Of Rule by Experts and Rule by Law

February 22, 2022 Leave a comment

Photo by Adam Szuscik on Unsplash

In the 1990s I was part of a congressional delegation to Argentina, when the Argentine economy was growing strongly and steadily, and inflation was low, the currency convertible 1-for-1 with the dollar.  Trade barriers were being lowered, commerce was booming.  I recall asking Argentines what could possibly darken what seemed to be a bright future.  They were quick to reply:  “Here in Argentina we have no rule of law.  You can have no confidence in getting justice from the courts.”  Not long after, political shenanigans to reward one part of the electorate by a transfer of wealth from others threw the Argentine economy into turmoil.  Momentary good policy is a tough path to walk across bogs of inadequate legal safeguards.  Freedom has rested upon rule by law rather than rule by men.

Fundamentally, the American Revolution was an assertion of the rule of law.  Most of the Declaration of Independence is a litany of abuse by the English rulers.  The Revolution was intended to take power away from man and men and rest it upon laws and rights, soon to be secured by the world’s first written Constitution.

The Progressive Movement, which thrived over a century ago, was a retreat, aggressively stepping backwards to the rule of men as an impatient alternative to the rule of law:  the Rule of Experts.  Their new view—really a very old view dressed up in modern rhetoric—was that there are benevolent experts, to whom we can safely yield our governance, for such understand the process of modern government better than ordinary people do.

It sounds akin to the ancient theory of Divine Right of Kings, that the worldly monarchs are chosen by God and invested with greater wisdom and perspective than the average man and woman.  To their benevolent expertise and fatherly care was entrusted the governance of the rest of us.

Today’s benevolent experts are invested by their colleagues with varieties of credentials certifying their expertise.  Not very democratic, they make no secret of their impatience with the Congress and other constitutional brakes on arbitrary authority.

Just as not all men are always just, not all men are reliably wise.  The American Founders thought to address this problem by the separation of powers, dividing political authority among three branches in the Federal Government and the States.

The current regulatory program rests heavily on the notion that benevolent experts should be entrusted with authority for the big questions and increasingly smaller questions, too.  It has evolved by progressively engulfing the constitutional separation of powers, merging legislative and executive—and often judicial—authority in “independent” regulatory agencies headed by unelected officials.  The unelected federal regulator writes the details of mandatory regulations, charges violators, assesses guilt, and applies penalties.

Professedly efficient, it does not work well in practice.  First, the regulators are not dispassionate umpires, limited to calling the balls and strikes.  They are also players in the game, having their own set of particular interests and incentives that they take care of first.

Second, reliance on benevolent experts assumes what is an unproven, undemonstrated level of knowledge, insight, and forecasting skills.  Regulators are not dumber than the rest of the population, but they are no smarter either.  It is just that life is too complex and the society of the living is proving too much to be run by any designated group of humans and their computers.

A third flaw is mission creep.  Even if the tasks are too great or require too much knowledge, insight, foresight, and other skills in unachievable degree, the regulators still take them on, with each failure met with calls to increase resources and power of the agency.  

An example is the Federal Reserve (commonly called the “Fed”), created with a specific and rather narrow purpose, to make enough funding available for the banking system in times of financial stress.  Before long, the Fed gained control of monetary policy and the practice of controlling interest rates.  Later, it was tasked with promoting maximum employment.  In 2010 the Fed’s role in supervising banks was enlarged to supervising any financial business considered to be systemically significant.  Each augmentation has drawn the Fed away from its narrow, objective task. 

This expansion of authority affects every business and every home.  The Federal Reserve is the world’s biggest rigger of interest rates.  Its prolonged policy of keeping short-term rates at or slightly above zero has resulted in penalizing all savers and those who live off of their savings, transferring trillions of dollars of wealth to borrowers, the biggest borrower being the Federal Government.

A partial but simple solution toward strengthening the rule of law and reducing exposure to the caprice of men would be returning to elected representatives the making of laws.  It is a messy process, exactly the messy process that the Founders intended to preserve freedom from the encroachment of arbitrary and oppressive government.  The regulators, which are theoretically part of the executive branch, should be limited to the duty of implementing the laws that the elected and accountable representatives make. 

If Congress were required to write the rules and mandates, and delegate only the implementation, the mandates of government would be circumscribed by the exposure of a legislative body held directly accountable for what it has wrought.  It is easy for legislators to complain about bad regulatory decisions, but too often, these are decisions that Congress never should have delegated to regulators in the first place.

