Warren has right diagnosis, but wrong prescription

When Elizabeth Warren was running for the Senate, she would tell audiences, and still does, that “the system is rigged against [them].” She is right in that some large companies with a lot of lawyers and lobbyists influence legislation and regulation so that they can benefit at the expense of competitors. But her prescription — more government — is like the old practice of bloodletting to cure patients of almost all illnesses. And, like bloodletting, her prescription will do more harm than good.

The only reason that large companies can game the system as much as they do is because the regulatory state has been advancing at an increasing pace. The CEO of Dow Chemical, Andrew Liveris, in interviews says that he learned that “if you are not at the table, you’re likely on the menu.” At first reading, this sounds like self-protection. But it really means to not only protect your self-interest, but make sure that your competitors are on the menu. Liveris is one of the leaders of the campaign opposing the export of natural gas, which will stifle the U.S. manufacturing renaissance if it is successful. Peel the veneer of patriotism away and the real agenda is to increase Dow’s profits at the expense of global competitors. Dow is not alone. GE, for example, supports the Export-Import Bank and alternative energy initiatives so that the purchasers of its jet engines and wind turbines can get below-market rate loans and subsidies.

{mosads}Bruce Yandle, dean emeritus of Clemson University’s Department of Economics, developed the public choice “bootlegger and Baptist” theory to explain special interests behavior. In an earlier time, Baptists wanted to restrict the Sunday sale of alcohol and bootleggers were willing to support their efforts because demand for alcohol was not constrained. Today, bootleggers are those who “take political action in pursuit of narrow economic gains,” while Baptists represent “group action driven by an avowed higher purpose or desire to serve the public interest.” These objectives produce an implicit coalition that leads to restricting competition. Yandle has recently published a book by the title Bootleggers and Baptists that gives a long list of examples — from environmentalism to TARP (Troubled Asset Relief Program) to ObamaCare — that explain an implicit collaboration that has produced the growth of crony capitalism.

Without the growth of the regulatory state, bootleggers and Baptists would have fewer opportunities for collaboration. But with each passing year, they have more. In the 41 years since 1974, the Code of Federal Regulations has grown from 69,000 to 174,545. According to Patrick McLaughlin of the Mercatus Center, stacked on top of one another, they would stand 24-feet high. In 2001, there were 149 regulations costing $100 million or more; by 2012 the number had increased to 224.

It defies common sense to believe that problems requiring federal government intervention have more than doubled in 40 years or that the needs for major regulations increased 50 percent in a decade.

The growth in regulation is clear evidence that we have become an over-governed society as more and more groups turn to the federal government to meet “society’s needs.” And Congress and the executive branch are all too willing to satisfy those needs because it gives the bureaucracy more power and Congress more resources to provide the pork that helps members get reelected. In the process, we are sewing the seeds of ruin.

Fifty-two years ago, the historian William Henry Chamberlain wrote an article, “Bureaucracy Kills: A Lesson From Rome.” In it, he wrote:

Ever higher taxes, an ever increasing bureaucracy, an evermore absolutist state power, a paralysis of local initiative, a growing reliance on a central authority that started with some aspects of a welfare state and ended in full-fledged totalitarianism … was the unhappy story of Rome’s Decline and Fall.

Does it take much exercise of the imagination to recognize in … our own time some germs, at least, of the political, social, and economic diseases that first sapped and finally destroyed “the grandeur that was Rome”?

The growth in regulation, crony capitalism and increased federal government control over more aspects of our lives are interrelated and have put us on an unsustainable path. Corrective action should be a major priority. A serious regulatory reform agenda would eliminate outdated regulations, produce more transparency and give Congress a more effective checks-and-balances mechanism over major regulations. And with that should come a shrinking of the federal bureaucracy. The test should not be what government can do; it should be what government should do.

O’Keefe is CEO of the George Marshall Institute and president of Solutions Consulting, Inc.