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The Dubious Morality of the Modern Administrative State

Professor Richard A. Epstein’s new book weights it in the balance and finds it wanting

Progressives argue that modern problems demand a modern approach to governance — one which is incompatible with the Founders’ view of limited, separated powers. The Constitution, it is held, must accommodate a wider role for administrative agencies to interpret laws and craft rules for unexpected situations that arise due to new technologies and threats to public safety. Since the New Deal era, these progressives have largely succeeded in bringing about their vision of a more expansive “administrative state.”

I’ve done countless shows on the abuses of this fourth branch of government — including its “midnight regulations,” and stealthy rule-changes that turn law-abiding property owners into environmental criminals overnight. But perhaps I’ve been unfair to the proponents of the administrative state. After all, we can’t expect Congress to foresee every contingency when they write laws, and some sort of administrative apparatus is necessary to maintain tax rolls, administer patents and so on.

Professor Richard A. Epstein (aka “the Libertarian”) helped me distinguish between these vital functions of the administrative state — which co-existed harmoniously with constitutional principles until the 20th century — from the illegitimate lawmaking that characterizes much of the administrative state.

Professor Epstein’s new book The Dubious Morality of Modern Administrative Law(published by the Manhattan Institute)is a 200-page tour de force and a must-read for any student of modern American government. After providing context for the history of the administrative state pre-New Deal, Epstein shows how case after case has set dangerous precedents requiring courts to defer to agency actions when the law in question is ambiguous.

If you haven’t been following my long-running series on the administrative state, this Sunday is your chance to catch up. For a primer, be sure to read my free 50-page guide, The Shallow State, to see what Classical Liberals are up against.

Past Administrative State Shows:

• John Marini on *Unmasking the Administrative State*
• The New Royal Prerogative: Philip Hamburger on Administrative Law
• Small Business vs. the 4th Branch of Government, with Lawson Bader
• A Lame Duck’s Last Stand with Sam Batkins
• The Supreme Court Has Spoken: The Unanimous Decision in U.S. Army Corp of Engineers v. Hawkes, with Jonathan Wood
• The One Book You Must Read to Understand American Politics in 2018 with Frank Buckley

We also discuss the changes brought by the Trump administration regarding the controversial “guidances” issued by administrative agencies — statements that function like final law without granting affected parties the right of de novo review — including the status of the Title IX “Dear Colleague” letters that led to so much confusion around the transgender bathroom issue.

TRANSCRIPT

Bob Zadek: I am delighted to welcome back to the show Professor Richard Epstein — my mentor. Whenever I am curious about anything, my first source is Professor Epstein. Richard has a weekly podcast, The Libertarian, and he truly is “the Libertarian,” at least in my mind.

The Libertarian: Failed (Administrative) State

He is the Peter and Kristin Bedford senior fellow at Hoover. He is the Lawrence A. Tisch Professor of Law at NYU Law School, my alma mater, and he is also a senior lecturer at the University of Chicago.

This morning we will discuss Richard’s new book on The Dubious Morality of the Modern Administrative State. I have done many shows on the administrative state. It is a fascinating topic. It is important because it affects every American every day and yet so few Americans even know what the administrative state is. They don’t know how we got here. They don’t know why it is the subject of so much discussion and commentary. At the end of this hour, you will understand the pervasive and undemocratic effects which the administrative state has on your life. Richard, welcome back to the show this morning.

Richard Epstein: It’s always nice to be with you, Bob.

Administration versus the Administrative State: A History

Bob Zadek: It has been said that the administrative state is not provided for anywhere in the Constitution. The Constitution sets up three independent co-equal branches of government: the executive, the judicial, and legislative. It says nothing about the administrative state, so it has been said that it is not provided for and is a somewhat recent invention. I’ll start by asking you if you could just explain, in the broadest sense, the agencies which are provided for in the Constitution.

The Constitution provides for a postmaster general, and it provides for our postal office. No one expects the postmaster general to be out delivering the mail. He’s going to have people working for him. So the Constitution does anticipate government workers, which is after all what the administrative state is.