Filed under bureaucracy, Congress, Constitution, Declaration of Independence, Federal Reserve, freedom, interest rates, progressives, rule of law, Supreme Court Tagged with , , , , , , , , ,

Of Introvert Heaven and What to Do with Extroverts

March 16, 2020 Leave a comment

Photo by Anthony Tran on Unsplash

The Introverts must be taking over the world.  Utterance from official sources is that gatherings—if they must take place at all—should be narrowly restrained.  The new limit is to be 50, tops.  Governors in states from New York to California are ordering these social curbs or yet stricter limitations.

Private sector organizations are closing their doors entirely, some with a mentioned end date, others indefinitely.  Sporting events—professional, amateur, scholastic, even clubs—have been shuttered.  The local rec center has closed its doors.  Movie theaters are locking up, voluntarily or by official order.  New movies are rescheduling their start dates or being offered on-line.  Schools, government and private, are sealed (home schoolers remain unaffected, no reports on what home scholars think of that).  The list grows by the hour.

In short, it all sounds like Introvert Heaven.  Stay home, keep inside, work on the computer, read a book, watch a cable movie, play a video game, take a walk, go for a drive, do a puzzle.  As an introvert myself, I recognize that while I would soon tire of it, the thought of solitary confinement has never held terror for me.

I ask, but what of the Extroverts?  No allowance seems to be made for them.  Being the father of both, I know that the sense of being “cooped up” comes quickly to extroverts, who draw personal energy from human interaction, the bigger the group, the better.  Sustained restrictions on access to people are not easily tolerable.  Social media can be a temporary substitute, but a poor substitute, clearly suboptimal for an extrovert, who craves face-to-face association, the more the merrier.  Suppressed long enough, they will revolt—no hyperbole.

Sporting events, theater, parties and such like were invented by and for extroverts.  Since they may make up half or more of the population (the Internet hosts a mildly interesting debate on the exact proportion), the broad assault on extroverts surely will have societal consequences, ones for which the introverts who seem to be making the rules (or who fancy themselves exempt) manifest little recognition.  Promising that the restrictions are probably for no longer than eight weeks offers little comfort to extroverts.  Neither should introverts who must live with them find therein any comfort.

Filed under bureaucracy, civilization, culture, freedom, personality, quarantine, statism Tagged with , , , , , ,

Of Majorities and Modesty

November 18, 2014 Leave a comment

Perhaps with some weeks enough dust has settled to allow a few reactions to the recent American elections, with more perspective than can be gathered from listening to reporters interviewing reporters. I will offer views that focus mostly on the results of the congressional elections, drawing upon experience from more than two decades of work in the Senate.

I do not, however, wish to minimize the importance of the elections for governors and state legislatures. In fact, I suspect that the next President of the United States will more than likely be a current or former governor than a Washington politico. Most Presidents, historically, have come from the state governments, which I find encouraging for our federal system. Moreover, judging from what we have seen, former Senators do not seem to make very good Presidents. I cannot name one to whom we can look with admiration for what he accomplished in the White House. There seems to be too much Washington blindness in them to govern effectively for our whole nation.

I am straying to an election yet to come, though. Back to this year’s results, I will begin with the view that we should expect, with the media-scorned Republicans holding the majority in both House and Senate, that the finger of blame for all problems—real or imagined—will be pointed at “Congress.” Disputes between legislative and executive branches will tend to be cast as exposing the nation to great danger as a result of congressional intransigence and/or “politics,” as if no real issues of policy—no questions of life, freedom, or wealth—are involved.

It is happening already. In one bizarre report I heard this week on a major network “news” report, some Amtrak railroad drawbridge in the northeast is over a hundred years old and prone to getting stuck when it opens to let ships pass. Amtrak wants a billion dollars or so to fix it, but, as the “news” story would have it, Republicans in the new Congress “are not looking for ways to spend money.” That was the story. Note the nothing new here. The bridge has been around for a hundred years and did not suddenly become prone to malfunction this November. But the election has now made it a story; a problem is arising, not because the President or the Democrats in Congress for several years did not seek to fix it, but because the new Republican majorities are not interested in spending money. The bridge is not the problem in the story, the Republicans are. Expect more of this kind of media “news.”

Second observation: in recent decades Congress has increasingly surrendered more and more authority to the executive branch, including to the regulatory agencies. The Senate, under the misleadership of Majority Leader Harry Read, has given up even more power and authority (perhaps in another post I will expound on lessons from the Senate of Rome, which by avoiding decisions paved the way for the Caesars—who were all too ready to make decisions). The Democrats retain full control of the executive branch. No small thing. In the remaining two years of the Obama Administration look for more aggressive activity from the White House and the regulators as they test just what they can try by regulation and regulatory fiat, without any detours to Capitol Hill. To quote Jacob Marley’s ghost, “Much!”

