Lately almost any passing weather phenomenon is said to have been rooted in climate change and higher carbon concentrations. The recent heatwaves that seared parts of Europe and the U.S. are no exception, and climate change activists always find heat spells ripe for rhetorical exploitation. But while these would-be Cassandras and Gretas push their fearful narrative, there are strong reasons to doubt that these weather events are any cause for alarm. This summer’s heat waves, like all others, were of limited geographic scope, and they certainly weren’t the most severe heat waves on record in terms of either duration or magnitude. More on that below.
Temperature measurements tend to be exaggerated these days because so many “official” temperature records come from local airports or other urban sites rich in impervious cover and heat absorbing building materials. This gives rise to the so-called “urban heat island effect”, which refers to the elevated temperatures measured in urban versus rural areas. It’s even worse than that, however, as the vast majority of active weather stations in the U.S. are sited at “hot spots”, and many of them are poorly maintained. Data problems plague European temperature records as well.
Furthermore, official temperature records are extremely short on climatological scales, going back only about 150 years in the U.S. And these records have been “adjusted” by weather authorities like the National Oceanographic and Atmospheric Administration (NOAA), usually with the early records “cooled” relative to more recent readings. That means the long-term trend in temperatures is biased upward.
Nevertheless, Joe Biden has been threatening to declare a wholly unjustified “climate emergency“, perhaps thinking these dog days are the perfect time to assume a host of new emergency powers. It’s unclear whether the new “Build Back” bill making its way through Congress will be enough to satisfy the appetite of Biden’s handlers for costly and ultimately ineffective climate measures.
It’s tempting to think delirium from the heat waves is what prompted Al Gore to compare climate change skeptics to the dithering police officers in Uvalde, TX, but Gore’s fever is nothing new. We’re still waiting for the world to end, which he once predicted would occur by 2016.
Even weather reporters on TV are breathless in their descriptions of the heatwaves. They’ve certainly become dramatists for the climate-change cause. And people love good scare stories. It gives them an excuse to polish up their pitchforks! Or to be lazy and stay inside. It’s telling that so many people now quote heat index values (which combine heat and humidity), rather than actual temperatures, in the warm summer months. After all, it’s more thrilling to say it’s 105 outside than it is to say 95.
Anyway, compare the paired maps in each of the graphics below (here are links to sources for the first and second):
The temperatures are comparable, but the use of RED colors on the 2022 maps is so much more frightening!This post from Anthony Watts provides a list of links to news sources taking alarmist perspectives on the heatwaves in the U.S. and Europe, and falsely attributing the heatwaves to CO2.
Same Old High Pressure Domes
Cliff Mass offers a bone to the climate change community. He thinks perhaps 5% – 10% of the recent temperature anomaly in the UK is attributable to greenhouse gases. An effect of that magnitude is hardly worthy of government action, let alone panic. Mass says:
“Natural variability of the atmosphere was the proximate cause of the warmth and does not represent an existential threat to the population of Europe.”
The heat wave phenomenon is typical of slow-moving high-pressure systems that often develop during the summer months. These domes of high pressure vary in temperature and geographic breadth, and they are sandwiched between or adjacent to low-pressure systems with cooler temperatures. That’s been the case in both Europe and the U.S. during this summer’s heat waves, as illustrated by the following graphics, The northern hemisphere is not entirely enveloped in a heat wave.
These are not the worst heat waves on record. Both the U.S. and Europe experienced higher temperatures and prolonged heat waves during the 1930s. For example, St.Louis, Missouri matched or exceeded 110 degrees four times in the 1930s, and twice in 1954, whereas the city topped out at 102 so far this year, and that was after a cool spring. There was an extreme European heat wave in 1976 that was drier and much lengthier, and others occurred in 1911 and 1906. Of course, available temperature comparisons are distorted because the early readings weren’t as impacted by urban heat islands. There are historical accounts of drastic heat waves much earlier, such as the 1500s and 1700s. Here is more heatwave history, in case you’re interested.
We’ll Be Fine
Heat isn’t the only story, of course. A wide range of other disastrous events are blamed on climate change. Wildfires are a prime example, but as we know, wildfires are not new, and the worst wildfires have more to do with poor forest management than anything else. Likewise, there is little if any association between extreme weather events and climate change. In that context, it’s also worth noting that cold weather is much deadlier than hot weather. The climate today, and going forward, presents far fewer dangers to humanity than in the past.
