I was reading today about the multiplication of political offices under Diocletian (which is why I also mentioned the Donatists earlier) when it struck me that many do not understand the true costs of big government. They see the bureaucracy and the budget, but they do not think  through to the true costs that implies. So, in the interest of making clear what is rather hazy, let me explain briefly some of the ways big government costs money.

First, there is the obvious cost, the salaries, the offices the other overhead. And, lest we forget, this also includes the pension funds and other retirement benefits, as government pensions are rarely self-financing (what in government is?), and most often include rather generous COLAs, so we have to recall that we pay not just for the bureaucrat while he is working, but long after as well.  And as government sinecure spots tend to be highly prized by the sort of people who apply for them, it is likely that whenever a bureaucrat has been added to the rolls, he will be there until retirement, making each addition a burden upon the taxpayer for the length of his life.

Which takes us to our first significant question, how all of this is financed. It is fine and good to say bureaucrats cost "us" money, but that simple description hides a world of details. In the least damaging version, bureaucrats are paid out of tax revenues, with income tax being probably the least harmful version. Now, as this money is taken out of the flow of commerce to pay for a bureaucratic position, that means that we have deferred some consumer spending, or possibly investment, in order to pay for this salary. Some will say that is of no concern, as the bureaucrat will send the salary himself, and thus the same money is spent, but that ignores the total satisfaction achieved. Had the money been spent by the original holders it would have added more to total satisfaction than it is now, and, as a result, production is ever so slightly skewed into inappropriate channels. For one bureaucrat it is not a major problem, but multiplied by thousands it causes a strong distortion in the economy toward industries patronized by the bureaucracy and goods demanded by the employees of those bureaus.

Things get worse if the funds come from other sources. If taken from tariffs or death duties, then we are talking about money taken directly form investment for government consumption, which will cause a conspicuous decline in economic growth and overall productivity. And, worst of all, if financed by deficit spending,paid for through inflating the money supply, then we have the worst of all possible worlds, as the spending is paid through the stealthy erosion of individual savings, bringing with it all the ills of inflation*.

But that is just the first effects, the costs of hiring and supporting the bureaucrats. It ignores the costs the bureaucrats themselves impose.

I wrote before about the bureaucratic mind**, which I described as cautious. And it is. But it is not so cautious that it will do nothing. If they want to keep their positions, it is clear that bureaucrats must do something to justify their employment. So, from time to time, the bureaucrats feel the need to impose some regulation upon the areas they control. As these regulations have no other purpose than to make some profitable venture more difficult, the result of such laws is first and foremost to reduce productivity for the ventures concerned.

But that is not all. As such laws increase, and become more involved, many companies find the need to employ more individuals simply to comply with these laws. As a result, companies expend money and manpower simply to keep within the law. And before anyone exalts in the "job creation" here, recall that were they not employed in the sterile, non-productive field of complying with regulations, there individuals could actually be producing something. Making their employment here a net loss for mankind as well, as productive energies are wasted on complying with regulations.

And there is more. Beyond simple impediments and complex regulations, the bureaucracy also, at times, comes out and completely bans some good or activity. Now, whether justified or not, such bans have one effect, and that is to deprive those who want them of some goods or services.This leaves those individuals less satisfied than they would be, and also means that jobs are lost in the field of providing those good or services. IN short, mankind again finds itself less happy than it would have been otherwise.

And I am sure I could go on. But I think my point is clear. The cost of government is hardly just the salaries and overhead of the government itself. It includes many times as much cost in the manpower wasted, efforts misdirected, and goods and services lost complying with the bureaucrats, who feel the need to act to justify their positions. The cost on the government balance sheets is but a fraction of what each bureaucrat truly costs.

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* For a discussion of inflation, read  "Inflation and Uncertainty", "Explaining Past Crashes", "Not Entirely to Blame", "The Inflation Engine", "A Thought on the Clinton Surpluses", "Place Blame Fairly, Regardless of Party", "The Importance of Error" and "Cash For Clunkers Revisited".

** See  "Bureaucratic Management",  "Killing the Railroads" and "The Bureaucratic Mind". I also discuss similar issues in "The Inevitability of Bureaucratic Management in Government Enterprises", "You Don't Drown in a Glass of Water - Vouchers Revisited", "Why Vouchers are not the Answer" and "Never Ascribe To Evil, A Discussion of Education, though the emphasis there is on education.

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POSTSCRIPT

Before anyone complains that I seem to be promoting anarchy, I believe that government is essential ("Tools", "An Analogy For Government", "In A Nutshell"). I am not even one of those who calls it a "necessary evil", I think a degree of government is a wonderful thing, a government which performs the right functions is a blessing for any nation. The problem is when the state goes beyond its proper role and begins to meddle in areas where it is an inappropriate tool. And when is that? I would point those who want to know to "My Vision of Government" and "My Vision of Government Part II", as well as my older post "Prelude", where I explain that in more detail.

I also would suggest anyone interested in this post read"Planning For Imperfection", "Greed Versus Evil", "Fairness and the Free Market" and  "The Importance of Error", as they deal with similar topics in a more general way.