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.

Major Questions

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.”

Conclusion

Here is a nice summary of the constitutional issues from an earlier post by Menton:

“… (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).

This is echoed by Jonathan Tobin, who says:

“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.