Talk about administration in general, which is provided for, and then the somewhat sinister sounding “administrative state.”

Richard Epstein: The first thing to mention when we talk about the “modern administrative state,” as opposed to the earlier version of this, we sometimes call this a fourth branch of government. Something which is outside of the scope of the previous three branches of government and that is independent of it to some degree. That development takes place in 1934 in its most conspicuous fashion in a case called Humphrey’s Executor v. United States, where it was announced that the President of the United States could not fire commissioners of the Federal Trade Commission. Now going back earlier on, as you mentioned, you have to have administration in order to get something done.

One of the things I always like to do when I talk with libertarians who are hardline anarchists is to ask, how do you get around in a world in which you don’t prepare lists? These lists include who is entitled to drive a car, who owns a piece of property, who is going to have to pay a certain kind of tax, who is going to be eligible to vote and so forth. Putting these lists together is an extremely difficult task. The question is exactly who and how is this going to be done under the Constitution.

For the most part you leave the judiciary out of this because this branch of government is designed to deal with the breakups that take place in the first two branches of government. The judiciary does not have the power to initiate. It only has the power to decide when cases are brought before it. So it turns out the distribution of the administrative state is something that has to take place between the President on the one hand as the head of the executive branch and Congress on the other.

To see why this is such a difficult problem think of the President as though he were CEO of a corporation and the Congress as though it was the board of directors. Ask yourself this very simple question:

Just how clear is the line between the things that are board responsibilities and what are responsibilities of the CEO?

It turns out it’s kind of murky. So we can first of all announce the sort of things that are going to be done and then we can try to figure out how they are distributed between the President — who does run an independent agency subject to his control, and the Congress.

There was a famous dispute in the early 1790s about how we decide where to put post offices in the United States. The question is whether or not Congress should put out a big old map and designate all the places by legislation where the post offices ought to be built, or if they should give a set of criteria, telling you where you’d like to have the post office, what kind of street, what kind of building, what kinds of facilities and so forth, and then in effect, let the President choose the site and do the execution. When this debate came forward in 1793, they had a long discussion and eventually the skeptics who said that the President did not have the power to select the sites for the post office won out over those people who thought that he should be allowed it. The debate was one of immense sophistication with very powerful arguments on both sides.

The takeaway was that back in 1793, when things were small enough, you could imagine a situation where Congress can actually sit down with a map. Today you’ve got a country which is a hundred times as large, a post office system which is a thousand times more complicated, and it turns out that basically the division of power in these situations is going to shift from a deliberative body to an executive body, so that no matter what we wish to say about the growth of the administrative state, it is clearly going to be more heavily weighted to the President than before. Now you’re going to need Congress to set the parameters and the President try to execute them. For a very long period of time, up to around 1937, that was what, for the most part, people tried to do.

To raise the military, you have to have an administrative system to tell you who’s going to be promoted, who’s going to be retained, who’s going to be fired, and you have to have a system of salaries and you have to have a system of retirement pensions. Then you also need to do the same thing with a civil service. The United States Government in the early days was a repository of large amounts of land. There was a huge amount of debate as to what kinds of contracts it could enter into with what kinds of individuals, namely railroads, to give that land away in exchange for something coming back. We also had a carriage system and somebody had to figure out how to calculate the tax on particular goods in accordance with formulas that Congress or somebody else would specify. The administrative state in these early periods did this.

For the most part, if you look back on it, you’d be very hard-pressed to find something that was done in this particular period and that would really raise hackles. If you’re a hardline libertarian and you don’t believe in taxes, well you don’t believe in the United States Constitution either, so you could be skeptical, but anybody who is in the classical liberal tradition would say that this thing worked pretty well. The size of the government underneath this was one or two or three percent of the GDP. Larger, obviously, in times of war.

The transformation comes during the New Deal where all of a sudden the levels of ambition that started to take place with what it is that the government can do becomes far higher than it’s ever been before.

This is not just a random event. This is a function of the rise of progressivism in the first third of the 20th century.

