The real flaw is that he focuses on fake work involved in servicing the bureaucracy itself (useless reports, etc.) when in actually the end product is just as likely to be fake work, due to positional externalities. Many (perhaps the majority of) products beyond basic subsistence are (in whole or in part) meant to provide status. Increasing the status of one person roughly proportionately decreases the status of another, rendering that product more or less useless from a societal point of view.

The Theory of the Leisure Class by Thorstein Veblen puts forth a compelling argument along these lines.