I did a lot of dirty, outdoor work in my youth, and it was hot! There were times just as hot as this summer, if not worse, I’d venture to say. Anyone old enough to have lived through the 1970s or even the 1950s should recognize the heatwave Chicken Littles as such.
When so-called “stakeholders” are in charge of a company, or when non-owner “stakeholders” receive deference to their various goals from management, the actual owners have been displaced and no longer have control. That represents a kind of taking in which managers are complicit, failing to keep proper vigilance in their duty to maximize value for shareholders.
Ceding control to stakeholders represents a severe dislocation in the principle-agent relationship between owners and corporate management. Virginia Postrel is on-point in her discussion of the failures of “stakeholder capitalism”, but she might as well just say that it isn’t capitalism at all! And she’d be right!
Stakeholder capitalism represents a “theory” of the firm that accepts an array of different goals that often stand in conflict. This is the key point raised by Postrel. She cites Michael C. Jenner’s 2010 paper on stakeholder theory in which he notes the impossibility of maximizing any single-valued objective in the presence of a multi-dimensional corporate objective function. Thus, stakeholder objectives nearly always subvert management’s most important responsibility: maximizing value for owners.
And just who are these “stakeholders”? The designation potentially includes just about anyone and everyone: managers, customers and potential customers, suppliers and potential suppliers, employees, the pool of potential job applicants, union organizers, regulators, community members and organizations, local governing bodies, “underserved” populations, anyone with a grievance, environmental activists, and the children of tomorrow. Sure, owners are part of the broad set of stakeholders as well, but as Jenner more or less noted, who’s got time to maximize profits in the face of the myriad “claims” on company resources by the larger, blood-sucking hoard?
George Will aptly refers to stakeholder capitalism as “parasitic progressivism”. In fact, in his opening sentence, he notes that the very term “stakeholder” is a form of semantic infiltration, whereby the innocent (and ignorant) adoption of the term is a gateway to accepting the agenda. Will also notes that management deference to stakeholders violates fiduciary laws intended to protect owners, which include worker pensions and 401(k)s, as well as small investor IRAs, charitable organizations, and insurance companies funding life insurance policies and annuities.
This behavior is not merely parasitic — it is truly vampiric. Once bitten by the woke zombie corpses of stakeholder capitalism, either from within the organization or without, the curse of this deadly economic philosophy spreads. Human resource organizations impose diversity, equity, and inclusion training, rules, and hiring practices on operations. Suppliers might be imposed upon to not only deliver valued inputs, but to do so in a way that pleases multiple stakeholders. Woke fund managers, upon whom the firm might rely for capital, will insist on actions that promote social and environmental “justice”. It can go on and on, and no amount of appeasement is ever sufficient.
Unfortunately, there really are activist investors — actual stockholders — who encourage this misguided philosophy. If the majority of a firm’s owners wish to be accountable to the whims of particular non-owner stakeholders, that’s their right. Other investors would be wise to sell their shares… fast! Wastrels and incompetents have blown many a great and small fortune over the years, but capital markets are well-equipped to punish them, and eventually they will. Get woke, go broke!
The best way for a firm to maximize its contribution to society is to do its job well. That task involves producing a good or service that is valued by customers. By doing it well and efficiently, shareholders, customers, employees and society all win. This is the magic of mutually beneficial trade! Produce something that customers value highly while being mindful of tradeoffs that allow resource costs to be minimized. In general, the customers extract surplus value; shareholders extract surplus value; suppliers extract surplus value; and employees extract a surplus value because they receive wages at least as high as the lowest “reservation” wages they’d find acceptable. Here are some comments from Don Boudreaux on this general point:
“… regardless of how well or poorly managers are at running their companies in ways that maximize share values, there’s every reason to believe that managers will be much less competent at running their companies in ways that adequately satisfy ‘stakeholder’ interests. Not only is the definition of ‘stakeholder’ inherently open-ended and ambiguous, even the most skilled managers have no way to know how to trade-off the well-being of one set of ‘stakeholders’ for that of another set.”
