American Democratic Capitalism
Explore the intersection of theory and practice in our national politics, and particularly in our key economic debates.
Washington is in a regulatory growth spurt. Hundreds of rule-making proceedings are underway or impending under the Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Patient Protection and Affordable Care Act (ObamaCare), both enacted in 2010. The Environmental Protection Agency (EPA) is pursuing many hugely expensive pollution-control initiatives. The Federal Communications Commission (FCC) wants to regulate the Internet. Agencies are tightening highway fuel-economy standards and banning the incandescent light bulb. Federal price controls, out of favor since the wage-price controls of the 1970s, are making a comeback in health insurance and debit cards.
Congressional Republicans are up in arms over these developments. The arrival of the Tea Party class of 2010 produced prompt moderations in the trajectories of taxing, spending, and borrowing, all of which require periodic legislation. Yet the current partisan divide is illusory. The modern regulatory state is a thoroughly bipartisan enterprise. During the half-century before President Obama’s election, the greatest growth in regulation came under Presidents Richard Nixon and George W. Bush. And the Bush administration set the stage for many of the Obama initiatives that Republicans are now attacking.
In this seminar, students will explore the challenges of regulatory growth. What are the sources and consequences of regulatory power? Can our regulatory state be reformed, and what strategies might be effective in constraining regulatory power?
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Christopher DeMuth on reforming the administrative state
Faculty
Christopher DeMuth
Christopher DeMuth is a Distinguished Fellow at the Hudson Institute in Washington, D.C. He was President of the American Enterprise Institute for Public Policy Research from 1986–2008 and D.C. Searle Senior Fellow at AEI from 2008–2011.
Christopher DeMuth
Christopher DeMuth is a Distinguished Fellow at the Hudson Institute in Washington, D.C. He was President of the American Enterprise Institute for Public Policy Research from 1986–2008 and D.C. Searle Senior Fellow at AEI from 2008–2011.
A graduate of The Lawrenceville School, Harvard College, and the University of Chicago Law School, Mr. DeMuth was staff assistant to President Richard Nixon in 1969–1970, working on urban and environmental policy, and, during President Ronald Reagan’s first term, was administrator for information and regulatory affairs in the Office of Management and Budget and executive director of the Presidential Task Force on Regulatory Relief. From 1976–1980, he taught at the Harvard Kennedy School of Government and directed the Harvard Faculty Project on Regulation. He has also practiced law (with Sidley & Austin in Chicago and at the Consolidated Rail Corporation in Philadelphia) and been an economic consultant (with Lexecon, Inc.), and was for a time publisher and editor-in-chief of Regulation magazine (now published by the Cato Institute). He is currently a director of State Farm Mutual Automobile Insurance Company and of several nonprofit organizations.
DeMuth was raised in Kenilworth, Illinois, and lives in McLean, Virginia. He and his wife, Susan DeMuth, MD, have three grown children and seven grandchildren. His writings are posted at www.ccdemuth.com.
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Preview the Syllabus by Week/Session
Session 1: “An Immense and Tutelary Power”
Readings:
- Alexis de Tocqueville, Democracy in America, II, Sec. 4, Ch. 6 (“What Sort of Despotism Democratic Nations Have to Fear”)
- From The Economist, February 18, 2012: “Over-regulated America,” “Tangled up in Green Tape,” and “The Rule of More”
- Sam Peltzman, “Regulation and the Natural Progress of Opulence,” AEI-Brookings Joint Center for Regulatory Studies, 2004
- Christopher DeMuth, “The New Regulatory State,” forthcoming 2012
Discussion Questions:
- Why, in Tocqueville’s view, are Americans vulnerable to the sort of despotism that he describes? From the other readings, and from your own experience, do you think that Tocqueville’s predictions have proven accurate?
- What are the sources of regulatory growth? In what sense is regulatory growth a problem? Are the reform measures currently under consideration likely to affect regulatory growth or improve the substance of regulatory policies?
