In the early days of the Trump administration, then White House senior advisor Steve Bannon laid out his three priorities. The first was “national security and sovereignty.” The second: “economic nationalism.” The third was “the deconstruction of the administrative state.”1 For many journalists and casual political observers, this third item was a head scratcher. But for intellectual conservatives, it was cause for celebration.2
Sometimes called the regulatory state or the fourth branch of government, the administrative state is today a vast complex of bureaucrats and regulators—and the rules they work by—outside the constitutional order. They make “rulings,” often without the slightest feedback from voters or even elected officials. (When rule making does include a “public comment” period, it is often more ceremonial than democratic.) And regulators’ success has been so complete that elected officials have been willing accomplices in this travesty. Congress, as an institution, abdicated its sole responsibility to legislate, the courts have abandoned their obligation to safeguard the separation of powers, and presidents of both parties have proved unable or unwilling to curtail the bureaucracy.
For the most part, Congress no longer makes laws the way the Founders intended. They outsource the heavy lifting to the bureaucracy. This was already true when James Burnham published The Managerial Revolution, one of the first seminal works on the subject, in 1941. “Laws today in the United States, in fact most laws, are not being made any longer by Congress,” Burnham wrote, “but by the NLRB, SEC, ICC, AAA, TVA, FTC, FCC, the Office of Production Management (what a revealing title!), and the other leading ‘executive agencies.’ How well lawyers know this to be the case!”3
Consider the Affordable Care Act, or “Obamacare.” Journalist Phillip Klein dived into the fine print and found that
there are more than 2,500 references to the secretary of [Health and Human Services] in the health care law (in most cases she’s simply mentioned as “the Secretary”). A further breakdown finds that there are more than 700 instances in which the Secretary is instructed that she “shall” do something, and more than 200 cases in which she “may” take some form of regulatory action if she chooses. On 139 occasions, the law mentions decisions that the “Secretary determines.” At times, the frequency of these mentions reaches comic heights. For instance, one section of the law reads: “Each person to whom the Secretary provided information under subsection (d) shall report to the Secretary in such manner as the Secretary determines appropriate.”4
It is impossible to quantify the discretion—i.e., arbitrary power—Congress bestowed on the HHS secretary. “Either the new powers and responsibilities given to the Secretary are too complicated for even HHS to figure out,” Klein writes, “or they’re so arbitrary that [then HHS secretary Kathleen] Sebelius can pick and choose how she’ll comply with parts of the law.”5
But this merely scratches the surface of the administrative state. Whole agencies are independent of political control—which is very different from saying they are independent from politics. Consider just one example. According to the Constitution, only Congress can levy a tax. This is not some mere procedural nicety. It is concrete expression of the Founders’ core conviction that taxation must be legitimized by representation. That, after all, was the crux of their argument with King George. And that is why Article I of the Constitution requires that “all Bills for raising Revenue shall originate in the House of Representatives,” a.k.a. “the people’s chamber.”
But Congress has grown comfortable relinquishing this power. In 1996 the Federal Communications Commission was granted the authority to raise taxes as it sees fit. The Universal Service Fund started as a tax on long-distance phone calls. Originally set at 3 percent, within a decade the “fee” reached 11 percent, all absent congressional approval.6 (During the Obama administration, the FCC moved toward imposing a similar tax on broadband Internet services, in part because revenue had fallen off due to people abandoning landlines.)7 The revenues ostensibly go to pay for expanding access to the Internet in rural areas and providing computers for poor schools and libraries. But there have also been numerous scandals in which the monies were poorly spent, misallocated, and sluiced to politically connected players.8 As we’ll see, this should be expected.
In 2002, under the Sarbanes-Oxley Act, the Public Company Accounting Oversight Board was given the power to fund itself with taxes on publicly traded companies as it sees fit. “The Board sets its budget for the year,” writes economist Christopher DeMuth, “…divides that amount by the number of U.S. companies weighted by their market capitalizations, and sends each company a bill.” In 2004, the budget was $103 million. In 2005, the Accounting Oversight Board unilaterally increased its budget by 33 percent to $137 million.9 Since then, the budget has nearly doubled, to $268 million as of 2017.10 In fairness, the Securities and Exchange Commission must approve the board’s budgets, but a close reading of the Constitution reveals that “the SEC” is not a nickname for Congress. The power of the purse is the essence of Congress’s power and authority, and its members voluntarily abdicated it.
