The New Road to Serfdom

by Daniel Hannan

  A large diverse democracy, where interest groups are held in check by jurisdictional competition, substantially reduces the incentives for individuals to seek rents through government action. Individuals will instead spend their time, on balance, in relatively more productive and peaceful activity.

  The founders, and the Jeffersonians in particular, were also ahead of their time in understanding that, in any state, there will always be a centripetal force exercised by the federal authorities. Again, they sensed by instinct a phenomenon that a later generation of political scientists was to identify and label. Professor Roland Vaubel of Mannheim University has carried out a major study of twenty-two federations, and found that, in all but one of them, there has been a tendency, over time, for power to shift from state or provincial authorities to the central government. He has identified a number of factors that drive the process of centralization. Provincial governments, for example, often refer a decision upward in order to overcome local opposition to a specific measure, which jurisdiction, once transferred, is almost never returned. Constitutions are usually interpreted by a supreme court whose members, being appointed at the federal level, tend to have a federal outlook. Powers delegated to the center in times of war or crisis are rarely devolved when the emergency passes.

  Among the twenty-two nations surveyed, the only exception was Canada where, until the mid-1980s, the body equivalent to a supreme court was the British Privy Council, which, not being a Canadian institution, had no interest in strengthening the national authorities at the expense of the provinces. Everywhere else, many more powers were transferred upward than downward.

  It is a measure of their genius that the Founding Fathers did their best to take precautions against this tendency, even though they had no direct experience of it. The Bill of Rights that they tacked on to the Constitution, in the form of the first ten Amendments, asserted the prerogatives of the citizen against national institutions, and at the same time protected the sovereignty of the states. The Tenth Amendment (originally proposed by Madison as the ninth) makes explicit what is implicit in the tone of the entire constitutional settlement:

  The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

  There were, inevitably, fierce arguments about where to draw the line between state sovereignty and federal authority: arguments that led, in time, to the Nullification Crisis and eventually to the Civil War. But what strikes the observer at this distance in time is how successful the authors of the Constitution were in securing their objectives. Even today, U.S. states in many ways enjoy more autonomy than whole nations within the European Union: They are able to set their own rates of indirect taxation, for example, and can decide whether or not to apply the death penalty.

  That said, the United States has not been immune to the centralizing tendencies that have afflicted other federations. The twentieth century saw a transfer of powers from state to federal authorities, which resulted in a much larger and more unwieldy Washington administration.

  __________

  The first shift in power happened under Theodore Roosevelt who, pleading the contingency of an active foreign policy, seized for the White House powers that had until then resided with Congress and the states. It was he who began to make widespread use of executive decrees as an instrument of administration. Indeed, the baleful statism of the second Roosevelt would not have been possible without the precedents established by the first.

  To be fair, both Roosevelts were men of their time, as was Woodrow Wilson. During the first half of the twentieth century, most clever and fashionable people believed in the power of the state and the importance of government planning. The U.S. Congress was not immune to global currents of thought, and began to regulate whole industries that had previously operated with minimal oversight: railroads, food production, meat-packing, pharmaceuticals.

  The founders had enshrined states’ rights in the Constitution, and amending the Constitution was no simple matter. However, with confidence in federal institutions at its high-water mark, politicians were able to effect considerable transfers of power from state legislatures to Washington, bending the Constitution to their will. Indeed, the neatest way to measure the centralization of this era is by scanning the text of the sudden clutch of amendments.

  There had been no amendments for forty-three years following Reconstruction. The Sixteenth Amendment, passed in 1913, was the first of a new set of measures aimed at strengthening the national government. It established the right of Congress to levy income tax, and did so in such broad and general language as would have horrified Jefferson:

  The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

  That amendment, as much as any other, revolutionized the relationship between federal and state authorities. It gave Washington a massive financial advantage, and allowed Congress to make conditional grants to states in return for their discharge of particular policies. From then on, states often found themselves acting simply as the local administrators of a national policy—which was, of course, precisely the intention of the Wilson administration.

  In the same year, the Seventeenth Amendment replaced the old Senate, whose members had been nominated by their state governments, with a directly elected chamber. While the change unquestionably reflected the mood of the times—the old system had given rise to some notorious cases of favoritism and corruption—it also fundamentally altered the federal character of the United States. From then on, the legislature was a wholly national institution, and the conception of the Senate as a guarantor of states’ rights was, if not wholly eliminated, much weakened.

