Last month, the Hoover Institution's fall retreat was organized around the theme of American Exceptionalism. See here for podcasts of talks from the stars -- really good. I talked about the nexus between economics, rule of law, regulation, and exceptionalism.
This was before the election, but two themes strike me as especially important still.
First: America needs rule of law, regular order, a partisan truce, even more than it needs my particular free-market policy preferences.
If Republicans overturn Obamacare in their first 100 days, with no Democratic votes; if President Trump picks up his phone and pen, undoes 8 years of Obama in the first day, and starts writing his own; and sends the agencies after his critics and enemies, we are headed for disaster. Future president Elizabeth Warren, or President Malia Obama with Vice President Chelsea Clinton, will just do the same. There is an anectdotal story of early 20th century Chicago mayors, who alternated between German and Irish. Each one's first act in office would be to overturn the ban on whiskey (beer), and impose a ban on beer (whiskey). (Too good a story to check the facts!) Let's not do that.
Second, we must not become a country where you can't afford to lose an election. The criminalization of politics has already gone too far. If you can't afford to lose an election -- if losing or supporting the losing party or speaking out on policy issues that lose gains you the tender attentions of the FBI, the IRS, the DOJ, the NLRB, and the EPA, if you lose your job and your business -- then people in power will fight to the end not to lose that power. Though I'm no fan of the Clinton foundation shenanigans, the noises coming out of the Trump transition not to push that issue are hopeful. Losing an election, a 95% reduction in speaking fees, and the public attention that investigative journalists can bring are enough. Putin can't retire and stay out of jail -- or alive.
A last thought for Thanksgiving. The Pilgrims were all illegal immigrants -- violating their charter from the English King, and the natives' longstanding ban on white settlement. Thank the Wampanoag's tolerant attitude for your turkey.
Economics, Rule of Law, and American Exceptionalism
(Talk given at Hoover retreat October 2016)
To be a conservative — or, in my case an empirical, pax-americana, rule-of-law, constitutionalist conservative libertarian — is pretty much by definition to believe that America is “exceptional” — and that she is perpetually in danger of losing that precious characteristic. Exceptionalism is not natural or inborn, but must be understood, cherished, maintained, and renewed each generation — and her garden is always perilously unattended.
Like every word describing beliefs, however, “exceptionalism” is a slippery concept. America’s detractors often use the same word pejoratively and derisively. To them, exceptionalism means a parochial and ignorant moral superiority. We are not the first or only society to see itself as exceptional, different, or somehow better than everyone else.
So why is America exceptional, in the good sense? Here, I think, economics provides a crucial answer. The ideas that American exceptionalism propounds have led to the most dramatic improvement in widely-shared human well being, shared widely, in human history. That improvement is not just material, but health, lifespan, peace and any measure of human prosperity. Yes, despite the horrors we read from the world’s war zones and some of our own cities, violence remains on a steady decline.
Aesop tells of a hungry wolf, who meets and admires a well-fed dog. But the wolf sees the dog’s collar, he says, no thanks, and walks off. Fortunately, we do not face the wolf’s conundrum. We do not have to argue for a moral superiority of freedom, and ask for material sacrifice. The wolf is both well-fed and free.
Despite the promises of monarchs, autocrats, dictators, commissars, central planners, socialists, industrial policy-makers, progressive nudgers and assorted dirigistes, it is liberty and rule of law that has led to this enormous progress. To the Chinese argument, say, that their ancient culture demands authoritarianism, a simple reply suffices: You, $7,000 per capita GDP, and filthy air. Us: $52,000 per capita and a clean environment.
I do not think this outcome was intentional. Neither our founders, nor those that built the British institutions which the founders improved, had any idea of the material progress their invention would father, nor that the US would rise to lead the world to a 70 year pax Americana. Jefferson envisioned a bucolic agrarian society. Washington warned against foreign entaglements. A system designed only to defend individual liberty unintentionally unleashed unimaginable material and international benefits.
Of course, the foundations of this prosperity, in rule of law, security of property, internal peace, are not ours alone. America was built on British institutions, and the industrial revolution started there. Other countries have adopted many of these institutions, and joined in prosperity to the extent that they do so.
Without this economic success, I doubt that anyone would call America exceptional. Imagine that China were 7 times as productive per capita as we are, rather than the other way around. Or, imagine that great natural experiment, North Korea vs. South Korea. North Korea also claims to be exceptional. The rest of the world regards it as an exceptional basket case.