The term “fourth branch of government” is far too pallid a descriptor of what more properly should be called a shadow government, a state within the state, or imperium in imperio. There is nothing intrinsically sinister in the idea of a fourth branch of government. The Founders could have divided the federal government’s power four ways instead of three if they had wanted to. So long as the doctrine of separated powers was maintained, who would care?
The administrative state is no fourth branch of government. It is a parallel government, operating in the shadows, outside the light of democratic transparency. The best indicator of this stems from the fact that members of the administrative state are not subject to the same system of justice as the rest of us. Charles Murray describes this system well:
If you are prosecuted for violating a regulation issued by the EPA, OSHA, HHS, Department of Energy, or any of the myriad other federal regulatory agencies, you appear before an administrative law judge (ALJ) sitting in an administrative law courtroom. An ALJ is selected by the agency whose cases he will hear, and is subsequently an employee of that agency. The agency gets to choose its preferred candidate from among the three top-rated candidates identified by the Office of Personnel Management. An administrative law judge is exempt from performance reviews and other oversight by the regulatory agency, but may be overruled by the head of the agency.
There’s no jury. When appearing in an administrative court, you do not get a lawyer unless you pay for it. Most rules of evidence used in normal courts do not apply. The legal burden of proof placed on the lawyer making the case for the regulatory agency is “a preponderance of the evidence,” not “clear and convincing evidence,” let alone “evidence beyond a reasonable doubt” that you are guilty. If the administrative judge thinks that it’s a 51/49 percent call in favor of the regulatory agency that accused you, you’re found guilty. If the administrative court judge’s decision is adverse, you may, in most cases, appeal that decision to another body within the agency.11
Although it is necessary to describe the administrative state, my deeper aim here is to explain how this sorry state of affairs is an example of the corruption of the Founders’ project.
The Constitution is indisputably clear. At the federal level, only Congress can legislate. The executive branch executes the law—hence the word “executive.” As John Adams said, the president enjoys “the whole executive power, after divesting it of those badges of domination called prerogatives.”12 Defenders of the administrative state today use the same arguments the progressives used: Such unaccountable power is simply the very definition of good, “modern,” governance. The truth, however, is that it is a throwback to pre-modern forms of state power.
The best authority on this subject is the prominent legal historian Philip Hamburger, a professor at Columbia University. In his seminal book Is Administrative Law Unlawful?, Hamburger demonstrates that the rise of the administrative state is a reactionary effort to restore the lawlessness of arbitrary power banished by the Founders. Hamburger uses the term “absolute power” much the way I’ve been using “concentrated power” or “arbitrary power.” For our purposes, it is a distinction without a difference in that we both mean the wielding of power without lawful checks or popular consent. I prefer “arbitrary power” because it is more suggestive of the human whim behind it. But Hamburger is arguing in the context of a legal tradition that associated the term “absolute power” with prerogative power of kings.
Hamburger offers three reasons why administrative law is unconstitutional. “First, like the old absolute power, administrative power runs outside the law” because it is not directly answerable to, or derived from, constitutional legislative or judicial authority.13 Second, administrative law “is not only extralegal but also supralegal.” “Supralegal” is a fancy way of saying “above the law.” The administrative state is precisely that because judges defer to its authority. In feudal monarchies, the king or queen’s rule is above the common law, in effect creating two systems of justice, one for the people and another for the state. That is the arrangement we have under the administrative state. And third: “The administrative regime consolidates in one branch of government the powers that the Constitution allocates to different branches.”14 This blatantly violates the Madisonian architecture of our republic. As Madison says in Federalist No. 47: “The accumulation of all powers legislative, executive and judiciary in the same hands…may justly be pronounced the very definition of tyranny.”15
Clarence Thomas, one of the few Supreme Court justices to see this abomination for what it is, has chastised the courts for having “overseen and sanctioned the growth of an administrative system that concentrates the power to make laws and the power to enforce them in the hands of a vast and unaccountable administrative apparatus that finds no comfortable home in our constitutional structure.”16
The legal origins of the administrative state in America are somewhat disputed by legal scholars, though the conventional explanation is that it began with the Interstate Commerce Commission in 1887 and was then massively expanded first under Wilson and later under the New Deal and the Great Society. But that misses the point. “The history of administrative law,” Hamburger writes, “…reaches back many centuries. Indeed, this sort of power, which is said to be uniquely modern, is really just the most recent manifestation of a recurring problem [emphasis mine]. It thus is not a coincidence that administrative law looks remarkably similar to the sort of governance that thrived long ago in medieval and early modern England under the name of the ‘prerogative.’ In fact, the executive’s administrative power revives many details of king’s old prerogative power. Administrative law thus turns out to be not a uniquely modern response to modern circumstances, but the most recent expression of an old and worrisome development. Although the label ‘administrative’ is more comforting than the old term ‘prerogative,’ the danger is no less acute.”17
In the Anglo-American tradition, government officials are supposed to be subject to the same laws as everyone else. But not under the administrative state, which insulates the bureaucrats from the rule of law. If a corporation were found responsible for poisoning a river, not only would the corporation be subject to civil and criminal penalties, but so would—at least in certain cases—the corporate officials responsible. Not so when the EPA did exactly that in 2015 when it accidentally dumped one million tons of toxic waste into the Animas River in Colorado.18
One argument that is often made in defense of the permanent bureaucracy in Washington is that it is “virtually” representative in some way. One version of this argument says that because the president is elected, his appointments have democratic legitimacy. And it is true that presidents typically appoint some 4,000 agency heads, commissioners, and the like. That alone should give one pause. We do not have a parliamentary system, and appointing thousands of commissars is a sorry substitute for one. The president, as Hamburger notes, is not a representative body, like Congress or the British Parliament. He is an executive charged with executing laws, not making them.
