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Economic arguments almost always apply strictly to idealized worlds where each individual calculates the pennies for each action etc. The degree to which such d

Economic arguments almost always apply strictly to idealized worlds where each individual calculates the pennies for each action etc. The degree to which such deductions apply to the real world varies. In this case large bureaucracies are everywhere in the public sector as well, where, at least to first order, price mechanisms, profit maximization etc. are not the driving force. Hierarchy of some form is innate to human organization, this is not the point. The alternative to a large organization with a sky-high hierarchy is not an inefficient solopreneur but a smaller organization with (possibly) a flater hierarchy. Even strictly within the Coase logic the "external cost" can be artificially low (non-priced externalities [1]), ranging from the mental health of employees, to the impact of oligopolistic markets on society's welfare etc. This creates an unusually generous buffer for "internal costs". [1] https://en.wikipedia.org/wiki/Externality https://en.wikipedia.org/wiki/Externality

Majromax 2y ago
> In this case large bureaucracies are everywhere in the public sector as well, where, at least to first order, price mechanisms, profit maximization etc. are not the driving force. I'd say that large bureaucracies are endemic to the public sector in large part because they can't use efficient price or profit mechanisms. A firm doesn't typically operate like a market internally, but instead it operates like a command economy. Orders flow from the top to be implemented at lower levels, feedback goes the other way, and divisions should generally be more collaborative than competitive. Bureaucracy manages that command economy, and some amount of it is inevitable. However, inevitability does not mean infallibility, and bureaucracies in general are prone to process orientation, empire-building, and status-based backstabbing. > ranging from the mental health of employees Nitpick: I think that disregard of employee mental health is bad, but I don't think it's an unpriced externality. Employees are aware of their own mental health and can factor it into their internal compensation/quality-of-life tradeoff, staying in the job only when the salary covers the stress.
- robertlagrant 2y ago
  I agree with all of that. I think the main differences between private sector bureacracy and public sector bureaucracy are: - I'm forced to fund the public sector bureaucracy - There's no competitive pressure putting a lid on public sector bureaucracy
  - mainecoder 2y ago
    There is a competitive pressure on public center bureaucracy it is the competition for resources between countries sometimes it is was sometimes it is not but ultimately the public sector will be punished from the outside.
    - robertlagrant 2y ago
      Eventually, but tax systems are usually very efficient, and feel the pain a lot later. There is some competitive pressure with pro-business politicians wanting things to be better, but unless you're in the team seeing the problems I think they struggle to spot what could actually be improved.
svara 2y ago
> Economic arguments almost always apply strictly to idealized worlds where each individual calculates the pennies for each action etc. The degree to which such deductions apply to the real world varies. But the assumption that individuals actually make that calculation is not necessary for economic models to be useful. For example, players who act in a game theoretically optimal way in some game will, over the long run, dominate and displace players who don't. This is true even if those players don't actually know any game theory.

Majromax 2y ago

> In this case large bureaucracies are everywhere in the public sector as well, where, at least to first order, price mechanisms, profit maximization etc. are not the driving force. I'd say that large bureaucracies are endemic to the public sector in large part because they can't use efficient price or profit mechanisms. A firm doesn't typically operate like a market internally, but instead it operates like a command economy. Orders flow from the top to be implemented at lower levels, feedback goes the other way, and divisions should generally be more collaborative than competitive. Bureaucracy manages that command economy, and some amount of it is inevitable. However, inevitability does not mean infallibility, and bureaucracies in general are prone to process orientation, empire-building, and status-based backstabbing. > ranging from the mental health of employees Nitpick: I think that disregard of employee mental health is bad, but I don't think it's an unpriced externality. Employees are aware of their own mental health and can factor it into their internal compensation/quality-of-life tradeoff, staying in the job only when the salary covers the stress.

robertlagrant 2y ago
I agree with all of that. I think the main differences between private sector bureacracy and public sector bureaucracy are: - I'm forced to fund the public sector bureaucracy - There's no competitive pressure putting a lid on public sector bureaucracy
- mainecoder 2y ago
  There is a competitive pressure on public center bureaucracy it is the competition for resources between countries sometimes it is was sometimes it is not but ultimately the public sector will be punished from the outside.
  - robertlagrant 2y ago
    Eventually, but tax systems are usually very efficient, and feel the pain a lot later. There is some competitive pressure with pro-business politicians wanting things to be better, but unless you're in the team seeing the problems I think they struggle to spot what could actually be improved.

svara 2y ago

> Economic arguments almost always apply strictly to idealized worlds where each individual calculates the pennies for each action etc. The degree to which such deductions apply to the real world varies. But the assumption that individuals actually make that calculation is not necessary for economic models to be useful. For example, players who act in a game theoretically optimal way in some game will, over the long run, dominate and displace players who don't. This is true even if those players don't actually know any game theory.