Of course, the foundations of this prosperity, in rule of law, security of property, internal peace, are not ours alone. America was built on British institutions. Other countries have adopted many of our institutions, and joined in our prosperity to the extent that they do so.
In fact, the core of exceptionalist faith describes its own undoing. If American values are indeed universal, if America’s exceptional role is to bring these ideas to the world, then when the world does adopt those ideas, America must become somewhat less exceptional.
America is already less unusual than it was at its founding, and through the eras of monarchies, of great dictators, and of soviet communism, when America’s detractors insisted she would be just one more short-lived republic.
But the process is far from over. The U.S. remains the essential, exceptional, nation
All the great ideas for the next advances in human well-being are being made here. Computers and the internet, biotech, genetics, the microbiome. Most importantly, the great ideas are being implemented here - the new companies are American.
More darkly, any hope for resolving the world’s gathering storm clouds reside in the U.S. If we don’t get our act together and revive our exceptionalism, and pretty darn soon, the consequences are truly terrifying.
Chaos in the middle east, more swarms of refugees. Russian and Chinese forcible expansion. Nuclear weapons going off here and there. Pandemics of people, animals, or crops, which often follow waves of globalization.
The troops in the first Iraq war wore T-shirts saying “who you gonna call? 001.” It’s still the only number.
Enough self-congratulation. It’s time to move on to the second item of a conservative’s faith, that it’s all in danger of falling apart. And it is, more than ever.
The rule of law
I locate the core source of America’s exceptional nature in our legal system — the nexus of constitutional government, artfully created with checks and balances, and rule of law that guides our affairs. And that is also where I locate the greatest danger at the moment.
Lawyers? Government? You chuckle. That you may laugh just tells us how endangered this precious flower is. Without rule of law, any American character for innovation is quickly squashed.
Rule of law means the rights of the accused to know charges against them, to see evidence, to confront witnesses; the right of free speech and especially unwelcome political speech; the separation of prosecution and judges; grand juries to weigh evidence, and warrants for searches; the right to property, what that right means, and courts that will defend it (Fracking developed in the US pretty much because property rights include subsoil minerals, which are retained by the government in most other countries.); the delicate constitutional checks and balances that keep majorities from running amok, and delay awful ideas until enthusiasm passes; a free press, that can expose corruption. And so on ad infinitum.
Even democracy only lives on top of rule of law. We are a republic, not a democracy, and for good reasons. Democracy is a fundamentally a check on tyranny, not a good way to run day to day public affairs. Democracy without rule of law produces neither prosperity nor freedom. Even countries like Venezuela and Russia go through the motions of elections, but you can’t get a building permit without connections or speak out against the government without losing your job. Rule of law without democracy can function for a time and tends to produce democracy. America lived for 150 years under rule of law while still a monarchy.
And without rule of law, democracy is soon subverted. Those in government are always tempted to use the government’s power to silence opposition and cement their hold on power, and ruin the economy in the process. That’s our danger. If speaking out for a candidate, a policy question such as climate change, or working on behalf of a losing party earns you the tender attentions of the SEC, IRS, EPA, CFPB, NLRB, and increasingly the DOJ and FBI, it does not matter who votes.
Erosion of rule of law
The erosion of rule of law is all around us. I see it most strongly in the explosion of the administrative, regulatory state. Most of the “laws” we face are not, in fact, laws, written by a legislature and signed by an executive as we are taught in school. They are regulations, promulgated by agencies.
This made sense, initially. For example, it does not make sense for Congress to write the criteria for maintaining an airliner. But now that system has spiraled out of control. The ACA and Dodd-Frank acts are poster children. Their enabling acts go on for thousands of pages. The subsidiary regulations go on for tens of thousands. The letters and statements of interpretation and guidance, now essentially laws of their own, go on for more.
Were these even rules that one can read and comply with, it wouldn’t be so bad. But the real problem is that rules are so vague and complex that nobody knows what they really mean.
Companies can’t just read the rules. They must ask for regulator approval ahead of time, which can take years, and gives arbitrary results.
Hence, the “rules” really just mean discretion for the regulators to do what they want — or to coerce behavior they wish out of companies by the threat of an arbitrary and adverse decision. Anyone can be found guilty at any time — if the regulator chooses to single them out, as an EPA administrator once said, for “crucifixion.”
Richard Epstein calls the system “government by waiver.” The law and regulations are impossible to comply with. So business after business asks for waivers. Which are granted, mostly. But you’d be out of your head to object too loudly to the actions of the agency or the administration it serves if you want a waiver.