When it comes to big Republican plans to make major changes, the quidnuncs will be fed explanations of the thinness of the Republican majorities, along with the “responsibility” of Republicans to share power with Democrats that the Democrats failed to win at the ballot box. When it comes to work that needs to be done, the repeated common wisdom will be that the Republicans have the majority, so nothing should stop them from getting on with the job. There will be little mention that the President can veto what Congress passes, and that Democrats in the Senate will likely filibuster anything that the White House threatens to veto, saving the President the trouble—and political risk.

Yet, there are things that the Republicans, even with working but not overwhelming majorities in Congress, will be able to do. Most important, they get to set the agenda. They get to decide what issues will be debated, what hearings will be held, what will be put to a vote, even when they may not have the votes to break Democrat opposition in the Senate. It will be some relief that instead of the familiar series of proposals to curb liberties, raise taxes, or stifle economic growth and opportunity, the agenda will tend toward ideas of freedom and prosperity, though actual accomplishments will of necessity be modest against the strong opposition of the President and his media allies. I will take modest improvements over the calamitous policy fails of the past several years.

Filed under Barack Obama, bureaucracy, Congress, economic growth, elections, federalism, freedom, government, House of Representatives, media, politics, prosperity, Rome, Senate, taxes, Washington Tagged with , , , , , , , , , , , , , , ,

Of Banks and Over Taxed Regulators

September 27, 2014 1 Comment

Banks, who needs them? A quick question and a quick answer: a thriving, prospering banking system is essential for a thriving, prospering modern economy. Banks bring together the resources of savers and the needs of borrowers, particularly borrowers who seek funds to establish or expand businesses or families and individuals who use occasional borrowing to smooth out their income (good banking principles penalize people who would borrow in order to live beyond their means, but more on that at another time).

Banks also created and maintain the payments system, the means by which money is transferred quickly and accurately throughout the nation and even internationally. Bank services include as well a variety of wealth management tools by which individuals, families, businesses, and governments can store, grow, and make best use of their financial wealth.

Without banks, almost none of these services would be available. Many non-banks provide bank-like services, but they all come to find the need to rest their own services at some point on a bank.

Banking in the United States has grown with the nation, from very simple institutions in the eighteenth and early nineteenth centuries, to a wide variety of bank types, charters, and business models, as diverse as the financial demands of the customers of the largest and most diverse economy in the world. I once presented at a meeting in Chicago a list of about two-dozen different types of banks in the United States. We have national banks, state chartered banks, small community banks, larger regional banks, and very large banks with extensive national and international business products and services. All of these operate and compete together, with a body of customers behind each one who think that their bank offers the best available choice of services that they want. No other nation in the world has a banking industry like ours.

The recent recession and financial panic—and the inevitable politicizing of finance that came in its wake—have thrown much into confusion and imposed upon sound and prudent bank supervision harmful ideas born of reckless sloganeering and hubristic financial engineering. The complexity of banking—no more complex than information technology, communications systems, or modern manufacturing—has been superseded by even more complex bank regulation.

The rules governing banking are too much and too many to function reasonably. They have become more than the very human people in the multitude of bank regulatory agencies can manage. The disciplining role of markets and the valuable service of banker judgment have in large measure been replaced by bureaucratic procedures and the judgments of government officials. These officials have had little if any practical experience making loans, taking deposits and putting them to work, building financial wealth, or otherwise providing products to customers. Government officials cannot run businesses. Now, their government jobs have become so demanding and complex, that they will not be able to do their own jobs, either. Too much has been placed upon them.

Those most harmed by all of this are bank customers. For the moment, bank profits are up, but that is because their losses are down as they recover from the recession, not because services to customers are expanding. As a result of government interest rate policies, depositors earn almost nothing on the money that they place in banks. The expanding oversight involvement of bank regulators makes it dangerous for banks to offer new services to customers; the risk of breaking any of thousands of pages of regulations has become too great. It takes almost half an hour to open a new bank account, something that used to take minutes. Fewer credit-worthy borrowers today qualify for mortgages than just a year ago, before new regulations went into effect. The number of banks has been declining in recent years, dropping at the rate of nearly one for every business day, week in and week out. Only one new bank has been opened since 2010. We have fewer banks today than the nation had in 1893. A stagnant industry is less able to evolve to meet changing customer needs and preferences.

For the good of all of us who rely upon banking services, and for the sanity of financial regulators, we need to return to the principles of good banking. We need to restore a system of supervision that is measured, not by how much banker judgment it takes over, but by how it adds value to the ability of banks to serve customers. Government agencies—and the laws that they administer—that are derived from a founding document that begins with the words, “We the People,” should do nothing less, and nothing more.

On another day I would like to share some thoughts about how banks are being goaded to become their own enemies.

Filed under banking, BCFP, bubbles, Dodd-Frank Act, economic growth, government, interest rates, markets, prosperity, statism, wealth Tagged with , , , , , , , , , , ,

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