The American Economy s1

Regulation and the Administrative State In discussing President Trump’s views on regulations and government, it useful to recount the story of Wollman Ice Skating Rink, a popular landmark in Central Park that had first opened in 1949. In 1980, the City of New York closed it for renovations, which were to be completed within two years at a cost of 9.1 million dollars. After six years, and 13.5 million dollars of spending, the rink was still not completed, and work had come to a standstill due to city mismanagement and labor disputes. At this point Donald Trump, who was then an NYC celebrity, but not yet a national one, offered to finish the job in 4 months for 2.5 million dollars, which would allow the rink to open that winter. Initially, the city refused, until Trump offered to pay for it himself, he they would let him run the rink and an adjacent restaurant to recoup his costs. The city agree to this, and Trump promptly tore up the cities ambitious but unworkable plans, brought in a Canadian company that specialized in this sort of thing, and finished the renovation. Under budget, and ahead of schedule. It also made Donald Trump, for the first time, a national celebrity. While Donald Trump is certainly not above using regulation to his advantage, his history has given him a great many opportunities to interact with government lawyers, bureaucrats, unions, etc. All indications are that his views of them range from indifference to contempt. It is also telling that he has run his own company in a distinctly unbureaucratic way. While his company, the Trump organization owns some 500 real estate or business ventures, most are independently run. Many other buildings and businesses rent Trump’s name, but are wholly owned and managed by outsiders. When trump purchases a building to renovate, the vast majority of the work is then done by outside contractors. And of the six key executives in the business below Trump, 3 are children of his. None of the above, in isolation, would suggest that Donald Trump will significantly change the composition or operation of the executive branch. And Donald Trump is not the first republican president to have run on a policy of deregulation. But he does seem committed to it, and he has come to office at a time when the concept of “the administrative state” and “administrative law” have become particularly important in republican circles. The modern administrative state in the U.S. really first became important during the progressive era, a bit under Teddy Roosevelt but much more importantly under Woodrow Wilson. In 1909 the sixteenth amendment was passed, which allowed the Federal Government to create an income tax, which over time vastly increased the amount of money it could take in. And the seventeenth amendment, passed in 1912, changed the election of members of the senate from the state legislatures – which jealously guarded the rights of the state – to the general population, who had no such bureaucratic interest. In Woodrow Wilson, elected president in 1912, America got its first president who was overtly hostile to the traditional constitutional order. Wilson believed that a parliamentary system such as Britain or Germany had would be better suited to the U.S., and he was against the separation of powers that informed the U.S. constitutional order. He believed in an activist, well meaning, scientifically (today we would say technocratic) executive branch that would embody the will of the people in a way that the legislative branch never could. This required both institutional changes and ideological justification. Ideologically, progressives were changing the character of U.S. academia. Economics in the U.S. had always been less laisse-faire than in Britain, due to the influence of the

of 4 D:\Docs\2018-05-01\09ec62c9c14e0a8943d07c3b0ccedb9f.doc German historic school and some native U.S. trends, but from the 1910s through the 1960s it trended further left. In economics, Keynes and Keynesianism swept all other schools before it, the (apparent) victory of Lerner and Lange over Mises and Hayek in the socialist calculation debate, the (again, apparent) superior performance of both the fascist and soviet economies during the great depression all bolstered that view that a scientific bureaucracy could outperform markets. By the early 1960s, outside of the University of Chicago and a few other locations, the consensus view of economists was that communism was a different, but viable, economic system, and many thought it was a superior one. It is telling that Paul Samuelson’s incredibly influential textbook stated that the Soviet Union had about half the per capita GDP as the U.S., but it would overtake it at some point in the next 20 or so years. Starting in 1961, every edition of his textbook said that, right up until the Soviet Union collapsed.

A similar left-wing transformation was occurring in U.S. Legal theory. The U.S. legal code is based on two pillars, the U.S. constitution, which aside from setting up the form of the government, also severally restricts the scope of government. It is also based on the English common law tradition, a tradition that again is biased very strongly towards individual negative rights, as opposed to any positive group rights. In response, progressive legal theorists developed the concept of a “living constitution”. In this formulation, judges can interpret the constitution in ways differently than in the past, based on evolving societal norms. To give an example, for most of U.S. history the death penalty was legal. Than in 1972, the court struck down the death penalty, citing the 8th amendment prohibition against “cruel and unusual punishment”, even though the people who wrote the constitution clearly did not mean for it to preclude executions. But since societies standards had changed, it was now illegal.

The decisive moment in the creation of the administrative state was undoubtable the great depression, and the election of Franklin D. Roosevelt. FDR had a very expansive view of the state, he was (early on) an admirer of Fascism, and he had an economic crises to attend to. Once in office, he began to create all sorts of new agencies to manage the economy, they became known as the New Deal Agenecies”, or to critics, the alphabet agencies. Many of these agencies were directly created by congress, but many more of them were the result of the “National Industrial Recovery Act”, which allowed FDR to spend 3.3 billion essentially as he saw fit, without serious congressional oversight. FDR responded by creating all kinds of regulatory agencies, to set prices, limit competition, raise wages, etc. When the supreme court, in a unanimous decision, found the law to be unconstitutional, Roosevelt went about maintaining or recreating the agencies in different ways, which culminated in FDR’s attempt to pack the court, by increasing the number of justices from 9 to 18, where he would appoint the nine new members. The courts none-the less got the message, and legal resistance to the new deal collapsed.

