The Financial Stakes in Federal Courts Protecting Liberty of Contract
Previous posts discussed books and studies on the historical and current debate over liberty of contract. If Uber drivers contract with Uber and with Uber customers to give people rides, should city regulators be able to outlaw or rewrite those contracts? Should it matter to state and federal judges whether the stated goals of the regulations have some reasonable justification, such as public safety?
A July 14, 2015 re/code headline reads: “Uber Could Have to Pay an Additional $209 Million to Reclassify Its Drivers in California.” That cost to Uber would be passed on to rideshare customers who would pay higher fares, and to drivers who would earn less, plus the the value of Uber the enterprise would be reduced by these new labor regulations. Already Uber is spending millions of dollars to defend its freedom to operate as it hires extra lawyers, lobbyists, and public relations consultants.
These costs to Uber and Uber customers are similar to thousands of other regulations laced across the economy. The estimated total, almost: $2,000,000,000,000 a year! (two trillion dollars), according to studies on regulatory costs.
Earlier posts looked at the justice arguments encouraging the court system to defend liberty of contract from special interest legislation. The natural rights claim that people’s life, liberty, and pursuit of happiness ought not be infringed by government. But thousands of state and federal regulations, most having little or no safety or other just rationale, make life more complex and cumbersome for businesses.
In CEI’s Ten Thousand Commandments 2015: An Annual Snapshot of the Federal Regulatory State, Clyde Wayne Crews collects the data from regulatory studies and federal publications. From the summary:
The scope of federal government spending, deficits and the national debt is staggering, but so is the impact of federal regulations, which now exceeds half the amount the federal government spends annually. Unfortunately, regulations get too little attention in policy debates because, unlike taxes, they are unbudgeted. They are also difficult to quantify because their effects are often indirect. In Ten Thousand Commandments, Crews compiles available data on regulatory costs and trends. By making the size, extent and cost of Washington’s rules and mandates more comprehensible, Crews underscores the need for more review, transparency and accountability—for both new and existing federal regulations.
Ideally, Congress would escape the embrace of business, labor, environmental, and other interest groups, and reduce or eliminate regulations that raise costs without delivering safety or other benefits.
To some extent judicial restraint arguments encourage the federal court system to defer to Congress as it passes both helpful and harmful legislation. But judicial engagement advocates argue the court should step in to block regulations that interfere with use of private property and otherwise lawful liberty of contracts.
The National Association of Manufacturers also publishes a study of the cost of excess regulations (page has link to full study:
The National Association of Manufacturers (NAM) has issued a report that shows the macroeconomic impact of federal regulations. The study also reveals the extent to which manufacturers bear a disproportionate share of the regulatory burden, and that burden is heaviest on small businesses and manufacturers because their compliance costs are often not affected by economies of scale.
Alas, the same holds for external pressures. In particular, it is not the case, as OMB has proclaimed, that “businesses generally are not in favor of regulation.”
Free enterprise capitalism is a different political system from a mixed economy where regulatory favors are readily available.
Business not only generally favors regulation, but often sought regulation in the first place (Nobel laureate George Stigler said that in 1971 and explained “regulatory capture” in an article called “The Theory of Economic Regulation.”)
And Crew notes:
Also important: Just as economic regulatory agencies are captured by special interests, much of what is considered social or health/safety or environmental regulation may self-interested rather than public-spirited. Even when regulation “works,” the overall or societal benefits can be outweighed by costs; also the social calculus approach to “net” benefits can ignore wealth transfers, property takings and due process.
The stakes are high for protecting liberty of contract and restarting a new American free-labor movement where freedom to work takes center stage.