More to the point, the vast majority of the people who make law through administrative rulings are not picked by a president or any other elected politician. “Far from being elected by the people, let alone elected politicians, they are appointed by other administrators,” Hamburger writes. “Their authority thus is not even virtually representative, but is merely that of a self-perpetuating bureaucratic class. Accordingly, the suggestion that their lawmaking comes with virtual representation is illusory.”19 Indeed, the idea that the state is an entity unto itself charged with advancing the wheel of progress isn’t merely undemocratic; it is a form of mysticism.
Hamburger comes from a different direction, but as the passage above suggests, he comes to a familiar place for the reader who has been paying attention. The regulatory state represents the elevation of a new class, an aristocracy, of men and women who are above the law. This was the original intent of the progressives who set up the administrative state.
Without checks on the power of the shadow government, the shadow government has, predictably, grown in power, scope, and size. It shouldn’t be necessary to document what must be apparent to the average citizen. Still: In 1960 the Code of Federal Regulations had 22,877 pages. It held relatively steady until 1963, the eve of the Great Society. Then, through the end of Lyndon Johnson’s term, the code increased by an average of 5,537 pages per year.20 In 2012 there were 174,545 pages.21
I could go on describing the byzantine bureaucracies within bureaucracies within bureaucracies that spider-web across the nation. But, again, no one disputes the growth in the size of the bureaucracy because it is indisputable. The point here is to see it for what it is, shorn of modern labels. It is a class, an aristocracy, a virtual tribe, that protects its parasitic interests. “Parasitic” is a loaded word, of course, but an appropriate one. One can even stipulate that the permanent bureaucracy does many good things. Our bodies are full of beneficial parasites we literally could not live without. But that doesn’t change the fact that the parasites pursue their ends not out of altruism but out of self-interest.
One can also concede that various civil service reforms in the nineteenth and twentieth centuries addressed some of the very real problems with graft in American government by awarding government jobs based on merit instead of political contacts. But, by doing so, they basically enshrined a kind of gnostic moat around government. The bureaucracy behaved like a guild, rigging not just the rules for entry but for, in effect, lifetime tenure in their favor. As Hamburger puts it, “Civil service reform ensured that only the right sort of persons would be allowed into government, and it simultaneously secured them against being removed by those who were politically accountable to the people.”22 The progressives’ ambitions were much greater than simply sweeping the broom of reform. And by protecting the civil service from the meddling of corrupt politicians, in theory progressives also protected them from honest and responsive politicians who want to make the government accountable.
Moreover, it is simply a fantasy that the administrative priesthood can be walled off from the seductions of human nature. The Turks and Chinese castrated their civil servants and still couldn’t accomplish that. By comparison, a generous salary and a nice pension seem wholly inadequate to the task. No doubt, vast numbers of bureaucrats are decent and committed professionals. But the long history of humanity teaches us that any group of people walled off from accountability can become corrupted.23 The scandals at the Department of Veterans Affairs are sufficient proof of that. You can falsify records and kill patients through bureaucratic subterfuge without getting fired, but if you call attention to such atrocities, that will get you terminated. “Our concern is really about the pattern that we’re seeing, where whistleblowers who disclose wrongdoing are facing trumped-up punishment, but the employees who put veterans’ health at risk are going unpunished,” Carolyn Lerner of the U.S. Office of Special Counsel explained.24
Whether it was the goal or just the unintended consequence of progressives’ actions, the result has been to create a new class of social engineers. The permanent bureaucracy is in reality a kind of permanent legislative, executive, and judicial branch, immune from the priorities of the people it allegedly serves. As John Locke noted, “Where the Legislative is in one lasting assembly always in being” there is always the threat that “they will think themselves to have a distinct interest, from the rest of the Community.” While Locke acknowledged that the class interests of permanent legislatures could lead them to seek “to increase their own riches and power,”25 his chief concern was that they would come to place their own interests and priorities over those of the people.
