Bull**** Jobs by David Graeber

A Leftist's Take on Principal-Agent Problems

I had heard of this book and idea a few years ago, so when it popped back up into my memory a few weeks ago, I ordered the paperback. My children have questioned why Dad is reading a book with a bad word on it (my answer: I’m a bad person). I was half-expecting a low-IQ business book of the ranting variety, but instead I was pleasantly surprised to discover it was an interesting scholarly work of an old-school Leftist anthropologist, the late David Graeber of the London School of Economics.

Graeber describes the phenomenon of people employed in white collar jobs, often well-paid, that seem to accomplish nothing of value. He asks an entirely reasonable question in the alternative: instead of so many useless jobs, why have work hours not gone down as overall economic productivity has gone up? His answer, again entirely reasonable, is that surpluses of economic production always produce elites who consume them.

Today, that is the managerial elite, who like feudal lords, create make-work positions to feather their own nests and status, and the phenomenon is widespread, as Graeber demonstrates, in both private industry and government. As a leftie, perhaps he imagines there is some solution to this problem, but in the book one can sense he has matured beyond simple Marxism to a proto-Christian appreciation of the foibles of human nature. He acknowledges the Communist systems were no better in paying people to pretend to work. What demands explanation is why this happens in private economies as well.

Along the way, the reader is unfortunately treated to explanations of psychoanalytic theory, that at the root of the arbitrary power exercised to create soul-sucking, meaningless jobs is some sort of sexual repression working itself out as public sadism. In the Freudian religion, if only people engaged in enough weirdo sex stuff, the Millennium would be ushered in and in its name “all oppression shall cease.” I suppose the reader can ponder whether societal cohesion has improved as sexual liberation has proceeded to the outer orbits of the Diagnostic and Statistical Manual, Second Edition.

I do think there’s a much simpler explanation.

Why Are Corporate Margins So Low?

The S&P 500 reports an overall corporate profit margin of 11%, and margins are historically high. Outside of tech and a few exceptionally high margin sectors, the median is probably single digits. As a traditional bourgeois owner-capitalist, I have no idea how one manages a business that close to unprofitability. Unless one’s entire business is done on a cost-plus basis, just natural variation would cause substantial periods of unprofitability. Yet, for the most part, this doesn’t happen. Companies manage to consistently make the same low margins, and maybe pay a paltry dividend that also grows at a single digit rate just ahead of inflation, year-after-year.

The most obvious answer to me is that these companies are ate up with principal-agent problems tied to the individuals who functionally control the enterprise: professional management¹. The real profit margin is much higher and mostly consumed with management’s nest-feathering. The system ends up finding an equilibrium where both the the line workers doing the actual work and the actual owners get consistently screwed. Extreme efficiency and cost-cutting measures are employed to make sure the customer service call center associates, the baristas, the assembly line workers, and the warehouse pickers across all industries are ruthlessly “managed” to higher and higher levels of productivity. The shareholders, likewise, whose interests are so dispersed and intermediated that they can never organize in their own interest effectively, are given a predictable return just enough over the rate of a bond that they hold onto the securities.

This all seems rather unbelievable, until you hear stories like this:

Even companies enjoying high nominal margins like Google can easily become ate up with these problems. Google’s business is so awesome that even after management extracts as much as they think they can get away with, there’s plenty of money left over (though whether that money ever gets returned to shareholders or invested in endless uneconomic science projects of interest to the founders is another question). Indeed, the thesis of BS Jobs is not that these entities are useless, indeed most have well-run enterprises or important purposes that produce a core of value, at least for a time. It’s that this value is mostly accrued neither to the people doing the valuable work nor the nominal owners, whether shareholders or the general public in the case of government entities, but rather to the managerial vampires of the bureaucracy.

So where do useless jobs come from? Promotion into management, and management salaries, are contingent on the size of the team led and the budget responsibility. This is why the C Suite’s need for four assistants is never questioned, or why a white-collar HR staff needs thirty people to accomplish what should be automated by two smart guys with software². There’s an implicit agreement in the thievery that this caste consists of “professionals” and professionals need flunkies, the purpose of which is never to be questioned. Graeber does a good job of documenting the conspiracy of silence among workers in these jobs. They need the money, and many want to be promoted, even if their roles are useless.

