Thursday, June 30, 2016

The Administrative State ... Not a Good Thing

When attending law school long ago in the late 1960's, a very enlightening, and perhaps the most interesting and relevant course I took, was titled 'Administrative Law.' It's time for a refresher as our governing administrative agencies, and their intrusion into our daily lives, have grown exponentially over the past several decades.

Government Hits the Wall is subtitled 'The first Brexit vote actually took place in 1980 when the U.S. elected Reagan.' It has this to say about the huuuuuge administrative state that reigns throughout the world today:

"The vote by the people of the United Kingdom to separate from the European Union was actually Brexit the Sequel. The first Brexit vote took place 35 years ago in the United States, with the election of Ronald Reagan, who carried 44 states.

Reagan, in his first inaugural address in 1981, could not have been more explicit about what his election stood for: “In this present crisis, government is not the solution to our problem; government is the problem.”

Brexit is shorthand for “government is the problem.”

Liberal intellectuals have mocked Reagan for reducing his theory of government to a bumper sticker. But he elaborated on the idea with words that would have fit in the Founders’ debates:

“We have been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. But if no one among us is capable of governing himself, then who among us has the capacity to govern someone else?”

The political values of the American and European left—heard today in every sentence spoken by Hillary Clinton and Bernie Sanders or Elizabeth Warren—reside in an argument that is essentially this:

A good and just society comes through an economic and social compact between citizens and their government. If citizens will transmit sufficient tax revenue to the government, it will hire experts in public administration (to Reagan an “elite group”) who will deliver socially desirable benefits to everyone, and will do so with equity. It is an appealing promise.

People who believe this, and some still do sincerely, regarded Reagan’s inaugural formulation as the words of an antigovernment “ideologue.” Still, ideology matters, and they have their own founding ideologue, Woodrow Wilson.

In his 1889 book called “The State,” the future progressive Democratic president of the U.S. wrote: “Government does now whatever experience permits or the times demand.” Across the 20th century, that broad claim summarized the justification for building the administrative state, here and in Europe.

That sound you heard in the United Kingdom last week was the administrative state finally hitting the wall.

It was the British people saying that the compact has been broken, not by them but by the administrative and political elites who dropped their side of the bargain.

The only way the bargain can be sustained is if the administrative state produces, or at least allows, sustained national growth. It now slows economic growth, which like a slow poison has weakened feelings of national well-being. Anti-immigrant resentment is a subset of this failure.

The creators of the European Union signed the enabling Maastricht Treaty in 1992 because they recognized that the economic underpinnings of the social compact were disintegrating. Everyone knew the purpose of this big step was summarized in a single, typically dry formulation: Each member would maintain “sound fiscal policies, with debt limited to 60% of GDP and annual deficits no greater than 3% of GDP.”

It didn’t work. Nearly all the members cheated on the benchmarks, economic growth weakened, and youth unemployment became chronic, driving France’s young men and women to London for jobs.

The “administrative state” hasn’t been a phrase known to drive people into the street. Until now. What we are witnessing is a global government fail—across Europe, the Middle East, in Beijing, Delhi, Tokyo and Washington, D.C.

If votes were held today in Italy, Spain, France or Norway, many would vote to abandon the long postwar consensus on letting the bureaucracies decide how to simultaneously produce economic strength and social justice.

No better symptom exists of the compact breaking apart than the European Central Bank, the U.S. Federal Reserve and the Bank of Japan. They epitomize the exhaustion of elite administrative intelligence. For seven years, they failed at restoring even average economic strength, disappearing now into a black hole called negative interest rates.

The Obama presidency has been an American version of the European Commission from which the Brits fled. Except that U.S. courts still review, rather than rubber-stamp, the Obama Commission’s executive orders ranging across labor, the environment, the internet, financial institutions and universities.

Had U.S. courts not pushed back against many of the Obama government’s rules and “guidance” directives, the famous “pen-and-phone” authority, this presidency would have come close to putting the states in the same relation to Washington as that between the once-sovereign states of Europe and Brussels.

If Woodrow Wilson was the American godfather of this transformation, Hillary Clinton is its handmaiden. She knows the drill. With four more years of an Obama-Clinton presidency and possibly Democratic control of Congress, the 100-year-old progressive goal of making the 50 American states obey one set of administrative specialists who reside in a single city will be close to complete."

Summing Up

There is no Santa Claus.

People cannot forever and always live beyond their means. Neither can nations.

We can't reap, individually or collectively, that which we don't first sow.

The simple addition of three factors: (1) the number of individuals performing value added work; (2) how long they work; and (3) how productive (output per unit of input) they are while doing that work will inevitably determine the total amount of wealth to be shared among the citizenry.

Government's take, aka its administrative, regulatory and governance activities, will subtract from that total value added output, and that's the simple truth.

The monetary authorities produce nothing. That's also the simple truth.

Today's debt levels subtract from tomorrow's ability to spend. That's true as well.

Thanks. Bob.

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