Saturday, June 29, 2013

The Regulated States of America

A long and detailed book review, but worth thinking about to me.

Niall Ferguson: The Regulated States of America

Tocqueville saw a nation of individuals who were defiant of authority. Today? Welcome to Planet Government.

In "Democracy in America," published in 1833, Alexis de Tocqueville marveled at the way Americans preferred voluntary association to government regulation. "The inhabitant of the United States," he wrote, "has only a defiant and restive regard for social authority and he appeals to it . . . only when he cannot do without it."

Unlike Frenchmen, he continued, who instinctively looked to the state to provide economic and social order, Americans relied on their own efforts. "In the United States, they associate for the goals of public security, of commerce and industry, of morality and religion. There is nothing the human will despairs of attaining by the free action of the collective power of individuals."

What especially amazed Tocqueville was the sheer range of nongovernmental organizations Americans formed: "Not only do they have commercial and industrial associations . . . but they also have a thousand other kinds: religious, moral, grave, futile, very general and very particular, immense and very small; Americans use associations to give fetes, to found seminaries, to build inns, to raise churches, to distribute books, to send missionaries to the antipodes; in this manner they create hospitals, prisons, schools."

Tocqueville would not recognize America today. Indeed, so completely has associational life collapsed, and so enormously has the state grown, that he would be forced to conclude that, at some point between 1833 and 2013, France must have conquered the United States.
The decline of American associational life was memorably documented in Robert Puttnam's seminal 1995 essay "Bowling Alone," which documented the exodus of Americans from bowling leagues, Rotary clubs and the like. Since then, the downward trend in "social capital" has only continued. According to the 2006 World Values Survey, active membership even of religious associations has declined from just over half the population to little more than a third (37%). The proportion of Americans who are active members of cultural associations is down to 14% from 24%; for professional associations the figure is now just 12%, compared with more than a fifth in 1995. And, no, Facebook is not a substitute.

Instead of joining together to get things done, Americans have increasingly become dependent on Washington. On foreign policy, it may still be true that Americans are from Mars and Europeans from Venus. But when it comes to domestic policy, we all now come from the same place: Planet Government.

As the Competitive Enterprise Institute's Clyde Wayne Crews shows in his invaluable annual survey of the federal regulatory state, we have become the regulation nation almost imperceptibly. Excluding blank pages, the 2012 Federal Register—the official directory of regulation—today runs to 78,961 pages. Back in 1986 it was 44,812 pages. In 1936 it was just 2,620.
True, our economy today is much larger than it was in 1936—around 12 times larger, allowing for inflation. But the Federal Register has grown by a factor of 30 in the same period.
The last time regulation was cut was under Ronald Reagan, when the number of pages in the Federal Register fell by 31%. Surprise: Real GDP grew by 30% in that same period. But Leviathan's diet lasted just eight years. Since 1993, 81,883 new rules have been issued. In the past 10 years, the "final rules" issued by our 63 federal departments, agencies and commissions have outnumbered laws passed by Congress 223 to 1.

Right now there are 4,062 new regulations at various stages of implementation, of which 224 are deemed "economically significant," i.e., their economic impact will exceed $100 million.
The cost of all this, Mr. Crews estimates, is $1.8 trillion annually—that's on top of the federal government's $3.5 trillion in outlays, so it is equivalent to an invisible 65% surcharge on your federal taxes, or nearly 12% of GDP. Especially invidious is the fact that the costs of regulation for small businesses (those with fewer than 20 employees) are 36% higher per employee than they are for bigger firms.

Next year's big treat will be the implementation of the Affordable Care Act, something every small business in the country must be looking forward to with eager anticipation. Then, as Sen. Rob Portman (R., Ohio) warned readers on this page 10 months ago, there's also the Labor Department's new fiduciary rule, which will increase the cost of retirement planning for middle-class workers; the EPA's new Ozone Rule, which will impose up to $90 billion in yearly costs on American manufacturers; and the Department of Transportation's Rear-View Camera Rule. That's so you never have to turn your head around when backing up.

President Obama occasionally pays lip service to the idea of tax reform. But nothing actually gets done and the Internal Revenue Service code (plus associated regulations) just keeps growing—it passed the nine-million-word mark back in 2005, according to the Tax Foundation, meaning nearly 19% more verbiage than 10 years before. While some taxes may have been cut in the intervening years, the tax code just kept growing.

I wonder if all this could have anything to do with the fact that we still have nearly 12 million people out of work, plus eight million working part-time jobs, five long years after the financial crisis began.
Genius that he was, Tocqueville saw this transformation of America coming. Toward the end of "Democracy in America" he warned against the government becoming "an immense tutelary power . . . absolute, detailed, regular . . . cover[ing] [society's] surface with a network of small, complicated, painstaking, uniform rules through which the most original minds and the most vigorous souls cannot clear a way."

Tocqueville also foresaw exactly how this regulatory state would suffocate the spirit of free enterprise: "It rarely forces one to act, but it constantly opposes itself to one's acting; it does not destroy, it prevents things from being born; it does not tyrannize, it hinders, compromises, enervates, extinguishes, dazes, and finally reduces [the] nation to being nothing more than a herd of timid and industrious animals of which the government is the shepherd."
If that makes you bleat with frustration, there's still hope.

