Burying economic liberty

Prof. Volokh has a post here about Powers v. Harris, probably the most disastrous case for economic freedom in the last seventy years. There, the Court of Appeals held that mere economic favoritism is itself a legitimate state interest under the Fourteenth Amendment.

What that means is that government may manipulate the economy to benefit its chosen favorites, for no public reason at all—just to give out favors—even though the Fourteenth Amendment guarantees to all people the “equal protection of the laws.”

The case involves an Oklahoma law which requires people to get a funeral director’s license before they can sell coffins. They aren’t directing funerals, mind you; they just sell coffins. They don’t handle bodies or run funerals or anything like that, but the state wants to force these people to get years of training and spend thousands of dollars to learn how to handle corpses and whatnot—when they don’t do those things. The law is a blatant attempt to protect licensed funeral directors against having to compete fairly against people who sell coffins for cheaper.

Well, we can all get rich by making it illegal for customers to shop elsewhere!

In a very similar case, Craigmiles v. Giles, the Sixth Circuit held that “protecting a discrete interest group from economic competition is not a legitimate governmental purpose.” Obviously government can regulate in the public interest, and in so doing, benefit private parties (like when it contracts with Lockheed to build a jet fighter), but it cannot regulate solely to benefit private parties. That’s just the sort of “naked preference” that the Fourteenth Amendment was designed to prevent. See Cass R. Sunstein, Naked Preferences and the Constitution, 84 Colum. L. Rev. 1689 (1984).

I wrote an amicus brief for the Pacific Legal Foundation in the Court of Appeals, arguing that mere favoritism violates the equal protection clause, and Prof. Eastman of the Claremont Institute filed a brief which was adapted from a brief that he and I wrote in the Craigmiles case. But the Tenth Circuit rejected both, writing

Implicit in Plaintiffs’ argument is the contention that intrastate economic protectionism, even without violating a specific constitutional provision or a valid federal statute, is an illegitimate state interest.... Indeed, Plaintiffs describe Oklahoma’s licensure scheme as “a classic piece of special interest legislation designed to extract monopoly rents from consumers’ pockets and funnel them into the coffers of a small but politically influential group of business people—namely, Oklahoma funeral directors.” Amici are not so coy. In their view, Oklahoma’s licensure scheme “is simply ... protectionist legislation[,]” Brief of Amicus Curiae Claremont Institute at 26, and “[u]nder the Constitution...economic protectionism is not a legitimate state interest[,]” Brief of Amicus Curiae Pacific Legal Foundation at 2.

Well, it certainly wasn’t my desire to be coy. The Constitution does forbid government from regulating solely in the interest of private parties, both under the equal protection clause and under the due process clause. Unfortunately, the Tenth Circuit held that “intrastate economic protectionism constitutes a legitimate state interest.” In other words, the government can exercise its coercive power to support politically successful groups for no other reason than that they are politically successful. Might simply makes right—or at least, makes constitutional.

That’s not how the Constitution is supposed to work. Government exists to secure the rights of life, liberty, and the pursuit of happiness to each person, not to take money from some people and give it to others whom the government happens to like. The founders called that the problem of faction, and as James Madison wrote, “In a society under the forms of which the stronger faction can readily unite and oppress the weaker, anarchy may as truly be said to reign as in a state of nature, where the weaker individual is not secured against the violence of the stronger.” But this, which Madison and others saw as the central problem that societies must solve if they are to remain free, the Tenth Circuit views as perfectly acceptable social policy!

Why do I say this is the most disastrous case in seventy years? Well, in Nebbia v. New York, perhaps the most deferential economic regulation case ever (before now), the Supreme Court held that states have almost unlimited power to regulate the economy. Almost unlimited. The Court said that “[i]f the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied.” But the Powers decision goes a step farther—even arbitrary and discriminatory laws are acceptable under its reasoning.

Not only is the Tenth Circuit’s decision contrary to the purposes of free government and the Constitution, but it is contrary to logic. Simply put, the decision is petitio principii, or “question begging.” The decision says that a legislative outcome is legitimate because it is an outcome—that a law is legitimate because the legislature enacted it. But as one court put it in the 1840s,

That construction would render the restriction absolutely nugatory, and turn this part of the constitution into mere nonsense. The people would be made to say to the two houses, “You shall be vested with ‘the legislative power of the state;’ but no one ‘shall be disfranchised, or deprived of any of the rights or privileges’ of a citizen, unless you pass a statute of that purpose:’ in other words, “You shall not do the wrong, unless you choose to do it.”