So now, how does this work? Well, there’s a procedural side and there’s a substantive side. On the procedural side, the leading thinker was actually Woodrow Wilson who had written a book on government power in 1885 when he was all of 29 years old, which became essentially the Bible on Congressional power. And Wilson was very much opposed to the separation of powers, which he just thought got in the way of everything else. He wanted to have something like a German system with unitary government power that can be disposed of for all of these things.

Once you start to see separation of powers as an obstacle, you start to see an independent administrative state as a way to fuse together the executive and legislative power — even, indeed, the judicial power — and so you could get things done.

Wilson thought you’d get them done.

Well, in many cases you get them done very badly because the concentration of power has highs but it also has desperate lows where a separation of powers will keep you more on an even keel. So that’s the procedural framework.

After Wilson left office and Roosevelt came into power, you could start to see that thing being instantiated in the courts. Now on the substantive side of the agenda, the socialists and Progressives wanted to say, “We know how to run an economy better than a market system.”

They were deeply suspicious of competitive markets and did not think the scope of government control should be limited to a sensible application of the antitrust laws, which was designed to control monopolies, which was fully accepted and pretty well executed — I might say — by the classical liberals, the old guard and the court after the period from about 1892 by 1935.

1890 is a very key date because that’s the date of the Sherman Antitrust Act. That’s also the date that the first-rate regulation of natural monopolies, so-called Minnesota rate cases comes to the Supreme Court.

So we know we’re no longer talking about small isolated little businessmen as we did before the Civil War. We are now talking about giant companies. We’re now talking about the trust. That’s why we have an antitrust law against these particular organizations. Folks on the progressive side wanted to do a great deal more than that. They wanted to essentially determine how these firms should operate.

There’s a very nice case and a very nice contrast, which takes place in the early 1940’s.

1944 is the year in which Friedrich Hayek published his book, The Road to Serfdom. Hayek had many things wrong in that book but one of the things that he recognized was that essentially when you have an overambitious government, it turns out that it lacks the knowledge and the ability to coordinate activities amongst diverse individuals and that these things are better done through a price mechanism and voluntary arrangement.

Hayek said when you put together a system of roads and highways, and treat that as a government function, you do is you set the rules of the road, but you don’t determine the composition of the traffic.

That is something which you let private firms do, whether they are driving cars, trucks, buses, commercial freight, you name it, they could do it in that way.

When it came to the FCC, the Federal Communications Commission, this was very much a Hoover creation in the 1920s — and Hoover was a Republican but he was also a progressive at that point — the mandate of the statute was that we are to determine how to allocate frequencies in terms of the public interest, convenience, and necessity (whatever that phrase happens to mean). So this thing percolates along and in 1943, just before Hayek wrote, there’s a case called NBC v. United States, which comes before the Supreme Court.

The actual issue in the case was whether or not you break up NBC blue and it’s red network into ABC and NBC. But Felix Frankfurter, who was a very pronounced progressive, takes the opportunity to comment on the way in which markets work. Frankfurter looks at this statute and somebody says, “You can’t delegate this authority to these various administrative bodies because they’ll just do anything they want.”

What you really have to do is you have to limit it to what Hayek considered the rules of the road. And it turns out Frankfurter says, “We’re not just interested in determining the rules of the road, we’re interested in determining the composition of the traffic” — that is the various networks that are going to own [the spectrum] and the kinds of shows that they’re going to put on — “I can’t do that myself. I have to give it to an administrative agency.”

Well, it turned out the administrative agency couldn’t do it either. They would come up with a set of criteria that are all inconsistent. They’re all completely malleable. It takes them 17 years to do this and it turns out they run a completely crazy system called a comparative hearing to allocate frequencies and the moment that a network gets the frequency, what does it do with it? It auctions it off to somebody else. So you have a situation of a private auction, immense administrative expenses, and no revenues to the government. That’s essentially what the gap is.

The modern administrative suffers no lack of ambition.

