Like food, government power will attract pests if it is not properly contained. The Framers of the Constitution understood this, and they also understood that, like rats and cockroaches, those pests (which they called “factions” and we call “special interests”) could never be eliminated from any human society. The framers also understood that all governments, including democracies, are fundamentally incapable of exercising power without abusing it. They intended that an important check on the twin evils of faction and abuse of power would be judicial review–the power of courts to wrest from special interests the illegitimate fruits of their selfish political machinations.
Unfortunately, the U.S. Supreme Court has largely abdicated that role in the economic sphere, and with predictable results–a special-interest feeding frenzy.
For the past 70 years, challenges to economic regulations have received the Court’s least searching level of review, the so-called “rational-basis test.” According to that “test,” a law must be upheld if it has any conceivable connection to a legitimate public purpose. Since even purely hypothetical connections and purposes will suffice, a government lawyer’s fertile imagination is often his or her most valuable asset in such cases. (And if the lawyer’s imagination should fail, there is still hope, for the Supreme Court has instructed judges that they are not only permitted, but obliged to help the government defend economic regulations by dreaming up conceivable justifications of their own.)
Not surprisingly, the real-world effect of this toothless standard has been that even the most outrageous, self-evident examples of rent-seeking jobbery receive the imprimatur of the federal judiciary. And that has given rise to the following question: If the consistent effect of the rational basis test is to approve, for example, occupational licensing laws whose only plausible purpose is to protect members of a given industry by walling out competitors, mustn’t that mean economic protectionism is itself a “legitimate public purpose”?
That is precisely the question that has emerged from a pair of federal lawsuits–one out of Tennessee and the other out of Oklahoma–involving state-sanctioned casket cartels.
Until the 1980s, the funeral industry enjoyed virtual immunity from competition, largely as a result of various well-documented anti-competitive business practices that were prevalent in the industry. The Federal Trade Commission ordered an end to the worst of those practices with its so-called “Funeral Rule.” Among other things, the Funeral Rule forbade “casket-handling fees,” which many funeral directors imposed to discourage their customers from buying caskets (at much lower prices) from third-party retailers.
Faced with the prospect of fair competition, Oklahoma funeral directors wasted no time beating feet to the state Capitol, where in 1989 obliging legislators made it a crime for anyone but licensed funeral directors to sell caskets within the state. A pair of would-be casket retailers named Kim Powers and Dennis Bridges, represented for free by attorneys from the pro-free-market Institute for Justice, challenged that law as a violation of their constitutional right to earn a living.
Upholding Oklahoma’s casket cartel, the 10th U.S. Circuit Court of Appeals did not accept the state’s laughable consumer-protection argument. (Among other things, the evidence showed that Oklahoma funeral directors routinely mark up the price of caskets as much as 600 percent above wholesale cost, which the state’s own expert witness agreed was “unfair” to consumers.) Instead, the 10th Circuit explained its decision to uphold Oklahoma’s blatantly anti-competitive casket-sales law by observing that “the Supreme Court has consistently held that protecting or favoring one particular intrastate industry [i.e., funeral directors] . . . is a legitimate state interest.”
In a parallel case, the 6th U.S. Circuit Court of Appeals came to exactly the opposite conclusion, striking down Tennessee’s casket cartel and explaining that the U.S. Supreme Court has “repeatedly recognized that protecting a discrete interest group from economic competition is not a legitimate state interest.” How could two federal appellate courts read the same Supreme Court case law so differently? The answer lies in the fact that while the U.S. Supreme Court has consistently recognized the importance of occupational freedom in theory, over the past 70 years it has just as consistently refused to defend that right in any meaningful way. Accordingly, lower courts must choose between the Supreme Court’s rhetoric, which speaks in lofty terms about the sanctity of the right to choose one’s field of employment, or its holdings, which have relegated the right to fourth-class status. The high Court is right now considering whether to accept the Oklahoma case for review, and it took a possible step in that direction on January 10, when it ordered Oklahoma’s attorney general to file a brief in response to the casket retailers’ petition for certiorari. Considering about 10 percent of all occupations nationwide are burdened with similar government licensing schemes designed to restrict entry into the marketplace, the implications for entrepreneurs and small businesses are huge. The U.S. Supreme Court should take this case and use it as a chance to restore genuine protection for our economic liberty so that America’s most cherished nickname–the Land of Opportunity–will no longer just be a wish, but a reality.
–Clark Neily is a senior attorney with the www.ij.org.Institute for Justice.