This is no small concern. Government officials are the only citizens—and they are citizens, not feudal lords—who are allowed by law to use violence for reasons other than self-defense. In this, a flunky from the IRS or the EPA is vastly more powerful than the Koch brothers. “The power which a multiple millionaire, who may be my neighbour and perhaps my employer, has over me is very much less than that which the smallest functionaire possesses who wields the coercive power of the state, and on whose discretion it depends whether and how I am to be allowed to live or to work,” Friedrich Hayek observed.26
The bureaucratic wing of the new class has other special rights and privileges as well. For starters, its members are virtually unfireable. “Death—rather than poor performance, misconduct or layoffs—is the primary threat to job security at the Environmental Protection Agency, the Small Business Administration, the Department of Housing and Urban Development, the Office of Management and Budget and a dozen other federal operations,” a study by USA Today found. In 2010, the 168,000 federal workers in Washington, D.C.—who are quite well compensated—had a job security rate of 99.74 percent. A HUD spokesman told USA Today that “his department’s low dismissal rate—providing a 99.85 percent job security rate for employees—shows a skilled and committed workforce.”27
Not to overly strain the analogy, but if the bureaucrats are a priesthood, the public sector unions are its Jesuits. Unions by their nature are first and foremost concerned with their own members’ interests. Private sector unions often do not put the consumer’s, never mind the employer’s, well-being above their own, and public sector workers do not put the citizenry’s interests first either. Many individual members of teachers’ unions no doubt care about the plight of students, but there is remarkably little empirical evidence that they, institutionally, put the interests of children ahead of their own.
I’ve tried to avoid making explicitly partisan arguments, but attention must be paid to the insidious and incestuous relationship between the Democratic Party and government unions. It is no accident that the National Treasury Employees Union, which represents the IRS, gave about 96 percent of its political donations during the 2016 election cycle to Democratic candidates.28 In 2016, the American Federation of Government Employees contributed about 93 percent of its political donations to Democratic candidates.29 It is fine to argue that the wealthy support the Republican Party out of economic self-interest—even if the evidence for this is disputable—but is it really so ridiculous to imagine that a class of workers might be seduced by the same impulses? The new class is economically, ideologically, and psychologically invested in the primacy of government. It should not surprise us that its members would seek to protect that investment by supporting the party of government, particularly the shadow government.
Milovan Djilas, writing about the new class in communist countries, observed that “this new class, the bureaucracy, did not come to power to complete a new economic order but to establish its own and, in so doing, to establish its power over society.”30 There are obvious differences between the new class of, say, the Soviet Union and the United States of America. But beneath the ideological and culture distinctions, no matter how important, lies the unchanging fact of human nature. There is no limiting principle inherent to the idea that a caste of experts should be empowered to do whatever they think is right. The one idea even the most pragmatic bureaucrat will never contemplate is the suggestion that maybe we would be better off if he did not have a job anymore.
One more point must be made, or remade but emphasized. In its best and most sincere form, the argument for a “disinterested” permanent bureaucracy walled off from elected politicians hinges upon the claim that this is the only way to advance the public interest against private interests. The problem with this claim is that it is patently false on its face.
The branch of economics called “public choice” has demonstrated at length that in a system in which you have concentrated benefits and dispersed costs, a small number of agents with a lot to gain often, maybe even routinely, overpower the interests of the majority.31 Democracies naturally tend to give special benefits to certain groups or constituencies. The groups care a great deal about these benefits, but the general public does not. The beneficiaries come to expect and depend on these “rents” and will fight with a passion to keep them, but there are few constituencies nearly as committed to getting rid of them. Over time, the special interests proliferate. The more they proliferate, the more the government sector grows but also becomes a kind of virtual tragedy of the commons, as it becomes clear to all others that they, too, must press for their own special benefits. (This is one reason for the incredible explosion of lobbying over the last forty years.)32 Eventually, more and more of the government becomes dedicated to servicing special interests, and the ability of the government to deal with new or simply more pressing challenges narrows. Rather, the government gets better and more efficient at servicing the needs of clients while becoming clumsy and unresponsive to more important public problems. In short, the government becomes “sclerotic,” hence the “sclerosis” in “Demosclerosis,” a term coined by Jonathan Rauch in his 1994 book by the same name. Rauch defined “demosclerosis” as “government’s progressive loss of the ability to adapt.” This process has been identified in virtually every advanced democratic country.