It is not designed to be more efficient than the way in which you enforce contract laws, property rights, rules of the road, protection from nuisance law. It’s designed substantively to transform everything that we did as a common law nation into something else. And that “something else” is necessarily intervention.

So when you talk about the modern administrative state, what you’re talking about is a set of transformations where instead of using the complex legal system to run a government, or to enforce the common law property contract and tort, you are using the administrative state in many cases to transform the world into a better place by a bunch of people who in the end actually do not know what that better place is or how to get there. So that’s the story in the grand situation. And that’s the story that I tried to tell in my book about the dubious morality — the questionable judgment behind the modern administrative state.

Congressional Enabling and Administrative Failures: A Look at the EPA

Bob Zadek: Now, for those of us who rail against the administrative state, the target of that anger, disappointment and frustration are agencies like EPA and the Army Corps of Engineers, all of these agencies that because of statutes that gave them power or gave their broad jurisdiction, start to intrude into everyday life. The focus of the anger is on the agencies themselves but that may be misguided because the agencies are simply doing what they’re supposed to do under an act of Congress.

Should the source of the anger be at Congress enabling this?

Richard Epstein: I think the answer to your question of whether this is the mischief of the legislature or the mischief of the agency. The answer is both. In some cases you have very bad statutes that are made even worse by administrative agencies. In some cases you have modest and sensible statutes that are made worse by administrative agencies. Sometimes you have administrative agencies that behave fairly well and don’t attract very much attention. On average, however, we see the ambition taking place at both levels.

What happens is that legislation that you start to put out there is something which is designed to sort of revolutionize the way in which you attack various problems, say environmental issues. You see an agency rule coming forward with something like a clean air plan or a clean water plan, which takes the mandate and pushes it much farther.

For example, generally speaking the EPA is designed to control what we would call nuisances and pollution of one form or another. And these are very well and familiar concepts that exist out there in the world that everybody understands.

When I moved as a young full professor to Los Angeles in 1968, every time you went away from Santa Monica to San Marino your eyes would glaze over in real pain because of the pollution and the gas inside.

It turns out you can’t have a system of private rights and remedies to control this situation. You’re not going to have class actions of 20 million car drivers being sued by 3 million residents when they’re the same people. So you have to put in some systems control at the top which limits the amount of emissions.

But at that particular point, the question that comes next is what technique we’re going to use to control these sorts of things. That is a big choice. Do we do this by inputs or outputs, and almost invariably the correct way to do this is to say this is your target? You figure out how to do it. But what the administrative agencies do is they say, but we’re entitled to tell you what kind of equipment you have to put it on and literally design the thing for you. If it turns out they designed the inputs and they don’t design the outputs, like many other government built things, the horse ends up looking like a camel. These things don’t work very well.

When you started moving forward under the Obama administration, you could see what happened. You have something which says that you need to put on the best source of emissions reduction into a particular item or a tool. What you would want to do is to figure out how you design that tool. I think it’s a mistaken approach. The correct approach is to tell you how much you could emit. What they did is they decided that the best system of emissions control looked just at the facility, what it allowed you as the agency to do was to give quotas for the amount of pollution that could come out of every state in the union. And that’s a clear extension of a bad idea. So the bad idea in the environmental protection statute is to try to regulate the inputs and the bad idea by the administrative agency was to assume that this covers not only in machinery and equipment where it’s manageable, but gives you by delegation the ability to regulate the entire economy.

So you’ve got problems on both sides of this kind of relationship. What you need to do is have a very consistent approach, and in the tort law what that consistent approach says is if you try to design equipment for a polluter, you’re always going to get it wrong.

You tell him “This is the amount of pollution that you could emit. It has to be greater than zero and nothing ever works. You figure out how to do it. And if you go too far above it, we’re going to shut you down. And if it go a little bit further we’re going to tax you for the amount of pollution that you create.”