This is very nearly a restatement of Jenner’s conclusion, but Jenner’s applies even when managers know specifics about the tradeoffs. Generally they don’t! Remember too that the firm, its shareholders, suppliers, and its employees are all subject to taxes on their surplus values, so their contribution to society exceeds their own gain. Moreover, many firms are already regulated precisely because lawmakers believe government has an interest in protecting larger classes of “stakeholders”. But beyond meeting regulatory requirements, to further insist that firms devote less than their remaining energies and resources to doing their jobs well, and to ask them to focus instead on the varied interests of external parties, whomever they might be, is ultimately a prescription for social harm.
A monster child of stakeholder theory is so-called ESG scoring. ESG stands for Environmental, Social, and Governance, and the scores are intended as “grades” for how well a firm is addressing these concerns. Proponents claim that high ESG’s are predictive of future returns, but that’s true only if lawmakers and regulators look upon these firms with favor and upon others with disfavor. ESG is basically a political tool. Otherwise, it is an economically illiterate notion foisted upon investors by political activists embedded in “woke” financial institutions like Blackrock and Bank of America. There be some real vampires! As David Henderson and Marc Joffe write, ESG fuels higher prices and obstructs economic growth. That’s because it formalizes the effort to serve “stakeholders”, thus raising the cost of actually producing and delivering the good or service one naturally presumes to be the firm’s primary mission. The shareholders pay the cost, as do customers and employees.
When I hear business people talk reverently about serving their “stakeholders” (and when I hear naive investment advisors wax glowingly about ESG scores), it sends up huge red flags. These individuals have lost sight of their valid objectives. They should be trying to run a business, not serving as a grab-bag for other interests. Serve your customers well and efficiently so as to maximize value for shareholders. Do so within the bounds of the law and ethics, but stick to your business mission and the parties to whom you are ultimately accountable!
Inflation accelerated at the consumer level in June and the advances continued to broaden. That’s confirmed by the median item in the Consumer Price Index (CPI) and a measure of the CPI that “trims” out items with the largest and smallest price hikes (see chart above from the Cleveland Fed). Wholesale inflation also picked up in June. At this point, there’s a very real danger that increasing expectations of future inflation are getting embedded into current pricing decisions. Once that happens, the cycle is very hard to break. And wage rates are not keeping pace, so inflation is reducing real incomes for many workers. The sad fact is that inflation takes its greatest toll on the well being of low income earners.
And why did inflation accelerate from 1.4% in January 2021 to 9.2% in June? Don’t ask Joe Biden, at least not if you want a straight answer. He’s been changing his tune almost every month, with a rotating cast of the characters coming in for blame. First, the story was that higher inflation was just transitory; then too, the Administration said it only hurt the rich, a wholly preposterous assertion; the blame then shifted to the oil companies; then to Putin; and then big corporations generally; more recently, it’s independent gas retailers! Nothing is said about Biden’s early pledge to shut down fossil fuels. Nothing is said about the federal government’s profligate spending and the money printing that paid for it. Nothing is said about the extended payment of unemployment benefits, which pinched labor supply. More generally, nothing is said about the extension of Biden’s pandemic emergency powers, which allows continued Medicaid and food stamp benefits to many who are otherwise ineligible. The federal spigot has been wide open!
So here’s a quick synopsis of events leading to our inflationary surge: demand strengthened as pandemic restrictions were lifted across the country. Unfortunately, businesses were not ready to meet that level of demand. Operations had been sharply curtailed during the pandemic all along business supply chains. Hiring staff was next to impossible for many firms, especially given the Biden Administration’s ineptitude with respect to labor incentives. The Administration also set out to starve the fossil fuel industry of capital and to shut down drilling and refining operations through restrictions and binding regulations. The price of oil began to soar early in the Administration, which has been working its way into the prices of other goods and services, including food and transportation. Reinforcing these ill effects was the broader regulatory onslaught instigated at many agencies by Biden, actions which tend to increase costs while limiting competition in many industries.
Most of the factors just listed were limitations on supply. However, the price pressure was accelerated on the demand side by government stimulus payments. And in fact, none of this inflation would be sustainable without easy monetary policy — and monetization of government debt.
Later, of course, Vladimir Putin’s invasion of Ukraine exacerbated worldwide energy and food shortages. Meanwhile, Democrat efforts to push through additional social spending, née “infrastructure”, were unrelenting. They are still pushing for more climate change regulation, not to mention funding “investments” intended to improve the “equity” of highways! Thank God for Joe Manchin for shutting it down, though even he seems intent on imposing drug price controls. Biden now says he’ll impose green energy policy via executive order.
