OPINION: Regulation Has Been Draining National Economy Since New Deal’s Enactment

(The Philadelphia Inquirer/MCT) -

The progressive constitutional revolution of the New Deal has proved itself to be an economic, political and institutional failure insofar as it is no longer able to sustain either strong economic growth or full employment. Paradoxically, the way out from the current malaise requires a return to the fundamental principles of our constitutional framers on two key topics: federalism and individual rights.

The traditional form of federalism worked hard to preserve strong domains for the exclusive state regulation of local activities, such as agriculture and manufacturing, even knowing that they influenced the type and prices of goods and services that routinely found their way into interstate commerce. Competition among state regulators was prized as an effective check on state power. In contrast, the defenders of modern federalism claim that an integrated and complex economy requires a hands-on federal government to coordinate all productive activities across state boundaries. National problems, like health care, we are told, require national solutions.

Not so.

No one doubts that national power is essential to organize national defense and to keep open the lines of transportation and communication that knit a nation together. But those objectives were fully obtainable under the original constitutional design that allowed Congress to regulate commerce among the several states. Ironically, even then, the Congress did relatively little to maintain open national markets. It fell to the courts, using their powers under the “dormant commerce clause,” to strike down state regulation that threatened to Balkanize the nation. By keeping state protectionism in check, the courts created an internal common market that unleashed productive competitive forces at a national level.

The New Deal changed that balance for the worse, as an alphabet soup of “progressive” agencies engaged in direct regulation of the national economy, previously disallowed under the old federalism. That massive regulation has in recent years sucked the life out of the economy in the mistaken belief that creating and protecting national cartels in labor, agriculture, manufacturing and transportation could pull the United States out of its depression.

But the Great Depression was largely attributable to a mix of bad monetary and trade policies, whose blunders were only compounded by the cartel proliferation. Unfortunately, those dislocations have spiked anew with the recent round of new federal laws, agency regulations and executive actions, thereby magnifying the flaws in the basic New Deal constitutional design, and stifling economic recovery up to the onset of the Second World War.

The classical liberal response to economic distress moves in the opposite direction. By lowering barriers to competition, it increases social output and reduces government spending. It limits government activities to those tasks that only it can perform well, such as national defense, internal security, interstate infrastructure, free trade, and the creation and protection of intellectual and property rights. Unfortunately, the needed restriction on the scope of federal function cannot be sustained solely by ordinary political forces. As James Madison warned, dangerous political factions always seek special advantages — monopolies and subsidies — for themselves at the expense of overall social welfare. Congress has no inclination or ability to limit voluntarily the scope and use of its own powers.

Factions also pose risks to the field of individual rights. The progressive approach rightly gives protection to rights of free speech and the exercise of religion, and it is alert against the risks that political factions pose to racial minorities. But in line with the New Deal’s unfounded distrust of market institutions, it uses massive federal and state power to constrain both economic liberties in the marketplace and the ability to use, develop and sell land and other forms of property.

The growth has been counterproductive. Historically, the common-law system was adept at drawing the proper lines. It allowed for both lawsuits and environmental regulation to guard against ordinary nuisances, but also was deeply suspicious of minimum wage, overtime, mandatory collective bargaining, family leave and other labor-market regulations that upended sensible voluntary transactions. It also was deeply worried that zoning, rent-control and affordable-housing rules would shrink the supply of new housing, while protecting the comfortable positions of the current incumbents. The classical liberal constitution renders property rights secure against expropriation (for which just compensation is required), but resists the same powerful anticompetitive forces, so powerful under the new federalism that work even within the more limited scope of state and federal power.

My views differ sharply from many judges and scholars in the constitutional mainstream. I am not a naïve originalist, but I do believe that the principles of the classical liberal constitution travel well over both time and space. Sadly, the case for their reintroduction into American life has been strengthened by the sputtering economic performance of the past decade, which lays bare the fundamental weakness of the progressive movement — its insatiable desire for a bewildering array of expensive and counterproductive forms of economic regulation that threaten the long-term health of our nation.