Tag Archives: Government

On Cost Disease

SSC has written on cost disease. Essentially, a lot of important goods and services (health care, education, infrastructure, and housing) have increased by up to 10x their cost with no improvements in service for no discernible reason. He gave some though to it, and a number of others provided explanations.

The explanation that immediately sticks out of course is government over-regulation and over-involvement, as those industries listed are some of the more heavily regulated industries in the US. I’ve written of factors effecting housing costs a few times before.

I think those have a decent amount to do with it, but I think there are two fundamental problems that no one in those posts mentioned. They relate to two principles you’ve probably heard before: the Pareto principle and the iron law of bureaucracy.


Pareto Principle

The PP, also known as the 80/20 rule, is a basic rule of thumb essentially stating that 80% of the results come from 20% of the causes. Ex: 80% of the work is done by 20% of the workers. Following from this rule, you can also mathematically determine other rules. 20% of the 20% is going to cause 80% of the 80%; in other words, 64% of the outcome will come from 4% of the cause. This can then be extended to 51% of the outcome will be caused by 1%, and so on down the line. The rule’s not perfect and shouldn’t be taken as gospel, but it’s a nice rule of thumb.

In this particular case of cost disease, we’ll apply the PP to costs. By the PP, 20% of the population causes 80% of the costs. Or stated elsewise, the 20% uses 4x as much resources as the 80%.

So what happens when you add a new 20%?

For example, health care. I, like most people reading this, cost the health care system very little. I’ve been to the emergency room twice in in my adult life, and I go to a walk-in doctor about once every 2 years when I have a particularly vicious or inexplicable pain or cough. The 80% of the people like us can be treated relatively low cost; we get an occasional check-up and the rare emergency.

On the other hand, there are those with chronic illness or other conditions who use more health care in a month or two than I’ve used in the last decade. 20% of the people cost 80% of the health care resources. That’s not an indictment on the 20% (if I got hit by a bus on the way home today, I’d probably be in that 20%), but it’s undeniable that if us 80% simply stopped caring about the 20% and just let them suffer and die, health care costs would be 20% of what they are now.

Over time we’ve been going increasingly towards being able to treat more health problems and keep the nearly dead alive longer. Take AIDS: in the 80’s someone with AIDS was dead in a months. Now, he can be kept alive for decades using expensive drug cocktails.

So, let’s put some very rough numbers to it.* Let’s say 20% of that 20% (4%) used to just die quickly, because we couldn’t treat them. So, we have the 80%, the 16%, and the 4%. The 80% still can be treated; we cost stay the same. The 16% still use 4x the amount of resources the 80% use; a broken pelvis doesn’t treat itself. But now the 4% of AIDS patients and the like can be kept alive through expensive new technologies. This 4% is now 64% of the budget, which the budget has grown to accommodate. Keeping 4% people alive has well over doubled the costs of health care.

Now wait an unspecified amount of time for expensive new technologies and drugs that can treat a new 20% of the 4%who couldn’t previously be treated. Costs double again. Then another unspecified time later they double again and so on.

But that’s not including the new costs you impose. We 80% used to go to the ER once a decade and the doctor once a year, then die in our sleep from a heart attack at 70. But now, instead of dying at home in bed, new technologies and new detection we are able to detect and prevent that heart attack, so now we are heroically rescued by new medical technology, so we can die a decade or two later from a different age related condition. Then when our alloted time is over, instead of just giving up the ghost, we keep ourselves alive at great cost for a few extra months. We are now the 20%, maybe even the 4%.

This is not just hyperbole: 30% of Medicare spending goes to just 5% of people who will die within the year. 10% of Medicare goes to those people’s last month of life. Those extra few months are costly.

For education, we get the same thing. Look at this chart:

In 1973, 30% of people dropped out in high school. It’s safe to assume these are mostly the hardest and most expensive to educate 30%, they’re probably mostly handicapped, persistent trouble-makers, class clowns, generally stupid, or future ex-cons. In 2018, only 10% dropped out. So, rounding the PP off widely for ease, 70% of the students using 20% of the resources, 20% of the students using 80%, with 10% still dropped out. So you’ve added 20 percentage points of troublesome and costly students which have increased the amount of resources used by 4x.

