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Every presidential administration finds some degree of internal resistance. That which has confronted the Trump Administration, however, seems to be the most active and aggressive ever. From “Anonymous”, to a record number of leakers, to physically hiding documents from the President, a large and active bureaucratic resistance is at work to stymie many of the Executive branch’s goals. Everything from secret military plans to embarrassing aspects of daily life in White House has been made public.
Indeed, the deep state (as the President and his defenders brand it) has been relentless. Nor is this purely partisan. The same deep state which is dogging Trump also prevented Obama from closing the prison at Guantanamo Bay, Cuba.
But where did the American deep state come from? Has it always been there?
In fact, the evolution of the deep state (and this choice of term, “evolution” as opposed to “creation”, will be explained later) is — some might say ironically — found in a nearly 140-year old anti-corruption “reform” measure; one that was explicitly focused upon depoliticizing the civilian component of the United States government.
Let’s first describe what is called the deep state. It is the unelected part of the state that is professionalized to the point that it can be secure in its place and power regardless of political trends. It has the well-earned habit of ignoring political comings and goings, confident in its mastery of its realm. It knows the system better than any elected interloper, and it also knows its interests: survive and flourish even in the midst of upheaval.
A Fertile Soil
In the decades before the Civil War, a miniscule civil service corps was staffed via what would seem perfectly corrupt by today’s standards: the “spoils system.” Positions were doled out to individuals who had actively supported candidates or raised substantial campaign donations contributing to the victory of the newly-incumbent political party. With the defeat of the party in power, previous appointees would leave government employment and be replaced by the favored and distinguished supporters of the new administration. Needless to say, the federal bureaucracy was highly, explicitly politicized; but it was also tiny, bore few powers, and in any event almost completely overturned every four years.
With the onset of the Progressive Era came the movement to introduce “science” to many previously independent or loosely organized endeavors, and the spoils system soon came under attack. The Pendleton Civil Service Reform Act (1883) created a merit-based system of examinations and other requirements, and a salaried class of government employees.
Design flaws
In a massive, highly structured organization — in particular, one in which both the benefits of long-term service and uncommon protection from termination are present, incentives to protect the status quo loom front and center. Despite what we must assume the best intentions of the civil service reform movement were — to professionalize government bureaucracies, remove the inefficiencies associated with positions held for the duration of political cycles and (something else) — three flaws in the design of the reforms would set the stage for the next phase of evolution in the American civil service. One was structural, two were misjudgments.
The structural error was building a provision into the Pendleton Act allowing the President to increase the size of the civilian employment of government at will. While in many such accounts it was in the course of the New Deal or during the Cold War that such growth was exploited, this one was immediately evident: indeed, Grover Cleveland, the successor to Arthur, expanded the civil service from 16,000 to 27,000.
The first of two misjudgments was a failure to appreciate how the size and structure of the government itself might change. With more departments, agencies, commissions, boards, and the like, more sensitive military and intelligence functions, and a wide spate of other technical positions, the potential for activism within the civilian component rose commensurately.
And where at the time of the Act’s passage it covered approximately 12% of government employees, it now covers well over 90%. Further, a large state staffed with increasing numbers of experts necessarily competes with private interests in the employment market, and thus over time must offer compensation and benefits that rival those of firms.
The architects of the reform also failed to recognize that individuals who are hired are no less likely to have political inclinations than those awarded the same position out of sheer patronage. And where those who held positions in the spoils system were washed out of office in four years, a corps of (essentially) permanent bureaucrats facing the prospect of pensions and positions of greater influence amid zero public accountability are likely to be outwardly demure while no less political than their forebears.
So what happened?
The tremendous edifice that is the US civil bureaucracy — currently numbering somewhere around 2.85 million individuals — is, like any other huge organization, subject to both imposed and emergent orders. There are explicitly assigned executives and managers, labyrinthine organizational charts, job descriptions, pay grades, areas of responsibility, manuals of every sort, and every other standardization that informs (and hinders) the modern workplace.
But as the size of the bureaucracy has swelled it has also acquired a dissociated but consistent “consciousness”: a spontaneously-ordered, unstructured but undoubtedly focused and effective mechanism. Its major functions are to thwart political measures it collectively deems unpalatable, and to vigilantly protect the existence of the greater body within which it thrives.
