Magazine | November 28, 2011, Issue

The Quest for Rules

Design for Liberty: Private Property, Public Administration, and the Rule of Law, by Richard A. Epstein (Harvard, 248 pp., $29.95)

There are many ways to experience the joys of overregulation, but friends tell me that one of the finest was a dinner date in Moscow circa 1986. First, you were lucky just to find a cab: Drivers got a salary that didn’t depend on taking passengers, so many just siphoned off their gas for resale, set out the pickles and vodka, and called it a day. Local chefs, meanwhile, desperately cultivated a reputation for inedible food — their paycheck came in even as patrons kept out. Richard Epstein, who has recently been installed as the Laurence A. Tisch Professor of Law at New York University School of Law, knows this country isn’t the USSR, but neither is it quite the U.S.A. of his youth. “Once upon a time,” he writes in his new book, Design for Liberty, “I was confident that the forces of growth and prosperity could maintain the upper hand. But watching the flailing of political actors, and the drift of our economic system, I am no longer so sure.”

When Professor Epstein speaks, you listen. He is author of two dozen books, the best known perhaps being his classic Takings: Private Property and the Power of Eminent Domain (1985) and How Progressives Rewrote the Constitution (2006). In an academy that prizes specialization, he has singlehandedly taught an entire curriculum: civil procedure, constitutional law, corporations, communications, contracts, criminal law, and corporate taxation — just to take the ones that start with “c.” His comprehensive mind unfolds here in what amounts to a 200-page brief against the errors of modern American law and governance. His “central proposition” is that “ambitious social agendas introduce massive amounts of administrative discretion that are inconsistent with the rule of law.” The time is ripe for “critics of central planning” to “resurrect” the “modest and more focused classical liberal system” that progressives displaced, an order based on the “twin pillars” of contract and property common law.

What went wrong? He would answer: What didn’t? Woodrow Wilson’s Federal Trade Commission (1914) and Herbert Hoover’s Revenue Act (1932) only prefigured FDR’s National Labor Relations Act (1935), Fair Labor Standards Act (1938), and Securities and Exchange Act (1934). LBJ signed the Economic Opportunity Act (1964), Civil Rights Act (1964), and Medicare and Medicaid acts (1965), while Nixon and Ford waded into environmental protection (EPA, 1970), workplace safety (OSHA, 1970), and employee pensions (ERISA, 1974). Behind each aggrandizement of authority was the conviction that impartial experts could protect us in ways that free markets, overburdened legislators, generalist judges, and citizen juries could not. That spirit, Epstein feels, thrives. Last year saw the Wall Street Reform and Consumer Protection Act and the Patient Protection and Affordable Care Act.

Government today, in terms of sheer tonnage, means agencies. They take shape in departments, boards, and commissions. The Bureau of Land Management leases public land; the Internal Revenue Service collects taxes; the Centers for Disease Control gathers epidemiological data; the Air Force orders jets; the Transportation Security Administration removes your shoes. The more muscular agencies bring lawsuits, inspections, and criminal fines, or promulgate binding “rules” that govern banking, insurance, utilities, finance, industry, labor, professions, health, and morals. Without them, government as we know it would not exist.

Epstein, however, is unable to reconcile their power with what we call the “rule of law,” that ancient, majestic union of legal principles comprising “neutrality, generality, clarity, consistency, and prospectivity.” He sees a society choked with regulation, needlessly and self-defeatingly inefficient, ignorant of economic fact. He knows that Social Security must be dispensed and highways built; his plea, rather, is to have us recognize that “large doses of discretion” produce rent-seeking, caprice, waste, and delay. The SEC checks the free flow of information; affordable-housing schemes reduce the supply of homes; politically charged green hearings strangle investment. A California developer reports that the number of functionaries needed to issue a permit authorizing a new 2,700-square-foot building outnumbered the number of construction workers that built the thing. And the flipside of an agency’s specialization is often deep bias, whether toward management or labor, landlord or tenant, firm or investor.