The 10% left are the real costly troublemakers, these are the ones that are dumb as bricks, violent offenders, hate school with a passion, have hourly seizures, or whatever. So, if we start to include these very troublesome students, the will be the new 4%, and increase costs even more. The more stupid and disruptive the people we try to force to stay in school, and the longer we force them to stay there, the more costs per pupil inflate. If the education for everyone doesn’t stop, eventually, we’ll be spending half the education budget keeping 100 psychotic mass-murdering teenagers and low-functioning autists who enjoy biting teachers in a Supermax high school from killing each other and trying to learn their times tables.

College is no different. I’ve looked at the tuition bubble before, but let’s briefly go over it again. Look at that chart again: in 1973 only 28% of people had a degree, there were statistically no college dropouts. in 2018, 45% will have a degree and 17% will dropout. The college keeps adding new 20%’s. The 28% getting degrees in 1973 were, likely, the top 30% of the population in terms of intelligence and/or work ethic. They didn’t require much resources to teach themselves. Now 60% of people are going to college. People with below average intelligence and work ethic are having to be accommodated. A new 20% has been at least 3 times since 1973. Using the PP we can estimate costs would have risen by over 50x. Now, this is not entirely accurate, there are likely costs savings due to scale and at the most expensive of those waves mostly drops out, but you get the point.

Let’s look at infrastructure. Here’s a story I randomly saw from Toronto. Sidewalk spaces are being expanded to 2.1m at the costs of restaurant patios to accommodate the disabled. On the TV report I saw, they said it was because 2.1 meters allowed two motorized wheelchairs to pass each other. Again, the PP. It costs a lot for infrastructure to service the small fraction of people who are handicapped. It costs even more to service the rare event of two handicapped trying to pass each other at the same time (I can’t ever remember seeing two motorized wheelchairs at the same time in the wild). And one councilor is demanding even wider sidewalks for more accommodation. That’s a lot of extra cost for both the city for such a rare event.

Apply this one minor story more broadly. Beyond, the disabled, there’s the environmentalists, special interest groups, NIMBY, safety. You have to accommodate more and more people and more and more exceptions.

Now, almost everybody is and always has been housed, so PP doesn’t really apply there. Cost increases are more likely related to the factors I linked to earlier. You’ll also notice that housing costs did not grow at as high a pace as other costs in Scott’s post.

Over time these major services have gotten more inclusive. These new people being included cost significantly more resources than the people who were already included. By the 80/20 rule, ever new 20% we add quadruples costs. Every new 4% we add, almost doubles costs.

For the large majority of people, services haven’t improved at all, even though costs have skyrocketed, because these costs are being eaten by the inclusion of ever smaller but ever-more resource-consuming minorities.


Iron Law of Bureaucracy

One commenter linked to the following graph:

The ILB states that there are two types of people in every organization: the first is devoted to the organization’s goals, while the second is devoted to the organization itself. The second will always end up controlling the organization and it resources.

Look at the chart, it is clear the administrators control the organization and hiring and are hiring more of their own. It’s the ILB in action: the teachers directly contribute to the organizational goal of teaching, but the administrators are the one’s profiting themselves.

The ILB is what is a major part of cost disease. Over time any organization becomes more about expanding the organization than about completing its goals. The free market to some degree mitigates this, as organizations suffering too heavily under the iron law are forced to either reform or die out. But the organizations controlling education, health care, and infrastructure are not traditional free market organizations. They are either government organizations or heavily regulated, government-financed organizations.

Unless an organization dies or is forced to reform, it will inevitably become controlled by those devoted to enriching the organization and themselves, rather than to completing its goals.

Infrastructure provides a nice example. Look at the Big Inch pipeline built in 1944 and extending from Texas to New Jersey. At that time, government infrastructure programs were controlled by people dedicated to providing infrastructure. It took 3 years from planning to completion, because they wanted it up.

Comapre to the Keystone XL, controlled by our new iron-lawed infrastructure regulators dedicated to expanding their organization. It was proposed in 2008 and after 7 years in bureaucratic hell, was rejected by Obama. Then was allowed to start again under Trump a couple weeks ago. It has become more about increasing the power of hanger-on organizations than actually getting things done. Placating environmentalists, native activists, NIMBYists, labour organizations, etc. and making sure each gets their turn at looting is more important than actually creating infrastructure.

I don’t really think I have to explain this too deeply, anyone who’s ever worked in a large organization can easily see there is a small minority of people actually physically accomplishing the organization’s goals, then there are hoards of people having meetings, making mission statements, discussing work-life balance, running committees, making HR rules, doing busywork, playing corporate politics, doing pointless revisions to act like their contributing, and otherwise not actually accomplishing anything real, or sometimes even actively preventing the accomplishment of goals.