The whole design scheme of the EPA was badly conceived in the first place and it was badly executed. This is not to say that you don’t need it. In fact, if you look at the technological advances today and compare the amount of pollution emissions that we have, there has been a vast transformation over 50 years since 1970 when this happened. But the point is it’s not nearly as good as it should have been because they followed the wrong model. You can’t do this on the cheap. You have to understand the substantive schemes. So what’s distinctive about my book compared to most people who write about administrative law is that I come to administrative law as a kind of a second order discipline.

I’ve spent my life studying how these substantive systems ought to work. The environmental system, the labor market system, the securities market system, and so forth. And when you understand how they work, you can figure out how the administration can dovetail into it. If you don’t understand how they work, what you’ll do is you’ll make kinds of statements which say… well you really do have a principle of non-delegation. You’re not allowed to give to an agency a power which the principal doesn’t have, but on the other hand it is completely unenforceable and it doesn’t make any particular sense and so what you do is you have a principle that everybody respects and nobody enforces.

Now the Supreme Court in a case called Gundy decided, just a year or so ago, to take a fresh look at this stuff. To try to figure out how you deal with all non-delegation and delegation questions in one breath is not possible. The statutory schemes go off in so many different ways. You have to be much more careful in the way in which you tailor the inquiry to ask the simple question, if this is something done by Congress, it should have done it. If it’s something that can’t be done by Congress, it better get pretty good rules on how it ought to be done and the courts should make sure that you don’t transform the substantive ends of the statute by the kinds of tools that you put into place in order to operate it.

Non-Delegation and Legislative Outsourcing

Bob Zadek: What is the role of the administrative state in our lives? Is it necessary? How should it be changed? Explain to us the core constitutional doctrine called “non-delegation.” Given that Congress has very distinct powers and duties of legislation, to what extent may Congress outsource that responsibility to another branch of government?

Richard Epstein: Labor regulation in the United States has this huge transformation. If in fact what you’re doing is you’re looking at labor legislation before the New Deal the following principles seem to apply:

You’re allowed to enter into whatever contract you want as an employer or an employee, and the terms and conditions are strictly up to you. Both the wages, hours, conditions and all the rest of that stuff. And what happens is you rely on competitive pressures to make sure that if some employer is not doing things quite right, somebody else will come and offer a hand or a substitute job. During the period between 1870 and 1940, the improvement in the labor conditions of the United States, largely without the influence of unions or any other kinds of situation, was great.

There is a fine book by a man named Robert Gordon called *The Rise and Fall of American Growth*, which stresses that during the so-called Lochner Era, the improvement in the material conditions in the lives of American with all the ups and downs and all the tragedies, was greater than any other period in history before or after, and large amounts of it was driven by this freedom of contract ideology. But as we mentioned earlier on, there was this progressive view and the progressives look at contracts and they see that there is something wrong with them, there are people who get fired and people who would rather join unions, and people get injured on the job.

There are lots of things that are happening there and they’re determined to figure out how it is you contain the relationship so as to essentially limit the powers of the employer in order to improve the positions of the workers. First-generation of these statutes was the workman’s compensation statutes from about 1910 to about 1920. What most people do not know about these statutes is that they were first introduced on a voluntary basis, mainly in England, in mines and railroads and dangerous occupations because in fact this was a contractual arrangement more efficient than the common law rules which tended to worry more about negligence of the employer and contributory negligence of the worker.

So the statute never blew up for the most part early on because it was modeled on a series of voluntary private arrangements. When you start getting to the New Deal, however, now you’re trying to go to two things, which is unions and hours and overtime legislation. So minimum wage and overtime legislation were the two things. On the union side, what happens is in the progressive period that is before the New Deal, the Supreme Court on several occasions struck down any statute which required mandatory collective bargaining of an employer with a particular union.

Now I mentioned earlier names like Felix Frankfurter and how optimistic they were about the ability of the United States government to regulate the frequencies under the Federal Communications Act. Well, it was the same Felix Frankfurter who in 1930 wrote a book with a man named Nathaniel Green called The Labor Injunction saying essentially what you have to do is to put in organized labor into this situation so that you should never allow a particular lawyer to get an injunction against the union that is prepared to organize its work. And way back in 1983 on the 50th anniversary of the New Deal, I made myself something of a pariah at the law school when I defended the earlier regime and attacked Frankfurter’s approach. And the basic argument is that government regulation of labor markets in my view will not work as well as a free competitive system.

