In
the 1990s I was part of a congressional delegation to Argentina, when the
Argentine economy was growing strongly and steadily, and inflation was low, the
currency convertible 1-for-1 with the dollar.
Trade barriers were being lowered, commerce was booming. I recall asking Argentines what could
possibly darken what seemed to be a bright future. They were quick to reply: “Here in Argentina we have no rule of law. You can have no confidence in getting justice
from the courts.” Not long after,
political shenanigans to reward one part of the electorate by a transfer of
wealth from others threw the Argentine economy into turmoil. Momentary good policy is a tough path to walk
across bogs of inadequate legal safeguards.
Freedom has rested upon rule by law rather than rule by men.
Fundamentally,
the American Revolution was an assertion of the rule of law. Most of the Declaration of Independence is a
litany of abuse by the English rulers.
The Revolution was intended to take power away from man and men and rest
it upon laws and rights, soon to be secured by the world’s first written
Constitution.
The
Progressive Movement, which thrived over a century ago, was a retreat, aggressively
stepping backwards to the rule of men as an impatient alternative to the rule
of law: the Rule of Experts. Their new view—really a very old view
dressed up in modern rhetoric—was that there are benevolent experts, to whom we
can safely yield our governance, for such understand the process of modern
government better than ordinary people do.
It
sounds akin to the ancient theory of Divine Right of Kings, that the worldly monarchs
are chosen by God and invested with greater wisdom and perspective than the
average man and woman. To their benevolent
expertise and fatherly care was entrusted the governance of the rest of us.
Today’s
benevolent experts are invested by their colleagues with varieties of
credentials certifying their expertise. Not
very democratic, they make no secret of their impatience with the Congress and
other constitutional brakes on arbitrary authority.
Just
as not all men are always just, not all men are reliably wise. The American Founders thought to address this
problem by the separation of powers, dividing political authority among three
branches in the Federal Government and the States.
The
current regulatory program rests heavily on the notion that benevolent experts
should be entrusted with authority for the big questions and increasingly smaller
questions, too. It has evolved by
progressively engulfing the constitutional separation of powers, merging
legislative and executive—and often judicial—authority in “independent”
regulatory agencies headed by unelected officials. The unelected federal regulator writes the
details of mandatory regulations, charges violators, assesses guilt, and
applies penalties.
Professedly
efficient, it does not work well in practice.
First, the regulators are not dispassionate umpires, limited to calling
the balls and strikes. They are also players
in the game, having their own set of particular interests and incentives that
they take care of first.
Second,
reliance on benevolent experts assumes what is an unproven, undemonstrated
level of knowledge, insight, and forecasting skills. Regulators are not dumber than the rest of
the population, but they are no smarter either.
It is just that life is too complex and the society of the living is proving
too much to be run by any designated group of humans and their computers.
A
third flaw is mission creep. Even if the
tasks are too great or require too much knowledge, insight, foresight, and
other skills in unachievable degree, the regulators still take them on, with each
failure met with calls to increase resources and power of the agency.
An
example is the Federal Reserve (commonly called the “Fed”), created with a
specific and rather narrow purpose, to make enough funding available for the
banking system in times of financial stress.
Before long, the Fed gained control of monetary policy and the practice
of controlling interest rates. Later, it
was tasked with promoting maximum employment.
In 2010 the Fed’s role in supervising banks was enlarged to supervising
any financial business considered to be systemically significant. Each augmentation has drawn the Fed away from
its narrow, objective task.
This
expansion of authority affects every business and every home. The Federal Reserve is the world’s biggest
rigger of interest rates. Its prolonged policy
of keeping short-term rates at or slightly above zero has resulted in
penalizing all savers and those who live off of their savings, transferring
trillions of dollars of wealth to borrowers, the biggest borrower being the
Federal Government.
A
partial but simple solution toward strengthening the rule of law and reducing
exposure to the caprice of men would be returning to elected representatives
the making of laws. It is a messy
process, exactly the messy process that the Founders intended to preserve
freedom from the encroachment of arbitrary and oppressive government. The regulators, which are theoretically part
of the executive branch, should be limited to the duty of implementing the laws
that the elected and accountable representatives make.
If Congress were
required to write the rules and mandates, and delegate only the implementation,
the mandates of government would be circumscribed by the exposure of a
legislative body held directly accountable for what it has wrought. It is easy for legislators to complain about
bad regulatory decisions, but too often, these are decisions that Congress
never should have delegated to regulators in the first place.
