The roots of the federal bureaucracy—the departments, agencies, bureaus, commissions, and other executive units used to carry out national policies—are found in the Constitution, which authorizes Congress to make laws and the president to ensure their faithful execution. The current array of bureaucratic structures and arrangements, however, evolved incrementally from attempts by Congress and the president to take advantage of bureaucratic expertise while minimizing the political costs of delegation.

The expansion of the national government into new areas required additional bureaucracy to solve large-scale coordination problems and other collective action problems. Delegating to bureaucratic agents, however, entails some risk of agency loss, whether from hidden action (the principal cannot observe what agents are doing) or hidden information (agents know things the principal does not). Early presidents like George Washington tried to reduce agency loss by appointing only men of high character. Other mechanisms, such as monitoring and incentive-based contracts, have also been used to ensure that the interests of agents are aligned with those of the principal. Red tape, while unpopular with the public, also helps keep bureaucrats in line.

The size of the federal workforce increased substantially in the twentieth century. Whole departments were created to serve new categories of voters and interest groups. Congress also set up regulatory agencies to cope with the Industrial Revolution and Great Depression. Since the 1960s, federal programs and activities have expanded even as federal employment has stagnated. This was accomplished by delegating administrative responsibilities to state governments, private contractors, and grant recipients.

The delegation of substantial discretionary authority raises the question of who really controls the bureaucracy. Congress has the strongest set of tools at its disposal. It can legislate agencies out of existence, adjust the budgets of individual units and programs, require reports, and investigate agency activities. They also create mechanisms through which ordinary citizens and interest groups alert them of bureaucratic problems that need fixing. Presidents use appointments to influence bureaucratic priorities and the Office of Management and Budget to review agency activities. The federal courts also monitor executive agencies to ensure they comply with specified rules and procedures. In addition, interest groups can exert influence through providing information. Despite numerous sources and mechanisms of control, the possibility for agency loss remains.