Session 2: Growth and Control
Readings:
- Shep Melnick, “Courts and Agencies,” from Making Policy, Making Law (Miller and Barnes, eds.), 2004, Ch. 5
- Ronald Reagan, Executive Order 12291—Federal Regulation, February 17, 1981
- Barack Obama, Executive Order 13563—Improving Regulation and Regulatory Review, January 18, 2011
- Stephen Breyer, Breaking the Vicious Cycle: Towards Effective Risk Regulation, Ch. 3
- Christopher DeMuth, “OIRA at Thirty,” 63 Administrative Law Review 15 (2011)
Discussion Questions:
- What are the purposes of White House review of agency regulatory proceedings?
- Is cost-benefit analysis an appropriate means of improving regulatory decisions?
- What are the strengths and weakness of White House review? How might it be improved?
Session 3: Expertise versus Representation
Readings:
- Eric A. Posner and Adrian Vermeule, The Executive Unbound: After the Madisonian Republic, Introduction and Ch. 1
- David Schoenbrod, “How REINS Would Improve Environmental Protection,” 21 Duke Environmental Law & Policy Forum 347 (2011)
- Sally Katzen, “Statement before the Subcommittee on Courts, Commercial and Administrative Law of the House Committee on the Judiciary on the REINS Act,” January 24, 2011
- David Goldston, “How REINS Could Impede Promulgation of Environmental Safeguards,” Inside EPA, April 28, 2011
Discussion Questions:
- Why, in Posner and Vermeule’s view, has policy-making power migrated from the Congress to the Executive Branch? Does this change in government structure present serious problems of democratic accountability and/or policy substance? Is the separation of powers really a dead letter?
- Is the REINS proposal a plausible corrective to the problems of unilateral Executive government? Is greater legislative participation in regulatory policy-making practicable and desirable? Does REINS seem well suited to the characteristic deficiencies of regulation that we have examined?
Session 4: Cost-Benefit Analysis and the Courts
Readings:
- Securities Exchange Act of 1934, Section 14(a)—Proxies
- Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Section 971—Proxy Access, p. 541
- Jessica Holzer, “Court Deals Blow to SEC, Activists,” Wall Street Journal, July 23, 2011
- Review & Outlook, “SEC Smackdown,” Wall Street Journal, July 25, 2011
- Securities and Exchange Commission, “Facilitating Shareholder Director Nominations,” 75 Federal Register 56,688, 2010
- Business Roundtable v. Securities and Exchange Commission, U.S. Court of Appeals for the District of Columbia Circuit, No. 10-1305, July 22, 2011
Discussion Questions:
- Was the SEC’s proxy rule a fair application of Congress’s statutory mandate on the subject? Who made the important policy decisions—Congress or the Commission?
- Was the SEC’s decision convincing? Did it give you a good idea of the purposes of its rule and the evidence and reasoning that led to its policy choices? Did the cost-benefit analysis, and the various procedural hoops the Commission was obliged to jump through, seem to help or hinder its decision?
- Was the Court of Appeals decision convincing? Did the court apply the law at hand or substitute its policy judgment for that of the SEC?
- As a check on the discretion of regulatory agencies, which seems preferable—an economic (cost-benefit) check wielded by the courts or a political (REINS) check wielded by Congress?
Session 5: Crisis and Response: The Financial Collapse of 2008
Readings:
- Financial Crisis Inquiry Commission, Final Report (Preface and Conclusions) and Dissenting Statement of Peter J. Wallison (Introduction and Summary)
- Christopher DeMuth, Conservatism and Regulation, Ch. 4 and Appendix
- Richard A. Posner, “The Causes of the Financial Crisis,” in Jeffrey Friedman, ed., What Caused the Financial Crisis
Discussion Questions:
- Was the Inquiry Commission report a useful exercise in identifying the causes of the collapse and proposing measures to reduce the likelihood of another one? Who did a better job of identifying causes and cures—the Commission majority or the dissenter?
- Did the financial collapse amount to a “crisis of capitalism” or a “crisis of government”? Did private financial markets prove to be inherently unstable? Did the government’s involvement, before and after the collapse, improve or worsen the operation of private markets? Did private financial firms abuse their economic power?
- What further lessons do the financial collapse and government response provide on the questions addressed in our previous sessions—concerning the nature of regulation, the growth of Executive power at the expense of the Congress, and the utility of the various regulatory reform measures currently being considered?