Further, professional managers are honestly motivated by different incentives. Since salaries are discrete — one is either employed and earns the salary or gets fired and does not — this leads to extreme risk aversion, managed by reaching wide consensus in the organization to avoid blame. One needs large staffs of useless jobs if every decision is made glacially and overanalyzed, if every process must be over-documented with reports no one will read except in a crisis to cover someone’s rear end. When Jeff Bezos ran Amazon, he was known to question whether decisions, which his managers wanted to talk to death, were reversible. If so, no need to talk so much, just make the change and see what happens, but Bezos was uniquely qualified to own reversible decisions that turned out badly. Owner-managers can make decisions quickly because they can’t be fired for mistakes. Professional managers are always optimizing for not getting fired.

Shareholders of public companies have almost no hope of fixing these issues, and it’s difficult even in owner-managed firms.

The Diseconomies of Scale

One of the things that can happen as one moves up the wealth curve is a sort of softness. Stupid sums of money can make one stupid. I’m reminded of the character Franck in Father of the Bride. I understand George Banks’ rage. A successful businessman, he’s treated like a child by this prancing little man because he dares to apply principles of business frugality to his daughter’s wedding. To paraphrase Jane Austen, a “man in possession of a good fortune must be in want of” interior designers, event planners, architects, and other highly qualified, market-insulated professional cash arsonists³. After all, how is George Banks supposed to know what’s reasonable to spend on a wedding?

It’s bad enough to deal with the Francks in one’s personal life, but it can be much more harmful to cash profits to allow a related type, the professional “manager,” into one’s business. All of this is sold to the business owner as the wisdom of managerialism, a highly developed pseudoscience justifying the caste. The entrepreneur who has discovered an opportunity of economic alchemy is made to feel like a hayseed who must bring in outside “professionals” to “scale” his business, lest he be left in the dust. Suitably abstracted to income statements and balance sheets, any business, it is said, can be managed by the manager’s generalist skills.

Graeber links all of this to the birth of “scientific management” in the early 20th century. He gives the managerial caste far too much credit. There is, in fact, a discipline called industrial engineering where mathematical principles are brought to bear on the abstract problems of business. So constrained by science, its teachings tend to be rather humble. A friend of mine sought his Ph.D. in this field, beginning a thesis on queuing theory; he explained how his work might be useful in helping a bank figure out how many tellers to hire to optimize profits. My friend, however, realized too late that his thesis was too ambitious, that only a few steps beyond a problem as pedestrian as this proved too complicated to handle analytically once properly specified mathematically.

Strangely, despite its higher technical rigor and thus better grasp of ground-level truth, industrial engineering remains a niche field for the training of managers compared to the explosion of MBAs. I suppose five semesters of calculus, differential equations, and linear algebra sound a lot less fun than drawing boxes on whiteboards and opining confidently about survivorship-biased case studies. It’s very easy for non-technical business owners, who want some relief from the burdens of ownership, to get snookered by the guy who is wrong but confident over those more in touch with reality.

Sometimes when I’m vacationing with my family in some overpriced locale, I get into a misanthropic mood and look around at my fellow vacationers, some of them rather obvious high-functioning alcoholics, and listen to their conversations. How is it, I wonder, that some of these people I’m observing have jobs that enable them to afford this? I can’t help but think that some are high-level managers feeding on the body of some absentee owner’s business. They must do something useless but high-paid like write “strategic plans” or some other such white-collar garbage.

The question Graeber poses is why capitalism tolerates this kind of inefficiency. I disagree that capitalism is even close to perfectly efficient, it’s just more efficient than the alternatives. Most Fortune 500 companies do provide useful services, after all, compared to the overproduction and scarcity of communism. This value, however, has been mostly captured by professional managers instead of the workers providing the valued services or the owners who nominally employ them.

Protecting Value Creation from Managerial BS

While traditional bourgeois owner-managers are the most efficient operators — compare Elon’s “sleeping on the factory floor” at SpaceX to the ineffectiveness of Bezos’ absentee partying, TRT overdosing, and carousing with his new girlfriend at Blue Origin — it is not reasonable to say that owners should directly manage their businesses indefinitely. Many of the most important businesses are too large for complete direct management, and it’s reasonable that those on the upper end of the declining marginal utility of wealth curve might want to escape from the daily grind. What is the solution to avoid capture of value from managerial BS artists?

Rule #1: Exclusively promote from within.

Since definite scientific knowledge about business is scarce and sometimes impossible, the best that can be done is direct empirical knowledge of the centers of value creation. No one has any business managing anyone who hasn’t done the job themselves, as skills are extremely domain-specific to a business’s specific niche.

Skills not associated with internal learning specific to a specific business, except to the extent they reflect general cognitive ability and work ethic, are often useless, and sometimes worse than useless if this presents as a desire to change internal practices learned through trial-and-error over time. As long as practical, managers should practice a split schedule between managing others and their own direct value-creating work; their direct reports should be more like project assistants, not complete delegates. Keep them in the maker’s world as long as possible.

