The administrative state, with roots over a century old, was founded on the premise that Congress lacked the expertise to deal with the many complex issues facing government in a fast-changing country, and that it was unhelpfully mired in and influenced by politics, leading to bad outcomes when it did act. The alternative was to establish administrative agencies, each with assigned areas of responsibility, housing learned experts qualified to make policy decisions, deliberately insulated from political accountability. The Administrative Procedure Act (APA), passed in 1946, both governs the manner in which agencies may adopt and enforce regulations, and provides for judicial review of agency action. Supporters of the administrative state point to the successes of agency actions leading to a cleaner environment, more sensible use of finite resources, healthier foods, safety on the roads and rails, and many other areas of improved quality of life. But even looking past structural separation of powers issues written into the bones of the administrative state, critics assert that in the ensuing 70 years the APA has become an ineffective limitation an agency power, as agencies bypassed its requirements by issuing sub-regulatory guidance, letters, FAQs, and more. Compounding the problem, the critics continue, the courts have adopted a policy of deference to agency actions that grant agencies even more latitude. Is it time to revisit the APA? If so, how should it be updated?
Hon. Britt Grant: Hi, everyone. I think we're ready to get started with our first panel. It's like a family reunion in here, so you'll get to see your good friends after this. Thanks, everyone. My name is Britt Grant. I'm a judge on the Eleventh Circuit Court of Appeals in Atlanta, Georgia. I'm pleased to be here to present our first panel, What is Regulation For? These panels have a lot of interesting ideas. It'll give us a lot of starting point and background for so many of the discussions about the administrative state and regulation that we're going to be having over the next few days. There are robust debates, which we will experience first-hand here today about whether the administrative state in its most perfect form is a threat to liberty or a guarantor of liberty, whether the direction that the administrative state had gone is a turn away from its originally correct role as a less politically-oriented, policy-making body, or as the inevitable fulfillment of the headless monster that is the fourth branch of government.
Our panelists, again, have interesting and innovative ideas on these topics and more. So let's go ahead and get started. After introductions, to give you all a path for this panel, I'll introduce in brief each of our panelists, and then each will give a five to ten-minute thesis, the backbone of their comments for today. After that, I'll give them a chance to ask each other a few questions. I'll interject as necessary, and then we'll get to the audience for some of your fantastic questions.
First, to my left, is Professor Jon D. Michaels. He is a Professor of Law at the UCLA School of Law where he teaches and writes about administrative law, national security law, bureaucracy, privatization, and the separation of powers. He's a graduate of Williams College, Oxford University as a Marshall Scholar, and Yale Law School. He clerked for Judge Guido Calabresi of the U.S. Court of Appeals for the Second Circuit, and then for Justice Souter. His current book project, I think, is going to be the basis of his remarks today, and it's called Constitutional Coup: Privatization's Threat to the American Republic.
Next, we have Professor Philip Hamburger. He's a scholar of constitutional law and history at Columbia Law School where he serves as the Maurice and Hilda Friedman Professor of Law. He's also President of the New Civil Liberties Alliance, which is a civil rights organization dedicated to protecting all Americans from the administrative state and other threats to constitutional rights. His books include Liberal Suppression: Section 501(c)(3) and the Taxation of Speech, The Administrative Threat, Is Administrative Law Unlawful?, and among his recent articles is "Chevron Bias" in the George Washington Law Review, which explains how Chevron deference violates due process.
Next is Professor Kathryn Kovacs of the Rutgers School of Law. She's a graduate of Yale University and Georgetown University Law Center. She currently teaches Administrative Law, Natural Resources Law, Environmental Law, and Property. And before joining the Rutgers faculty, she spent 12 years in the DOJ Environment and Natural Resources Division, Appellate Section. And most recently in the government, she was a political appointee serving as Senior Advisor to the Director of the Bureau of Land Management in the U.S. Department of the Interior.
Professor Epstein, last but not least, is the inaugural Laurence Tisch Professor of Law at NYU School of Law. He is also Senior Fellow at the Hoover Institution and the James Parker Hall Distinguished Service Professor of Law Emeritus and a senior lecturer at the University of Chicago. His first law school appointment was at the University of Southern California. I will not be able to list all of his publications without taking up our entire time here, so I'll note that his newest book is called The Classical Liberal Constitution: The Uncertain Quest for a Limited Government.
With that, I will kick it off to Professor Michaels to get us started.
Prof. Jon Michaels: Thank you very much. It's a pleasure to be here and a privilege to be on this panel. As I see it, there are two principal sets of challenges to the administrative state today. First, there are those who see the modern administrative state as a threat to the constitutional separation of powers. And second, there are those who are more or less okay with a modern administrative state as a constitutional matter, but they are nevertheless distressed by our administrative state which they see as hopelessly inefficient, sclerotic, or unresponsive. And both camps, by my estimations, are seemingly gaining ground. The first, whom I'll call constitutional conservatives, are not only influencing but also reshaping academic debates, as evidenced by this panel, but they're also obviously influencing American jurisprudence. And the second camp, whom I will call neoliberal, have been wildly successful in reconfiguring the administrative state along more businesslike lines.
By and large, the liberal response to these challenges has been a bit dismissive, from my perspective. This is especially true with respect to responses to the first camp. Many of my fellow travelers will point to history, settled practices, reliance interests, and long-standing and capacious holdings to essentially tell conservative critics to get over it -- the administrative state's here to stay. And as for responses to the second group, many will try to meet the neoliberals halfway. They'll say, "Okay, it's okay in these contexts, but not in these contexts," or they'll appeal to values that are, by my estimation, too abstract or contested – 0the various symbolism of being in the public sphere and things like that. Or they'll work to refute the businesslike government crowd empirically, documenting waste, fraud, and abuse that, say, privatization or outsourcing engenders.
In both cases, I feel as if my team is playing defense, as it were. And this is a mistake. It's a mistake for us because it isn't working. As I said, both camps are gaining ground. But more to the point is a missed opportunity. It's a missed opportunity for folks who believe in the administrative state to reaffirm and strengthen the constitutional bona fides of the administrative states, and to do so in ways that would buoy progressive regulation.
So that's what I've been working on. As Judge Grant mentioned, I'm developing an affirmative constitutional theory of the administrative state that responds to both of these camps, and the crux of my argument is that we have, right now, something -- what I call the administrative separation of powers. In brief, I agree that the advent of the modern administrative state involved the collapsing of the traditional separation of powers. And I also agree that that's highly disconcerting. An early phase of modern administration in which essentially lawmaking, law adjudication, and law enforcing powers were given over to largely monolithic agencies was a problematic one, but in short order, we've redeemed and refashioned the constitutional commitment to checking and separating state power.
