14 October 2015

America should heed Hayek’s lessons for faster growth


In today’s slow-growth climate, many pundits and politicians are pushing for new solutions to get the economy in a higher gear. A better path forward may be looking to lessons from the past.

New York University law professor Richard Epstein spoke about Nobel Prize-winning economist Friedrich Hayek’s continued relevance to today’s economic and political debate at the Mercatus Center last week. Though Hayek died in 1992, his insights are sorely needed today.

As Epstein made clear, Hayek was a passionate defender of the rule of law. Hayek understood that for a constitutional system to succeed in protecting those whom it governs, there must be both fair and neutral judges and laws that are coherent and understandable by normal citizens–not just lawyers and accountants. The movement away from these principles is where Hayek’s relevance is most-clearly seen today.

While most people are familiar with the congressional gridlock that has gripped America since the 2010 midterm elections, this gridlock has not extended to executive agencies. The gradual, but accelerating, growth in executive agencies’ powers has led to wide-ranging authority for the so-called “administrative state.”

In 2013, the number of rules and regulations promulgated by executive agencies was 50 times greater than the number of laws passed by Congress and signed by President Obama that year. While the authority to make these pronouncements may be sanctioned by past laws, when associated costs are considered, many would not stand up to Congressional scrutiny in up-or-down votes.

Regulatory imbalance has created a Code of Federal Regulations that is over 175,000 pages long. People have to navigate an increasing number of regulations, some of which are contradictory. For instance, the National Labor Relations Board has just issued a definition of independent contractor that differs from the definition put out by the Labor Department, which is different from the definition of the Internal Revenue Service. The principle of law that can be reasonably followed by normal citizens has been left behind.

Recent additions to Washington’s regulatory labyrinth include regulations that accompany Dodd-Frank and the Affordable Care Act. While both are massive laws, they are small when compared to the pages of regulation that accompany them. For Dodd-Frank, there are over 20,000 pages of regulation (and growing) written by executive agencies, though the text of the law itself is “just” 848 pages. The Affordable Care Act also came in at just under 1,000 pages, but it is estimated that it, too, has spawnedover 20,000 pages of regulation.

These pages are not just legal rambling. They contain over a million restrictions in the form of words such as “must”, “cannot”, or “shall,” many contradictory. Since the 1970s, regardless of which political party was in power, all this number has done is increase.

Looking at these numbers, it is no surprise that some refer to executive agencies as the “fourth branch of government.” This designation implies that executive agencies are accountable to the people who they govern, but that is far from the case.

Elected representatives provide agencies with a goal–such as clean air, workplace safety, or consumer protection–and then stand back and allow the agencies to myopically pursue these goals–regardless of the associated human and economic costs. Senators and Representatives should be holding regular oversight hearings to keep the administration agencies from abusing their power to write regulations.

James Madison, one of the main architects of the Constitution, never expected that Congress would so willingly give up their legislative power to another branch of government. Hayek understood that one of the strengths of the American Constitution as written was that it had redundant protections against government interference with individuals’ lives. By design, the Constitution made it difficult to overcome barriers to passing laws. When executive agencies can bypass the Constitution’s checks and balances, it is far easier to grow government’s power.

As Charles Murray of the American Enterprise Institute argues in his recent book By the People: Rebuilding Liberty Without Permission, the growing administrative state also flies in the face of Hayek’s fair and neutral judge principle.

When people get caught up in regulators’ snares, in many cases their first recourse is to appeal to the very agency that is going after them. In these “administrative courts,” agencies act as the judge, jury, prosecutor, and defendant, leaving individual plaintiffs near-helpless to fight back.

Murray recounts the all-too-common case of small business owners who decide to stand up against reckless agencies. Many are then threatened with being put out of business by regulators’ powers. With federal, state, and local regulations, it is easy for regulators to find something that business owners are doing wrong.

The scope and ambiguity of today’s regulations means that the government cannot enforce all of regulations equally. It is impossible even for those charged with enforcing regulations to fully understand what is and what is not legal. This leads to selective, unfair enforcement that is antithetical to a representative democracy.

This selective enforcement was on full display when the state of Kentucky went after Dr. John Rosemond, the nation’s longest-tenured newspaper advice columnist, for offering his thoughts without a license from the state’s psychologist board, even though he lives in North Carolina. Similar to the federal government, state legislatures pass overly-vague laws that give unelected agencies or boards wide spectrums of enforcement discretion.

The Institute for Justice, a non-profit legal firm that defends economic freedom stepped in to help Rosemond. As IJ made clear, if members of Kentucky Board of Examiners of Psychology thought people sharing their opinions without the proper license was a public safety issue, they would have gone after Dr. Oz, Dear Abby, and Dr. Phil, too.

Though this is just one example, cases similar to Rosemond’s are seen throughout the economy, at both federal and state levels. As the power of executive agencies continues to grow, selective enforcement based on politics will only increase.

Hayek may be gone, but his lessons on how to promote freedom though the fair, understandable rule of law should not be forgotten. It is long past time for Americans to hold their representatives accountable and demand action to rein in the regulatory state.

This article was originally published by Economics21. It can be found here.

Jared Meyer is a fellow at the Manhattan Institute. He is the coauthor with Diana Furchtgott-Roth of Disinherited: How Washington Is Betraying America's Young, and a regular contributor to Economics21. Follow Jared on Twitter @JaredMeyer10.