Until about March of this year, Federal Reserve policy remained extremely accommodative, despite the central bank having completely missed its so-called inflation target rate of 2% well before that. Take another look at the chart at the top of this post. CPI inflation shot above 2% in early 2021. The Fed did not really react until March 2022. The chart below shows that growth in the GDP deflator was slightly more muted than the CPI, but it too was above 2% in the first quarter of 2021 and accelerated from there. It’s as if there had been no Fed target at all!
The story, again, was “not to worry, it’s transitory”. Moreover, the Fed was convinced the inflation was driven entirely by supply problems. In fairness, it’s true that tighter monetary policy won’t stop inflation from supply shocks without great cost in terms of lost output. But monetary accommodation, which is what happened in 2021, simply validates inflation and runs the risk of allowing inflation expectations to become embedded in pricing. And again, that’s hard to undo.
Despite the dominance of supply-side inflation pressures early in 2021, it’s no wonder that a different kind of pressure has cropped up since then. The following chart from David Beckworth is helpful:
We now have primarily demand-side inflation fueled by the earlier accommodation of supply constraints and the monetization of government deficits. Sure, there remain significant supply constraints, whether induced by the actions of Russia, Biden, or lingering pandemic dysfunctions. But supply-side inflation cannot sustain without monetary accommodation. An early reading for the second-quarter GDP deflator will be available in late July, but it may well show accelerating pressures from both the demand side and the supply side.
There is no way to eliminate the inflation surge without curtailing the growth of liquidity. Unfortunately, the risk that monetary tightening by the Fed will induce a recession is already very high, even a likelihood at this point. A fairly reliable signal of recession is an inversion of the yield curve, and we now see two-year Treasury debt yielding 15 – 20 basis points more than 10-year bonds. Again, real wages are declining. Real retail sales are down two months in a row and down from a year ago. Here’s a chart showing the most recent dismal reading on the index of consumer sentiment:
Whether a recession has already begun is not clear, but inflation certainly hasn’t abated, and the Fed is expected to continue tightening, albeit belatedly. Meanwhile, the Biden Administration and key Democrats don’t seem to want to make the Fed’s job any easier. They simply don’t comprehend the reality and their role in fostering the upward price trends we’re experiencing. They still cling to hopes of another big spending package that would add to deficits and the inflation tax, despite contemplating tax hikes on private employers, but so far Manchin has put the kabash on that. Still, we’re nowhere close to putting our fiscal and monetary houses in order.
It goes without saying that the legal profession played a huge role in the development and growth of the administrative state. I reviewed some history about that growth in my last post, which dealt primarily with the Supreme Court’s recent ruling in West Virginia v. EPA. It’s certainly clear that courtrooms have served as venues for many of the steps in creating the federal Leviathan we know too well today. So has a large representation of attorneys in Congress. Environmental law? Tax law? Antitrust? Labor law? Civil Rights? Bank regulation? The examples and sub-examples are numerous, and while all might have laudable dimensions, there is no question that all present lucrative opportunities for attorneys… and for manipulative abuses. The burgeoning domain of administrative law enforced and adjudicated by federal agencies was itself a by-product of growth in the array of economic and social regulation, and it too was abetted by the legal profession. Moreover, it’s not inaccurate to say that the active rent-seeking efforts of private special interests, which undergird the “demand” for public intervention and regulation, are likely as not to have been spearheaded by corporate legal departments.
Ex post losses of various kinds are effective drivers of public intervention. Obviously, trial attorneys seek redress against various harms to clients who come their way, and they manage to stretch monetary damages to absurd levels. Public intervention, however, often takes the form of ex ante risk avoidance, and attorneys frequently take lead roles in agitating for ever-greater precautions against risk. A key characteristic of these measures is that they tend to be zero- and even negative-sum in nature. That is, in this kind of world, it is not atypical for one person’s gain to be less than another’s loss. This dynamic creates a formidable obstacle to economic growth.
“Since the birth of the modern regulatory state, lawyers are no longer primarily the allies of commercial classes, as they were in the early republic, but instead the technocrats and enablers of regulation and redistribution. The more the nation intervenes in economic affairs to regulate and redistribute, the greater slice of compliance costs and transfer payments lawyers can expect to receive. Thus, they cannot be counted on as supporters of property rights or even of a stable rule of law. Their interest lies frequently in dynamic forms of legal transformation and the uncertainty they bring. Far from supporting a sound, established social order, they are likely to seek to undermine it.”