And we did so by disaggregating that administrative power among three sets of rivalrous, diverse stakeholders. Specifically, power was—and today it still is—triangulated among three sets of actors: the presidentially appointed political leaders atop the agencies, the career, politically insulated civil servants who carry out much of the day to day work of the agencies, and thirdly, the public writ large, that's all of us who have been long authorized to participate meaningfully in many facets of administrative government. The triangulation, for me, redeems and revitalizes federal governance in an era far different from that imagined by the Framers.
And to be clear, this triangulation is not just a thin reproduction. I'm not just saying, "Oh, we had three great constitutional branches, and now we have three administrative rivals." I'm not trying to make -- I'm not suggesting something as empty or formalistic as that. But rather, there's a lot that connects the old and the new separation of powers, most obviously, the agency heads are apt stand-ins for the president herself, insofar as they are appointed by and answerable to the president. Less apparent, but I think that still has an analogy, is the public writ large, whom I compare to Congress. Like Congress, the public's participation is multi-polar. It's pluralistic, at times scatter shot, at any moment some are favoring and other are disfavoring any given proposal or initiative.
Last, I analogize the civil service to the judiciary. Like the judiciary, the civil service may act as a counter-majoritarian check. But precisely because of its distance from the people, the civil service's legitimacy cannot be taken for granted. Thus, like judges, the civil servants earn their legitimacy through careful, robust engagement, through the articulation of reasons, and through consistency across time and across political movements.
The interplay of these three sets of actors ensure that administrative government is the product of broad based and pluralistic buy-in. Specifically, we have two sets of political actors. One that's unitary, like the president, and the other that's heterogeneous, more like the Congress, and a counter-majoritarian one, again, not unlike the judiciary in disposition and orientation. As a result, administrative power, by my light, isn't a runaway train because there are multiple veto points. It isn't a tool of naked presidentialism because the agency heads need to secure buy-in from civil servants and the public writ large. And it isn't a coven of some Deep State because the bureaucracy, to an even greater extent, needs support from its rivals, namely, the agency heads and public participants.
It is, instead, a rough reproduction of what happens, or more often, doesn't happen, under traditional constitutional governance with its checks and balances. So administrative separation of powers, at least, is my answer to those worried about all-powerful, all-concentrated administrative power, which I would agree, were it to exist, would be out of step with our constitutional commitments.
Now, if may take a minute to turn to how administrative separation of powers also responds to the neoliberal critique, it's -- the way I formulate that is that administrative separation of powers helps explain why framing administrative government in blunt, businesslike terms is actually on constitutionally shaky footing. Businesslike government seeks, among other things, to replace civil servants with private contractors. Most recently, businesslike government proponents have also been seeking to convert the civil service itself into more of an at-will workforce, which may be justified as keeping up or keeping in tandem with what we'd find mostly in American private sector. These efforts, let me just be clear, are overwhelmingly bipartisan, and they're pitched as nonideological, technocratic fixes. They're ways to speed up and streamline administrative government. So this critique is really coming from kind of the opposite side of kind of the administrative state compared to the what I call the Constitutional conservatives.
But think about what these fixes do vis-à-vis the administrative separation of powers. So let's start with government outsourcing, wherein all sorts of administrative responsibilities are contracted out to the private sector. Again, this is bipartisan, but it's also pervasive. In many instances, the contractors directly will replace civil servants. All the reasons folks like contractors are also all the reasons why they're constitutionally dangerous. Because they're hired and fired by the agency leadership, they, unlike civil servants, have every incentive to be yes-men and women to the political leadership.
Civil servants, by contrast, are servants of the state, not any particular administration. They thus provide a meaningful check and do so in Republican and Democratic administrations alike. And it isn't just liberal bureaucrats who check a conservative presidential administration, as some may be seeing today. But Democrats, too, also run into all sorts of problems with civil servants uneasy with hyper-partisan or unsubstantiated directives. Again, so the use of contractors weakens one of the important dimensions of the administrative separation of powers, namely that between the political leaders and the civil servants. And this is also true when we talk about converting the civil service into an at-will work force. It would, again, flatten that line of rivalry and consolidate power more in the hands of political leaders.
Also, just one last point on the contractors -- to the extent that responsibilities are being outsourced to private firms and private institutions, that also limits the opportunities for public engagement because the public sector is much more amenable to the engagement from members of the public writ large, and that's not necessarily true in the private sector. So to the extent policy is also being driven externally, that limits the degree to which that third set of rivals, the public writ large, is able to participate.
Okay. To sum up, though the administrative separation of powers has been largely overlooked, it is this scheme, this fragmented tripartite scheme, that serves as a constitutional salve as it takes a good deal of the sting out of an otherwise unitary and, thus, hyper-potent or unfettered agencies. It serves as a constitutional adhesive, binding the administrative state to the underlying and similarly fragmented and triangulated Framers' scheme, and it serves as a constitutional emulsifier, mixing the administrative regime into what Professor Thomas Merrill calls an overarching separation of powers doctrine that is more than the sum of the specific clauses that govern relations among the branches. I'll end there.
Hon. Britt Grant: Thank you. Professor Hamburger?
Prof. Philip Hamburger: Well, thank you very much. It's a great pleasure to be here with such a distinguished panel and such a distinguished audience. And I might say, it's particularly a pleasure to follow Jon, whose new book on privatization is very, very interesting. As you'll see, I do not agree with some of it, particularly the administrative side of it, but it's an interesting book. And he's a thoughtful critique of the position taken by those of us who are doubtful about the administrative state.
Now, forgive me. As a preliminary matter, I just want to mention that the New Civil Liberties Alliance is continuing to hire more lawyers. Our director, Mark Chenoweth, is in the room, and if you're interested, by all means, speak to him. That is, if you're a superb litigator. We've been busy with a wide range of litigation, and where we cannot get standing, where we can't sue, we've been doing other amusing things. For example, we just recently petitioned about 20 agencies to adopt administrative rules barring administrative guidance. And since we're inviting the administrative state to cannibalize itself, the movement against administrative power is growing. There'll be plenty of opportunities for everyone in this room. I know many of you already are fighting the administrative state, and I encourage everyone here to participate in one way or another. It's going to be fun.
Now, I have two points today. First, administrative power threatens civil liberties. Second, administrative theory is a fig leaf, a fig leaf that covers up the reality of lost freedom. Now, first, and you've heard this from me before, but I want to reiterate, even if only briefly, administrative power is a profound threat to civil liberties. No other development to contemporary American law threatens more civil liberties of more Americans.