#page#The old order was largely founded on the law of contract, where private individuals freely bound themselves, and the law of property, in which you did as you liked with your property so long as your use didn’t intrude upon others. Now, he argues, officials routinely supplant tailored agreements or restrict the disposition of one’s own land. Epstein particularly laments what he sees as the willingness of courts to accept an agency’s “reasonable” interpretation of its own statutory mandate. He points to how the Army Corps of Engineers, once tasked with managing the “waters of the United States” (i.e., waters capable of supporting navigation), has been permitted, after the Supreme Court’s Rapanos decision (2006), to interpret its domain to include wetlands, sloughs, mudflats, streams, prairie potholes, even “natural ponds.” The “secret of good government,” he writes, is to “select a few key tasks and to perform those well,” tasks such as “picking up the garbage from public streets.” The First Amendment, he has said elsewhere, should have stopped after “Congress shall make no law.”

The road to swell is paved with interventions, but regulation in a complex, fast-changing world tends to backfire. Carter-era EPA rules that made it costly to build new smokestacks often ensured that outdated, dirtier ones continued to foul the air. General Motors had 500,000 workers 30 years ago, but — Epstein claims — because FLSA union-negotiation requirements prevented the automaker from lowering wages to fend off foreign competition, there are now 61,000 workers. “Right now, federal agencies are at work on more than 4,200 rules,” wrote Sen. Susan Collins (R., Me.) in the Wall Street Journal in September. “More than 100 are major rules, with an economic impact of more than $100 million each.” A sighing Epstein wishes Washington would just let the market do its thing. His health-care fix, for one, is not more regulation; for, in his view, “impediments” to the “ordinary operation of market forces” — e.g., licensing restrictions on doctors’ moving between states — artificially raised prices in the first place.

In his opening chapters, Epstein offers a theoretical framework that purports to blend “natural law” and “utilitarianism,” but the real theory is soon revealed as economics: He speaks of “n – 1 lawsuits,” and urges lawmakers to seek “Pareto-optimal distributions,” a consideration that Rep. Barney Frank unaccountably omits from his speeches. Economics has done wonders to elucidate our law, but it also has a tendency to muddy clear expression with abstraction. In far too many passages Epstein neglects to explain what, precisely, he has in mind. What are we supposed to think of when told of a “set of insights” that “so limits the form of discourse that the complex cases of individuated judgments can typically be limited to the small class of emergencies in which one party is put in the unfortunate position of trying to minimize the risks that emerge from the misconduct of others”? And why, again, must the “initial function of the system invoke[] a strong just-compensation principle to block negative-sum projects”? The reader daunted by the conceptual blur often yearns for those blessed words, “For example . . .”

Nonetheless, Epstein is peerless in his talent for exposing the often roundabout ways that government can slight constitutional principles. If the Takings Clause prohibits the state from seizing private property for public use without compensation, rent control, he argues, is nothing but a taking, since it forces landlords to retain tenants at below-market rates. In the Black Lung Benefits Act (1972), which required mine operators to pay retroactive benefits to miners suffering lung disease, Epstein sees gross disregard for the axiom that you cannot later penalize conduct that was lawful when engaged in. And though law, to be legitimate, must be known and stable, all the clerks of old Byzantium, toiling for a century, could not improve upon the impenetrable grotesqueness of the 2011 United States Tax Code. This year it contains roughly 141 short-term provisions subject to renegotiation, a marvel of uncertainty and ex post facto liability.

And so on, in a dozen other areas of law — product liability, eminent domain, free speech, nuisance, etc. — Epstein concludes that wherever we stray from the wisdom of the common law and the still wiser limits of our Constitution, “trouble awaits.” How much? “I am no longer so sure.”

– Mr. Tartakovsky is a contributing editor of The Claremont Review of Books and a fellow of the Claremont Institute.

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