About 30 years ago a group of then young economists including Anthony Downs, Thomas Borcherding and Anne Krueger began a line of theory on the economics of bureaucracies. One of their key principles was that as opposed to firms, bureaucracies, in times of economic decline would cut services first and they might be expected in hard times to actually increase their staffing. Public Choice Theory has both a normative and positivist base and a lot of its critics pooh-poohed the notion.
The Sacramento Bee, in a story this morning, found that in this time of monster budget problems for California, that state employment actually went up by about 1% over the last year. That is in spite of the request by the Governor that positions be frozen and that some open positions simply not be filled. The Governor's spokesman, Aaron McLear, commented "The fact that we've been able to maintain the overall size of state government while demand on state services has increased, demonstrates that the governor has been able to make cuts where we can." That sure is not the way a business enterprise would operate.
The Public Choice Theory argues that traditional firms cut their service last and their workforce first in downturns and that because of the incentives in bureaucracies, they cut service first and employees last.
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