No orders are issued, and there is no chain of command. It communicates by example: leaks reported in the news beget more leaks, anonymous tips spawn a rash of new tipsters. No lofty conspiracy theories are necessary; a massive army of bureaucrats in an era of free/highly affordable burner phones, file sharing services, and document scanning apps are more than sufficient to gum up the wheels of executive action.
There are no secret codes, no dead drops, and no shadowy agents meeting in parking garages in the dead of night: perhaps more dauntingly, the deep state coalesces from among a seemingly incalculable number of nondescript men and women with families and homes in the Virginia and Maryland suburbs of Washington D.C. It receives a salary every two weeks, drawn upon the United States Treasury. Its atomic elements — individuals — coach Little League, go to Zumba classes, and generally have mainstream opinions. Many, no doubt, dismiss the very notion of a deep state. Even when they send an anonymous email, shred a document intended for other eyes, or impishly pass a tip to someone with a second- or third-hand relationship in the media, most of them probably see the deep state as something larger, above and beyond themselves.
Yet they are the deep state.
(There is another, often overlooked outcome of the establishment of a fixed civil bureaucracy. Awardees of government jobs under the spoils system were usually expected to donate to, and raise funds for, their favored party’s candidates. With the elimination of what were euphemistically called “assessments” — essentially fees and donations paid by individuals for requested or desired (while virtually always temporary) appointments — the modern era of campaign finance was set in motion. In place of payment for favors, political access and influence was thereafter, and increasingly, driven by wealthy individuals, interest groups, and large corporations.)
Lingering Issues
Two larger issues loom. Much of the world around us, and perhaps most of it, is shaped not by the planning of experts, but by the unintended consequences arising of their plans. And these side effects aren’t necessarily obvious from the start; some take decades to materialize. Others arise not exclusively as byproducts of a given initiative, but in the course of interacting with other plans or their byproducts. Acknowledging that complexity should temper not only the ambitiousness of planners, but the manners and acuteness employed in watching for them.
Second, political discourse typically pivots around solutions: neat, distinct remedies which, as they are imagined, quickly and seamlessly address problems. Less frequently discussed are the wider range of imperfect solutions which present trade-offs in the short- or long-term, but may hold less surprises in the longer term. Some of the trade-offs are immediately obvious; others don’t appear for years. The corruption of the pre-Pendleton Act period seemed undesirable enough that nearly any replacement would be superior: better yet that “science” and merit should be employed in a successor system.
A bigger question is whether the deep state is, even as an unintended consequence of the Pendleton Act, a “feature” or a “bug”. Do unelected government employees play a critical role in restoring equilibrium even in a nominal democracy, or do they represent an insidious, potentially worrisome repository of accidental power?
The idea that the Federal bureaucracy was staffed by the favorite or highest-bidding individuals was remarkably distasteful to the public in the 1870s; replacing it with a merit system certainly sounded like a preferable, tidier solution. It definitely appealed to the burgeoning desire for “scientific” solutions which littered the American policy landscape between the 1880s and the end of World War I. But virtually no one could have anticipated the colossal growth in the size of the U.S. government over the subsequent 140 years and the accompanying explosion in the size of the civil service. Add to that legislative creep, whereby the President was permitted to expand the ranks of protected government employees at will, and we are faced with the present.
For a very long time, Americans have had the odd feeling that elections don’t matter nearly as much as the media hoopla surrounding them would imply. It’s true, and one reason why has everything to do with fundamental changes in the way we hire and fire within the federal bureaucracy. The emergence of the deep state is by design a buffer on democracy itself, with the cost of a less adaptable regime and growing public cynicism concerning who really is in charge.
Peter C. Earle
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What Arthur Burns Broke, Paul Volcker Fixed
Paul Volcker, who served as chairman of the Federal Reserve from 1979 to 1987, passed away this week at the age of 92. He is widely credited with ushering in a new era in Federal Reserve policy making, where much more attention is given to controlling inflation.