McGinnis highlights the legal profession’s remarkable transition from once-active guardians of personal liberty, property rights, and the rule of law to active agitators for a nation grounded in non-productive rent seeking. The populist penchant for “do-something-ism” in response to every perceived risk, injustice, or grievance plays right into their skill set. And there are vast opportunities for attorneys in regulatory and fiscal matters. Compliance and legal work-arounds are enormously profitable to attorneys, to say nothing of the many forms of litigation. In all cases, one might say, “follow the fees”.
This is not exclusively a pecuniary matter, however. It’s also one of raw political ambition and status. A spectacular and perverse phenomenon has been the legal profession’s agitation for dismantling the rule of law, denying certain rights enumerated in the Constitution (e.g., free speech, gun rights) and insisting upon the enforcement of imagined rights through novel interpretations of the Bill of Rights and its amendments (e.g, guaranteed income, “equity”), even so-called rights and demands involving demonstrable harm to others (reparations, no bail laws, abortion).
Here’s McGinnis on the legal profession’s nearly complete sellout of the original text of the Constitution:
“Under living constitutionalism, lawyers and judges are not simply servants of the law but potentially tribunes of the people, because they can choose to create new rights and discard others. In a legal world without the formal anchoring in text and precedents that characterized the lawyer’s craft of the past, innovation and, indeed, radicalism are prized as sources of power.”
There are other dimensions to the aberrant drift in the interests of the mainstream legal profession. Over 20 years ago, Mark Pulliam discussed some of these issues in “The Lawyer’s War on Law”. In that article, he decried so-called “legal realism”, which elevates prevailing attitudes about social policy and justice over legal formalism and originalism. This philosophy is used to justify what amounts to predation among trial lawyers seeking to smear the defense, especially those who suffer from unpopularity among current elites or the media. Gone is the idea of fighting for what is right under the law; instead the goal is to “win at all costs”. Here is Pulliam on this phenomenon:
“… lawsuits succeed without credible proof of injury or causation–‘junk science’ experts, paid by the hour, provide whatever pretext a jury requires–because of a combination of judge-made liability rules that tilt the playing field in favor of plaintiffs’ gripes, trial judges determined to redistribute wealth, and the brute force of endless dishonest lawsuits that seek unlimited, bankruptcy-threatening damages. Many businesses, having lost faith in courts’ ability or willingness to make rational rulings, routinely pay the equivalent of ransom just to escape the system. Most ominously, the trial lawyers have recently joined forces with state and local governments to loot unpopular industries for political purposes. Litigation is no longer just a way to bilk opponents; it is a political weapon.”
The legal realist school of thought is used as a ready excuse for nearly any form of judicial activism, including nullification of controlling statutes in election procedures, allowing lawyers and judges to run elections.
Pro Bono Subversion
More recently, Pulliam provided another example of a perverse activity sponsored by the legal profession, and in particular large law firms. In “Lawyers Cause Homelessness”, he discusses pro bono litigation and its paradoxical harms. Of course, pro bono work sounds so very good and generous. And, in fact, it can be very nice, as when attorneys offer free legal advice to those who cannot otherwise afford it. However, it is not uncommon to see these efforts used in the service of political activism. Pulliam contends that prestigious law firms use pro bono litigation as an inducement to attract young associates, fresh out of law school and full of the social justice blather taught there. How exciting to be offered a position at an elite firm with the opportunity to work on activist causes!
The case used by Pulliam to illustrate this dynamic is Martin v. Boise, decided by the Ninth Circuit Court in 2018, which he describes thusly:
“Martin v. Boise … declared unconstitutional—as ‘cruel and unusual punishment,’ of all things—any city ordinances that prohibit homeless people from sleeping or camping overnight on public property (such as parks, sidewalks, and, in California, beaches) unless the jurisdiction provides enough shelter beds to house every single ‘person experiencing homelessness,’ a burden no city will ever be able to meet. …
With a wave of the activist wand, the Ninth Circuit relieved vagrants of any responsibility to provide their own shelter. Society has this duty, and it must accept the consequences of its failure to provide cradle-to-grave care, no matter how improvident the lifestyle decisions of individual actors. In one fell swoop, in the absence of any relevant Supreme Court precedent, three unelected judges on the Ninth Circuit rendered more than 1,600 municipalities within the court’s jurisdiction powerless to curb urban homeless encampments.”