I'm just going to run through the list here. Administrative power -- there could be a longer list, this is just the short version -- administrative power denies due process, both in the agencies and later in the courts. The courts, essentially, are corrupted by administrative process because they end up also denying due process because of their deference. Administrative power denies jury rights. And again, that is echoed in the courts on appeal. In fact, administrative tribunals give government ambidextrous power. The government can proceed in the courts with the full due process of law and all of the other constitutional rights of procedure, or it can proceed in administrative tribunals and take a little shortcut and avoid all of that nonsense, that silliness, those niceties, those mere formalities.
Administrative power thereby transforms procedural guarantees in the Constitution. It changes the very nature of these rights. No longer are they guarantees. They're merely options for power, and our Bill of Rights is thereby been entirely eviscerated. You say, "Well, that's just the procedural rights. What about the substantive rights, free speech and religion?" Them, too, because administrative power is a profound threat to the substantive rights such as speech and religious liberty. We now have full-scale licensing of speech in about half dozen agencies. We've revived the 17th Century. The Star Chamber could not have been more efficient.
And then, just to mention one that is particularly curious, administrative power undermines equal voting rights. Now, that may seem a bit of a puzzle, so I'm going to linger on that one. I want to linger on the point about voting rights. There have been two preeminent developments in federal law since the Civil War, voting rights and the administrative state. And of course, this is not a coincidence. There's a profound connection between the two. Although educated Americans increasingly welcomed equal voting rights, they had misgivings about the results. People who are less clean than them, the great unwashed masses, were suddenly controlling power, and that didn't seem so good to people who went to Yale, and Harvard, and the like. And Princeton, Princeton, of course.
[Laughter]
Woodrow Wilson -- never forget Woodrow Wilson -- Woodrow Wilson complained about the diversity of the nation, which meant that the reformer, and I'm quoting now. Do not attribute these words to me. The reformer needed to influence, and I quote, "the mind of not only Americans of the older stocks only, but also of Irishmen, of Germans, and of Negroes." That's the granddaddy of the administrative state speaking. He said, "In order to get a footing for new doctrine, one must influence minds cast in every mold of race, minds inheriting every bias of environment, warped by the history of a score of different nations warmed or chilled, closed or expanded by almost every climate of the globe." He liked immigration, right? Rather than try to persuade such persons, Wilson welcomed administrative governance. The people could still have the Republic, but much legislative power be shifted out of an elected body into the hands of the right sort of people.
Now, far from being narrowly a matter of racism, this has been the transfer of legislative power to the knowledged class, to a class that finds authority in their knowledge and that therefore feel empowered to disempower other Americans. But of course, even if it's just a matter of class, and it hasn't just been a matter of class, but even if it were, when legislative power is removed from the representatives of a diverse people, there are implications for minorities. So leaving aside Wilson's overt racism, the problem is the relocation of legislative power a step further away from the people into the hands of a relatively homogenized class. I know many of us are part of that class, but we at least have false consciousness.
So even when this is exercised with solicitude for minorities, it's a sort of power exercised from above. And those who dominate the administrative state have always been, if not white men, then at least members of the knowledged class. Administrative power thus cannot be understood apart from equal voting rights. The redistribution of legislative power has gratified the knowledged class, but it makes a mockery of the struggle for equal voting rights. It reduces equal voting rights to a bait and switch, and it confirms how seriously administrative power threatens civil liberties.
And all of this brings us back to Jon's comments. He writes a book about a constitutional coup, and it's a very eloquent book, but I wonder why he objects to a small, private coup, if that's the language he wants to use, it's not my language, but not a huge, administrative one. I'm sure he cares about retail assaults on due process, jury rights, equal voting rights, and so forth, but why not care about the wholesale assault on such rights? I suspect he does care but is still evolving his views, I trust. Administrative power is the primary threat to our freedom, and the apologists for administrative power have said nothing about that, absolutely nothing.
Now, my second point is very simply that administrative theory stands in contrast to administrative reality and is a sort of fig leaf that covers it up. And it's not just me who says this. Daniel Farber, Anne O'Connell—and they're not conservatives—say that there is, and I quote, "a gap between theory and practice which leads to an increasingly fictional yet deeply ingrained account of administrative law." That's right, administrative theory is largely fictional, and that includes a lot of judicial doctrines. Rather than justify the realities, it disguises them, and not very well.
Now, how is this so? I'm just going to run through a few of many possible examples. We could spend an hour on this, but I don't want to do that to you. First, nondelegation -- Jon very candidly, and I appreciate him saying this, says that it's a fiction to say Congress isn't delegating legislative power to agencies. And of course, even the word delegation is a misnomer. It's a distraction. The Constitution vests legislative power in Congress, and the reality is that Congress is divesting itself of that power. We should all stop using the word delegation. The Court may use it, but we have to press them not to because the constitutional word is vest and divest, and once you think about that, you realize the violation of the Constitution.
Then there's the intelligible principle test. Congress supposedly uses intelligible principles to guide agencies. But such principles often do nothing of the sort, as Jon says, and again, I appreciate being able to quote him, "This test is flabby." That's a bit of an understatement, but I appreciate the thought.
[Laughter]
And of course, Congress often doesn't even offer an intelligible principle. See the Gundy case, right? Administrative power is said to be democratic. No kidding. That's the standard academic justification for it, allegedly because it comes with notice and comment, oh my. Jon writes about this as, and I quote, "meaningful and truly" -- it's not just democratic, it's "truly democratic public participation."
Well, on this, I want to just rely on Justice Kagan. That's right, Justice Kagan has described notice and comment as a charade. That’s her word. And then it said—and this comes in some of the theories of our colleagues on this little bench here—Jon -- the theory is that agencies unbiased both in regulation and adjudication, Jon writes about the civil servants as the administrative state's judiciary. Really? This is clearly false. The overwhelming majority are on one side of the political spectrum. He said that civil servants have treated Democratic and Republican administrations alike. Really? Well, I leave you to judge that.
And then when we get to adjudication, it's all the more curious. We have to have neutrality in adjudication. But of course, administrative adjudication is profoundly biased. ALJs are often chosen to favor their agencies, notwithstanding the theory, their decisions ultimately decided by or viewable by agency heads who are political appointees who adopt administrative rules and set prosecutorial policy. ALJ procedures are slanted to favor the agencies. An SEC ALJ recently boasted that he has never held against the agency. He told this to a defendant, trying to get them to settle. "I've never held against the agency. Now what are you going to do?" And I won't bore you with all of this. If you want to read more about ALJ bias, read the NCLA's brief in Lucia v. SEC. It's sort of a Brandeis brief just documenting layers and layers of bias just at one agency. And then, of course, there's the separation of functions in agencies. Well, that's not the Constitution's separation of powers, but what's more, it's not even the reality because there is not really separation. This is clear from the agency adjudication.