As people dedicated to expanding the organizations (and their own personal power bases) become more powerful, it becomes more costly to do the same amount of work. All those extra people don’t pay themselves.


* I know there’s mathematical and logical flaws and over-simplifications throughout these examples, but they’re just quick calculations for illustrative purposes. I’m dealing with a rule of thumb, not a mathematically precise model. Don’t get lost in the numbers, get the general jist of the message.

The Law is a Death Threat

VD linked to a post by law professor Stephen Carter that makes a point that can not be made enough, so I’m going to reiterate it here:

That’s too bad. Every new law requires enforcement; every act of enforcement includes the possibility of violence. There are many painful lessons to be drawn from the Garner tragedy, but one of them, sadly, is the same as the advice I give my students on the first day of classes: Don’t ever fight to make something illegal unless you’re willing to risk the lives of your fellow citizens to get your way.

The government exists solely to force people to do something they wouldn’t do otherwise. No matter what the government is doing: public health care, economic redistribution, taxation, fighting obesity, etc., it is doing so by force. At the very least, they have forcibly taken taxes from the citizenry to pay for whatever activity they are doing.

Every law is a threat of violence: Do (or don’t do) this or we will sic the police on you.

The police’s sole purpose is violence, they exist solely to enforce the law through the use of the threat of violence and, failing that, violence.

But even further than that every law is at heart a death threat: Do (or don’t do) this or we kill you.

Don’t believe me, consider the one thing every government needs simply to exist taxation.

Pay your taxes or the IRS will fine (or jail) you. If you refuse to pay the fines, they send police to take you to jail. If you refuse to go to jail, the police will threaten you or forcibly move you to jail. If you do not bow to their threats or rseist them forcibly moving you, they will shoot you. If you resist being shot, they will shoot you until you are dead.

If we remove all the intermediary bureaucracy, the law is: pay your taxes or we will shoot you until you are dead.

Smaller laws and regulations hide this behind layers of bureaucracy. You might have to deal with the Department of Administrative Affairs, then the DAA’s enforcement arm, then the courts, then the Department of Justice, all before finally meeting the police, but if you refuse the law long enough, eventually the police will be there (if they’re don’t eventually arrive, then you simply don’t have to obey, but anarcho-tyranny is another topic for another time).

The police are the eventual enforcement mechanism of any law or regulation, however many layers government may use to muddy the waters, and the police’s job is, at base, to kill you if you don’t obey. Again, the police’s job is muddied as are society is soft and unable to deal with reality, but everything the police do, the Miranda Rights, the “please come with us”, the “do you mind answering a few questions”, the handcuffs, the tasers, the “stop or I’ll shoot”, all of it, is predicated on: if you don’t obey, we will kill you.

Most people in the West abide by the law and so they never go farther than a layer or two into the bureaucratic swamp; even most criminals generally obey the police before it becomes necessary for the police to kill them, so this reality is obscured by common social delusion. This delusion is how leftists can always cry for more laws but whine when the police enforce the laws on the likes of Michael Brown or Erik Garner.

Now, just because every law is a death threat and the police’s job is to kill you if you don’t obey, doesn’t make the law necessarily evil. Sometimes death threats and killing are justified. If someone was trying to rape your daughter, “stop or I’ll kill you” is justified, as is following through on the threat if necessary. Arguably, it’s the only just course of action. So, by calling the law a death threat and saying the police’s job is to kill is no indictment against the law or the police, it is simply a recognition of reality.

This reality is important to remember whenever we theorize on politics or call for more laws: more laws means more death threats and more reasons for the police to kill. It is also important to remember when someone gets themselves shot by the police: the police exist to kill, that is their job.

So remember for all political philosophy or law-making:

The government’s sole purpose is violence and every law is a death threat. Unless you are willing to kill for something no law should be made over it.

Government Transfers and GDP

I have started reading through the Captain’s Enjoy the Decline and in the 2nd chapter he talks about proving the US is in a permanent decline. He brings up his old point here about how GDP is growing at 2.2% rather than the 4% of yesteryear, and how we could have an average income of $100,000 if the government didn’t interfere. He was also talking about how government is now almost 40% of GDP. That got me thinking about the government and the GDP.

The most common method of calculating GDP is is through the use of this formula:

GDP = C + I + G + (X – M)

Or, in English:

GDP = private consumption + gross investment + government spending + (exports – imports)

What I’m going to focus on here is G. As per wikipedia:

G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.