According to Pulliam, the Washington DC law firm Latham and Watkins dedicated more than 7,000 hours of attorney time to the case:
“Latham … publicly bragged about its ‘major Ninth Circuit victory’ and was honored for it by the Legal Services Corporation’s Board of Directors with a Pro Bono Service Award.”
This is a stark illustration of the depths of activism to which the legal profession has descended. And the case is hardly unique, as Pulliam goes on to illustrate. Despite the literal meaning of the term pro bono, this kind of activity is anything but for “the public good”.
Who really benefits from the kind of legalistic mayhem we see today? The written words of the Constitution are now said to mean things that are often diametrically opposed to the framers’ intent. The federal government absorbs ever greater shares of the nation’s resources. Private parties use federal power to petition for rents that could never have been gained in private markets. Laws are made by federal agencies who, in turn, internally adjudicate disputes between those very agencies and private parties. Litigation runs rampant in search of deep pockets. And elite law firms are somehow deemed praiseworthy for working to undermine safety, cleanliness, property rights, and the enumerated rights guaranteed under the Constitution.
Who benefits? Perhaps most of all it is the attorneys! The more chaotic, the better! Then again, if you’re at risk of legal trouble, you better damn well consult an attorney. We can’t seem to live without lawyers, but sadly, we can’t live free with them.
The Supreme Court’s regular docket is done for the year, but one of last week’s rulings is of great interest to those concerned about the constitutional threat posed by the administrative state. In West Virginia v. EPA, the Court held that the Clean Air Act of 1970 does not authorize the EPA to regulate carbon emissions in power generation. Well, that’s getting to be a very old statute and no one thought much about carbon dioxide emissions when it became law, so of course it doesn’t! However, this decision is crucial as a check on the ever-growing, extra-legal power of the administrative bureaucracy. I say “extra-legal” because regulatory agencies are increasingly taking it upon themselves to write rules that reach well beyond their legislative mandates. Only the legislature can make law under our system of government, or at least law that settles “major questions”, a doctrine that the Court has applied in this case.
Consequential Side Issues
While many critics of the West Virginia decision might find this hard to believe, it has nothing to do with the Court’s views about the prospects for climate change. That is not the Court’s job and it knows it, or at least most of the justices know it. Even if climate change poses a real threat of global catastrophe, and it does not, that is not the Court’s job. Its primary function is to preserve constitutional law, and that is what this decision is about. (For more on the folly of climate alarmism, see here, here, and here.)
Apart from its constitutional implications, growth in the number of regulatory rules and their complexity also imposes massive costs on the economy, robbing the private sector of productive opportunities, often with little or no demonstrable public benefit. The unbridled promulgation of rules does, however, benefit special interests. That includes bureaucrats, litigators, and private parties who derive side benefits from regulation, such as protection of monopoly status, competitive advantages, and expanded professional opportunities. Leveraging government and political privilege for private benefit is rent seeking at its very heart, and it’s also at the very heart of fascistic corporatism.
A Little History
Regulation has been a channel for rent seeking going back to the earliest days of the Republic and even before. But a Great Leap Forward in federal regulatory intervention came in the late 1880s with several Supreme Court decisions involving railroad rates, and then the establishment of the Interstate Commerce Commission. The railroads practically begged to be regulated. At the last link, Sheldon Richmsn quotes historian Gabriel Kolko:
“The first regulatory effort, the Interstate Commerce Commission, had been cooperative and fruitful; indeed, the railroads themselves had been the leading advocates of extended federal regulation after 1887.”
The railroads wanted stability, of course, and less competition, and that’s what they got, though in the end they didn’t do themselves any favors. Here’s historian Clarence Carson on the ultimate result:
“Since the railroads could not effectively compete in so many ways, such opportunity for improving their situation as existed would usually be to combine roads covering the same general area so as to maintain some control over rates and get as much of the profitable business as possible within an area. This is what railroad financiers tended to do. The result, as far as the public was concerned, was a nonintegrated rail system, reduced competition, poorer service, and higher rates.”