  The Eighteenth Amendment, ratified in 1919, established Prohibition. It is a sign of the mood of those times that the sale and consumption of intoxicating liquors could ever have been seen as a proper field for federal regulation. The Eighteenth Amendment, the only one ever to have been repealed, was perhaps the most egregious example of the appetite of national politicians to micromanage matters that can be administered locally perfectly well.

  Finally, the Nineteenth Amendment, adopted in 1920, extended to the vote to women, a less contentious measure than its immediate predecessors, and one that followed the precedent of the Reconstruction amendments that extended the franchise to former slaves, but nonetheless one that reflected the federal government’s belief that it had the power, not simply to define who was eligible to participate in nationwide ballots, but also to lay down how states must run their internal elections.

  __________

  The centralization of the Wilson years was a prelude to the massive power grab of the New Deal. I know that, for many people, Franklin D. Roosevelt is a hero. And, as a British Conservative, I don’t want to be churlish about the president who came to Churchill’s aid when our need was greatest. But it is worth looking at his initiatives coldly, not least because of their relevance to our current era.

  Most disastrous policies have been introduced at times of emergency. FDR, like Barack Obama, was elected during what looked like a crisis of capitalism: Banks were failing and the economy was in a severe recession. Like President Obama, he brought a Democratic landslide in his wake, with the party establishing comfortable majorities in both houses. Like the Democrats of today, most of those legislators felt that they had been elected to do something radical.

  Just as bad policies usually come at times of crisis, so their authors are usually acting from decent motives. I don’t question the sincerity of either the New Dealers or their successors today. Roosevelt’s supporters genuinely believed that they were standing up for ordinary people against the power of the lobbies and the vested interests—a not wholly unfounded belief, if we are honest. FDR was, after his fashion, a convinced patriot, seeking to rescue what he saw as the victims of a failed laissez-f
aire system.

  The trouble is that the president’s moral certainty justified, in his own mind, sweeping aside all opposition, and overturning the checks on his power laid down in the Constitution. Convinced of his own rectitude, he was happy to exceed the powers granted to his office, to rule by executive order, to sidestep the legislature, to trample on the prerogatives of the states, to disregard the two-term convention, and to attempt to pack the Supreme Court.

  In the name of combating the recession, the New Dealers unbalanced the Constitution, presiding over an expansion of executive power that was wholly at odds with what the framers had envisaged. And for what?

  For a long time, even Roosevelt’s critics tended to concede that, while the centralization of political power was regrettable, the New Deal had at least stimulated the economy. Over the past decade, however, the consensus among economists has shifted radically. Many now argue that the New Deal in fact worsened the recession: that it encouraged cartels and crony capitalism, that its regulations burdened businesses that might have led the way to recovery, that its rules on social security and the privileges it granted to labor unions deterred employers from taking on workers.

  In 2004, two economists at UCLA, Harold L. Cole and Lee E. Ohanian, conducted a major study that concluded that the New Deal had in fact prolonged the recession by seven years.

  According to Professor Cole:

  President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services. So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.

  It is hard to argue with the proposition that much of the New Deal would be unimaginable today. One of the emergency measures, for example, was an attempt to raise farmers’ incomes by removing food surpluses from the market. In other words, at a time when soup kitchens were short of supplies, the federal government was ordering the destruction of comestible food.

  The New Deal Democrats, like many elected representatives today, were in the grip of one of the most dangerous of political fallacies: the idea that, at a time of crisis, the government’s response must be proportionate to the degree of public anxiety. “Doing nothing is not an option!” intone politicians, as though hyperactivity were itself a solution. Is that phrase ever true? Doing nothing is always an option, and often it is the best option.

  The Roosevelt administration certainly was active: It generated legislation at an unprecedented rate, and created an alphabet soup of new federal agencies: the Resettlement Administration, the Public Works Administration, the Works Progress Administration, the Reconstruction Finance Corporation, and many more.

  FDR is the author of the current constitutional dispensation: one that vests far more power in the White House than ever the founders intended. The architecture that he put in place was substantially enlarged by Lyndon B. Johnson, who had started out as a New Deal apparatchik, running the National Youth Administration in Texas. There was some marginal retrenchment during the Reagan years, although federal expenditure went on growing in both relative and absolute terms. But the Gipper was, as so often, the exception. Federal power continued to expand under George W. Bush, especially in the fields of public education and national security.

  __________

  Looking at the legacy of the New Deal, several lessons seem especially apt to America’s present situation.

  First, federal agencies and programs are much easier to establish than to discontinue. Many of the bodies established during the 1930s were soon redundant. Some failed even in their immediately declared objectives. Yet it took decades before they were wound up, and several of them still exist, for example the Federal National Mortgage Association: Fannie Mae.

