have.
Abby Hall: One thing about this bureaucratic system is that there is that incentive to expand, but there is actually an entire branch of economics called constitutional political economy, which is trying to answer the question of if we want something like a government who will provide “national defense or roads or education” whatever you want to put in that bucket, how do we construct a political system where we can empower our leaders to do the things that we want them to do? And yet simultaneously constrain them to not go outside of those stated confines that we would prefer — those functions that we want them to fulfill.
Dave Rubin: Do you think there’s any kind of functional way to rollback some of that? I mean, if you wanted to have a fair bidding process or something that was going to be a little more fiscally responsible or any of that, is it possible to rollback things that are inside of such a massive complex as you’re mentioning?
Abby Hall: I would like to say that I think anything is possible. I’m not sure that I think it’s particularly likely.
Dave Rubin: Yeah.
Abby Hall: You have massive entrenched interest. There have been tanks, for example, that the military has said for years, “We do not want them.” And yet, they continue to be manufactured and they are quite literally sitting in a compound something and they are just rusting. Why are we still manufacturing these? It’s because the places where they’re manufactured, their elected officials keenly aware of the fact that if they shut down these factories some of their constituency is going to be unemployed. That does not bode well for their reelection. They fight really hard to keep those things in place and so you’re fighting those battles at so many different junctures. I’m honestly not really sure what it would take.
Dave Rubin: Yeah. How could you even start to fight that at the political level because you’d have to have a politician who’d be willing to say to his own people, “You’re going to lose some jobs because unfortunately in this case it’s the right thing to do.”
Abby Hall: Right, and that’s-
Dave Rubin: We don’t get many politicians like that, do we?
Abby Hall: No, and there’s actually a famous economist named F.A. Hayek, who in chapter 10 of his book The Road to Serfdom, talks about why the worst get on top, so why it is that you are unlikely to have those kinds of political officials get into place? Because the people who are going to seek out those positions and people who are going to, importantly, be successful in those positions are not the people who are going to say, “Let’s take one for the team and roll back these policies.”