For the next 30 years, the trends in the U.S. government was always towards more of it. WWII introduced rationing, price controls, administratively set production targets, and all kinds of regulations related to war-time production. While many of these polices were eliminated after the war, not all were, the ratchet effect had begun. This all culminated in a second great expansion of government, Lyndon B. Johnson’s Great Society, which again expanded the scope of government, and the size of the bureaucracy.

of 4 D:\Docs\2018-05-01\09ec62c9c14e0a8943d07c3b0ccedb9f.doc The courts have, since end of the new deal, showed a great deal of deference to the administrative agencies. The agencies in turn have developed their own internal court systems. Called administrative courts, these courts are internal to the agency, and serve as arbiters of justice within the agencies, and between the agencies and the other entities that the agency interacts with. As an example, consider Social Security disability eligibility. A person who seeks social security disability benefits will fill out various forms, often with help of a doctor and/or lawyer, and apply to the Social Security Administration (SSA) which will then determine the applicant’s eligibility in the program. If the application is denied, the applicant then has a right for reconsideration, in which case a different case worker will process their application, to see if they come up with a different ruling. If that fails, you can file for an appeal, which will be before an administrative law judge within 75 miles of where you live, and if he denies the appeal you can then appeal that to the appeals council, which can either deny your request, send it back to the administrative judge who originally heard it for further action, or it can decide your case itself. If, after all this, you still think that you are being denied benefits you deserve, you may then appeal this to a federal court.

The above system sounds like the court system of the U.S. but in certain very important respects, it is not. First of all, the system serves to keep a great many cases out of the federal court system, since it imposes considerable burdens upon the private litigants who are appealing the bureaucracy’s decision, while the bureaucrats are spending tax-payer money, and are often willing to spend as much of it as needed. Secondly, once a case has made its way through the administrative court, a long paper trail has been created, and who is more likely to know what that trail should say, the bureaucracy, or the private litigant? Once this trail has been created, federal judges as a practical matter are reluctant to go against the administrative courts decision, since doing so would in effect mean federal judges are now running the bureaucracies. Thirdly, the administrative judges are NOT independent of the agencies, they are employees of it. No matter how fair, even handed or just they may be, they share the assumptions and culture of the agency for which they work. And fourthly, there has been a shift in the evidentiary burden. The presumption is that the bureaucracy made the correct decision, it is up to the person appealing the decision to prove their case. In other words, the presumption of innocence has been shifted from the individual to the state.

The interaction of all these factors has over time created perverse results, but often in surprising ways. Again continuing with the example of Social Security Disabilities, in the last thirty years the U.S. economy has switched from blue collar farming and manufacturing jobs to much less physically taxing jobs in the service sector or in offices. In that same time, there have been substantial improvements in medical technology and treatments. The U.S. congress has not made any substantive legislative changes to the SSA disability program in that time, which would lead one to think that the number of people eligible for disability benefits would have gone down. They instead have gone up fourfold on a per capita basis.

The above is an example of individual rights (privileges) being expanded, or an agency being exploited, though taxpayers of course are now on the hook for the expanded program. But it can work in reverse as well. The Federal Government has long superceded the states when talking about the “navigable waters of the United

of 4 D:\Docs\2018-05-01\09ec62c9c14e0a8943d07c3b0ccedb9f.doc States”, since it was recognized that waterways were vital to national commerce, and could be subject to a great deal of friction between the states when such water crossed state boundaries, as almost all rivers do. The question of what constituted a “navigable water”, as opposed to local water which was still under state control, was established by the courts fairly early on, a navigable water was one that you could use a boat on, though recent court rulings have somewhat expanded this definition, now if a single person in a canoe can use it, it is under federal jurisdiction.

All of the above long predate the Clean Waters Act of 1972, which rewrote a great deal of part of a , which empowered the Environmental Protection Agency (EPA) to regulate pollution discharges into the “navigable waters of the United States”.

In xxxx, the EPA reinterpreted the legislation to also allow it to regulate temporary waterways as well, which included any seasonal or occasional waterway that connected to a navigable one. Since 60% of U.S. streams are such, this vastly expanded the waters which the EPA argued it could regulate. Furthermore, any low point on land, where water would accumulate after a rain (in common English, low spots or “puddles”) was now also subject to EPA jurisdiction, though the EPA would decide which ones were important enough on a case by case basis. which could none-the-less run off into navigable rivers.

“the consensus but it was true elsewhere in accedemia as well. The most important trend outside of economics for discussing the economic impact of Trump, was in U.S. legal theory, where progressives proposed a

Donald trumps cabinet selections, and steve bannon

Donald trump and NYC politics

The EPA, The Department of Education, Justice, hairdressers.

The origins of the administrative state. FDR, Johnson, Nixon, Reagan, etc.

The metastasizing of the administrative state under Barack Obama.

Opportunities for tax reform.

Stimulus

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