What is the Cost of the Permanent Federal Regulatory Bureaucracy?


It is well known that businesses constantly seek favors from government. The phenomenon is called “rent-seeking” by economists, and it gets lots of attention. Elon Musk of Tesla fame and his various subsidies are prominent in the news now, for example.

Regulations, like subsidies, also transfer wealth. Some businesses like them since they can hobble rivals more.

But it’s not just businesses that seek “rents.” The phenomena of rent-seeking and cronyism present strong appeal to the federal regulatory class in Washington, too.

Regulators are rarely completely disinterested, and may operate in a symbiotic relationship with rent-seeking businesses or in pursuit of their own policy preferences. There is not necessarily reason to assume any of that aligns with a public interest theory of regulation.

Agencies are staffed, after all, by members of the same partial, self-interested species as those in commercial life, not higher beings. Their gear ratios are similarly set to pursue personal benefits.

So it would be naïve to expect the Administrative State to routinely initiate major reductions in its own scope. And that lack of restraint and discipline is costly.

We learned that again in the Trump administration’s “Comprehensive Plan for Reorganizing the Executive Branch.” Not much happened except a demonstration that the administrative state is beyond streamlining. It is resistant to reductions of central government intervention in people’s lives as such, and to nettlesome executive branch reform of its operations.

This is deep rooted. One aspect, as Judge J. Harvie Wilkinson noted in “Assessing the Administrative State,” is the fact that “interest groups…attempt to place their own advocates in top bureaucratic positions” and “agency staff positions often attract applicants with an agenda.”

The swollen administrative class includes not just the regulators but those who can profiteer as consultants, pro-regulation professors and academics, negotiated-rulemaking coordinators and the like. There are revolving-door operations between the Pentagon and contractors, between EPA and green pressure groups (that take crowbar Freedom of Information Requests to reveal), and other “beltway bandit” productions.

This pro-state affliction aggravates a more general threat to free enterprise. As described long ago by economist Joseph Schumpeter (and a reason he reckoned capitalism could not survive), a leisure intellectual class made possible by capitalism itself, uncalloused and somewhat guilt-ridden over that, is easily seduced by the state in service of criticizing the very system that created and sustains them.

All this and more makes restraining Leviathan and defending the virtues and morality of ordered free enterprise a never ending struggle.

Elemental in the struggle has been the unfortunate abandonment of Article I of the Constitution’s assignment of lawmaking power to Congress alone. Over-delegation is a major critique of the administrative state today, and sits at the root of its invalidity. But in the lucrative world of D.C. government contracting, we witness the “double delegation” of a “contractor state,” as former chairman of the Administrative Conference of the United States Paul Verkuil has noted. Alas, he defends the administrative state and would prefer more government employees to contractors.

That the richest counties in the country include those surround Washington D.C. is not mysterious. Entire regime-driven professions like environmental law, administrative law and consulting thrive on the substitution of administration for property rights.

Impenetrable civil-service protections and effective non-removability are additional benefits for the Administrative State that have “evolved to shield those lacking in competence.”

Indeed, the job-secure, pensioned bureaucracy’s #resistance and defiance to Trump administration reforms were remarkable. Agencies sought to reinforce and defend themselves from deregulatory changes, and to participate in President Obama’s “rushing to Trump-proof the White House.”:

Since Election Day, President Barack Obama has appointed 56 people to boards, commissions and offices in the hopes that they remain in those posts for years to come…. ‘People are, as you can imagine, they are getting quite desperate,’ said Rena Steinzor, a member of the Center for Progressive Reform, a liberal advocacy group, who is pressing Obama to act. ‘Filling boards and doing whatever he can to establish protections that Trump would have to unwind is a good strategy’.”

That “deep state” impulse to protect itself can threaten the well-being and welfare of the public it “regulates.” It is not necessary to invoke collusion, since—not only do the participants openly express what they are doing—but also as economist John Cochrane noted in a recent white paper “The Rule of Law in the Regulatory State,”:

When vast majorities of the bureaucracy belong to one political party, when government employee unions funnel unwitting contributions to candidates of that party, and when strong ideological currents link decisions across agencies, explicit cooperation is less necessary.”

Even if wholly balanced and bipartisan, which is not the reality (for example, a typical headline in The Hill read, “Government Workers Shun Trump, Give Big Money to Clinton”), the permanent administrative class comprises a unified party unto itself given the iron laws of rent-seeking and turf protection.

In the final analysis — like any other aspect of the regulatory state’s costs, burdens, overhead and drag — no one has any idea of the extent of the costs presented by the thoroughgoing centrality of rent seeking in today’s political setting.

Even the presumed disciplinary mechanisms cannot do much. Cost-benefit analysis is largely mythical, and the phenomenon of OMB abandoning the aggregate cost assessment that it is required to perform under the Regulatory Right-to-Know Act fits into a model of sticky administrative power.

Even if Congress made all law as it should, we could not know the costs; and rent-seeking would still be a factor. The difference though, is that members are elected and would be accountable to voters. This accountability is absent in the administrative state, and the result is the rent-seeking and bureaucracy devoted to self-preservation that we have. You can’t touch it, but it touches you.

Originally published at Forbes.