Okay, I'm not going to keep on going. We all know all this stuff. To sum up, administrative power is a profound threat to civil liberties and has to be understood not as a separation of powers problem, not as a delegation problem, but as a threat to civil liberties. We need a civil liberties movement against this great threat to our freedom. And then, second, administrative theory is just a fig leaf. It covers up the reality of lost freedom. Thank you.
Hon. Britt Grant: Thank you. We'll move to Professor Kovacs.
Prof. Kathryn Kovacs: Good morning. Thank you. Thank you for the introduction. Thank you so much for the invitation to be here. I'm really delighted to be one of the only light gray suits in the room. And I feel like being on the jumbotron, I should get up and dance. But instead, I'm going to talk about the Administrative Procedure Act. So as Judge Grant pointed out, I've practiced law for a long time. I've practiced in the government for 15 years, and that experience puts me at the more practical end of the continuum in legal academia, makes me kind of a weirdo, actually, in legal academia.
So I take the fourth branch as a fait accompli, and I write about the Administrative Procedure Act of 1946 which embodies the compromise liberals and conservatives reached to constrain federal administrative agencies. The APA treated the New Deal as a done deal and created a framework for agency procedure and judicial review that balances the values of regulatory programs and private interests. Unfortunately, the courts never really implemented the APA as written. I think we should try it. And today, I'd like to talk about just one aspect of that.
So in 1933, of course, Franklin Delano Roosevelt became President and kicked off the New Deal. And of course, that entailed tons of new agencies and regulatory programs that brought with them the question of how to control them. At the same time, agencies in Europe were becoming tools of fascist autocrats, and there was a widespread fear here in the United States that FDR would go down the same road. So the desire to avoid totalitarianism became one of the driving forces behind administrative reform. Then during the war, the federal bureaucracy exploded and began to impact people's everyday lives through things like rationing and price controls, and the belief that agencies could pave the way for totalitarianism went mainstream. And that concern infused the entire debate on administrative reform from 1933 to 1946. The APA's legislative record is riddled with arguments based on the need to avoid totalitarianism.
Well, the Administrative Law Section of the American Bar Association took the lead in this effort. At the time, it was a very conservative section. Now, it's delightfully bipartisan, multi-partisan. I see a bunch of members in the audience and hope you'll all consider joining us. Two weeks after D-Day, the ABA Ad Law Section bill was submitted in Congress. It was designed as a compromise between the conservative and liberal approaches. And in 1946, 17 years after the first administrative reform bill was introduced in Congress, the APA passed unanimously, and President Truman signed it. The debate leading up to this moment was lengthy and intense, and the public was involved. It was a truly deliberative process, a really remarkable moment of civic republicanism in our history.
Much of the APA was controversial. It contains lots and lots of compromises and lots of language that's murky at best because that's the only way the bill would pass. But other things in the APA are clear. For one thing, the same standard of review applies to all agencies. No agency should get super deference under the APA. There was also a consensus that rulemaking should be pretty simple. Congress intentionally left a lot of the rulemaking process to agency discretion in order to encourage rulemaking, to give regulated parties more certainty, and to avoid what Congress saw as the separation of powers concerns with courts making the law.
Well, since then, rulemaking has become intensely resource intensive because of additional rules imposed by Congress, by the courts, by the president, and by the agencies themselves. The upshot is it's hard for agencies to make policy in a timely fashion, to respond to new circumstances, and to respond to elections. Government power in the United States can be seen as a hydraulic system. The Supreme Court is often concerned about one branch aggrandizing its power and putting pressure on the other branches. Now we're seeing the opposite. We see a Congress that is abdicating its power. When one branch allows its power to atrophy, another branch will fill the void. If Congress nor agencies can make policy efficiently, then the president and the courts will.
So the difficulty of rulemaking is one of the reasons why presidents have increasingly made policy themselves. Of course, there are other reasons for presidential direct action. Presidents can no longer rely on Congress to make policy. Presidents prefer to take the political credit for policy decisions, and in this tech crazy and media savvy world, it behooves a president to take ownership of policy decisions. But also, rulemaking is just too difficult and time consuming. In the very least, if rulemaking were easier, the pressure on the president to make decisions himself would decrease.
Now, this kind of unilateral presidential action is certainly not new. I'm sure most of you remember President Clinton's memos directing agencies to take specific action. You remember President Bush's signing statements. Obama took up both of those tactics and had some 38 czars in the White House. President Trump has taken presidential control to a new level. He makes policy every week that previously would have come from agencies in rulemaking. And in a sense, this is good because it responds to elections. President Trump was elected.
On the other hand, presidential policy making entails little transparency, public participation, or deliberation. There is no requirement that the President obtain feedback from interested parties to hone his policy. Presidential decision making limits the parties engaged in presidential -- in policy discussions. Sometimes even the relevant cabinet officer is excluded. There is no way to know who or what he consulted in making his decision. The President is less accountable than agencies. He's often not subject to judicial review, and aside from quadrennial elections in which the President need not even obtain a majority of the vote, he's only removeable via impeachment or the Twenty-fifth Amendment. And finally, the President lacks the expertise of agencies.
Now, ideally, Congress would make policy decisions, and I'm an optimist, but I'm also a realist, so absent that, for all of its flaws, notice-and-comment rulemaking is superior to rule by presidential fiat. Taking agencies out of the policymaking game eliminates one mechanism for checking presidential aggrandizement. Certainly, it's not enough standing alone to make agencies more agile, but it is a necessary component of a balanced government.
So I think—and I'm glad there are so many federal judges in the audience to listen to me today—I think we should stick to the APA. We should preserve the balance Congress struck in 1946. We should hold agencies accountable. We desperately need to update the law, but let's not take agencies out of the game, or we will fall into the trap the APA was designed to avoid.
Prof. Richard Epstein: Thank you very much for the opportunity to be here with old friends and new. It's always a great pleasure to speak to The Federalist Society. The question is what can I do to rile you up a bit?
[Laughter]
And in order to answer that particular question, what I'm going to do is to point out a deep contradiction in the program. The way in which it's done on the title is to say What is Regulation For? And that should be intelligently understood, a discussion of the aims of regulation and the possibility of its abuse. The body of the text starts to talk about the APA and its internal structures, and I think it's fair to say that three panelists have fallen into the trap of speaking about the content. And I'm going to fall into a different trap in speaking about the title.