The favor seekers “are acting not out of greed or depravity,” Rauch writes, “but out of the impulse to survive in the world as they find it. Good intentions, or at least honest intentions, breed collective ruin.”33 Responding to complaints from lawmakers that so many businessmen and politicians were lobbying the Federal Communications Commission, the economist Ronald Coase replied, “That this should be happening is hardly surprising.” He added that “when rights, worth millions of dollars, are awarded to one businessman and denied to others, it is no wonder if some applicants become overanxious and attempt to use whatever influence they have (political and otherwise), particularly as they can never be sure what pressure the other applicants may be exerting.”34
One of the most famous examples is the mohair subsidy. Virtually nobody benefits from the mohair subsidy—implemented over sixty years ago—save producers of mohair, and yet it survives. It survives because the mohair lobby cares only about one thing, while the public cares about many, much more important things.
In fairness, the mohair subsidy—like the sugar subsidy and countless others—is primarily an indictment of Congress. But at least Congress is elected. The bureaucracy, which on its own terms is supposed to be walled off from special interests, is even more susceptible to special pleading, precisely because it is shielded from voters. A congressman who relentlessly provides earmarks or other favors for donors can be booted from office. But what of a bureaucrat?
Yes, a government official who takes a bribe can be fired, and it even occasionally happens. But that kind of corruption is trivial. The real corruption, the corruption that more directly stems from human nature, is when the regulator becomes so parasitically connected to that which he regulates that he cannot break the connection. Most public choice economists tend to call this “regulatory capture.” There are many different kinds of regulatory capture, and it goes by many different names in the fields of economics and political science. The late, great political scientist James Q. Wilson, who preferred the term “client politics,” argued in Bureaucracy: What Government Agencies Do and Why They Do It that it “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).”35
I have no objection to the term “regulatory capture,” but I think the term “guild economics” is the most apt to highlight the true nature of what most concerns me. In medieval economies, as we’ve seen, political and economic interests were invested in existing economic arrangements. Innovation was an enemy because it unsettled not just the economic order but the social order as well. The key instrument undergirding guild economics was the granting of special rights or privileges by the crown. Now, as then, these grants often go by the term “license.”
Rulers, in Europe, Asia, and the Middle East, granted licenses to virtually every kind of manufacture, trade, and craft. It was one of the king’s (and queen’s, emperor’s, czar’s, sultan’s…) many prerogative powers. Sometimes these licenses were as much cultural or even theological. “Licensure is a special case of a much more general and exceedingly widespread phenomenon, namely, edicts that individuals may not engage in particular economic activities except under conditions laid down by a constituted authority of the state,” writes Milton Friedman. “Medieval guilds were a particular example of an explicit system for specifying which individuals should be permitted to follow particular pursuits. The Indian caste system is another example. To a considerable extent in the caste system, to a lesser extent in the guilds, the restrictions were enforced by general social customs rather than explicitly by government.”36
In Europe, guilds formed around these rights and privileges, and entrepreneurs could face a wide range of punishments, including death, for violating them. Guilds and the ruling nobility both benefited from this system and worked together for its perpetuation. The growth of “modern” commercial baking and ale brewing in England led to the ale and bread “assizes”: statutes and roving courts assigned with enforcing them. From a progressive perspective, this was the beginning of the noble government tradition of assuring minimal safety and quality standards for food.
But as medieval historian James Davis shows, they were in reality a “de facto licensing system. In effect, the lords or corporations were exacting a percentage of the traders’ profits.” Many saw this as a “customary right,” or what the Mafia would call “a piece of the action.” The thirteenth-century “Seneschaucy”—office of the steward—advised that “without warrant from the lord no baking or brewing ought to take place on any manor,” and in many places, particularly in the thirteenth and fourteenth centuries, lords explicitly gave actual licenses or imposed tolls for brewing.37
“During the fourteenth and fifteenth centuries in Germany even the urban poets of each little town were organized into guilds,” notes Deirdre McCloskey. “Even in Scotland the corporation of Glasgow, to avoid competition, denied a young James Watt license to set up a workshop—he was driven, happily, to apply to the university, and there invented the separate condenser.