When calculating GDP, the measure of government contribution to the economy is NOT the value of goods and services the government produces; it is the measure of the value of the resources the government consumes. G in the GDP measures what the government takes out of the economy, not what the government puts into the economy.

For example, if the the government spent $200-million building a road it would count the same as if the government spent $200-million moving rocks from point A to point B and back to Point A. As long as the government wasn’t using the resources for transfer payments, they could bury the money and GDP would increase. (See the Broken Window Fallacy).

For the rest of this post, we will refer to C, I, & (X-M) as “actual GDP” and G as government spending.*

Here are the annual real GDP growth rates for the US since 2008:

2008: -0.3
2009: -3.1
2010:  2.4
2011:  1.8
2012:  2.2

Here’s G:

2008: 2,497.4
2009: 2,589.4
2010: 2,605.8
2011: 2,523.9
2012: 2,481.3

and growth in G:

2008:  2.6%
2009:  3.7%
2010:  0.6%
2011: -3.1%
2012: -0.6%

Over the last 5 years, since the housing crash, the portion of GDP that is made up of G has declined by 0.6%. US GDP on the other hand, has increased by 6% over the same time period.

Originally, when starting this post, I was wondering if increased government consumption was resulting in a higher G, inflating GDP numbers. In other words, I was suspicious the government was simply consuming more resources (whether for productive or unproductive tasks) from the private sector to mask a decline in actual GDP.

The data says it has not; in fact, the opposite is true, G has somewhat declined as a percentage of GDP. I was tempted to just junk this post as my suspicion and the point I was thinking I might make proved to be incorrect, but I decided I’d post this information here anyway for anyone who’s curious.


This however, brings up another point for my post.

According to Table 1.1 here, federal government spending has increased by 27.1% between 2008 and 2012. This new spending represents 6.0% of 2012 GDP. Total government spending has increased by 10% in the same time period, representing 3.6% of 2012 GDP. Interestingly (and completely surprising to me), non-federal government spending (total minus federal) has actually decreased by $323.8 billion, or 6.6% over the same five years, representing 2.4% of 2012 GDP.

As mentioned above, G only measures what the government consumes or invests in, it does not include government transfers.

G has more or less stayed the same (and has actually declined as a portion of GDP), while government spending has increased by over a quarter.

What this means is that the none of the new government spending is from the government actually consuming or investing in anything. None of the new government spending is new roads, new hospitals, new schools, or new jet fighters; none of it has even gone to increased bureaucrat’s salaries, buying heroin for the homeless, or burying resources in the desert. None of the new spending was used on anything remotely productive or even on a program pretending to be productive.

All 27.1% of the new federal spending has gone to increased transfers.

In other words, since 2008, the federal government has forcibly taken an extra 6% of the entire economy from some people and transferred it to other people with not the slightest pretense of it being for the public benefit or as an investment in the future.

This is naked robbery.

In addition, part of this extra federal spending has come at same time that state spending has been reduced, further centralizing government spending.

Just federal transfers, not including state transfers or federal consumption of investment as found in G, now make up about 20%** of the economy. Six percentage points of that came from the last five years.

The federal government has taken an extra 6% of the entire US economy from the producer class and given to the parasite last five years and currently spends an one-fifth of the economy simply in transferring money from producers to parasites.

If this pattern continues, the US will become a centralized socialist state.


* All dollar amounts are 2005 US$ and in billions.
** May be slightly off, but not by more than, maybe, a percentage point. 2012 #’s were used for GDP and federal outlays, but I could not find a 2012 number for federal G, so I used the 2011 number.


Bill wrote last month about bureaucracy, and it was scathing. I have no more love for bureaucracy than the next man and all the scorn he heaps on bureaucracy is well deserved, but from my experience in the public sector, I think he is mistaken about bureaucrats.

Bill has a lot of scathing criticism of bureaucrats, but it is not the bureaucrats who are the problem, it is the bureaucracy itself. The system is what destroys.

I’m not saying there aren’t bad bureaucrats, just that bureaucrats are just like workers anywhere else. Most bureaucrats are decent enough folks, some are  assholes, and most are just doing their job and trying to get ahead. They respond to incentives just like anybody else.

There’s the problem: the system of incentives that government bureaucracy has created for its workers is what is destructive.

As Frost wrote in Freedom 25, there are 3 iron laws of bureaucracy:

1) You will never have to do anything.

2) If you ever actually do anything it will be useless.

3) If you ever actually do something useful, it will be rendered useless by subsequent layers of management.

It is this system which oppresses its own workers that is the problem.

