Do you know what career status is? It allows you to re-
enter federal service without taking the necessary civil
service exams, and allows you to apply for internal job
openings even if you're not currently working with the
government. It doesn't do any of the things you claim it
does.

Career status means lifetime tenure. It also means (as you acknowledge) you can work three years at the federal government, leave, and always come back to get a fedguv job without competitive examination, even after 25 years out of the service. This is a bug, not a feature - after decades out of a job, federal law nevertheless stipulates that you must be rehired without a serious interview:

http://www.hhs.gov/careers/jobs/keyterms/index.html

After serving three years of substantially continuous
creditable service, a career conditional employee becomes a
career employee and gains career tenure. Employees with
career tenure have permanent reinstatement eligibility and
may be considered for positions without having to take
another competitive civil service examination.

As for the fact of lifetime employment, don't take my word for it; note the distinction here between "at-will" (characteristic of the private sector) and "career" (in the federal government):

http://www.federalhandbooks.com/fedbooks/Personnel.pdf

As an employer, the Federal government is unique. In the
private sector, there are generally two types of
“appointments” – the “at will” appointment and the
“contract” appointment. The vast majority of private sector
employees hired by a company or firm are hired as “at will”
employees. ... Appointments within the Federal sector,
however, are a little more complex. When hiring a new
employee, a Federal department or agency must classify the
employee’s appointment as “career,” “career conditional,”
“temporary,” or “term.”

And what does "career" mean?

Permanent employees are generally hired into the Federal
government under a career-conditional appointment. A
career-conditional employee must complete three years of
substantially continuous service before becoming a full
career employee. This 3-year period is used to determine
whether or not the Government is able to offer the employee
a career.

It means "tenure":

Service Requirement for Career Tenure
An employee must have 3 years of substantially continuous
creditable service to become a career employee, i.e. obtain
career tenure.

Ever heard of the Douglas Factors, CFR Part 432, or CFR Part 752? These basically make it impossible to fire someone as you need to (a) prepare a "Proposal Notice to Remove", (b) wait 90 days or more for the employee's response, and (c) are subject to having your firing decision "mitigated" by the Douglas Factors (i.e. overturned). This doesn't include (d) the substantial ostracism you yourself will face within the federal government for the capital crime of trying to actually fire a tenured employee.

Proposal Notice to Remove

Each agency has a "culture" that defines the amount of
information and documentation that will go into a proposal
notice. At a minimum, your notice will state which
regulation the action is being taken under, specify what
critical performance element(s) the employee failed to
meet, cite the evidence of unacceptable performance, and
discuss the opportunity period (or the lack of one). The
notice will also explain to the employee the time allowed
for a written and/or oral response. Ask your human
resources specialist for some samples of other performance-
based notices to get a sense of what your agency requires.

The regulations require that an employee receive a decision
in Part 432 actions within 30 days of the expiration of the
30-day notice period. This provision automatically gives
you a 60-day period of time in which to work. Additionally,
the Office of Personnel Management has issued regulations
that give agencies the discretion to extend the initial 30-
day notice period by another 30 days, so you are actually
working within a 90-day timeframe. However, there are
always those situations where even more time will be
needed, perhaps because the employee has asked for a
lengthy extension to prepare a response or the deciding
official cannot gather and analyze all the information
needed within the 90 days allowed. 5 CFR Part 432 lists six
reasons that commonly cause delay and allows agencies to
extend the notice period if those conditions exist.

Wow, six reasons that "commonly cause delay" and 90 days for the employee to "respond" when you try to terminate them. That response invariably involves mitigation via the Douglas Factors:

However, reduction in the agency-selected penalty, known as
mitigation, is a possibility in any action taken under Part
752. Therefore, you will need to explain in any decision
notice, and possibly in a proposal notice as well, what
factors led you to believe that your chosen action
(suspension, demotion, or removal) was the right one. Most
supervisors who have taken any kind of adverse action
against an employee have been told about the Douglas
factors. This is a reference to a decision by the Merit
Systems Protection Board that listed 12 factors that might
be taken into consideration when deciding on the
appropriate penalty in any adverse action. Your human
resources office will be able to provide you with a copy of
these factors.

And your HR office will also tell you that the Douglas Factors make it essentially impossible to fire someone. So that SEC bureaucrat has lifetime employment while they watch porn.

http://voices.washingtonpost.com/federal-eye/2010/04/new_sec...

None of the Securities and Exchange Commission employees
caught using government computers to view pornographic
images has been fired, according to the agency.

I give you the SEC, ladies and gentlemen! Perhaps now you may start to realize that the SEC is just safety theater, that no one can "protect" you from bad investments other than yourself.

They're real economic concepts and are the reason
regulatory states exist.

The reason regulatory states exist is given by public choice theory. So long as we're talking economists, I give you Nobel Laureates Gordon Tullock, Friedrich Hayek, Milton Friedman, and James Buchanan. Principal/agent problems and misaligned incentives systematically bedevil all public regulation; only private systems (e.g. Google rankings, eBay reputation, Amazon reviews) actually work.

I thought it was important to show that career status does indeed mean tenure, and I don't have time to do this kind of exegesis on all your other statements here, but as for this:

we all profit from the existence of the regulatory state

No, we don't. The details matter. What fraction of people who think regulations are good in the abstract can name a single federal regulation? How many of them know that regulators can't be fired? How many of them have actually run a business in a regulated industry? Regulatory agencies are solely PR. They are about scaring people into the extraordinarily counterintuitive idea that some guy 3000 miles away in DC who surfs porn at work actually has Warren-Buffett-level judgment about the market, and is protecting you from making bad investments. Think for yourself.