“Without permission from the guild you could not innovate in producing cloth and were unlikely to evade the monopoly unless you could set up your factory, as in England, out in the countryside,” she continues. “If you wish nowadays to set up a new pharmacy in Holland you must apply to a town committee—composed of other, local pharmacists. Guess how many pharmacies there are in Holland.”38
This is the purest form of regulatory capture and guild economics: when the members of the industry themselves become the regulator. Such systems are ubiquitous and continuous from at least the thirteenth century straight through to today. The acclaimed legal scholar Walter Gellhorn pioneered the study of occupational licensing in his book Individual Freedom and Governmental Restraints. “Seventy-five per cent of the occupational licensing boards at work in this country today are composed exclusively of licensed practitioners in the respective occupations,” he wrote…in 1956.39
The problem has only gotten worse in recent years. In the 1950s, less than 5 percent of workers were required to obtain official permission from the government, i.e., a license, to work. Today, 29 percent of U.S. workers need a license to earn a paycheck in their desired fields.40 A government study conducted by the Obama administration found that the surge in occupational licensing “has been one of the more important economic trends of the past few decades. Today, one-quarter of U.S. workers must have a State license to do their jobs, a five-fold increase since the 1950s. Including Federal and local licenses, an even higher share of the workforce now has a license.” To the administration’s credit, it concluded that “by making it harder to enter a profession, licensing can reduce employment opportunities, lower wages for excluded workers, and increase costs for consumers.”41
The perniciousness of occupational licensing is most acute in its capacity to keep millions of low-skilled, entry-level, and uneducated workers from entering the workforce. The Institute for Justice has been a heroic champion documenting and fighting this trend. Perhaps the most notorious example it has cast a light on is professional hair braiding for black women. Natural hair braiding requires no special chemicals, no scissors, heat, or any dangerous equipment of any kind. It is a skill that is traditionally passed from mothers to daughters. And yet thirteen states still require a cosmetology license to sell the service. Such a license takes up to 2,100 hours in “coursework” and up to $20,000 dollars in fees. Fourteen other states require a somewhat less onerous license for hair braiding.42
But this is just the tip of the iceberg. The Institute for Justice has a massive database of low-income professions that have set up guild protections barring carpenters, barbers, manicurists, makeup artists, milk samplers, fishers, fire-alarm installers, and many other professions that historically reward a good work ethic and provide a path to a middle-class life for low-income workers.43 One needn’t be a libertarian purist on the subject to nonetheless be outraged by the general trend. Perhaps it is necessary for exterminators to have some state-sanctioned training, but do they really need four years of education (or two years working under another licensee), as required by the state of Tennessee?44
Contrary to the misperceptions of some, most businesses do not see it as in their interest to do bad work. An employer wants skilled employees and in most cases can be trusted to train them as required. Employers understand the importance of word-of-mouth referrals and professional reputation better than most. McDonald’s trains inexperienced workers to handle food for millions of customers. Do we really believe that the safety of Big Macs would be dramatically improved by requiring teenagers to take a state-mandated course? Moreover, thanks to the advent of Internet rating systems—Yelp, Google, etc.—not to mention the ubiquity of informal reviews on social media—Facebook, Twitter, etc.—it is easier than ever for consumers to hold businesses accountable.
An industry that depends on the good graces—i.e., the concentrated benefits—of a regulatory agency will inevitably and unavoidably commit itself to parasitically attaching itself to that agency. The guilds supported the king because the king supported them. It can also work the other way around. “A regulatory apparatus is a parasite that can grow larger than its host industry and become in turn a host itself, with the industry reduced to parasitism, dependent on the subsidies and protections of the very government body that initially sapped its strength,” George Gilder observed.45
Consider the taxi industry. In New York City, the taxicab business was hugely profitable because yellow cabs were granted a monopoly by the government. Yellow cabs even got a very medieval-looking official seal called a medallion. For decades, taxi medallions outperformed the Dow Jones Industrial Average, and even gold.
The reason they were so valuable? The city of New York froze the number of medallions and essentially held it constant as the population of New York—and the number of visiting tourists—exploded. Government-imposed scarcity was an enormous boon to the taxicab guild. In 2013 the total value of taxi medallions and related assets in New York City was $16.6 billion. (In Chicago it was $2.5 billion.)46 Such cartels—basically another word for guilds—maintained their monopolies in city after city. Then something changed—in a word, Uber. The company, along with other ridesharing innovators like Lyft, challenged the guild, for the most part successfully. For the first time in living memory, the price of a taxicab medallion is steadily declining, with little chance of recovering.
