Connecting the Dots: From Legal Protection to Justice, Enterprise, and Prosperity

Earlier posts connected the dots from scholars insisting federal courts should defend “liberty of contract,” to small enterprises like hair braiders facing expensive and time-consuming regulations lobbied for by established competitors.

Established taxi companies in NYC are another example, as they have lobbied and donated hundreds of thousands of dollars to the mayor, who in turn tries to protect NYC taxis from Uber drivers. From a July, 2012 New York Times article, “Taxi Industry Opens Wallet for de Blasio, a Chief Ally”:

Mr. de Blasio’s campaign received about $85,000 in the last six months from executives, lobbyists and other affiliates of the yellow taxi industry, slightly more than 10 percent of his receipts for the fund-raising period, according to papers filed with the city’s Campaign Finance Board.

Many hundreds of occupations across the country enjoy legal barriers created by state and local licensing regulations that have little or no justification on public health or public safety grounds. Consumers end up with fewer choices and higher prices.

Employment regulations raise costs for companies small and large, making it harder for U.S. companies to keep prices now, and to compete with goods and services from competitors in other countries. Regulations limiting work hours and regulating overtime pay for salaried workers, raise costs and complexity for employers (and, studies show, don’t increase overall pay for employees).

So, from the injustice of special-interest regulations, blocking people by law from occupations and jobs they need and want, is the estimated overall cost to the economic of excess regulations. And earlier post “The Financial Stakes in Federal Courts Protecting Liberty of Contract,” discusses the cost estimates from the annual CEI publication, Ten Thousand Commandments.

A July 29, 2015 Mercatus Center page provides link to “Mercatus Scholars on Barriers to Entry and Occupational Licensing.” The numbers continue to be staggering. Many of the posts discuss “Certificate-of-Need” regulations at the state level that create additional barriers to new or expanded health care facilities:

Thirty-six states and the District of Columbia currently limit entry or expansion of health care facilities through certificate-of-need (CON) programs.1 These programs prohibit health care providers from entering new markets or making changes to their existing capacity without first gaining the approval of state regulators.

Most recent of the studies is the July 21, 2015 report by economist Steven Horwitz: Breaking Down the Barriers: Three Ways State and Local Governments Can Get Out of the Way and Improve the Lives of the Poor, which looks specifically at the harmful effect of regulations on the poor. Here is the study abstract:

This study considers the ways in which government, whether through spending programs or regulations, has made it more difficult for people to find their way out of poverty. It argues that when considering new regulations or eliminating existing ones, policymakers should pay more attention to the regressive effects of government, from the way in which it prevents upward mobility to the way in which some policies and programs burden the poor more than other groups. Specifically, it explores the regressive effects of occupational licensure, zoning laws, and other restrictions on operating businesses, as well as the effects of sin taxes. The discussion of occupational licensure includes a smallcase study of Uber, the ride-sharing platform. If government policy is restricting upward mobility, then policymakers should look more seriously at ways to stop government from harming those seeking to escape poverty.

Debaters should find interesting the report’s discussion of regulating home-based businesses:

Another category of economic policy that can hinder the opportunities of those with less income and fewer skills includes regulations that make it difficult to operate home-based and other very small businesses. These restrictions include zoning laws, limits on the kind of businesses people can operate out of their homes (and the number of customers who can visit those businesses), and limits on mobile businesses such as food cart and other street vendors. Such businesses do the kind of work that people with limited skills and not much capital could perform, but legal restrictions, normally at the municipal level, often make such options prohibitively expensive and thereby remove an
important path out of poverty.  

The idea behind zoning laws is to restrict certain kinds of economic activity to specific geographic locations so that they do not interfere other forms of activity. For example, one can understand why putting an industrial plant in a residential neighborhood might create problems. By zoning areas as residential, industrial, or commercial, urban planners hope to avoid these kinds of negative externality problems. Despite these good intentions, however, zoning laws, like occupational licensure laws, are often used by those with better access to political power as a way to reduce competition from lower-cost
rivals. … [page 11]

Home-based businesses face additional challenges. For example, citylaws in Chicago limit home-based businesses to no more than one employee who does not live in the home. Home-based businesses cannot manufacture or assemble products unless they sell them directly to retail customers, who must come to the home. In other words, there can be no selling to stores to resell to customers. The city also limits such businesses to no more than 2 customers at one time and a total of 10 per day. It also prohibits displaying products on shelves or racks.24 It is not clear what purpose these rules serve beyond hampering new businesses that wish to compete against established ones. A significant number of US businesses operate out of homes, and many major companies began in garages.  [page 12]

Again, such state and local regulations limit the freedom of families and small enterprises, plus reduce choices and raise costs for consumers.

Christopher Helman and Daniel Fisher provide examples of regulations raising business costs and reducing employment in their article: “Nimby Nation: The High Cost To America Of Saying No To Everything,” (from the August 17, 2015 print edition of Forbes). The article is subtitled: “Fueled by legal advocacy groups, cries of Not In My Backyard are quietly costing the United States economy trillions. The ability of America to flourish is at stake.”