Later, Woodrow Wilson and Franklin D. Roosevelt had strong roles in advancing the regulatory state. Wilson was smitten with the scientism inherent in centralized decision making and administrative expertise. He was also loath to concede his vision of administrative planning to democratic ideals. Justice Neil Gorsuch, in his concurrence on the EPA decision, offers some rather disturbing quotes from Wilson:
“Woodrow Wilson famously argued that ‘popular sovereignty’ ‘embarrasse[d]’ the Nation because it made it harder to achieve ‘executive expertness.’ The Study of Administration, 2 Pol. Sci. Q. 197, 207 (1887) (Administration). In Wilson’s eyes, the mass of the people were ‘selfish, ignorant, timid, stubborn, or foolish.’ Id., at 208. He expressed even greater disdain for particular groups, defending ‘[t]he white men of the South’ for ‘rid[ding] themselves, by fair means or foul, of the intolerable burden of governments sustained by the votes of ignorant [African-Americans].’ 9 W. Wilson, History of the American People 58 (1918). He likewise denounced immigrants ‘from the south of Italy and men of the meaner sort out of Hungary and Poland,’ who possessed ‘neither skill nor energy nor any initiative of quick intelligence.’ 5 id., at 212. To Wilson, our Republic ‘tr[ied] to do too much by vote.’ Administration 214.”
FDR’s New Deal was responsible for a huge expansion in the administrative apparatus, as this partial list of federal agencies created under his leadership indicates. Many of these agencies were subsequently ruled unconstitutional, but quite a few live on today with greatly expanded scope and presumed powers.
The Great Society policies of Lyndon B. Johnson also created new agencies and programs, with additional burdens on the ability of the private economy to function properly. Of course, the complexity of the administrative state has increased many-fold with more recent actions such as the Clean Air Act and the Affordable Care Act.
The agencies, despite any expertise they might have in-house, cannot create major rules and mandates without fairly specific statutory authorization. That is a constitutional imperative. It’s not quite clear, however, what test might distinguish a “major question” requiring enabling legislation from lesser matters. There is certainly some room for interpretation. According to Kevin O. Leske:
“Under the [major questions] doctrine, a court will not defer to an agency’s interpretation of a statutory provision in circumstances where the case involves an issue of deep economic or political significance or where the interpretive question could effectuate an enormous and transformative expansion of the agency’s regulatory authority.”
Unfortunately, this judicial deference to agency rule-making and interpretation led to further erosion of the separation of powers and due process rights. Vague legislation, aggressive special interests and rent seekers, and judicial deference have allowed agencies excessive latitude to interpret and stretch their mandates, to enforce expansive regulatory actions, and to adjudicate disputes with regulated entities in proceedings internal to the agencies themselves.
At issue in EPA v. West Virginia were the agency’s steps to radically transform the energy mix used in power generation, with potentially dramatic, negative impacts on the public. The Court said that won’t fly unless Congress gives the EPA more specific instructions along those lines. Agency expertise, by itself, is not enough to override the legitimate democratic interests of the public in such consequential matters.
But what about executive actions of the sort increasingly taken by presidents over the years? Why are those legal? Article Two of the Constitution grants discretion to the president for enforcement of laws and managing the executive branch. Furthermore, pieces of legislation can specifically grant discretionary power to the executive branch in particular areas. Nevertheless, it might be possible for even executive orders issued by the president to “go too far” in interpreting congressional intent. That is within the purview of courts in case of legal challenges.
Unaccountable Agency Power
So called “administrative expertise” was given some degree of deference by the Supreme Court as early as the 1930s. In 1947,the Court decided the application of such expertise should often take precedence over pre-established rules. There was also a recognition that legislators often lacked the expertise to formulate certain regulatory guidelines. The expanding scope and complexity of regulations gave rise to increasing legal disputes, however. This strained the judicial system for at least two reasons: the sheer limits of its capacity and the lack of technical expertise needed to settle many disputes. This ultimately led to the adjudication of many disputes within the agencies themselves. Agency tribunals of subject matter experts were formed to meet these growing demands. This was said to facilitate “cheap justice”, not to mention more rapid decisions. The passage of the Administrative Procedures Act in 1947 was a recognition that administrative law was necessary and required certain standards, though they differ from normal judicial standards, such as rules of evidence. This left very little to brake aggressive and extra-legal rule-making and enforcement by the agencies.
