How To End Cronyism Constitutionally?

September 9th, 2012

Charles Koch has a lengthy Op-Ed in WSJ about the dangers of crony capitalism (what we used to call rent-seeking apparently). I agree with a lot of it, but that isn’t why I am blogging it. Rather, I want to focus on one of his conclusions that is largely unaddressed.

 To end cronyism we must end government’s ability to dole out favors and rig the market. Far too many well-connected businesses are feeding at the federal trough. By addressing corporate welfare as well as other forms of welfare, we would add a whole new level of understanding to the notion of entitlement reform.

Factionalism is not that much different from classic interest-group based rent seeking. Small groups unite to use their collective clout to extract benefits from the government. It’s capture.

And how do we end the government’s ability to dole out these favors to favored groups. Let’s start with Madison, and  Federalist No. 10:

There are two methods of curing the mischiefs of faction: the one, by removing its causes; the other, by controlling its effects. There are again two methods of removing the causes of faction: the one, by destroying the liberty which is essential to its existence; the other, by giving to every citizen the same opinions, the same passions, and the same interests. It could never be more truly said than of the first remedy, that it was worse than the disease. Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency. The second expedient is as impracticable as the first would be unwise. As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves. The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.

One of the biggest checks on government’s ability to dole out favors is the inherent limitation of all of their powers–namely the doctrine of enumerated powers.

What is unsaid in Koch’s call to limit the ability of the government to dole out favors to crony is an implicit call to limit what Congress can do–presumptively through constitutional enforcements of Article 1, Section 8.

Other means to limit doling–such as caps on earmarks and the like–will go nowhere. It is rational for politicians to spend someone else’s money on causes that benefit their own power (see Federalist 10). This, in part, is why the power of the government expands and creeps outward. There is always a desire to legislate in more areas to aggrandize power and influence.

The only limit on the ability of this sprawl is to fence in the power of the central government. This, in part, is how Madison contemplated limiting factionalism and rent seeking.

Now, of course, easier said than done. For the most part, the democratic process fails here because the people generally want benefits from the government–and are actively seeking those rents (Tea Partiers holding signs that say “hands off my social security” support this). This is the danger of cronyism–everyone wants their rents.  Likewise, the unitary executive will gladly enforce the broadened creep of the legislative grants. The only meaningful constitutional check on Congress’s desire to aggrandize ultra vires power is the power of judicial review–a role that courts have largely abandoned in the context of economic regulations and such.

But do we want that check enforced? Why shouldn’t the government be able to dole out crony favors. Well, I won’t get into the weeds of the policy arguments (I seldom do), but Koch’s article makes some decent points.

But, back to the constitutional perspective, what is worse? Courts striking down legislation that exceeds the doctrine of enumerated powers in order to constitutionally limit the effects of cronyism and rent-seeking? Or, courts rubber-stamping these laws, allowing cronyism to grow (which leads to policy negatives)? Which would wreak more havoc? Which would be more socially desirable? Perhaps in the short-term, the former power is much worse. Though, I worry, in the long-term that the latter could be significantly more socially deleterious.

Eventually I hope to write about rent-seeking, enumerated powers, federalism, and the rule of law. I’d need a tarp to bail out and bond together all the great material in this topic. I address republicanism, rent seeking, and federalism in this post at length, and rent-seeking and lobbyists in this post.