The author cites cost estimates from this particular kind of over-regulation:

From housing construction caps in San Francisco and the Keystone XL pipeline in Nebraska to bridge and subway construction in New York City and port expansion in Savannah, Ga., NIMBY has delayed, killed or inflated the expenses of more than 500 projects nationwide over the last decade at a cost to the economy of more than $1 trillion annually, FORBES conservatively estimates, though in truth those numbers are likely far higher. 

These higher costs have their source in the “fourth branch of government”: the many federal agencies that write their own legislation (“rules”), expanding the original Congressional legislative intent.

According to the Government Accountability Office, the Obama Administration enacted 499 major rules across all federal agencies in its first six years, up 43% from the first six years of the George W. Bush White House. The GAO defines “major” regulations as having an annual effect of more than $100 million on the economy or significant impacts on prices, productivity, employment or international competitiveness. This summer, new regulations issued by the Environmental Protection Agency expanded the waterways over which it has some say by 4.6 million miles, infuriating landowners across the nation.

The authors cite Philip K. Howard on America’s lost legal and regulatory system:

“What has happened by accident is that the legal approval system has evolved to be so complicated that any person who doesn’t like a project can exercise a legal veto,” says Philip K. Howard, whose new book, The Rule of Nobody, documents the madness. The effect, Howard says, is “bureaucratic mental illness.” It’s the kind of sickness that now threatens a country that was once defined by advancement and progress.

Here is link to The Rule of Nobody (2014) on Amazon, where students can “look inside” for case ideas. Here is a review in the Washington Times, which notes a proposed solution to

Mr. Howard distills his ideas down to five proposed constitutional amendments that he says could right the ship of state and send it merrily on its way. The first four would mandate that all laws having budgetary impact sunset after 15 years, and would restore the president’s power to line-item-veto congressional budgets and unilaterally manage executive personnel. These seem worthy of at least debate, if not support, though their chance of enactment seems less than slim.

Federal court initiative, rather than Constitutional amendment, could lead federal courts to respond to litigation about costly regulations by requesting specific approved by Congress. Congress might well prefer to take the initiative and pass legislation mandating federal agencies bring costly new regulatory expansions to Congress for approval.

Politifact.com, in this 2013 post, describes the REINS Act:

During the 2010 midterm elections, House Republicans pledged to “require congressional approval of any new federal regulation that has an annual cost to our economy of $100 million or more.”

A bill that subsequently passed the House — the Regulations from the Executive In Need of Scrutiny Act — introduced significant new limitations on the power of executive agencies to make rules. But the bill got just four Democratic votes and went nowhere in the Democratic-controlled Senate.   The REINS Act requires congressional approval of a major rule — one that has an annual effect on the economy of $100 million or more — before it can take effect. A rule may also be considered major if it results in a significant increase in costs or prices, or if it has significant adverse effects on competition, employment, investment, productivity, innovation, or U.S. competitiveness.

 The Judiciary Committee, gives a REINS Act update in this July 25, 2015 post “GOODLATTE SHEPHERDS REINS ACT THROUGH THE HOUSE TO CONTROL REGULATORY COSTS AND RESTORE ACCOUNTABILITY“

Washington, D.C.— The House of Representatives today approved the Regulations From the Executive In Need of Scrutiny Act (REINS Act) (H.R. 427) by a vote of 243-165. This bill, sponsored by Congressman Todd Young (R-Iowa.), curbs unnecessary regulations from agencies and holds federal bureaucrats accountable for imposing the heaviest burdens on America’s economy. The REINS Act requires that federal agencies submit major regulations (those that cost the economy $100 million or more) to Congress for approval; guarantees that no major regulation becomes effective until Congress approves it; and requires an expedited up or down vote on major rules within 70 legislative days.

For the current debate topic, the federal courts would play a key role, as, if passed, we can expect federal agencies to claim that few if any of their regulations would actually cost over $100 million, and therefore don’t require REINS Act approval. Congress can disagree, but then we have the usual Congress v. White House standoff. So costly regulations would likely come before federal courts with state Attorneys General or affected industries litigating to show projected $100 million plus costs for new regulations.

Students could propose a lower trigger level on regulatory costs, say at $50 million or $25 million, and call for federal courts call for these regulations to be approved by Congress before taking force.

The Center for American Progress is less enthusiastic about the REINS Act, and defends the expertise of federal regulatory agencies in this 2011 post, “5 Terrible, No-Good, Very Bad Things About the REINS Act: Why Lawmakers Should Reject the “Regulations from the Executive in Need of Scrutiny,” noting:

REINS would turn a regulatory process currently driven by scientific expertise, industry input, and careful cost-benefit analysis into a political circus. While agencies are not immune from political influence, they must have legal justifications for the rules they promulgate, and those justifications must stand up in a court of law when challenged. But under REINS, either chamber of Congress—or even a single senator—could effectively overturn a law by refusing to approve critical rules of implementation for entirely political reasons.