Regulation often leaves us poorer and less free because it is crafted in a way that disrespects liberty and human judgment.
The first month of President Biden’s administration began with nearly two-score shots across the bow signaling the continued strength of the Leviathan state. In his first days in office, the new President issued 37 executive orders (EOs), more than the Trump and Obama administrations combined issued in the same period. These and other early Biden initiatives give regulators free rein and a heavy hand, reversing important constitutional and due process inroads that were made to curb administrative power over the past four years.
Rule by “Guidance”
This trend is especially noticeable in the executive order revoking two significant, liberty-protecting executive orders issued in October 2019: “Promoting the Rule of Law Through Improved Agency Guidance Documents” and “Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication.” These Trump-era EOs were designed, as their names suggest, to promote transparency and fairness in the operations of federal regulatory agencies. Because they dealt with process—how all agencies must conform their exercise of power to the rule of law—rather than substantive regulation, they largely slipped under the radar when issued and now have been quietly immolated by revocation. The first now-revoked order required all agencies to post guidance they intended to enforce online in searchable form signed by a politically accountable agency official. This forced the agency to “own” the regulation and further consigned all remaining unpublished guidance to a regulatory dust heap.
The second now-revoked order required agencies to articulate the legal authority for their exercise of power before they could institute any proceedings with adverse legal consequences against anyone. The order further required that individuals and businesses must be given an opportunity to respond to any and all alleged charges before the agency can proceed against them. Americans across political divides should have cheered these promulgations upon enactment. No serious argument can be articulated against the transparency, accountability, and restoration of due process exemplified by those orders.
And yet, on January 21, 2021, citing pretextual arguments for expediency and an absurd assertion that revocation of these orders would somehow aid America’s recovery from the COVID-19 pandemic, the Biden administration revoked them, thus failing its first test of candor and concern for the civil liberties of Americans.
Federal agencies have wielded this sort of regulatory “guidance” as law for decades, and the practice has long been recognized as secretive and indefensible. In 2000, the D.C. Circuit Court of Appeals invalidated one example of such “guidance” saying, “The phenomenon we see in this case is familiar. Law is made, without notice and comment, without public participation, and without publication in the Federal Register or the Code of Federal Regulations.” Guidances numbering in the thousands have ensnared countless Americans in regulatory investigations or enforcement proceedings on charges never lawfully promulgated. Adjudications before unaccountable and tenure-protected administrative law judges, who are systematically biased in favor of the government, deny procedural protections as well as due process and jury trial rights. This system results in draconian business-killing fines, property seizures, disgorgements, and license revocations that operate as occupational death sentences.
As recognized by Justice Gorsuch, the penalties threatened or imposed in these lawless administrative proceedings are often more severe than even criminal penalties. Worse, threatened with such dire prospects, the vast majority of Americans inevitably settle, meaning there is never any judicial review of these proceedings so cruelly stacked against individuals or businesses charged with violating “guidance,” which is never supposed to supplant law. Worst of all, agencies cite these settlements as precedents that expand their costly regulatory power in darkness. SEC Commissioners across the political spectrum admit that the technique of regulation by enforcement and settlement too often results in agencies exceeding their powers, thus harming their regulatory targets and inflicting enduring damage to the rule of law.
Agency power to ensnare Americans in this costly mischief has now been restored if not expanded. In sync with this loosing of the dogs of regulation, just recently, the SEC restored power to initiate enforcement proceedings to lower-level, non-appointed enforcement division functionaries, revoking SEC Commissioner Michael Piwowar’s reservation of that power four years ago to presidentially appointed—and thus accountable—Commissioners.
Ideology over Rule of Law
One of the most disturbing policy reversals is the recission of a rule that forbade government agencies from requiring payments to unrelated third parties as a condition of a government settlement. This lawless practice has led to wealth transfers of millions of dollars to outside organizations favored by the presidential administration—organizations which are neither parties to, nor injured by the conduct that is the subject of the government lawsuit. The infamous great mortgage shakedown that followed the banking crisis of 2008 is just one egregious example of such unlawful government activity. The Obama DOJ required banks settling claims over the mortgage crisis to make “donations” to La Raza, the National Fish & Wildlife Foundation, the National Community Reinvestment Coalition, and other organizations which were not parties to the bank prosecutions, nor victims of their alleged misbehavior. Worse, the larger the “donation” to these chosen third parties, the lower the overall settlement amount—every dollar the banks paid to these politically favored organizations gave them a two dollar settlement reduction.
Early in the Trump administration, then-Attorney General Sessions sent a memo to agencies prohibiting this practice, which also was made part of the Department of Justice Manual; it was finally made a Department of Justice rule in December of 2020.
President Biden’s revocation of this rule is indefensible. For government agencies to be splitting up booty exacted from a government prosecution with favored organizations violates the federal government’s Miscellaneous Receipts Act and corrupts the administration of justice. Fiscal laws that have been in effect for centuries require all receipts from Government action to be deposited into the Treasury, and those funds may only be expended by congressional appropriation. The most troubling aspect of the policy reversal is that the fiscal laws already prohibit this practice. The swift change in policy bodes ill for the integrity of the Biden administration.
Another presidential memo, issued on January 20, 2021, is called “Modernizing Regulatory Review.” This one instructs the powerful Office of Management and Budget—which oversees all federal agencies—on how to account for the costs and benefits of regulation, a process which has long served as a check on regulatory power. Some estimates of the costs of regulation suggest that they may be as high as $1.9 trillion. Such regulation operates as a hidden and deeply ingrained tax upon Americans. Under the new OMB policy, agencies are ordered to ensure that the cost-benefit review process “fully accounts for regulatory benefits that are difficult or impossible to quantify.” This is Newspeak for “put the regulatory thumb on the benefits pan of the scale and jettison rigorous cost-accounting.” The memo instructs agencies to use the regulatory review process to “promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations”—all immeasurables. This can only be described as a blank check for runaway regulation.
The Contorted Tree of Liberty
The administrative state flexes its extraordinary powers through at least three mechanisms that sit uneasily within the original constitutional design: 1) governing and adjudication by unaccountable bureaucrats unmoored from the rule of law who are tenure-protected despite the inherent authority of the executive to remove such officers under Article II; 2) Congress’s vague and practically unlimited delegation of its lawmaking power to agencies, despite the vesting of lawmaking power exclusively in the legislative branch under Art. I, Sec. 1 of the Constitution; and 3) a pernicious 20th-century invention of miscellaneous “deference” doctrines that require Article III courts to defer to government power. All three branches of government have been twisted like espaliered orchard trees in order to bear this bitter fruit of traduced liberty.
The founders knew that power would erode the parchment barriers of their political imaginations. Madison asked in Federalist 48, “Will it be sufficient to mark, with precision, the boundaries of these departments, in the constitution of the government, and to trust to these parchment barriers against the encroaching spirit of power?” One sentence later, Madison famously answered his own question with the glum observation that “experience assures us, that the efficacy of the provision has been greatly overrated; and that some more adequate defence is indispensably necessary for the more feeble, against the more powerful members of the government.”
These swift regulatory about-faces are just three examples of many reversals of laudable deregulatory accomplishments over the past four years. The time is ripe and the need is great for judicial course-correction. Judicial rejection of the many dubious deference doctrines that entrench the administrative state would be a good start. For far too long, courts have abdicated their duty to “say what the law is”—and what branch of government should make it. It remains to be seen whether Trump’s judicial appointees are up to the task of harpooning the leviathan.