And I think that this is extremely important because when you're trying to ask the question of what agencies are for, one of the things that you have to ask, particularly in connection with the New Deal, is what agencies cannot do well, where they should never be used at all. There is no question that the 1946 APA was a kind of a peace treaty in which you accepted the legitimacy of the administrative state and then tried to prevent some of its great abuses, and so forth. I am not bound by that sort of paltry convention, and so I think it's important to ask well, what is the legitimate functions of an administrative state?
And here, I think that you have to divide the world into two substantive cases. Case number one are cases where competitive markets work, and case number two is situations where competitive markets do not work. And if, in fact, you have a competitive market that works -- this does not mean an utterly unregulated market. It means one with statutes of frauds, with recordation statutes, parol evidence rules and the like, the basic function of the administrative state is to do nothing whatsoever because there's nothing it can do to improve upon what Mother Nature has created.
And so if you start looking at the way in which the Roosevelt cartel machine was put into place, virtually all of the codes of fair competition and similar devices which give rise in the end to such notable organizations as the National Labor Relations Board, the Civil Aeronautics Board, the Motor Vehicle Act, and so forth, these are all things that should simply be outside the ken of the administrative state because the simple way to understand them is what you're doing is you're taking a competitive market with high output, try to put in a cartelized market with lower output, then adding to the insult by increasing the administrative cost, and then creating, in addition, the massive possibilities for redistribution through the state, not on any intelligible principle which is worried about differentials in wealth, and so forth, but simply to help your friends as opposed to your enemies.
And as far as I'm concerned, if you have an administrative state which is doing everything wrong and doing everything wrong for all the wrong reasons, there is no way that you're going to purify this particular situation through a system of notice-and-comment hearing, public participation, administrative expertise, and the like. All of those things may be fine under other circumstances, but here, if you know that the nature of the game is negative sum from the day in which it starts, it seems to me to be utterly futile to argue how it is that we ought to run this thing.
The real intellectual urge should be for massive deregulation. And indeed, if you go back to the great Chicago economists of the 1940s and 50s, Milton Friedman, George Stigler, and so forth, they all grew up in that particular area. And the reason why they wrote the way in which they did is they saw a world in which it turned out that competitive industries were turned upside down by administrative regulation. And the great tragedy of the APA by implication, therefore, is that it entrenched this particular kind of situation and created some of these great difficulties.
So let me just give a couple of examples of this. If you're talking about healthcare, and you're trying to figure out the way in which the system should run, and you put in a system of community rating in a competitive market, you destroy the particular market because it requires massive cross subsidies from the young to the old. And that has the ironic consequence of taking those people who have limited means and asking them to basically subsidize the wallets of those people who've been able to accumulate wealth for many, many years. I see no particular virtue in a particular cross subsidy that runs in that operation.
If you look at something like the Fair Labor Standards Act that has exactly the same characteristics, you put in a minimum wage law, it blocks the low productive workers from getting into the workplace and protects those with higher levels of skill. It works a huge degree of redistribution, but it requires no benefit, and there's nothing about the various new cases that come down from the Fair Labor Standards Board, from the Department of Labor, which will cure that difficulty. So you don't want any administrative state there.
The question then is, is there a place in which you need it? And I think it would be utterly foolish to say that you can live a world without an administrative state because there are too many cases in which markets do fail, and it's important to understand exactly what those cases are. Well, one of them is the situation with respect to natural monopolies. It turns out a single supplier can outperform multiple suppliers in a market, and so one has developed a particular formula on how to deal with that. And that's basically the formula which says you need fair, reasonable, and non-discriminatory rates. It's somewhat difficult to apply in context, but nonetheless, it's an important notion because you know what it is you're trying to achieve, which is to eliminate the dead weight losses associated with monopoly. And you hope that you could get a system in place whose administrative costs are low enough that you could get some net social gain coming out of the operation.
So I don't think that you can look at this particular system and simply rule it out of bounds, saying we just can't live with an administrative state. What you really have to do is to figure out how it's going to work. And here, there's the basic problem that you could see in other areas as well, which is you never quite know when you're putting one of these systems into place as to whether or not it's going to be tool for redistribution and, therefore, upset markets in much the way that regulation of competitive markets do, or whether or not what it's going to do is secure some kind of a Pareto improvement. That is a situation in which, by putting the regulations in place, you raise the level of all individuals, so it becomes a positive as opposed to a negative sum game.
In a competitive market, it's easy. You just don't allow the regulation to begin, at least as a matter of first principle. But in a natural monopoly market, you can't do that. So then one of the things you have to worry about, not a lot of time here, so I'll just mention one of them, and that's the question of implicit cross subsidies that come through rate regulation. And it is very easy under these circumstances to try to put the majority of the cost on one group of users and give the majority of benefits to another use of users. And the system of rate regulation that was understood in the pre-New Deal era always considered any cross subsidies created in a regulatory environment as off limit. And so what you were trying to do was to imitate a competitive market, and a competitive market never allowed for those particular things to take place.
A secondary in which you could start to worry about these kinds of externalities has to do with areas associated with environmental control of one sort or another. And I have a very naïve view of what it is that environmental regulation is supposed to do. You look at a well understood system of common law nuisances which talks about various kinds of emissions and pollutions that take place, fill, smoke and all the rest of this stuff, realize that trying to control pale pipe admission through private rights of action is going to be utterly fatuous.
What you're then trying to do is to put into place a public agency that replicates what it is that a private rights of action will do, namely tries to get that appropriate mix of damages—now we call them fines—injunctions—now we call them general prohibitions—so that you can optimize the total amount of wealth that comes from the use of various kinds of pollution emitting kinds of devices. That means that you can never get your pollution levels down to zero, but what you're trying to do is to maximize the total kind of output that can come from any given level of pollution, which starts to make it seem like in certain markets, like with sulfur dioxide, and so forth, tradeable emissions permits and taxations are perfectly legitimate situations.
The danger here, however, is exactly the same as the dangers that you have in other kinds of areas. You can start to regulate where there is no danger on the one hand, and thereby distort markets, or you could have differential regulation so that you could prefer your red state friends to your blue state enemies, or the other way around. And environmental regulation is certainly very rife with all of these kinds of problems. So if you start to take something like global warming, one of the things that you must always worry about is whether or not when you start to regulate something in the name that you're trying to control this sort of situation, whether you've got the right cause which is being the subject of regulation, or whether or not it's misguided. And it turns out the climate situation is strongly complicated to understand, and many of the things that are attributable to carbon dioxide changes have nothing to do with carbon dioxide. They may have to do, for example, with volcanic activity under the Antarctic which creates much more heat than you could ever get by the change of temperatures of one tenth of a degree.
