Potential Government Shutdown Thursday due to Problems with Bureaucracy?

With the next funding deadline coming up on November 21^st, the threat of another federal government shutdown again dominates the news.  With talk of the potential shutdown comes the discussion of the federal budget.  This fiscal year, the federal government is projected to spend “roughly $1 trillion more than it brings in from revenue.”  This is due, in part, to the fact that both Democrats and Republicans have agreed to increase the funding for numerous agencies, including Defense and Homeland Security.

If the federal government has so much debt, why do Defense and Homeland Security keep getting more money?  There are three major problems with bureaucracy that allow these agencies to spend so much. First, the output of these agencies is non-market and its units are ill-defined.  For example, it is difficult to define units of Homeland Security and you cannot buy Homeland Security in the market.  Second, these agencies are the monopoly suppliers of Homeland Security and Defense, so they do not have incentives to cut costs.  Furthermore, there are no alternative sources of information for the federal government to compare costs.  Third, the compensation of bureaucrats in these agencies is not tied to their performance, so they are not incentivized to cut costs.  These three problems lead these agencies to over produce. Additionally, because demand for Defense and Homeland Security is inelastic, these agencies over produce to an even more extreme level than their peers and consistently require increases in their budgets.  The debate over the increases in the budgets of these and other agencies may cause a government shutdown this week if Democrats and Republicans cannot come to an agreement on another short-term spending bill.