What is good for goods is good for services.

The New Deal comes along in two halves. The National Labor Relations Act essentially does organize and requires mandatory collective bargaining. It introduces a lot of rigidities into the system. The unions in the beginning start to gain a lot of power out of this particular system. After the employees adapt, and as the workplace starts to change in its nature and its operation or the union situations, which are in a consistent decline since about 1954, it is a very inefficient structure for everybody.

Workers who want to advance up the ranks are blocked by union contracts from doing it. Employers who want to sell off a subdivision or reorganize their business are blocked by unions from doing all that stuff. So the resistance to unions becomes fierce, well organized, well disciplined, and in an important sense, what happens is, the union movement is still powerful, but today it’s largely in the public sector, not in the private sector, because it cannot survive in any kind of a competitive world market.

More importantly for these purposes are the Fair Labor Standards Act in 1938 where it was held that you can have the government set minimum wages and overtime rules of certain kinds of people and that puts into place a huge administrative structure. Recently I wrote an article called “The Regulatory Hour”, which goes into all of the incredible problems you have to face when you say as a matter of legislation that X is an hour and the minimum wage for X hours is 25 cents or $7.50 cents depending on what period you’re working in. It’s an absolute nightmare.

Now, Bob, one of the things you mentioned earlier on is whether the administrator state strayed beyond its purpose and in the environmental statutes — it surely did, but in the labor statutes, you have to be able to define an hour, and there are a thousand different things that you worry about coming and going to work, lunch breaks, restroom breaks, changing into clothes and equipment and so forth, time out the penalties.

So the actual statute on this and the regulations that followed are a small book and it turns out that if you don’t follow these particular rules the penalties on an employer can be very heavy, both in terms of what they have to pay by way of compensation to aggrieved workers and possible fines and so forth. The overtime provisions are every bit as onerous. There is absolutely nothing in the world, which makes it perfectly clear that if you worked 40 hours a week, you get X. But if you work 40 hours and one day or one hour more, rather 41 hours that last hour is going to cost you 50% more. In some industries it makes sense to pay overtime. And you will see that in the contracts themselves and in others it does not and you won’t see it in the contract. So what happens is if you now look at the distribution of hours, when you get up to 40 hours and you have huge amounts of workers, 41, there is virtually nobody working there because employers don’t want to pay that extra fee. Distortion in the labor market.

Early on when this thing comes before the United States Supreme Court, they try to figure out how to make sense of these rules and there is just a wonderful situation about a bunch of people who are basically paid to stay in a ready room playing checkers or going to sleep, getting paid very little money. And if they’re called out on an emergency job as a fire department, they’re going to get paid a lot more. And the Supreme Court has to decide whether these guys resting in this rec room were entitled to overtime pay or not?

In a case called Skidmore, they made the following decision. If they’re up playing games, they are working. If they’re sleeping, they are not working which is a distinction that commends itself to nobody. And why is this so important? Because it turns out that’s an industry in which the overtime-is-more-hard-work model doesn’t work. It shows you something about all of these statues, which is they are sort of geared for the main line jobs where they have some degree of plausibility, but there’s 20% to 30% now — probably more — of the labor market that doesn’t work according to these conventional principles.

For these particular situations, the Fair Labor Standards Act is a straight jacket which makes everybody worse off than what would otherwise be the case. So again, it’s another situation where you think you’re so smart that you can tell every business what counts as an hour and how they organize it.

But it turns out you just don’t know enough to do it from the center. And that was the great insight that Hayek in the Road to Serfdom. He said that decentralized decisions on these things will outperform centralized decisions because you have much greater information and you have people making the decisions who will suffer adversely if they get it wrong. Government officials are remote, they are indifferent, they’re not going to be adversely affected by their own mistakes, so their performance levels should be expected to be much lower.

