The power of America’s economy comes from individual initiative — or more accurately, from a culture that, beginning with early settlers, encouraged and empowered countless individuals to take ownership of their lives. Individual ownership of life’s choices unleashed energy, willpower, and imagination never before seen in human history.
This uniquely American character was identified by Frederick Jackson Turner as: “that practical, inventive turn of mind, quick to find expedients; all that restless nervous energy; that dominant individualism, working for good and for evil, and withal that buoyancy and exuberance which comes from freedom.”
This was not an economy of calibrated central plans, but of people in garages and back yards and labs who pursued their dreams. Two bicycle mechanics in Dayton tinkered their way to manned flight, beating the smartest scientists around the globe. America’s economic philosophy was as simple as it was decentralized: trial and error. “Nothing any good works by itself,” as Thomas Edison put it, “You got to make the damned thing work.”
America’s can-do culture has a few necessary conditions, including the rule of law. Economic energy dissipates in a state of anarchy or corruption. A vigorous economy requires a legal platform which enforces contracts, protects against crime and allows people to go through the day focusing forward, not looking over their shoulders.
Too much law, however, can have similar effects as too little law. People slow down, they become defensive, they don’t initiate projects because they are surrounded by legal risks and bureaucratic hurdles. They tiptoe through the day looking over their shoulders rather than driving forward on the power of their instincts.Instead of trial and error, they focus on avoiding error.
Modern America is the land of too much law. Like sediment in a harbor, law has steadily accumulated, mainly since the 1960s, until most productive activity requires slogging through a legal swamp. It’s degenerative. Law is denser now than it was 10 years ago, and will be denser still in the next decade.
This growing legal burden impedes economic growth:
• According to the World Bank, the U.S. now ranks 46th in the world in ease of starting a business. There are too many requirements, imposed in a way that is too disorganized. Mayor Bloomberg discovered that starting a restaurant in New York City required getting permits from 11 different agencies. Local regulators close down children’s lemonade stands for want of a vendor’s license.
• Obvious productive investments, such as rebuilding America’s decrepit infrastructure, are stymied by regulatory tangles. Even the people in charge can’t cut through it. President Obama got broad support for the $800 billion economic stimulus plan in 2009 by emphasizing the opportunity to rebuild infrastructure. Five years later, buried in the back of a White House report on how the money was actually spent, is this fact: barely 3 percent of the stimulus was spent on transportation infrastructure. How can that be? It turns out that in America today even the president, unlike FDR in the New Deal, lacks the authority to say go to essential projects to fix infrastructure. In the case of rebuilding the Bayonne Bridge in the Port of New York — a project that does not touch the bridge foundations or change the right of way, which President Obama identified by executive order as a national priority — 47 permits were required from 19 different government entities, plus a 5,000 page environmental review study. Five years later, work can begin. On average, highway projects require eight years for approval.
• America’s competitiveness is weighed down by mandates and systems that business can’t control. Healthcare costs, for example, are inflated by a bureaucratic payment and regulatory structure that, studies estimate, consumes 30 percent of the healthcare dollar. That’s $850 billion, or about $2700 for every person in America. We spend all that money on armies of billing and compliance personnel, and on doctors and nurses spending as much as a third of their days doing what used to be called paperwork. Healthcare is hardly the only sector in society weighed down by excessive mandates. Small banks are being driven out of business by Dodd-Frank regulations designed to regulate big banks. Over 25 percent of the K-12 budget is consumed by special ed mandates, with almost nothing for gifted children. Who is going to provide for special needs children in the next generation?
• The final legal friction I’ll mention here is defensiveness, which has swept across our culture like a plague. Ordinary interactions and ideas out in society are weighed down by fears that any candid comment, any spontaneous reaction, any new product or marketing initiative, might get you in legal trouble. Legal defensiveness has changed the culture: Employers are afraid to give candid job references (what happened to the First Amendment?); doctors waste upwards of $200 billion on defensive medicine; teachers don’t put an arm around a crying child; diving boards and seesaws are verboten; warning labels blanket the landscape: “Caution, Contents Are Hot.” It is impossible to calculate the cost of defensiveness, but that’s what’s so scary about it.It’s everywhere.Can Do is becoming Can’t Do.
The Solution to Legal Suffocation
Law needs to get rebuilt. There’s no avoiding it. Sensible choices today are illegal.Productive activities are sinking in legal quicksand. Even the president can’t break loose. It’s the law.
But the new approach to law is not (generally) captured in the idea of “deregulation.” Most Americans want environmental review, special ed, financial regulation, licensing of food vendors, and oversight of healthcare delivery. Lawsuits are an essential tool of the rule of law.