When President Carter appointed Volcker to the Fed, inflation was approaching double digits for the second time in less than a decade. Arthur Burns, who began his tenure as Fed chair in 1970 when inflation was around 4.90 percent, saw inflation rise to 11.51 percent in 1974 Q4, fall to 5.13 percent by 1976 Q4, and begin climbing again thereafter. Inflation rose from around 6.43 to 8.52 percent during G. William Miller’s brief tenure from 1978 to 1979.
Before Volcker, Fed chairs occasionally denied their ability to control inflation. Arthur Burns referred to cost-push inflation (in contrast to the demand-pull inflation caused by faster money growth). “The rules of economics are not working in quite the same way as they used to,” he told Congress in 1971.
There were dissenting views, to be sure. But, for most of the 1970s, they were coming from outside the Fed. Milton Friedman, for example, called Burns out at the December 1971 American Economic Association annual meeting. It was not cost-push inflation, Friedman claimed, but “erratic and destabilizing monetary policy [that] has largely resulted from the acceptance of erroneous economic theories.”
Volker changed that. He acknowledged that the Fed could bring down inflation and then set a course to do just that. Moreover, he did so with great resolve.
Engineering a disinflation is a costly proposition. The central bank must cut the growth rate of money to bring down inflation. However, cutting the growth rate of money also tends to fool producers into thinking there has been a decrease in the relative demand for their products. As a result, they produce fewer goods and services — which often means laying off workers — until they realize the error and adjust their prices down accordingly.
The underproduction problem can be mitigated, to some extent, by credibly announcing the policy in advance. If producers reduce their inflation expectations in line with the policy, they will not be fooled into underproducing.
But that is easier said than done. It is difficult to credibly announce a policy in normal times. Most folks just don’t pay that much attention to — or understand — monetary policy. It is harder still when the central bank has failed to live up to expectations in the past, since even those who do pay attention and understand how monetary policy works are unlikely to believe the Fed will do what it says it will. Hence, even when such measures are called for, cutting the growth rate of money virtually guarantees a recession.
Volcker’s disinflation was no exception. Real GDP growth fell from 6.51 percent in 1979 Q1 to −1.62 percent in 1980 Q3 and remained low through 1983 Q1. Unemployment shot up, from 5.7 percent in 1979 Q2 to 7.7 percent in 1980 Q3; by 1982 Q4, it had reached 10.7 percent. Home builders around the country pleaded for cheap credit by sending two-by-fours to the Marriner Eccles building in D.C.
But Volcker didn’t relent. Inflation came down and stayed down. Indeed, the public came to believe the Fed chair was willing to do whatever it takes to keep inflation low and steady. For every ounce of institutional credibility Burns had lost, Volcker gained a pound.
William J. Luther
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How To Stop the Proliferation of Municipal Bond Issues
It seems rather strange that in a putative democracy a handful of people can legally, if figuratively, reach into the pockets of their neighbors but it happens all the time all across America via municipal bond ballot measures.
The main problem is that the measures “pass” if the majority of those who actually vote are in favor, even if hardly anyone votes. That leads to abuses. We should change the rules and mandate that bond/tax measures must obtain the affirmative approval of over 50 percent of eligible voters, not just those with sufficient incentive, education, and information to vote.
In most areas of our lives, no means no in the sense that no decision defaults to no action. You do not have to actively dislike the advertisement of a stationary bike company to avoid buying one of its products, you can vote “no” by not taking steps to purchase one. Heck, you may even approve of its ad but that does not give the manufacturer the right to drop ship one of its high-tech torture machines to your house and dock your checking account in exchange.
The same goes for physical intimacy. A stranger does not get to lawfully have sex with you because you did not actively swipe left on his or her Tinder profile. And Tinder does not get to establish a Tinder profile for you because you did not explicitly tell it not to. Wells Fargo found that out the hard way (though arguably not hard enough).
The need to obtain explicit consent before taking somebody else’s money (or bodily fluids) is one of the key remaining features of liberty. Without it, life begins to look a lot like slavery or authoritarianism.
But the rules change when the compulsory monopoly we call government makes the rules. The original impetus behind municipal bond measures was the notion that voters need to explicitly accept the tax increases needed to service the bonds. No taxation without representation and all that. When most people voted, and where taxpayers and voters were roughly the same people, bond ballot measures approximated consent. (Why fifty percent is often considered the best threshold is another matter, but I will stipulate it here.)