  Second, although government spending can have a short-term stimulating effect, state agencies are unwieldy organizations. Often, the worst of the downturn will be over before their full fiscal impact is felt. In consequence, instead of having a counter-cyclical effect, they end up having a pro-cyclical effect, generating most of their activity once the recovery has started.

  Third, the debt incurred by supposed contingency measures can take decades to pay off, as notionally emergency policies become a permanent drain on the treasury.

  Fourth, there is a tendency for governments to expand at times of crisis, not in order to meet the crisis, but in order to allow politicians to demonstrate that they are “doing everything in their power.”

  Fifth, such expansion is most damaging and most permanent when it is carried out at a time of one-party dominance.

  Sixth, whatever the economic consequences of state expansion, there are always deleterious democratic consequences, as the advantages of decentralization are lost. Citizens find that the decisions that impact most tangibly upon them are often taken, not by locally elected officials, but by the appointed directors of large bureaucracies.

  I’m sure you can see where this argument is going. The financial crisis of 2008 also prompted governments around the world to react by extending their powers—nowhere more so than in the United States and the United Kingdom. The leaders of those countries, doubtless from the best of motives, believed that governments could ward off recessions by spending more, borrowing more, owning more, and regulating more.

  The trouble is that the pursuit of these policies has left their peoples poorer and less free. The story of the Roosevelt years should stand as a warning to Americans of the extent to which one administration can fundamentally alter the relationship between state and citizen, trampling over the founders’ vision and making permanent and harmful changes to the republic. Let’s hope that this generation doesn’t need to be taught that lesson again.

  5

  DON’T COPY EUROPE

  To the size of a state there is a limit, as there is to plants, animals and implements, for they can none of them retain their natural facility when they are too large.

  —ARISTOTLE

  American journalists are forever trying to get me to be disobliging about President Obama. It’s not something I want to do, for several reasons.

  First, etiquette. The chap is your head of state, the supreme representative and exemplar of a great nation. There’s a decorum about these things.

  Second, diplomacy. Politicians shouldn’t be critical of foreign leaders without very good reason.

  Third, democracy. Barack Obama won a handsome electoral mandate, and many good, generous, patriotic Americans—Americans such as my cousins in Philadelphia, of whom I’m tremendously fond—voted for him.

  Fourth, decency. He seems a likeable fellow, with a wonderful family to whom he is plainly devoted.

  Fifth, benefit of the doubt. I don’t believe for a moment that any U.S. president would deliberately set out to impoverish his country, or to undermine its essential freedoms. If these outcomes should ensue, they are likely to be the unintended consequences of well-intentioned reforms.

  The sixth consideration, however, towers over the first five. No friend of the United States wants an American president to fail. The security and prosperity of the world are underpinned by the strength of the United States.

  Friendship carries obligations. When you see a friend about to repeat your mistakes, you try to warn him. Let me, then, offer this chapter in a spirit of amity. I have been a Member of the European Parliament for eleven years. I am living in your future. Let me tell you a few things about it.

  DON’T EUROPEANIZE THE ECONOMY

  __________

  President Obama, not unreasonably, wants to reconcile America to Europe. Indeed, he didn’t wait to be elected before setting to work. During the 2008 campaign, he promised a crowd of giddy Berliners that
he would reaffirm America’s support for multilateralism, for European integration, and for concerted action against global warming.

  Immediately after assuming office, he toured European capitals to repeat these themes. “America has been arrogant,” he told delighted audiences. He would be different. He would propose cuts in the stocks of nuclear weapons. He would support the Rio-Kyoto-Copenhagen process. He would embrace a more European model of health care and social security. And, not least, he would support the process of political integration in the EU: “In my view there’s no Old Europe or New Europe,” he told a NATO summit in Prague, silkily repudiating Donald Rumsfeld’s distinction. “There is a united Europe.”

  The Euro—elites-as opposed to their Euro-skeptic populations—were overjoyed. For the avoidance of doubt, Obama rammed home his point: “I believe in a strong Europe, and a strong European Union, and my administration is committed to doing everything we can to support you.”

  It is only fair to note that Obama balanced his apologies by chiding European anti-Americans—although, for whatever reason, this part of his message was not widely reported in Europe.

  Of course, there is nothing wrong with a U.S. president trying to make his country more popular. On the contrary, it’s a vital part of his job. President Obama is a fine orator, and it would have been remiss of him not to seek to capitalize on the goodwill generated by his election. If all he was doing was listening more sympathetically, explaining America’s position more coherently and seeking to win new allies through personal diplomacy, I hope all Americans would support him.