On top of laws, rules, and judicial interpretations, now agencies write “guidance” letters to state their interpretation of a rule, which become laws of their own.
Like laws, new regulations are supposed to follow a procedure. They are supposed to respect and implement Congress’ authorizing legislation, incorporate public comment, serious cost benefit analysis, and so forth. But even these weak constraints are less and less binding.
Obamacare subsides. FTC internet regulation. The EPA taking on carbon and closing down coal. Keystone. The education department war on private colleges. All of these step far outside the established limits. (My point is not the merits of any of these, which may be fine regulations. My point is the lack of rule-of-law process in how they were promulgated)
The basic rights that citizens are supposed to have in face of the law are also vanishing in the regulatory state. The agency is prosecutor, judge, jury, appeal court, executioner, and recipient of fine money all rolled in to one. You do not have conventional rights to see evidence and calculations, discover information, and challenge witnesses. Agencies change their interpretation of the law, and come after their victims ex post.
Retroactive decisions are common, never mind the constitutional prohibition on bills of attainder. When the DOJ and CFPB went after auto lenders, based on a statistical analysis of last names of people who had received auto loans, the computer program was obviously not announced ahead of time, so businesses had any idea if they were following the law. The CFPB went after PHH, a mortgage lender, issuing a novel interpretation of the law, charging the PHH ex-post with violation of that new interpretation, and increasing its own administrative Judge’s $6 million dollar fine to $109 million.
The expansion of the regulatory state, and disappearance of rule of law in its operation is already having its economic impact. The long-term growth rate of the US economy has been cut in half, driven largely by anemic investment.
I fear even more the political impact. The point of rule of law is to keep government from using law for political purposes. As we lose rule of law in the regulatory state, its politicization is inevitable. IRS and Lois Lerner. Campaign finance law and Gov. Scott Walker.
The drive towards criminalized regulatory witch hunts and going after the executives means one thing: those executives had better make sure their organizations stay in line.
ITT tech got closed down as part of the Administration’s war on for-profit education. Laureate International Universities, the for-profit college that coincidentally paid Bill Clinton $17.6 million as “honorary chancellor,” did not.
The SEC is piling on ambitious state attorney generals drive to sue Exxon, under securities law, for insufficient piety over climate change.
Big “settlements” with banks, are leading to millions of dollars channeled to left-wing and Democratic party political advocacy groups.
The classic analysis of regulation says it leads to capture: the industry captures the regulator, they get cozy, and regulation ends up being used to stifle competition in the industry. Capture is now going the other way. Health insurers, banks, energy companies are slowly being captured by the politicized regulators. Yes, they still get protection, but they must do the regulator and administration’s political bidding. And a constant stream of CEO show trials and criminal investigations keeps them in line. With calls for more. Just imagine what they could do with lists of donors to out-of-power party PAC and nonprofits.
Campaign finance law is precisely about regulating speech, and the government taking over who can support whom in an election. Corporations will be forced to disclose contributions. Unions will not.
In the classic story, industry captures the regulator, they get cozy, and regulation ends up being used to stifle competition in the industry. Capture is now going the other way. Industries are slowly being captured by the politicized regulators. Yes, they still get protection, but they must do the regulator and administration’s political bidding. And a constant stream of CEO show trials and criminal investigations keeps them in line.
The key attribute that makes America exceptional — and prosperous — is that you can afford to lose an election. Grumble, sit back, regroup and try again next time. You won’t lose your job, or your business. You won’t suddenly find trouble getting permits and approvals. You won’t have alphabet soup agents at your door. You won’t have prosecutions of your political associations.
In many countries, people can’t afford to lose elections. Those in power do not give it up easily. Those out of power are reduced to violence.
We are losing that attribute. American exceptionalism does not mean that all the bad things that happen elsewhere in the world cannot happen here.
Perhaps I am guilty of nostalgia, but I sense that once upon a time, those in American public life believed that their first duty was to keep alive the beautiful structure of American government, and the policy passion of the day came second and within that constraint.
We are suffering now a devotion to outcome, to winning the momentary battle at any cost. Legislation that passes by one vote? Fine. Regulations written far past enabling authority? Go for it. Executive order in place of law or regulation? Do it. Just write a letter of interpretation to tell them what to do. Shove it down their throats. But when policies are adopted without at least grudging consensus that the battle was fairly won, you can’t afford to lose an election.
Since the Nixon impeachment, and with the spread of campaign finance law and regulation, we are seeing a greater and greater “criminalization of politics.” It’s part of using any tool to win. But it adds to America’s central exception to human affairs, that you can afford to lose an election.