The example is worth sharing for three reasons. First, it’s a pristine example of how guild economics is a conspiracy against the public. Second, it’s an important example of how innovation, which can create losers, nonetheless is a net benefit for society—not just passengers, but also the thousands of drivers who were needlessly locked out of a profession for no good reason (back to that in a moment). And last, it demonstrates how quickly a parasitic bureaucracy—in this case the New York City Taxi & Limousine Commission—can become a host to a suddenly parasitic industry. Before the introduction of ridesharing, the commissions fed off the taxi industry. But when their host was threatened, the host became the parasite, running to the commissions to protect it from competition. The taxi industry is a notable example, not because this happened, but because it, for the most part, didn’t succeed.
While that may offer a glimmer of hope about the beneficial changes that come with the creative destruction of the so-called gig economy, that hope fades when one realizes that such examples are few and far between. For every successful “disrupter” that puts a crack in the façade of the regulatory state, allowing us to see what might lie on the other side, there are a dozen examples of how that façade is getting thicker and more impenetrable.
At least in the medieval guilds it was understood that giving an inexperienced worker an apprenticeship—i.e., a shot at learning a trade—was something of great value. The wage, if there even was one, was trivial compared to the opportunity to learn how to be a blacksmith, mason, or tanner. That was the path to prosperity. First jobs, particularly for unskilled non-college-educated young workers, play the same role. If you work hard and learn the business at, say, McDonald’s, you will likely be promoted to assistant manager before the year is out. That is invaluable experience. Raising the minimum wage above what employers can bear or to the level where hiring an iPad makes more sense is immoral, because it is tantamount to taxing entry-level jobs. If there is anything more settled in economics than the proposition that taxing an activity reduces that activity, I don’t know what it is. To say that the minimum wage should be a “living wage” is to tell employers they must pay inexperienced workers above their value, and that is unsustainable.
Today the most powerful constituency lobbying for minimum wage hikes is the most obvious modern incarnation of medieval guilds: labor unions. Some unions favor hikes because they have contracts tied to the minimum wage. If it goes up, so do their far more generous wages. But there are more insidious reasons why unions are pushing the minimum wage. In California, for example, the Service Employees International Union and other unions lobbied for, and got, a “carve out” in the minimum wage law that allows union members to get paid less than the minimum wage. As the Los Angeles Times recounts, “Critics see such provisions as a cynical collusion between politicians and big-city labor interests. By making unions the ‘low-cost option’ for businesses seeking to avoid paying better wages, they assert, the exemptions are designed to drive up union membership—and revenue from dues—at the expense of workers.”47 The critics are right. The goal of labor unions has always been to do what is best for their members. But their first priority must be to have members in the first place.
Again, I think unions play an important and legitimate role in society. But, as with any other institution, their role goes from positive to pernicious once they enlist the state to achieve their ends. When that happens, unions become guilds and, in some extreme cases, indistinguishable from hereditary aristocracies. For instance, throughout much of Mexico, either by law, custom, or both, teachers unions enforce the rule that teaching jobs can be inherited (or sold). In Oaxaca, Dissent magazine reports, “36 percent of teachers have directly inherited their position from a close family member, as have nearly half the teachers who start their careers each year.” This has created a kind of medieval black market where titles can be sold. “The scions of former teachers who do not wish to follow in their parents’ footsteps can sell their places to the highest bidder.”48 When the government has tried to reform the practice, the militant teachers’ guild has gone on strike, sometimes violently. “Throughout history,” one striking teacher told the Houston Chronicle in 2008, “the sons of carpenters have become carpenters. Even politicians’ children become politicians. Why shouldn’t our children have the same right?”49
In this context, “sclerosis” is just another word for corruption, rot, decay, or entropy. In a natural environment, sclerosis (and its attendant symptoms) is one of the more natural ways in which humans and other animals die. I am not fond of metaphors that suggest society is an organism, but in this case it is apt. Guild economics is a sign of entropy and decay for the body politic. Such sclerosis has helped hasten the demise of empires from ancient Rome to the Soviet Union.
And the same force is eating away at much of the European Union and the United States. The World Bank tallies statistics on how long it takes to conduct business in various countries. In 2006, it took an average of 819 days to enforce a contract in Greece. In 2016 that number reached 1,580 days. At the beginning of Barack Obama’s administration in 2009, it took 59 days in the United States to get a construction permit. In 2016, it took 81. Over the same period, the time it took to enforce a contract climbed from 300 days to 420 days. The cost of registering property (as a percentage of property value) has gone up nearly fivefold, from 0.5 percent to 2.4 percent.50 New business formation—historically the source of most big job gains—has been cratering.51 Regulations of the financial industry have served to protect the biggest banks, while the smaller community banks are being drowned in compliance costs they cannot afford.