And then if you start to look to other kind of emissions like coal, and so forth, it's extremely important that when you tax the emissions, what you don't use is a differential tax rate in order to subsidize one kind of performance vis-à-vis another. And when we start dealing with coal regulations, started dealing with water regulation, and so forth, there is a great deal of temptation of the part of many people to either overrate the kind of peril that is being regulated so as to suppress activities which are worth having, or to have a differential form of regulation so that the pollution that comes out of one set of states as opposed to that coming out of another set of states gets differential treatment. And for example, when you start looking at the Obama Clean Power Plan, much of the difficulties associated with this operation was the differential
impact by location rather than having a consistent theory, which says that when you regulate, you always want the regulations in question to be calibrated to the severity of the particular harm, and again, to avoid the cross subsidies that come when you put governments into power.
So the basic position that I would take about this is that one of the problems that we have with the administrative state is that it simply tries to do too much, and that if you get all of the competitive markets out from under it, you can shrink its particular size, and then you could concentrate resources on those particular areas where they're likely to be good. And then when you start talking about the particular areas in which regulation is appropriate, I think what you have to do is to pay much more attention to the substantive organization and program that are put into place than is currently done. And when you do that, and you understand what it is that you're trying to achieve and what not, then you can have intelligible standards, to use the famous word, of what kinds regulations are and are not permissible. And if, in fact, you can identify certain ends as being illegitimate and others as being proper, then the task of judicial review is going to be made more simple because what you actually do is you now know what you're going after and knowing the things that you're willing to tolerate.
So essentially what happens is to understand administrative law, you have to go back to the old conceit with respect to civil procedure and private law. And to realize that private law in procedural matters is adjectival to the substantive law, meaning, in effect, it's the substantive law that defines the right, and it's the adjective law that modifies those rights, like an adjective modifies a noun, in order to make sure that the system is going to be put together in a reasonably coherent fashion. And you should treat the administrative law as a substitute for ordinary civil procedure devices, and if you do that, many things about the system will start to change.
I'll just mention one that particularly bothers me. Right now, one of the standard ploys of every administrative agency is to give series of inquiries to the regulated parties that require eons of energy in order to do. And there's nothing comparable to the rule in civil litigation which says that we can stop vexatious discovery. And so in environmental cases having to do with pipelines, and so forth, you can spend years upon years looking at this stuff which is of no particular relevance. And so what you need to do in the administrative state is to have the same kind of limits on government inquires for fact collecting that you would use in connection with private discovery actions, and that would change things.
So the key element is if you've got the substance right, then what you have to do is to modify the procedures in the administrative state so as to prevent its abuse and strategy in the same way that you prevent abuses that take place in ordinary private litigation. And if you put that program into place, I think you could do much better than we're currently doing today. And I regard this as a bipartisan program. When I say bipartisan, I sometimes mean that it's a program which is likely to be rejected by both parties. Thank you.
[Laughter]
Hon. Britt Grant: Thank you all. I'll confess that I have a few questions of my own that I'm dying to ask scribbled down here, but in order to keep my promise to the panelists, I will give you the opportunity to ask each other questions that have popped into your head during these presentations.
Prof. Kathryn Kovacs: I'd love to start, if that's okay, to ask -- I wonder, Richard, if common law itself is not a form of regulation, it is a form of government intervention in the free market. Clearly, in order for a free market to work, we need some mechanism for dispute resolution, so I wonder what makes common law judges preferable to agencies whose powers, and procedures, and budgets are controlled by Congress?
Prof. Richard Epstein: Mine is not an argument about whether you have bad administratives and bad common law judges. You could have both. I'm thinking of the common law here as a system of substantive rights, and it is a system of substantive rights that supports competitive markets, as I've mentioned. But the thought that you could have a competitive market with no form of regulation whatsoever is slightly crazy, so a common law system which not only has a system of contract, it also has a system of tort law. The system of tort law is designed to prevent the use of force by one individual against another, and its primary application typically a stranger. And so the particular end that you want the common law to enforce, the control of trespass, the control of nuisance, for example, the control of monopoly, those become the same ends for the administrative state.
So the key element to understand about this is you never want to create a system where you have two sets of substantive rights. You've got a common law set of rights which stresses freedom of contract. Then you get something as misguided as the Civil Rights Act of 1964, which tries to impose comprehensive duties of non-discrimination in competitive markets. And I would not want that to come out of a common law rule. I would not want it to come out of a statutory rule. The point here is nobody should understand the common law rule as being sort of abstractly given by God or so forth. What you have to do is to make a substantive case—which on another occasion, I'm happy to do—as to why it is that the distribution of these rights starting from my favorite period, to wit, Roman law, and moving forward, pretty much got it right on those things, and that becomes a template for which you can then do the rest of the stuff.
And so the whole point about this is administrative law ought to take over where there's enforcement breakdown in the common law, and its function should be to lower the transactions cost to vindicate these particular rights. It should not be to put into place a new set of rights that make no sense. And nothing is more dangerous than imposing regulations on either labor, or capital, or real estate markets in competitive situations. The appropriate place for regulation is always those situations in which it turns out that you have a single supplier of good for which the FRAND obligations – fair, reasonable, and non-discriminatory things –should take place. That was the common law rule a long time ago. That should be the administrative law rule. So the question is you want perfect translation, and the problem about the progressives is somebody as dumb as Wilson always thought he knew more than everybody else.
[Laughter].
Prof. Philip Hamburger: So I have a question for my colleagues on my physical right and left.
Prof. Richard Epstein: That does not include me.
Prof. Philip Hamburger: That does not include you, actually, in this case --
Prof. Kathryn Kovacs: -- I get the left.
Prof. Philip Hamburger: -- which is why are you content with the loss of civil liberties?
Prof. Kathryn Kovacs: Why what?
Prof. Philip Hamburger: Why are you content with the loss of civil liberties that comes with the administrative state? If the administrative state essentially guts the procedural rights in the Bill of Rights, and if it increasingly threatens freedom of speech and freedom of religion, which it does through a host of agencies -- we've given up our right in jury, our right of due process, the burdens of proof derive from due process, and so forth, even the right to have an unbiased decision maker, even if you accept an ALJ. Why are you content with this?
Prof. Kathryn Kovacs: I just don't think it's done that.
Prof. Philip Hamburger: Oh, okay.