Our public life depends on voluntary cooperation. Administrations follow the law, even when they don’t really have to. They defer to court and supreme court decisions which they could ignore. The president does have a pen and a phone — and the number at DOJ and FBI and IRS. The rule of law depends on him or her not using it. We do not ask the question too deeply “so what are you going to do about it?” We are losing that respect for the system.
The idea of rule of law, the reverence for process over outcome seems to be disappearing. Few college seniors will have any idea what we’re talking about. Even basic civics courses are passé. And we see so much on both sides of the partisan divide that ignores it. Our many foreign-policy misadventures have a common theme, forgetting that all societies need rule-of-law foundations not just the superficial exercise of voting.
Rule of law, then, depends on a culture that respects it, not just the written word. And that culture depends on people to some extent understanding how it works. Like medieval peasants, having lost the recipe, looking up in marvel at Roman concrete structures, I fear our children will wonder just how the architecture of a broken system once worked its marvels. And the Romans lasted 1000 years. Pax Americana seems to be running out of steam at a mere 250.
Egalitarianism and the pursuit of happiness.
Our government’s purpose is set forth in the Declaration of Independence: to secure Life, Liberty, and the pursuit of Happiness, period. Government does not exist to lead us to some grander purpose: the advancement of the Christian faith, or the restoration of the Caliphate; the spread of communism on earth; the greatness of our kultur, or the glorious American Nation. When Kennedy said “ask not what your country can do for you — ask what you can do for your country” he had it precisely wrong.
Yes, American Exceptionalists wish to spread their ideas to the world, but not to subjugate those people to some greater cause — merely to allow them to pursue Life, Liberty and Happiness as those people see it.
A central article of exceptionalist faith is that American institutions are universal. We deny that they are specific to a culture or (heavens) race. People everywhere want freedom, and can learn to use American institutions to get it as quickly as they can learn to use an American iPhone to order American Pizza. (Sorry Italy!)
Most of all, government does not exist to further the ethnic or religious identity of a people. Throughout the world, governments parcel up the spoils of power along ethnic and religious lines. Each losing ethnic or religious group then needs its own government to defend its simple economic and expressive rights. Multi-cultural and multi-ethnic empires existed before. But by and large they were empires of tolerance, not right, and extracted resources from citizens equally rather than served them equally.
In the US, the children of Serbians and Croatians, of Indians and Pakistanis, of Catholics and Protestants and Muslims and Jews, live side by side and intermarry. None imagine that they needed a government run by one of their own ethnic group or religion for basics like getting a business permit. The idea that government serves to foster their ethnic or religious identity becomes quickly foreign. Yes, this melting pot ideal has never been perfect, but it holds much more than in any other country.
But how quaint this melting pot view seems now!
Interestingly, that ideal it disappeared first from our foreign policy. For a hundred years, the U.S. has stood behind ethnic or religious governments, happily playing one against the other, and not once saying “you know, we have a better idea for managing this, one where you won’t be at each other’s throats for another century or so.”
But that exceptional ideal is now vanishing domestically as well. Our government requires us to fill out forms with fine racial categorizations. The core principle, that to be treated fairly by the law, you do not need to be represented by a police officer, mayor, congressman, senator, or president of your own particular racial, ethnic or religious identity is not not only fading away, but its opposite is enshrined in law.
It is true that these measures stemmed from the overturning of the even more egregious violation of American principles in laws governing African Americans, not only in the Jim Crow south but the segregated north as well. But at least we paid lip service to the principle.
A country that believes, and enshrines in law, the principle — opposed to everything in American exceptionalism — that you cannot be treated fairly by a government unless the officials of that government share your exact racial, ethnic, religious, and soon gender identity, will soon fracture.
Similarly, exceptional America does not recognize the concept of “class.” Our disavowal of aristocracy and titles set us distinctly apart from Britain in the 19th century. And yet we now use that language all the time — “middle class” or “working class” especially. Economic law, regulation, and policy, increasingly treats income as a permanent class designator, as fine and permanent as Indian castes, and treats its citizens on that basis every bit as much as monarchic England treated peasant differently from nobility. We decry the reduction in mixing in America, yet when housing, food, medicine and so on are distributed based on income, income becomes a permanent class marker.
Opportunity is a key part of the egalitarian credo. But a society divvied up by formal categories of class, race, and income quickly loses that opportunity. As with economic regulation though, each such division is a client usefully exploited for political advantage. Exceptional America foreswore the opportunistic politics of such divisions.
