If government steers in some societal, industrial, or sector-specific endeavor via top-down national plans, agendas, or legislative schemes, it can generate ongoing regulatory costs even without further legislation and rules. Not infrequently, extraordinarily consequential policy choices can eclipse the handful of official regulatory cost estimates that policymakers typically regard as illustrative of government intervention.
Look at some examples. The presence of the antitrust threat, the phenomenon of common carriage and public-utility notions of networks, health care governance (spending on which is about 18 percent of the economy), the predominance of public-private partnerships rather than private free enterprise in larger-scale undertakings, restrictions on western lands with respect to resource use, the reluctance to move spectrum and other commons into the wealth-creating sector, central control of the money supply, a “too big to fail” stance toward financial entities that implies future bailouts, the permanent war economy, surveillance of private citizens, the detachment of nuclear power from institutions of market evolution and discipline over a half-century ago (via indemnification from liability, as also occurred with homeland security technologies), the monopolization of airport security, and influence in housing markets and financing (perhaps a third of the U.S. economy).
There are plenty others apart from this rather random list, but none of these interventions appear in regulatory cost estimates such as the Office of Management and Budget’s Report to Congress on regulatory costs. They are not assessed and described to the public in the aggregate as required by the Regulatory Right-to-Know Act. The interventions might be economy-sized or more limited, yet still profound. Interrupting market evolution, ignoring natural sequence and putting the cart before the horse via government steering has consequences. Man has been to the moon, but hasn’t been back in 50 years. If the effort had not been rushed and performed in normal stages as some urged, mankind might have been to Mars already.
One finds little or no cost-benefit analysis in terms of either categories of regulation and intervention or of agencies’ existence as such, and therefore no damage assessment of the attendant displacement of classical liberal institutions. Sweeping statutes passed since the late 19th century expanded executive power and accomplished the inversion of the relationship of the individual to the state with respect to who was boss. The “Man Controlling Trade” statues in Washington, D.C. are not figments of imagination.
Most assuredly, there was ample economic intervention before the triumph of Progressivism over classical liberalism. Even the Founding era found support of certain “regulation,” but the Progressive charge that laissez-faire never really existed is off point as these common law and rights-based sentiments for assurances like quality control or licensing were a far cry from an autonomous and remote rule-making administrative state. Not that the attempts were not made at major central government undertakings in America’s early years, particularly for “internal improvements,” protective tariffs, and a central bank. The debate between Federalists and Anti-Federalists is well known. Alexander Hamilton’s mercantilist Report on Manufactures encouraged industry subsidies and tariffs, paving the way for Kentucky’s Sen. Henry Clay and his “American System” of subsidies for roads and canals and other internal improvements, a national bank, and tariffs (vetoed by Madison and Monroe). The thoroughgoing centralization had to wait for Lincoln and his adoption of the Clay-style approach, war mobilization, and constitutional reinterpretations of that era that enabled massive expansion of the United States government.
The impulse was probably always there on the part of some businesses to have government fund or support pet projects—businesses did not fancy adversarial government regulation, preferring friendly, protective “regulation” instead. The Interstate Commerce Act followed a century after the Constitution, and ultimately Progressives, liberals, socialists, and assorted non-classical liberals got what they wanted on a list expanding well beyond Clay: their Sherman and Clayton “antitrust” Acts, an unauditable, permanent-at-long-last central bank (the Federal Reserve Act), a progressive federal income tax (and eventually, after initial failure, the mandatory withholding to make the discipline of tax revolt impossible).
Progressives in authority in the first third (and beyond) of the 20th century, at the dawn of creation of managerial administration, adored Soviet-style economic management policies, contemporary gulag atrocities and body counts notwithstanding. In “Tugwell Sees End of Laissez Faire,” The New York Times wrote on February 16, 1934 that:
The challenge of Soviet Russia will compel the United States to abandon individualism for social control and economic planning, according to Professor Rexford G. Tugwell of Columbia University, Assistant Secretary of Agriculture and chief planner of the Roosevelt brain trust, and Professor Howard C. Hill of the University of Chicago.
The New Deal era brought Social Security and government centralization of industries and agencies. It ushered in the Federal Communications Commission, the Agricultural Adjustment Act (at a time when agriculture was 25 percent of the economy), National Recovery Administration cartelization, and components such as the minimum wage, labor, and hour regulations (when it was productivity that allowed such luxuries as an eight-hour day compared to the grind of the past). More programs united in pushing aside the profit motive with questionable motivations of their own that cry out for examination. Vast economic and social endeavors enabled regulatory and social-control frameworks throughout the 20th century within which business still finds it necessary to navigate. When it comes to regulatory costs, this vast entrenchment cannot be touched with conventional naïve “deregulation.”