Statewide bond measures pass about four out of five times. Local ones appear to pass at the same rate, even at the 55 percent threshold established in California. And issuers who fail to gain approval can try again year after year, unlike in corporate proxy resolutions where shareholders are banned from reintroducing resolutions that fail to garner sufficient votes. (The SEC, incidentally, wants to raise those thresholds.)
It is a minor miracle when voters in a town like Monument, Colorado repeatedly put the kibosh on bond measures because the issuer, often a school district, is a concentrated interest with the budget authority to hire consultants who appear to make scientific, objective cases for the “necessity” of the bond. Some of those consultants even conduct market research studies designed to help the issuer use words and arguments most likely to sway voters to click “yes” come election day. Opponents are typically individuals with jobs, families, and lives.
Unlike in the commercial sector, municipal bond issuers do not need to persuade people to their cause, they just need to create enough uncertainty, confusion, or complexity to induce most voters to abstain. While often rational in other contexts, inaction on bond measures often means tax increases because the denominator for passage, regardless of the threshold, is always the number of people who actually voted on the measure rather than the number of registered voters.
Issuers know that and use it to their advantage. A suburb of Sioux Falls, South Dakota recently passed a bond measure 1,085 to 129. That seems like a mandate except 14,700 people were eligible to vote on the measure, which went up for vote on 10 September, a time when most East River South Dakotans are busy settling their kids in school, hanging tree stands, and “gettin’ the beans in” (soybeans of course). In other words, only about 1 in 15 people explicitly approved of the bond measure but the outcome is somehow counted “democratic.” (I don’t live in that town, incidentally, and the measure did not raise taxes but merely did not lower them as a previous bond recently matured.)
Other issuers put their measures up in November but only in odd-numbered years, when voter turnout is even lower than during even-numbered years. Often, public discussion of bond measures is muted because debate might draw out voters, which issuers want to avoid because when turnouts are low measures can be won simply by mobilizing teachers and naive statists.
In response to those obvious problems, some have called for minor reforms, like mandating that all municipal bond measures come up for vote on regular election days in even-numbered years. While that would be an improvement, it misses the main point, that no (action) should always mean no (money or booty). In other words, passage of anything authorizing use of the coercive power of the state to take citizens’ money should require the assent of fifty percent plus of eligible voters, not those who turned out at the polls.
When I proposed this recently at a meeting of the South Dakota chapter of Americans For Prosperity, someone immediately objected “but then no bond measure would ever pass!” “Exactly,” was my response. But of course truly important bond measures would pass, after mature consideration and extensive public debate clarified the issues at stake.
Consider again Monument, which sits on the Front Range betwixt Denver and Colorado Springs. Traditionally, taxes and public spending there were low so it attracted childless singles and older couples. Recently, younger couples with children began moving in because it was relatively cheap and improvements on I-25 promise to reduce commute times to both metropoles. Once ensconced, though, those couples began demanding more and better schools, even though that would mean higher taxes and, ceteris paribus, lower real estate values via what economists call tax capitalization.
I do not live in Monument either and would not presume to tell its residents what type of community they should try to create. But I do believe that a nation that purports to be a democracy should encourage citizens to debate the merits of proposals openly and to have to gain explicit approval for taxes, not a bare majority of a few percent of eligible voters in an inconvenient, secretive ballot. Robust debates could raise awareness of charter schools or maybe signal to parents with young children that they should live elsewhere. Or maybe they would lead to even more financial support for public schools. At the very least, full public discussion might expose the exorbitant fees that many municipalities now pay to consultants and issuers. The point is that to win approval, issuers would have to make a case and not just slide in under the radar.
Yes, voters could turn out to defeat bond measures, as they sometimes do, but the burden of proof should fall on the issuer, especially when public school districts seek funding because they have, with few exceptions, failed to create the type of citizens who vote. NGOs like iCivics are trying to improve civics education but the real problem, especially when it comes to bond and tax issues, is the failure of public schools to teach the basic principles of economics and public finance.
Without that background, most people do not feel comfortable voting on complex bond issues. So, as behavioral finance theory predicts, many abstain and the issuers win.
Robert E. Wright