All of these desirable goals of law, which should enhance our freedom, are instead undermining our freedom. Indeed, it’s hard to find one government program that isn’t broken, and often counterproductive.The evidence is irrefutable: Read Peter Schuck’s book, Why Government Fails So Often. My favorite failure is civil service — designed to be “the merit system,” it instead makes it illegal to judge anyone based on merit.
The mutant root that has produced this impenetrable bureaucratic kudzu is the idea that law can supplant human judgment. We have tried to create a hands-free legal code, without any risk of human frailty. Most legal detail is aimed not at important legal goals or principles, but at dictating daily implementation. That’s why the Volcker rule is 950 pages. The Constitution, by contrast, is ten pages.
American law has become central planning. Actually, it’s worse, because the planners are dead.Detailed laws and regulations are still dictating behavior decades after they are written, when circumstances have long since changed.
The solution, broadly, is to restore human responsibility as the activating force of law and regulation. Law should be radically simplified into goals and governing principles, like the Constitution, and leave to accountable humans the responsibility to achieve those goals fairly and sensibly. Law becomes a fence around a corral, within which humans can try to achieve results in their own way. Any successful regulatory oversight works this way. The FAA, for example, certifies new planes as “airworthy” without detailed codes on how many rivets per square foot etc. Would you rather fly on a plane that was permitted to fly only because a court decided it complied with detailed regs? Australia replaced a thousand rules for nursing homes with 31 broad principles such as requiring “a homelike setting” and respecting “privacy and dignity.” The experts scoffed. Within a year the nursing homes were materially better.
Restoring human responsibility will permit legal codes to be slimmed down, in most areas, by probably 95 percent. Law will be understandable. People will disagree on application, but they disagree now. That’s another of the fallacies of legal micromanagement. There’s no such thing as “clear law.” Every set of words, for reasons explained by Wittgenstein, rests on unstated premises and norms. The obsessive quest for legal clarity just means that disputes focus on parsing of legal language, not ultimate goals.
Another misconception is that a government grounded in human responsibility requires trusting officials to do what’s right. To the contrary, giving people responsibility puts them on the hot seat — it’s the basis for accountability. A person who betrays a public trust should be fired.It’s also not hard to build in checks and balances — just give other people responsibility to second-guess important public choices (e.g., supervisors, appellate courts and other oversight bodies).I don’t trust anyone. But I do trust a system based on human responsibility, where responsible people are exposed to oversight by other responsible people. What I don’t trust at all is a tyranny of mindless bureaucracy. Nothing works. No one is accountable. It’s a formula for paralysis. It smothers productive activity. It kills freedom.
The reason lawsuits have fostered a culture of defensiveness is also a lack of human responsibility: Judges don’t feel they have authority to draw lines based on reasonable social norms. So self-interested claimants sue for anything. Because lawsuits are an act of state power — coming down to a verdict in which you could lose your home — judges must act as gatekeepers by deciding what is a valid claim. In courtrooms as well as government agencies, law must affirmatively protect boundaries of free behavior — whether it’s taking the risk of seesaws, or being honest in workplace discussions, or selling coffee without a warning that it’s hot. No code can do this. It requires judges to apply prevailing norms of reasonableness, as a matter of law. Juries can’t instill this trust — they only render decisions after years of litigation, and have no obligation to honor prior decisions. As with the failure of government programs, the evidence here is irrefutable: this laissez faire approach to lawsuits is undermining Americans’ freedom. Look around.
America desperately needs a recodification. The way this works is that small committees are charged with coming up with simplified codes in each area of government, and then lawmakers decide whether to adopt them. This is how the Justinian and Napoleonic codes were created — it took only five months for Jean-Etienne Portalis and a small committee to propose a complete overhaul of French law. This is also how America’s Uniform Commercial Code was created.
Simplified codes unleash enormous productive activity — like replacing a muddy road with a paved highway. That’s what happened in ancient Rome, and in 19th century France, and in post-war America with the UCC. People know where they stand. They feel free to act on their reasonable instincts of right and wrong. They don’t go through the day looking over their shoulders.
How would this legal simplification enhance long-term growth in America? Studies suggest that, by itself, a reasonable infrastructure approval process would result in two to three million new jobs over the near term. Imagine the energy unleashed if Americans , instead of tiptoeing through a legal minefield, once again felt free to engage in trial and error.
The economic power of a free society requires that people wake up in the morning and feel free to follow their stars. That requires a new, simplified legal framework.
The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on reviving economic growth.