Republicans, who had earlier embraced progressive Teddy Roosevelt’s “Square Deal,” subsequently with respect to the second Roosevelt almost seemed to reply, “We’ll see your New Deal and raise you an EPA, OSHA, Department of Energy, Department of Homeland Security, and TARP.” The GOP can hardly be regarded a restraint against the managerial/administrative state, since it not only accommodates but expands the enterprise. A number of conservatives now openly reject laissez-faire in favor of an expanded state mission (“national conservatism”) and industrial policy. A bright spot is that one may now find even World Bank-funded working papers with a more skeptical view of global industrial policy.
Looking back, interventions in the name of smoothing the market’s rough edges only made matters worse. As Robert L. Bradley put it in Edison to Enron:
The fall of [Samuel] Insull spawned the Securities Act of 1933, the Securities Exchange Act of 1934, and the Public Utility Holding Company Act of 1935, among other New Deal institutions. The fall of [Ken] Lay [of Enron] inspired the Sarbanes-Oxley Act of 2002…. But did New Deal reforms prevent or unintentionally enable Enron? Did post-Enron reforms prevent the financial tumult of 2008/2009 and afterward? Less, not more, government intervention, removes false safe harbors, promotes prudence in place of opportunism, and checks artificial booms that must turn into corrective busts. This is the lesson of history.
Heedless of the damage it causes, the administrative state reaches even more deeply than misguided or abusive economic regulatory scuffles, to encompass private non-business issues that consist of the outright supervision of lives. Post-New Deal welfare interventions emerged, such as the Great Society programs with their hotly debated dependency-inducing effects on otherwise self-sustaining families addressed by the likes of Daniel Patrick Moynihan. Mounting federal involvement in education funding, curricula, and programs from pre-kindergarten to graduate school underwent a “dramatic expansion” starting around 1960, followed by 1965’s Elementary and Secondary Education Act. Federal involvement in education entails terrific costs to liberty and freedom of thought, yet the only costs of education regulation disclosed officially are Department of Education paperwork plus two rules amounting to about $3 billion. No more than 35 percent of the nation’s public school students are now proficient in reading and math—this alone must be seen as a cost of trillions. But no matter: the unchastened proponents of the administrative state openly want to regulate both economies and lives in even more totalitarian fashion. Here is an official description of the Green New Deal:
The… Select Committee For A Green New Deal… shall have authority to develop a detailed national, industrial, economic mobilization plan for the transition of the United States economy to become greenhouse gas emissions neutral and to significantly draw down greenhouse gases from the atmosphere and oceans and to promote economic and environmental justice and equality….the Plan shall…include additional measures such as basic income programs, universal health care programs and any others as the select committee may deem appropriate … and …deeply involve national and local labor unions to take a leadership role in the process of job training and worker deployment…. The Plan for a Green New Deal… shall … ensure that the majority of financing of the Plan shall be accomplished by the federal government, using a combination of the Federal Reserve, a new public bank or system of regional and specialized public banks, public venture funds and such other vehicles or structures that the select committee deems appropriate.
Lastly, on the global scale, international treaties and “compacts” can also “regulate,” but where they do their costs are terra incognita. Attempted greenhouse gas agreements and the Law of the Sea Treaty (not ratified, but a related presidential proclamation), are examples. The Outer Space Treaty of 1967 is another, Article VI of which specifies:
The activities of non-governmental entities in outer space, including the moon and other celestial bodies, shall require authorization and continuing supervision by the appropriate State Party to the Treaty.
Regarding space, and illustrative of our theme here, the establishment of a Trump-era “Space Force” before commercial space activities have taken root beyond government contractors and partners will alter development of the sector and freedom of activity there, as well as alter technology investment more broadly (yet another cost of regulations and subsidies).
Permeating all is the “global salvationist consensus” of corporate social responsibility (CSR), the effort to crowbar business into politically driven campaigns. This passion undermines business activity’s vital role in advancing opportunity and prosperity for which the planner takes unearned credit. Most recently, the control mindset manifested itself in a proposal for federal chartering and “stakeholder” vesting for corporations in the Accountable Capitalism Act floated in the 115th Congress.
The bottom line is that regulation does not just come from the agencies, but from statute, from top-down planning—from Congress’s own abandonment of any semblance of a doctrine of limited powers. The costs are staggering, but unacknowledged.
This post is part of a series on “Rule of Flaw and the Costs of Coercion: Charting Undisclosed Burdens of the Administrative State,” and comprises an element of A Brief Outline of Undisclosed Costs of Regulation.