Now, there are some not-so-great trends among bureaucrats: bureaucrats do tend to lean somewhat more leftwards and believe more in the efficacy of government solutions, but (most) bureaucrats are not trying to screw you, no more than any other group of people. Most bureaucrats either don’t care, are just going their jobs, or they honestly believe that they are helping the public.

This is the first in a planned short series of why government bureaucracy doesn’t work, where I’ll go into the incentives that create government failure in more detail.


For now though, I’ll address a few of his points:

The real power of the government is with the petty bureaucrat, the one you might see from time to time.

A single petty bureaucrat has almost no power; he can at most moderately inconvenience you. The petty bureaucrat is a slave to the rules. The biggest problem from a petty bureaucrat is not what the bureaucrat himself, but if he decides to put you into the system.

The system is a maze that is almost indecipherable to anyone who is not a lawyer or bureaucrat in that particular system. The system can ruin your life: whether it’s the family court system, the tax system, or what have you, but rare is it that a single bureaucrat can hurt you that much until you’re in the system.

The problem with the system is not with the people, it is the rules. Each person in a bureaucracy has a specific role and rules guiding his role. There are no deviations from your role or your rules. Even if breaking the rules in a minor way would benefit everyone involved, the bureaucrat is not allowed to deviate. There are also no exceptions to the rules, they have to be applied as written (and interpreted) to everybody equally, which is why you’ll occasionally here about stupidities, like bureaucrats shutting down children’s lemonade stands.

The rules are hard, cold, and unyielding. Even if they make no sense, the rules or roles are still paramount.

The people who are attracted to bureaucratic or government jobs know that they are unsuited for any social success or productive work and it infuriates them, so they want payback. What better way to get payback than to fuck with people who they know are their betters? They relish their jobs because every time they can make someone wait, audit their tax returns, place a lien on their property or in extreme cases cause someone to die, they feel that their revenge is taken.

In most countries, most bureaucrats aren’t any more (or less) competent than employees the private sector. The US is somewhat of an exception, for reasons I’ll explain in a later post. Most can, and many do, switch between the private and public sectors.

There are some gross incompetents in government, and the government union system makes removing incompetents much more difficult for bureaucracies than for the non-unionized private sector, but most government employees are reasonably competent at their functions.

Also, most bureaucrats (again, there are the occassional exceptions) don’t care about you. They don’t want to fuck you and they take no pleasure in doing so. Some may want to help you, but for the most part, they simply want to do their job so they can get paid and go home, just like most people in the private sector.

That’s not to say they won’t fuck you. If the rules they follow require fucking you, they’ll follow the rules, and you’re fucked, but that is a problem with the rules not the people and most people won’t take any pleasure out of it unless you’ve been a complete ass to them. They will feel apathy. (Whether that’s better or worse is debatable).

No truer statement was ever uttered and if you don’t believe me on this, just fuck with one of these dickheads. They will ensure that, to all extent of their government bestowed powers, they will do anything they can to make your life as hellish as possible and make you pay even more of your hard earned money than you do presently. Fuck with them enough, or just be in the wrong situation at the wrong time and they’ll ruin your life…or get you killed.

Generally, bureaucrats will not go out of their way to hurt you, but like most people they do have a tendency revenge. If you fuck with anyone they will usually try to get revenge, bureaucrats are not different. Generally, though, the bureaucrats are apathetic. As long as you don’t personally piss off an individual bureaucrat, they don’t care

They have no reference for what it is like to live as a person, much less a free individual with hopes and dreams and the means to attain them. And so, we are dangerous. We don’t behave “by the book.” And we have to be controlled. It’s all for our own best interests, isn’t it? Why should anyone be allowed to follow their individual talents and drive for the life they wish to live? That might make someone else feel inferior, just like they do. So we must be at the least controlled, and at the extreme destroyed.

It is true that progressivism and statism are somewhat more common among bureaucrats than the population as whole. For the most part though, it is not about control; most honestly think they are helping. (See the term useful idiots). Now, there are probably some bureaucrats at the higher echelons who want control and there are little tin gods at various lower levels, but most don’t want control.They are either apathetic or believe they are doing good. There is little malice behind most bureaucrats.

I’ll be going over why the system fails in the future, but for now, it is enough to say that blaming the bureaucrats is pointless. In fact, blaming the bureaucrats is counter-productive. The bureaucratic system is the problem, blaming bureaucrats rather than the system merely makes the alt-right seem petty and vindictive and alienates potential allies within the government (and yes, there are people in the government who are in favour of limited government).