Such individuals will have internalized the owner’s efficient approach to staffing, that jobs exist when work needs to be done, not to justify a salary. Internal promotion also greatly enhances motivation, and the companies that maintain this discipline can produce outsize results. Imagine how warehouse workers at Costco feel about their CEO, who was promoted to his post over time after starting as a forklift operator.

Rule #2: If one must break rule #1, hire engineers or other technical people as managers.

A friend of mine who inherited the family leadership role at a medium-sized company a good bit larger than mine asked for my advice on replacing an insubordinate, toxic executive team. What surprised me was that he couldn’t simply fire the bozo under him, because the guy was a professional manager who, per standard practice, had negotiated a multi-year contract with a huge buyout clause, and proving he was fired “for cause” would likely prove expensive and involve litigation. My advice: if he had to hire from the outside, find a 30-something engineer with people skills and already managing a technical team who would be thrilled to take on the job for half this guy’s salary, with no contract.

Hiring generalist managers with a “track record” is incredibly expensive. There’s nothing magical about their abilities. It’s not that they’re necessarily incompetent or dumb, it’s that they're trained to hire ten people to do the job of three, and come from a bureaucratic world with budgets that waste money. Their interests are not aligned with the owners of a company’s equity. A protesting owner will be accused of micromanagement or stinginess, of “not giving them the tools to do their job.” Befuddled owners who submit to this become management’s tool to bleed away profits to justify their next promotion.

Engineers (and in this I include anyone in hard math or sciences), on the other hand, are relative bargains in the marketplace. They’re content with moderately high salaries, largely psychologically immune to BS, mostly incapable of dishonesty, and typically frugal and hate waste. And to be honest, if the expectation is for someone to learn on the job quickly and manage people who know the job better than they do, wouldn’t it be preferable to hire someone who has mastered hard math and science, who can follow the convoluted logic of evolved, domain-specific internal practices without resorting to simplifying heuristics?

Hiring highly technical scientists and engineers for management roles is pretty standard practice in Germany and Japan, and they’re paid a lot less and usually do a better job managing the core business than overpaid American-style managers. The only downside of an engineer is they’re unlikely to be yes-men and won’t sugarcoat the truth, so an owner gives up in psychological comfort what he loses in BS. Engineers also won’t interview as well as the guy who demands a multi-million dollar buyout if one must fire his incompetent, overconfident butt in a couple of years.

But, really, it’s best to stick to Rule #1 and promote internally. Creative solutions to make Rule #1 work are almost always preferable to any outside management hire. Hire them young, teach them right, and reward long-term loyalty.

Rule #3: Pay good line workers more.

One of the drivers for the growth of unnecessary management positions, and the BS jobs that justify them, are workers’ entirely reasonable desire to improve their standard of living. Pay scales that provide on-the-job advancement for line workers, especially exceptionally productive ones, avoid this pressure. Many engineering-centric companies feature a parallel technical promotion track to address this problem, where the best engineers are often best utilized doing actual engineering instead of management.

Again, Costco is an exception in the corporate world, paying line workers a living wage and reducing pressure for unnecessary management-based promotional opportunities to retain talent. It’s perverse if the only way an excellent worker can advance is to no longer do excellent work! Of course, there’s only money to do this if management bloat is kept under control.

Abstracting Away the Benefits of Capitalism

Libertarians tell us that one of the benefits of private property is that it produces caretakers of resources; owners take better care of things than renters. When management and ownership are separated, as in modern corporations, no one effectively “owns” the assets of the corporation.

Likewise, George Gilder goes beyond Adam Smith in saying that cash profits are not only an incentive for value creation, but more importantly return resources to those who have best invested them. That is, it serves society’s development best to allow those who have demonstrated good stewardship of resources, as indicated by the earning of a profit, to reinvest the fruits of that investment.

This feature is perverted by separation of management and ownership. Managers not constrained by owners are essentially renters who consume much of the real margin for their own personal benefit and shareholders are passive recipients of small dividends, which are either consumed as income or reinvested mindlessly into some index fund, not based on the hypothesis testing process of entrepreneurship, what Gilder calls “surprise” or useful information.

While it’s hard to think of policy prescriptions to discourage this arrangement without unintended consequences, much of the stagnation in innovation and growth post-WWII can be blamed on the rise of managerialism and the decline of bourgeois owner-managers. The 2017 20% pass-through profits deduction for active owner-managers was good policy nudging in a better direction.

Are BS Jobs a ZIRP Phenomenon?