Bob Zadek: Just an additional comment, Richard, if I may, for the audience, is that the animus that Progressive’s have toward the marketplace, using phrases like cutthroat, unfair, greedy, things of that nature. Everybody is of course greedy. That is, they want the best for themselves and so long as they do so without fraud and coercion, what’s the problem?

One of the core values of the free market is that the free market automatically generates information that is simply not available. The free market provides information about supply and demand and allocation of capital that cannot be done any other way. To the extent that Progressive’s seek to modify or affect the free market with price controls, whether it’s hourly wages or any other form of price control, all they are doing is adding a distorting influence to this otherwise pure flow of information.

That’s one of the evils of setting prices for anything. It simply distorts the quality of the information and results in a misallocation of resources and capital.

Richard Epstein: It also imposes an administrative structure that after a while becomes an end unto itself and what it does is it therefore creates a huge amount of costs to do this, which are taxes which prevent gainful transactions from taking place.

Similar things happen all the time at the state level. In New York, they passed the rent stabilization act in 2019, which is now in the process of completely upending the market because the progressives have control of both houses of the New York state legislature and the governor, who will sign anything that’s put in front of him, gave a set of terms that have been so onerous that it turns out that landlords are going to basically have to bail out.

They are going to be reluctant to rent out places that are empty. People are going to be very reluctant to build anything new if they think it’s going to be caught by the statute. Existing units will start to stagnate. We are told because rents are low, it means that the world is better off. This is a world which has only tenants and not landlords. The reason why contracts always outperformed legislatures is because legislatures have constituents that are one side of a market and the losses to the other side of the market are a blank check to them. Markets don’t have that characteristic. The only deals that go forward are those that are mutually beneficial. So that landlords and tenants are not trying to fight over an ever smaller pie. They’re trying to cooperate in a way that will allow you to make for a larger pie.

Bob Zadek: We are sitting here trying to buy toilet paper at our home and all the shelves have been cleared up. And Richard, because you are commenting on price controls, the sister of price controls is anti-price gouging legislation, the reciprocal of price controls. One can only speculate whether the shortage of the supermarket shelves would be as great if supermarkets were allowed to charge more because of scarcity, thereby discouraging people to load up at the expense of others and just let the market allocate those resources.

Richard Epstein: Remember in the beginning of World War Two what we did was we had a complete transformation of the way in which the economy work because you had to move from a peacetime footing to a wartime footing, and as huge amounts of resources were going to be devoted into the war times sector, it was obviously going to put pressures on the peacetime sector. There’s a huge demand which is constant and there is a small supply of goods the prices are going to go up. So the United States decided to put in price controls under the office of price administration, and the question is how did they implement this?

This was a reasonably sensible scheme as price controls go because unlike modern rent controls statutes they don’t set the prices for you completely arbitrarily. What they do is they say the historical prices that are in effect of such and such a good as of such and such a date will remain in effect for the next year. It’s not the perfect system because it doesn’t allow for any upward adjustment, but it’s not a crazy system because it’s relatively easy to administer rather than having the state come along and provide the five prices for each and every good at an independent level. So the question is how do you set the price? Do you set it at the contracts that are entered into during a period of transition or do you set it by the contracts that have delivered goods during that same period? And what the government did is set it at the delivered goods, not the new contracts.

And they were right. And the reason they were right is that the new contracts would reflect the scarcity. And so therefore what we would do is they would set prices much higher than the government wanted it, whereas the delivered price on the previous contracts would keep a measure of stability. This case stood for the proposition that whenever the government is faced with a problem, whatever the administrator says is going to be the final word unless it’s totally and completely and abjectly absurd, and that is a misreading of what that particular case was about. This was the system for a more or less sensible price control scheme as these things go. Then what happens is by the time you get to other cases, they said we can determine who is or is not entitled to overtime benefits.