Another disturbing aspect of the growth in administrative power has been the advent of agencies said to be “independent” from the other branches of government, as if to intimate their existence as a fourth branch. As Francis Menton (the Manhattan Contrarian) says, agencies:
“… can create rules for your conduct free from the Congress, and … can prosecute you free from the President. In 1935, in a case called Humphrey’s Executor, the Supreme Court upheld the part of the FTC Act that made the Commissioners immune from discharge by the President other than in very limited circumstances. Humphrey’s Executor has not been overruled to this day.
The FTC was only the beginning of an explosion of creation of such ‘independent’ agencies and otherwise un-separated powers in the federal government. The Federal Reserve was created about the same time (actually 1913), and things really took off during Roosevelt’s New Deal, with agencies like the FCC, SEC, and NLRB.”
Later, the Supreme Court adopted a two-part test to determine whether courts may defer to administrative expertise in interpreting legislative intent, rather than substituting their own judgement or insisting on a clearer legislative mandate. This was the principle of so-called Chevron deference, named for the case Chevron v. Natural Resources Defense Council, in which the Court ruled for the EPA’s definition of a “stationary source” of pollution as “plantwide”. The test for Chevron deference was whether an agency’s rule was a “reasonable” statutory interpretation and whether Congress had not directly addressed the point in question.
Rolling It Back
Philip Hamburger, in his book “Is Administrative Law Unlawful?”, addressed the struggle between administrative power and “regular law” back to the days of “royal prerogative”. The advent of constitutional law was designed to prevent anything resembling the latter.
“… administrative law has returned American government and society to precisely the sort of consolidated or absolute power that the US Constitution―and constitutions in general―were designed to prevent.”
But now we have some very promising developments. Again, in the West Virginia case, the EPA’s authority to regulate carbon emissions in power generation has been denied by the Court, pending any future legislation that would specifically enable that authority. There was no mention of Chevron in this decision whatsoever! That’s a big win for constitutional principle. In another recent case before the Fifth Circuit Court in New Orleans, Jarkesy v. SEC, an administrative law judge (ALJ) at the SEC had assessed damages and fines against Jarkesy, but he challenged the SEC in court, as Menton describes:
“Jarkesy claimed that he was deprived of his Seventh Amendment right to have his case decided by a jury, and also that the SEC had unconstitutionally exercised legislative powers when deciding to try his case before an ALJ without having been given any guiding principles by Congress on how to make that decision. The Fifth Circuit ruled for Jarkesy on both points. This decision has the potential to force some significant changes on how the SEC does business. However, Mr. Jarkesy still does have to continue to run a gantlet that will likely include a request by the government for en banc review by the Fifth Circuit, and then a request for review by the Supreme Court.”
“… (1) the combining of powers into agencies that would enact, and also enforce, and also adjudicate regulations (directly contrary to the Constitution’s separation of powers into three branches of government); (2) agencies enacting regulations with the force of law on their own say so (contrary to the Constitution’s requirement that all laws be passed by both houses of Congress and presented to the President for signature); and (3) many agencies claiming to be “independent” of the President (contrary to the Constitution’s vesting all ‘ executive power’ in the President).
“Government by fiat of intellectuals or scientific experts may or may not be good policy. But it is alien to the U.S. Constitution, and it has nothing to do with democracy.”
One other critical point made by Charles Lipson is that the Court’s West Virginia decision, while sending an unmistakeable message to federal agencies, should also raise awareness in Congress that it is not enough to legislate vague statutes and rely on bureaucrats to make all the decisions about implementation. Instead, “major questions” must be dealt with legislatively and with full accountability to voters. Congress must address these issues, if not up-front, then whenever they arise as disputes in the courts or otherwise. Certainly, the West Virginia decision should make individuals or entities subject to regulatory action less likely to allow major questions to be settled by ALJ rulings within the agencies themselves. The Supreme Court has expressed a willingness for such cases to be reviewed in normal courts of law. That is a very positive development for liberty.
In advanced civilizations the period loosely called Alexandrian is usually associated with flexible morals, perfunctory religion, populist standards and cosmopolitan tastes, feminism, exotic cults, and the rapid turnover of high and low fads---in short, a falling away (which is all that decadence means) from the strictness of traditional rules, embodied in character and inforced from within. -- Jacques Barzun