I speculated on a unified theory of societal dysfunction in my review of The Price of Time, which has been my most shared post. When interest rates are artificially suppressed with fiat currency, all sorts of perverse incentives are created. I wonder if BS jobs are part of this. Graeber notes that BS jobs seem most concentrated in the government, finance, and education sectors of the economy, those industries closest to the government’s money printing apparatus.

As Jay Powell has kept rates above 5% to fight inflation, lots of healthy evolution is happening in the economy. Many tech companies, inspired by Elon’s cleanout of Twitter, are eliminating thousands of BS, non-technical, non-customer-facing positions. Many smart people who won the rat race of finance to make Wall Street are receiving goose eggs for bonuses. For all their sophisticated spinning of financial models, it was all borrow-short lend-long on a razor margin all along.

A mere 5% annual interest rate now means elite MBA graduates with perfect rat race pedigrees have been reduced to oxymoronic “entrepreneurship by acquisition,” forming a “search fund” where they cold-email, for example, blue-collar HVAC company owners in flyover cities to buy their businesses with Daddy’s money. Many business owners I know get these emails all the time, talking about how they sincerely want to buy the owner’s company to help preserve their legacy and how much they love hiking and dogs. One might think that with their elite business knowledge, they could start their own business and eat their competitors for breakfast⁴.

The managerial capture of value also highlights the value of sector rotation in selecting investments. In the public markets, shareholders capture the most real value beyond zero-sum capital gains when sectors become disfavored and management can no longer get rich with their stock options. Like the plain girl at the dance, they’re friendlier, shedding excess headcount, minimizing management-career-enhancing low-value capital expenditures, and returning cash to shareholders.

Ultimately, I think Graeber’s idea of BS jobs is a natural and somewhat unavoidable feature of late, prosperous capitalism. Everyone wants to self-actualize and live off passive income, and no one wants to work. Owners of businesses want to “diversify” and “take money off the table,” and Bubble investing ecology means private equity firms still attract capital. Most entrepreneurs are ADHD, seeking an “exit” within 5-7 years; few desire to own a business for life and grow it sustainably.

Why then should we be surprised that most of the value will be captured by those still working, and why would we be surprised that a tiny elite of those still working has captured most of that, and with no skin in the game, that elite would be highly dysfunctional economically?

For some management bozo to get paid $400,000 instead of $200,000, the company must waste $2MM of the company’s real margin on unnecessary staff and budget items to justify his higher salary, which in turn justifies the salary of his boss. The economics are crazy, but it’s the shareholder’s money, not the manager’s, and it’s all very “professional” and reflects “best practices,” all part of the real cost for an investor to sit on the beach with a diversified portfolio of companies he thinks he “owns.”

BS jobs are simply the epiphenomenon of absentee ownership, part of management’s baroque justification for uneconomic rent extraction. This is standard issue Public Choice Theory, which one writer summarized as follows:

Concentrated minority interests will ALWAYS defeat dispersed collective majority interests in any system of government/institution that doesn't terminate in an individual owner.

This is basic public choice theory.

Any government or corporation that does not have a individual Owner/Operator or King will inevitable die of its own corruption, actively acting against the interests not only of its core charge, but against the interests of the system's own survival. This is why all democracies and republics commit suicide, and why large corporations whose founders have moved on and have weak CEOs inevitably become inefficient and destroy their own core competency.

For those owners willing to “show up to work,” as Elon puts it, opportunity still abounds outside the monopolies of the sclerotic giants.

Productivity and Time Off

Graeber longs for the progressive movement of old, where workers successfully fought for better working conditions, notably the weekend. Many thought that as productivity increased, workers would be able to enjoy more time not working. Keynes predicted, and Graeber endorses, a 15-hour workweek. While I don’t think that small of a workweek is realistic — it’s really hard for people to do their jobs well working less than 25 hours per week, and the more skipped work days, the worse the performance — reduced hours would be possible with productivity gains if people were ok with a 1950s-level standard of living.

The answer, I think, is that leisure time, like all goods, is subject to declining marginal utility. It does seem that the 40-hour workweek is what most people are happiest with relative to the opportunity cost of a lower standard of living, as workers have not demanded lower pay for less hours, something I think business owners — though maybe not employers of BS jobs who care more about appearances than output anyway — would be happy to oblige, perhaps dropping one workday per week. Instead, workers engage in fantasies of wanting the same pay for less work, which is not economically reasonable.

Ironically, it is the Left who has undermined workers’ position in improving working conditions and wages. Graeber no doubt supported mass immigration and feminism, both of which increased the supply of workers and thus lowered the negotiating leverage and relative value of labor to capital. The overproduction of college graduates with crushing debt and unrealistic expectations of elite ascendancy has likewise lowered the negotiating leverage of generalist knowledge workers.