And they decided that, well under the Fair Labor Standards Act, these rules only apply to ordinary workmen. They don’t apply to executives, administrators, or professionals. That’s the statutory language. And Reich and his team decided that this applied to the government. At the top of this situation, if you have sergeants or if you have even lieutenants or police officers, these guys should be treated like patrolmen even though they clearly have an executive and administrative supervisory function. Justice Scalia in an opinion which he later repudiated said, “if there is anything remotely sensible about doing all this, we will let it ride.” You could penalize these guys for bad service and you could penalize ordinary workers for bad service since they both have the same quality on one issue, we can decide that a lieutenant who supervises 50 persons is just like a patrolman who was one of the people who supervises.

So that’s where the administrative state started to go really crazy. When they started getting a huge amount of deference to these administrators to do whatever they want without reference to the statute. And if you will basically turn circles to uphold that particular statute even though everything you know about the industry, everything you know about the statutory language, everything you know about the legislative history cuts in the opposite direction. And so the recent battle over delegation that you mentioned at the beginning, seems to be taking hold now and it’s pretty clear that a case like ours is probably not good law anymore because when they had to do this in connection with VA benefits, it was very clear that they are cutting back very rapidly against this kind of a situation happening. So it turns out that if you look at these statutes, there can be intelligent delegations and bad delegations of power.

So let’s go back and understand what’s at stake here. I’m not in favor of price controls, but the fact that you are not in favor of price controls doesn’t mean that if you do have a system of price controls, they’re all equally bad. So you don’t have to differentiate between one and the other. There are good ways to execute a bad statue and there are bad ways to execute a bad statute.

Bob Zadek: If Congress had an enormous staff, if committee chairs and subcommittee chairs had an enormous staff and they enacted legislation and then their staff watched over and virtually administered the executive branch and kept the executive branch under control, so the same humans are performing the same functions, but they are employed by Congress, therefore not triggering non-delegation, does that somehow make it more consistent with our Republican form of government where it keeps legislation under the control of the legislative branch?

Richard Epstein: This is a very hard question and I think the answer to it is if you start looking into the free modern period, when Congress passed that just like this that abridged freedom of contract, they were generally struck down. The issue was not the allocation of power between the Congress and the delegated authority of an agency, it was whether or not any political agency could tell a private individual where to go. So the earlier version of the constitution, when they talked about a Republican form of government, meant the affairs of the public. And the government did not have any power whatsoever to regulate purely private transactions of which the typical labor contract was. I still believe that that’s correct. And so therefore if you’re going to ask me whether or not it would cure all the problems, I think the answer to that question is no.

Congress could get together and have this huge power and do stupid things. But on the other hand there is I think a real difference between the two cases. If we accept that some degree of regulation of labor contracts is going to be allowed. If Congress has to do it, these guys have to be elected and re-elected and reelected, they start to do these kinds of things and there’s going to be a bit more of a political sanction against them than there is if you could delegate this to an unaccountable administrator. And so therefore they are going to be a little bit more attentive to what the public says. The second thing about it is, and one of the reasons we all care about the non-delegation power, is this: Assume that you have a distribution of services and Congress and the middle of that distribution — we’ll call the 50 yard line. Then what happens is it turns out that one side in Congress, the liberals typically in these cases, have more than 50% of the votes so they develop it to an administrative agency.

Now, this administrative agency is going to be picked largely by them. And so what was the median vote in Congress at the 50-yard line is going to be translated into a situation where the median vote in the administrative agency is going to be on the 30 yard line because they will tend to pick people who agree with them, so that the composition of the administrative bodies is oftentimes not going to be very different than the composition of the Congress. Then what happens is they delegate this further on the enforcement side and these people pick guys who were congenial with them. So you move from the 30 yard line to the 20 yard line and what happens there for us with delegation is that you take a bad scheme and you tend to make it worse.

Links

• Book — The Dubious Morality of the Modern Administrative State by Richard Epstein
• Podcast — The Libertarian: Failed (Administrative) State | Hoover Institution
• How Bad Constitutional Law Leads to Bad Regulations — The Atlantic by Richard Epstein

Originally published at http://www.bobzadek.com on March 12, 2020. Download MP3