IN every language the term "bureaucracy" bears a crust of derision.

This is no accident, for bureaucratic incentives invariably produce problems. Bureaucracies tend to replace the goals that justified their creation with actions that protect their budgets. The good news is that we can harness this fatal propensity in a way that will improve government and reduce its costs. While our plan won't do it all, here is a beginning.

President Clinton's appeal for mutual sacrifice in the form of higher taxes and foregone benefits have been well-received. Our new president is an excellent political salesman. And many Americans are sufficiently responsible to be willing to buy the goods. But if special interests undermine success, citizens will feel betrayed.

Here is a decision rule for such budget-cutting: Programs that are both economically wasteful and environmentally destructive will be zeroed out. Logging subsidies and most new Bureau of Reclamation water projects fall in this category. But that is not enough. Cuts must go deeper, to the myriad "demonstration" projects and special initiatives that riddle every appropriations bill.

In the abstract, cutting spending is appealing. Most people feel that much of their tax bill is wasted by the government. But specific programs that benefit special interests have strong supporters. In contrast, few taxpayers have an incentive to lobby against specific programs; the portion of their tax bill going to any item other than entitlements is quite small. The average citizen has little incentive to become active while the beneficiaries have strong reasons to fight for their programs.

This problem is the classic one of "factions" that so concerned Madison and the founders of our nation. The temptation of politicians to concentrate benefits and disperse costs has been the ruin of democracy through the ages. As we became a society based upon transfer payments, government was transformed from an agency of order to an engine of plunder.

So in addition to dealing honestly with entitlements, how can we cut major chunks from the federal budget? The accumulated programs that have led to our crisis develop strong and stable constituencies. Such programs are best headed off in their infancy. One way is to create a government agency that draws funding solely from successful attempts to eliminate and pare back both existing and newly proposed government programs; let's consider a predatory bureaucracy.

The Bureau of Reclamation proposed rebuilding the Teton Dam, a structure that failed when first filled in 1976. This dam had damaging ecological consequences and the economic costs far outweighed the economic benefits. Yet interests, such as those who expected to benefit from subsidized irrigation, lobbied for it.

A predatory agency would marshal its resources against this project, employing ecologists, economists, and local residents who like the river as it is. They would advertise these costs to Congress. If the dam were cut, our predatory bureaucracy would receive 1 percent of the project's estimated costs and the Bureau of Reclamation's operating budget would decrease by the same 1 percent. The predatory bureaucracy would thus thrive only if it were successful at eliminating programs, and the offending department, in this case the Bureau of Reclamation, would be punished not only by losing this project, but by losing an additional portion of its budget.

This system would provide incentives for government to police itself against waste and pork barrel projects, both by the predator and the prey, as projects are weeded out in anticipation of attack by the predator agency. Such a department could be established with a single two-year appropriation. After the first two years, it would exist solely upon funds gleaned from cut programs. Its size would vary just as predator numbers follow the size of prey populations.

The proposal is not without its drawbacks. I find the creation of another bureaucracy somewhat offensive but this is a problem of political economy, not political theology where sin is well-defined. It is also possible that some worthwhile projects might be killed. But the real question is whether the benefits outweigh the costs. And on this score, it is likely to be quite successful.

The fundamental logic behind this proposal is that bureaucracies are driven by their budgets. Just as corporations are driven to seek profits, government agencies seek to maximize their budget. They normally do this by pleasing a special-interest clientele. Our proposal would utilize that insight by creating an agency which, to increase its budget, would cannibalize the unsound proposals of other bureaucracies. In doing so it would foster the public interest rather than special interests.