The Institute for Justice, which brought the Powers case, is now asking the Supreme Court to take it. I wrote a brief on behalf of the Pacific Legal Foundation and the Cato Institute, which you can read here, urging the Court to grant cert. The Supreme Court has requested a response from the other parties, which suggests that there’s a serious chance of the case being taken.

Powers is reported at 379 F.3d 1208 (10th Cir. 2004). Craigmiles is at 312 F.3d 220 (6th Cir.2002). Nebbia is at 291 U.S. 502 (1934). I wrote about Craigmiles in Equality of Opportunity in The Regulatory Age: Why Yesterday’s Rationality Review Isn’t Enough, 24 N. Ill. U. L. Rev. 457 (2004).

--Timothy Sandefur

Comments

[Anthony Sanders]

Great post Tim, but don't you think cases such as Ferguson v. Skrupa were even more disastrous than Nebbia? After all, the Supreme Court continued to enforce economic liberty for a couple years following Nebbia, and Ferguson doesn't even allow for a "rational relationship." This is emphasized by the fact that Justice Harlan concurred in Ferguson by saying he would uphold the regulation because it passed the rational basis test. I agree, however, that the 10th Circuit's opinion is the most blatant example of judicial abdication we've had in a long time. I almost think the court was deliberately tempting fate with its outrageous language. Either that or a law clerk got a bit carried away.

[David Giacalone]

I've been fighting to make federal and state regulation as procompetitive as possible for almost thirty years. Still, as I suggested in my Guest Post here at C&F last week [burying the competition], I'm not at all sure that the Constitution contains the limitations that you would are describing on state action.

States have been granting monopoly and guild-like benefits on favored groups since before the Union was created, and it's difficult to believe that those who crafted the 14th Amendment thought they were doing away with such powers. A rational basis test might be the best result to expect -- unless the Court is in a very activist mode.

A vocal media (as Prof. Volokh suggests) and vigilant competition policy watchdogs on the federal and state level (FTC, DOJ, state AGs, consumer groups, etc.) may be our best option for the foreseeable future.

[Timothy Sandefur]

Well, there are lots of bad pro-deference cases, but I think Powers goes another step beyond even deference by saying that even discriminatory and irrational decisions receive deference, which is something even a case like New Orleans v. Dukes didn't say.

I disagree that the Fourteenth Amendment allows states to grant economic favors to chosen groups for no other reason than that they are chosen. It is true that government has done that on occasion since the Fourteenth Amendment was a baby--that's what the Slaughterhouse Cases were all about, right?--but Slaughterhouse was wrongly decided, and even in that case, there was at least a plausible public-safety argument supporting the regulation, not protectionism per se. Protectionism per se violates the Due Process Clause by using the law to cover up a mere exercise of force; violates the Equal Protection Clause by arbitrarily benefitting one party over another for no valid public reason; and violates the Privileges or Immunities Clause rightly understood.

As I and many other writers have pointed out, the point of the privileges or immunities clause was to protect the right to earn a living against arbitrary government action; and the Fourteenth Amendment was intended to bar such arbitrary action. See, e.g., Timothy Sandefur, The Right to Earn A Living, 6 Chap. L. Rev. 207 (2003). Political processes cannot be counted on to protect the minority against arbitrary action like this, as Footnote Four recognized--heck, as the authors of the Fourteenth Amendment recognized; that's why they wrote the Amendment, rather than trusting to the electoral process to protect the minority. Simply put, if the Fourteenth Amendment does not ban unmixed favoritism, it was a "vain and idle enactment which unnecessarily excited the populace upon its passage."

Cynical as it may sound, there simply are no "vigilant competition watchdogs" in the political process. At least, none that I can see. There is only the public choice effect, and the imperfect attempts to combat that effect.

[chochi]

i just want to knw what are the bad effects of federal form of government to the economic standing of the country?and why?