Prof. Jon Michaels: So I, too, would kind of challenge the underlying presumptions that are built into the question. But I would say that to the extent that this ties into one of the larger themes that Philip emphasized in his opening remarks about the relocation of power from, say, more democratic entities to administrative entities, which he cites as starting around the progressive era, I would say a couple of things about that, if I may. First, one of these questions or these absolutes are these comparative questions. Are we going to feel differently about state power and be more concerned, of course, about the exercise of state power as opposed to exercise, of course, of market power?
And so I would start by saying that to the extent there are, even conceding the point, to the extent there are some intrusions on liberty in this space, if you're talking about the access to opportunities for redress, for dispute resolution, for empowerment when the market has failed you, or the state has failed you, are folks who are already disempowered and marginalized, which I think is the group that Philip was referencing in his opening remarks, at least, are they going to have more of an opportunity to have their voice heard in administrative agencies before a Congress or within the market? And I think I would take the administrative agencies nine times out of ten on that --
Prof. Philip Hamburger: -- I could not disagree more.
[Laughter]
Prof. Jon Michaels: I'm not surprised, but I just, I think we're talking about different groups of disempowered and different groups of marginalized Americans.
Hon. Britt Grant: Let me ask you, Professor Michaels, does your supposition depend on -- or does your theory depend on a supposition that the civil service doesn't politically skew in one direction or the other, or would a different presumption interrupt your conclusions?
Prof. Jon Michaels: Okay, so, and that's come up, so I'm glad that was asked. First of all, I'm not so sure that the bureaucracy as an empirical matter is as skewed as commonly believed. It's -- many studies by political scientists have suggested that the median bureaucrat is closer to the median American than are either presidential -- the presidents from either set of parties. It doesn't skew as democratic as suggested because there are also many parts of the federal government that skew quite conservative. But the larger point is simply that to the extent that the bureaucracy has been skewed, if that's right, it doesn't have to be that way. It's not -- it wasn't designed to be that way. It has to do with, presumably, preferences, choices, opportunities, and whatnot.
So to the extent an institution skews in a particular direction, as long as it's open, I encourage, especially there's a lot of students here. We talked -- Katie gave a shout out to judges. I'll give a shout out to law students. Go join the government. Go help counter that progressive or democratic tide, and join the EPA, and join the Department of Interior, and tell the liberals where they're getting things wrong and where they're overreaching. So I think the point is, one, is whether it's built in. I don't think it's built in. And to the extent it is this way empirically, Congress skews, the courts skew, these things kind of come and go over different moments in time, and they're not inherently so.
Prof. Richard Epstein: Can I get --
Prof. Philip Hamburger: Can I just get -- I just have one little bit.
Prof. Richard Epstein: I have a long bit. You have a short bit.
Prof. Philip Hamburger: This will be very short. Then you can have a long bit. I just want to observe the nature of the responses. I'm not going to try to respond to them in detail, I just want to observe. The first response is, "Oh, there is, in reality, no loss in our freedoms." That is just an illusion that we should believe all those doctrines. And I don't think anybody who has practiced in this field would really conclude that unless they've spent too long in academia. Think there's a lot of second-hand smoke perhaps --
[Laughter]
Prof. Kathryn Kovacs: I might be the only one on the panel who actually did practice for 15 years.
Prof. Philip Hamburger: Well, I used to be a tax lawyer, and I must say, the closer you get to this, the more frightening it is. And then the other answer, one is, I think, a denial of reality. And the other one, I think, was a very candid and, I think, welcome concession that, in fact, yes, our rights may be lost, but that's okay. The government will take better care of us than we knew. And I just want to observe the nature of the answers, that's all. Thank you.
Prof. Richard Epstein: I want to criticize the answers.
[Laughter]
Prof. Philip Hamburger: Division of labor.
Prof. Richard Epstein: I'm not a simple observer. There's the following dichotomy. If you have a competitive market, each individual has a majority of one, and that's a perfect majority, and can take resources and devote them to whatever offers on the other side of the market become available without having to consult and gain the approval of all of his citizens. What the administrative state does is it puts all of these individuals into a collectivity, then uses a system of participation to discuss what goes on, and it's a system of majority vote to figure out what is going to happen.
This is the classic situation with labor unions and collective bargaining. And it turns out that the dissenters are represented by the majority, and the question is how powerful are the fiduciary duties that are put into place? And if the unions are organized by bargaining unions designated by the state, the answer is very different from the situation if the unions had purely voluntary creation. So I'll give you one example. Back in 1920s, there was a great deal of racial segregation in the United States, as I'm sure you're all aware. And there were black unions, and there were white unions. And what happened is the employers would play one off against the other, and the black workers roughly did as well as the white workers.
Railway Labor Act comes along—this is a Coolidge confection, so it's not an anti-democratic attack—and they put everybody into a single union. And the single union is dominated by white workers, and they then enter a master agreement with all of the railroads relegating black workers to inferior positions. And somebody says, "Wait, you can't do this." We then have a case under the theory of fair representation, which was invented for the occasion in Steele v. Louisville and Nashville Railroad in 1944, one year after Justice Jackson celebrated the wonderful glories of collective bargaining. And they said, "Yes, you really owe fiduciary duties."
1955 comes along. We have the great case of Conley v. Gibson which you think of as a civil procedure case, but it's a Railway Labor Act case because they're still trying to push these guys into the situation where they'll do honest representation of the minority situation. And so the problem that you have, quite simply, is if you've got a hostile trustee put into place against your own will representing your interests, you're not going to be nearly as well off as if you could fashion your own voluntary organizations by unanimous consent.
And that's the tradeoff that the administrative state made, and it is a damnable mistake, and there's no way that you could soft pedal it, and by next year we'll get better trustees, and by next year we'll put other people on the National Labor Relations Board. It is a fundamental structural error. The best it could do is equal a competitive market, probability .001. The worst it could do is a lot worse than that, probability 99.999.
[Laughter]
Prof. Kathryn Kovacs: Well, I guess my thought is that the extent to which the administrative state interferes with fundamental rights depends on what you define as a fundamental right. I take it as a fundamental right that we've all agreed to live as Senator Lee said, under a Constitution that enshrines a manner of disagreeing and learning to live with each other. And so due process rights may -- if your conception of due process rights is at one end of the spectrum, then you will see the administrative state as interfering with those rights.
My conception of due process rights, I think, accords with Justice Kennedy's, and I feel like he fought a one-man battle for many years to try to bring due process concerns into administrative law. I hope somebody will take up that banner. But his view of due process was not so extreme that it eliminated the possibility of having a fourth branch of the government to assist Congress and the President in administering the law. And I would say that the same thing applies to religious rights, and so on. It depends on what your conception of the right is. I think my fundamental right as an American is to have a government that functions to protect me and to help me live with everyone else in the country, and we've made decisions about how to do that.