The net economic effect of women’s increased workforce participation⁵, increased immigration, and increased white-collar education has been that most families now have two members working full-time for a standard of living perhaps 25% better than that of their 1950s counterparts. I have no doubt that labor would naturally have accrued a 25% wage increase, and thus the same standard of living, had these interventions not occurred, and if Graeber’s BS jobs theory is correct, at almost no cost to the economy! Is it possible that the real capitalist tools are Leftists, fooled into abandoning bottom-line improvements for workers for ephemeral liberation narratives?

Figure 7 from BS Jobs. While the author blames this on simple greed, economics would point us to supply and demand. Compensation no longer follows productivity starting in the early 1970s, after immigration and women’s workforce participation vastly increase from historic norms.

Fertility and cultural trends may correct this in the long-term, at least for blue collar workers⁶. The “Yale or Jail” mentality that shuffles moderately intelligent people who would make excellent craftsmen into low-earning degrees at noncompetitive colleges⁷ gives unearned status to many of those who work at computers in air conditioning. Status is a substitute for cash in human economies, leading to an oversupply of white collar workers, and the cultural rot is continually reducing the number of working-class people who are employable. I predict that wages for people doing physical work will increase substantially in the coming decade, and ironically it may be these workers who have the most leverage to improve their working conditions.

I see a huge entrepreneurial opportunity for anyone who can fix the status and unpleasantness problem with blue-collar work. Maybe that’s a 6-hour shift instead of 12, or maybe that’s paying full-time wages for two 12-hour shifts per week, and raising prices to the customer who appreciates a more professionally-delivered job. Perhaps technology can deliver cooling suits, for example, that make hot outdoor work more tolerable, or exoskeletons that make the work less physically taxing as workers age. Maybe that’s operating differently to make the work environment more professional, changing job titles and duties, and recruiting above-average kids with noncompetitive degrees out of college. It seems this would be best done in a startup environment, where a white-collar culture of professionalism can be built around doing blue-collar work.

As these jobs increase in pay, status naturally comes. If plumbers or truck drivers end up out-earning all white-collar workers except those with technical degrees, the cultural status of these occupations can change. That these are very much the opposite of BS jobs, and according to Graeber, lead to human flourishing due to the work having real meaning, is even better.

1. In publicly traded companies, shareholders’ irrational desires also lead to distorted economic behavior. An acquaintance of mine whose small industrial company was bought out by a publicly-traded competitor shared the experience of the new management getting angry at him for exceeding his sales targets. They would rather make that money next quarter so earnings grew more predictably to please the analysts.

2. Computer programmers enjoy wearing t-shirts that say “Go Away or I Will Replace You with a Very Small Shell Script.”

3. Richard Florida promoted a theory of the “creative class” in cities being a cause of wealth. Steve Sailer noticed that this is a simple causation-correlation mistake. Guys “light in the loafers” like the Franck character thrive in cities because they help wealthy women spend money. They combine feminine aesthetic sensibilities with male confidence to sell exceptionally high-margin goods and services.

4. Personally, I hope they buy all my competitors and run them into the ground with their pampered life expectations and managerial “expertise.” It’s already happening, with one legacy brand in one of my company’s spaces being run by a rich ski bum with a 5-year exit horizon working remotely in Colorado.

5. Believe or not, Elizabeth Warren, before she became a politician, used to be a reasonable economist who wrote a whole book, The Two Income Trap, about this. Economically, it describes the disappointing net effect of women working to make someone else rich at a corporate job instead of working for their own household with untaxed labor, which had to be replaced with post-tax expenditures on daycare, restaurants, and other service providers, plus a margin of profit for the owners of those enterprises. This presents a coordination problem as well. Women who might prefer to work for their household are affected by their husband’s lower earnings as a result of the increased supply of workers, which forces them to work outside the home to make up the gap, or else settle for a lower standard of living than their peers.

6. Most non-owner-managed white collar firms have the option of slowly eliminating BS jobs, so wage gains will be more modest.

7. Given the expense of college, there are also huge opportunities hiring the smartest scholarship students out of less competitive colleges. Owner-operated firms in flyover regions are uniquely positioned to ignore social conventions and do this. Koch Industries, one of the largest private employers, prefers hiring smart kids from regional state universities to get hungry, motivated workers. Charles Koch has shared how other executives at public companies don’t believe him when he says the smartest graduates of Wichita State outperform Ivy Leaguers due to their lack of entitlement.