Don't get me wrong. Identity is important. Contemporary America is one of the most tolerant societies on earth, and if people want to use their liberty to explore their national, enthic, gender, religious, class or other identities, more power to them. But eventually, once the egregious persecutions of law have passed, we must aim to keep identity out of politics, especially presidential politics, and especially the ethnic and religious identities that are the organizing principle for conflict around the globe, and into culture and religious and community organizations where it belongs.
The third article in exceptionalist faith, however, is optimism; that despite the ever-gathering clouds, America will once again face the challenge and reform. There is a reason that lovers of liberty tend to be Chicago Cubs fans. (And, as a member of both tribes, I take hope from one for the other!)
Healing is not something we should take for granted, however. There is no automatic self-correcting force. Every scrape with disaster is a scrape with disaster. It can happen here. Hope is not a strategy.
The recipe is straightforward. Rather than just demand “less regulation” even louder, we need to bring rule-of-law process and protections to the regulatory state, and revive them in our legal procedures as well. It’s time to pay attention to the structure of government rather than on its outcome.
Congress should re-structure the law surrounding regulation. Stop writing 1000 page page bills. Strengthen the Administrative procedures act describing how regulations are written and implemented. Require serious, and retrospective, cost benefit analysis. Put in “shot clocks,” time limits for regulatory decisions. Give people more avenues to challenge regulation in a timely manner.
Good news: people on both sides of the partisan divide recognize this fact. The “better way” Ryan plan contains just this kind of radical restructuring of the regulatory process. It goes so far as to require that Congress must approve new major regulations — a large change in the balance of power back to Congress and away from Administration and Agencies. The Obama administration tried to strengthen the OIRA (office of information and regulatory affairs) its office of regulatory affairs, to regulation. The effort failed, but it signals a bipartisan realization that the regulatory state is broken and taught some useful lessons.
The court system plays a crucial role.. Fix the court system so you’re not bankrupt and dead by the time you win. The litmus test for new judges should be their willingness to sustain rule-of-law restrictions on the regulatory state, not to re-fight social issues. Let the litmus test be Wickard v. Filburn, which declared a man may not grow wheat in his own yard to make his own bread without a Federal Wheat Marketing Order, not Roe v. Wade.
A small comment on foreign policy
I have focused on economics, but nowhere is the decline of American exceptionalism more evident than in foreign policy. Post world war II pax Americana has been the most peaceful and prosperous period in all human history. But its development and success has been one narrow scrape after another, and any of them could have gone wrong. The next one may.
What country can look at the experience of Ukraine — to which the United States guaranteed territorial integrity in exchange for giving up nuclear weapons — North Korea, India, Pakistan, Libya, and Iran and not conclude that getting nuclear weapons and rattling them is a darn good idea?
Teddy Roosevelt said to speak softly and to carry a big stick. America these days speaks loudly, aimed at the daily polls, doesn’t mean it, and announces ahead of time that it won’t use its stick. Eisenhower did not tell Hitler ahead of time how many troops he was going to put in at Normandy, and how quickly he would take them out. The answer was, enough to win, period.
The Bush administration gave the project of bringing democracy to the world a bad name, in part by misunderstanding just how much rule of law must underpin democracy, and in part by misundnerstanding just how much the world still needs the idea and culture of rule of law.
For a messianic, universalist, religion, we do precious little missionary work these days.
A small thought for those anxious for America to retreat from its "exceptional" leadership role and allies to pay more and be more active: He who picks up the check gets to pick the restaurant.
It is common to bemoan the state of American politics. But we should be optimistic. The major parties are blowing up. We are in a once-in-a-generation major realignment and redefinition. Only a big realignment can produce the rule-of-law and free-market coalition that I describe here. Power may shift from the once imperial presidency to an emboldened Congress. Only a time of big change offers big opportunity.
Finally, ideas matter. An exceptional — and functional — America must understand how she is supposed to work. We are a democracy, and if voters don’t respond with elemental understanding of their rights, and outrage when those rights are violated, as the founders did, we can’t expect miracle politicians to save us.
How do we expect our children to understand the machinery if we don’t tell them? The schools and universities don’t do that any more. But others institutions do!
You’re sitting in an exceptionally American institution, a reservoir of, as our banner says “ideas defining freedom.” Sometimes that reservoir is an ark, keeping ideas alive in a dark age. Sometimes it is a fountain, ready to bring those ideas to the world when it’s ready. But you, me, and the institutions we form — another brilliantly exceptional American habit — are crucial to her renewal.