Comments on the book review above

A Jeremiad to Heed
U.S. future obligations exceed future revenues by $200 trillion, and state and local governments face $38 trillion in unfunded obligations.

Doomsayers are never popular, but sometimes they're right. The original jeremiads uttered by the biblical prophet Jeremiah were on the money. His fellow Judeans were vanquished and enslaved by the Babylonians, just as he had warned. Moral: Don't take jeremiads lightly.
That maxim applies to the writings of the economic historian Niall Ferguson. The 49-year-old Glaswegian scholar isn't someone to be dismissed as some sort of eccentric or deft provocateur. He teaches at Harvard University and is a fellow at the Hoover Institution; he has written many weighty books and articles and has created five television documentary series. One, "The Ascent of Money," won an international Emmy in 2009. As a Scot, he views America with a certain detachment not available to native sons and daughters.

With a focus on the United States, "The Great Degeneration" warns that Western civilization has entered into a period of decline due mainly to the strangling of private initiative by the ever-encroaching state. "We are living through a profound crisis of the institutions that were the keys to our previous success—not only economic, but also political and cultural—as a civilization," he writes.
The threatened institutions are representative government, the free market, the rule of law and civil society. Mr. Ferguson is dismayed at the explosion of public debt, the destruction of markets by excessive regulation, the replacement of the rule of law by "a rule of lawyers," and the decay of civil society as represented in part by the decline of thousands of private, voluntary organizations (Rotarians, Elks, et al.) that have contributed so much to social order and progress in America.

"We humans live in a complex matrix of institutions . . . ," Mr. Ferguson writes. "Once—I'm tempted to date it from the time of the Scottish enlightenment—this matrix worked astonishingly well, with each set of institutions complementing and reinforcing the rest. That, I believe, was the key to Western success in the eighteenth, nineteenth and twentieth centuries. But the institutions in our times are out of joint."

The most worrisome evidence of decline, he believes, is the "crisis of public debt," with government budgets out of control in the U.S. and Europe. He sees outsize debt as a symptom of the "betrayal of future generations: a breach of Edmund Burke's social contract between the present and the future." Should this news leak out to college-bound American youths they might well be moved by resentment to challenge the progressive orthodoxies that infest so many campuses.

When it comes to health care and Social Security in its various forms, it is not at all clear that the government will be able to keep its promises. By Mr. Ferguson's reckoning, U.S. future obligations under present law exceed future revenues by $200 trillion (calculated at current value), "nearly thirteen times the debt as stated by the U.S. Treasury." That figure doesn't include the unfunded obligations of state and local governments, estimated at $38 trillion.
Of course, future obligations stretch over many years, and the burden consists mainly of debt service, not the debt itself. But the numbers are so huge that just the carrying charges will likely make them unmanageable without painful adjustments. One adjustment that already seems inevitable is a reduction of Medicare and Social Security benefits to future generations. The Federal Reserve also has a solution—inflation, yet another form of pain. And then there is the Obama all-purpose remedy, higher taxes. One way or another, tomorrow's citizens will pay for today's excesses.
Mr. Ferguson worries as well about the erosion of the rule of law. Not only do politicians increasingly flout the Constitution, but they are creating a proliferation of unwise and unenforceable laws and regulations. Lawyers on congressional staffs write massive pieces of legislation for other lawyers to implement and still others to interpret for clients. Thus, lawyers rule.
The Brobdingnagian Dodd-Frank Act meddles with global finance, something that Friedrich Hayek would have called a "complex system" beyond the power of mere mortals to control. Billions of transactions of infinite variety can't be managed by a law, even one that ran to 2,700 pages in its original draft. To attempt such a thing is stupid, costly and dangerous. Mr. Ferguson cites the Darwinian principle that, in the natural world, a small input in a complex system "can cause huge, unanticipated consequences." Financial systems, he argues, are much the same.
The author's argument that civil society is undergoing decay is no less depressing. As government has grown, civil society has withered, he asserts. Robert Putnam's "Bowling Alone" (2000) recorded a sharp decline in participation in civic organizations between the 1960s and late 1990s—for example, a 61% drop in PTA membership. The French author Alexis de Tocqueville marveled at the scope of American civil society in the 19th century, the many associations that owed their "birth and development" not to law but to individuals freely joining forces. Mr. Ferguson agrees with Tocqueville that "the state—with its seductive promise of 'security from the cradle to the grave'—was the real enemy of civil society."
Mr. Ferguson borders on glibness when he touches lightly on such treacherous matters as income disparities and population shifts. But on the whole his intellectual virtuosity is refreshing. "The Great Degeneration" won't be popular in the Obama White House or other centers of power. Jeremiah wasn't popular with the elders of Judea either. They tossed him in jail for his sedition. They had reason later to be sorry.
Mr. Melloan, a former columnist and deputy editor of the Journal editorial page, is the author of "The Great Money Binge: Spending Our Way to Socialism."