There are reams of examples, statistics, and horror stories about what is happening to the national economy as corporatism and guild economics take hold. But there’s a broader and simpler point to be made about what is happening to our society. “Class,” explains Daniel Bell, “in the final sense, denotes not a specific group of persons, but a system that has institutionalized the ground rules for acquiring, holding, and transferring differential power and its attendant privileges.”52 James Burnham, one of the pioneers in the study of the new class, argued that there is a “historical law, with no apparent exceptions so far known, that all social and economic groups of any size strive to improve their relative position with respect to power and privilege in society.”53
Think of the upper middle class and the truly affluent. They have consciously and unconsciously, through both the state and the culture, strived to make society more complex. Charles Murray and Richard J. Herrnstein, in their woefully maligned and misunderstood book The Bell Curve: Intelligence and Class Structure in American Life, argued that the Jeffersonian project of creating a meritocratic society where only native ability, virtue, and perseverance determine success has backfired. A “cognitive elite”—an aristocracy of good test takers—has emerged, and they, like any class, were rewriting the rules of the game for their own benefit.54
Even if you do not subscribe to their larger argument, this key point seems irrefutable. The upper class in this country is making the rules of the game more complex. And the problem with can be simply stated: Complexity is a subsidy. The more complex government makes society, the more it rewards those with the resources to deal with that complexity, and the more it punishes those who do not. Judge Richard Posner made a remarkable confession upon his retirement from the bench. “About six months ago,” Judge Posner told the New York Times in September of 2017, “I awoke from a slumber of 35 years.” He “suddenly realized,” in the words of the Times, “that people without lawyers are mistreated by the legal system.”55 He went on to explain that poor and poorly educated people had real grievances but the legal system had erected a system that was attentive to people with expensive lawyers and treated people with no lawyers at all as “trash.” Posner is a strange creature, but can anyone not see how this insight speaks to far larger social patterns?
People of good faith disagree about which resources or “capital” are key to success in life—political, financial, social, genetic, educational, professional, cognitive, or just plain old luck (which technically isn’t capital). Those are all interesting disagreements, but utterly irrelevant to the point at hand. If you are lacking in any, most, or all of these kinds of intangible capital, the more complex the rules get, the more you are left out in the cold. A dumb rich person with good lawyers or social connections will always jump over the hurdles laid down by government more successfully than dumb poor people lacking lawyers or connections. In feudal societies, the dim-witted scion of a great family could negotiate his way around life quite easily, because the rules were set up for him to do so.
Some advantages are impossible to completely overcome. As we’ve seen, people will always do favors for friends and family over strangers. Attractive people will always have a leg up on unattractive people. One can minimize such advantages, but one cannot eliminate them. And to try would unavoidably lead to tyranny, for the state can never fully straighten the crooked timber of humanity.
“Over the past few decades, upper-middle-class Americans have embraced behavior codes that put cultivating successful children at the center of life,” writes David Brooks. “As soon as they get money, they turn it into investments in their kids.” That is right and proper. Indeed, that should be the mind-set of all parents. The problem is that we are setting up a system that makes it increasingly difficult for all parents to follow the same strategy. “Since 1996,” Brooks notes, “education expenditures among the affluent have increased by almost 300 percent, while education spending among every other group is basically flat.”56 That spending gets results. And while the children of the affluent do get educated in the three R’s, they are also being taught how to maneuver in a system rigged for the benefit of their faction, as it were. In other words, we’re teaching to the test. I don’t mean that upscale high schools have classes in social networking or the correct pronunciation of elite shibboleths. But they are getting that education all the same. They are also learning, as we shall see, a profound and sophisticated ingratitude toward the country they grew up in.
The administrative state, launched by Woodrow Wilson, is deeply invested in this project. And the more success they have, the more the arrogant and condescending elitism of the progressives becomes a kind of self-fulfilling prophecy. If you start from the assumption that people are too stupid to understand what’s in their interest, and then you proceed to make society a byzantine maze of hurdles, the more likely it is that you’ll be able to claim you’re right.
All of the educated liberals who cannot fathom why so many working-class Americans voted for Donald Trump need to undertake some vigorous moral—and policy—introspection. For modern progressives have not only helped set up a system that millions of Americans believe is dedicated to making their lives more difficult and their path to success more daunting; the progressives also heap scorn on them for complaining about it.
It is easy to point at Donald Trump and say the American body politic is rotting from the head down.
But the real rot is systemic. The shadow government of the new class has fortified itself against democratic accountability and is sawing off the ladder to success beneath it.