Prof. Richard Epstein: May I say a terrible word about Justice Kennedy? His conception of civil rights is so thin that perhaps the worst decision of his administration was the thing he wrote, that opinion in the Masterpiece Cake theory, where he had no idea what the substantive rights are, who should do anything, picked a narrow ground on which to decide a case instead of trying to say much more powerfully, in a competitive market, if some people have strong religious beliefs and you do not wish to patronize them, bless you. And if he does not wish to serve you, then bless him. There are many other people nearby in which to do that.
And the moment what you do is you empower a commission of the federalist state to tell you which religious beliefs matter and which ones do not, the moment you get some federal officer saying, "Oh, we're going into a commercial transaction is as far as we're concerned business with no religious oversight," then you're replacing individual judgement on those issues with collective judgement, and that is necessarily a losing situation. We can live in a society where .01 percent of the people don't want to make wedding cakes of same-sex couples. It's much more difficult to live in a society in which the 99.9 percent of people can say, "We are so concerned with absolute unanimity on all of these points that we're going to reeducate you or drive you out of business if you don't agree with us." Justice Kennedy was the handmaiden in that terrible opinion that he wrote to very strong forms of totalitarian rule with respect to matters that should have been left in businesses and other areas of life to private choice.
[Applause].
Hon. Britt Grant: Let's hear from Professor Michaels -- I think we'll have a different view, and then Professor Hamburger.
Prof. Jon Michaels: So I just wanted to respond a little bit to Philip and Richard on this point about rights and liberty and pick up where I think Katie left off. Just to note where I stand, although it may not be any surprise, I consider rights and liberties to be completely tied up with the ability to have clean air, safe workplaces, economic autonomy, reproductive autonomy. And those too matter, and those may not be provided for through the vicissitudes of the market. And it again, I think, is a definitional question about kind of what notion of ordered liberty all of us have and where we disagree.
Hon. Britt Grant: Professor Hamburger?
Prof. Philip Hamburger: Thank you. So first, Jon, I appreciate your concern for a whole host of goods. Your list of goods may be different from others. Your list of goods may not be listed in the Constitution, but let's give you your goods and acknowledge that they matter to you. Would you want those goods to be treated with the solicitousness that due process rights get under the Constitution, or religious liberty, or freedom of speech? And I think we all know the answer. We can all judge that for ourselves.
I want to get back to Kathryn's comments. She talked about fundamental rights, especially due process. And I want to pick up her line about one end of the spectrum. That's right. My view of this stands at one end of the spectrum. Which end is that? The Constitution.
[Laughter]
I respect all the Justices. They all are serious people pursuing serious ideas, but Justice Kennedy is not the people. Justice Kennedy did not write the Constitution. The Constitution is different from what any one Justice --
Prof. Richard Epstein: -- He didn't read it, either.
[Laughter]
Prof. Philip Hamburger: So I want to talk about those rights that are not, in reality, affected. I want to talk about due process in particular. So the phrase due process comes out of a series of 14th Century English statutes. Most largest one was 1368, and it's summarized as none shall be put to answer without due process, meaning due process in the courts of law. They had administrative evasions of the courts then. The statute was designed to defeat that. This is echoed by American judges. American judges and the people who draft the Bill of Rights understood this perfectly. It was well-known history. St. George Tucker says that due process is the right to be heard by a judge or judicial magistrate. Chancellor James Kent says the same thing, just as Story says the same thing. In fact, until the administrative state came along and had to -- needed, required an adjustment of due process, due process was the right to be heard in a court and have the processes of the court, not any substitute.
The modern response of the administrativists is, "Oh, but it's fair. It's fair." Really? Okay. Let's take your standard that it's fair. Let's just throw away due process of the courts and see how fair it is. In front of an ALJ, that's not a judge. Whoops. There's no jury. Whoops. Only limited discovery for defendants. Whoops. There's discovery for the government even in cases that are criminal in nature. Whoops. There are -- the final decision, in fact, is actually not made by the ALJs because their final decision, or review of it, goes to the commissioners, and mind you, ALJs have admitted that they look to that in making their decisions because they don't want to be reversed, right? And so --
Prof. Richard Epstein: -- You're talking about --
Phillip Hamburger: -- Hold on, I haven't even finished.
Prof. Richard Epstein: All right.
[Laughter]
Prof. Philip Hamburger: You took -- Richard, you took the bait on Justice Kennedy. I want to talk about the Constitution.
[Laughter]
Prof. Richard Epstein: They have nothing in common.
[Laughter]
Prof. Philip Hamburger: So let's -- so you might say, "But it's still fair because you get a judicial review in the courts." But when you get to the courts—and you judges in the room, please, please, listen to this—when you get to the courts, what happens to that fairness and due process? Well, the judges will defer to the agency and the law, and where the government is a party in the case, that means the judges are systematically, institutionally biased in favor of the government again, and again, and again. That's called Chevron, and Auer, and so forth, all of which is grossest violation of due process and notices barred by the conduct -- the judicial code which requires you to recuse yourself in cases of bias. And of course, you say, "Well, I can at least argue in the facts." Oh, whoops, there's deference in the facts, too. And you might think at least in a court, you get a jury, but you don't because it's all set up so you appeal to a circuit court, so there is no right to a jury.
And then last but not least, there's the great unspoken elephant in the room. Most companies are never -- and personal defendants -- are never going to appeal their agency. The cardinal rule -- I've talked to a lot of corporate counsel about this -- is you do not fight your agency that much because they can come back and screw you. Retaliation can almost not be documented because people will talk to you about it in whispers. Even in private, they'll go into hushed tones because they cannot be seen as resisting their agency. And the fear of retaliation is used by agencies to control people, and it's a gross impediment to due process because you cannot regularly get review.
And so I ask you, you judge, is this the Constitution? Is this fair? So, yeah, if this is your definition of fairness, then do apply it to the rights you love, and then we'll see how happy you are.
[Applause].
Prof. Kathryn Kovacs: I just want to point out that I carry a copy of the Constitution with me at all times.
Prof. Richard Epstein: I wanted to make a slightly different point. There are some pretty terrible judges out there who share many of the values associated --
Prof. Kathryn Kovacs: Not you. [Pointing to Britt Grant]
Prof. Richard Epstein: -- save you -- with the administrative state, and so forth, and so it's not here a question of sort of picking the institution. You'll never get one institution which is filled with flawless individuals and another which is filled with people wholly retrograde. What you're trying to do in the abstract is to put together a system of organization which on average will do better than any other, even though in particular cases it may make mistakes. And so this is the basic problem with the administrative state at that level. We know what the sensible distribution is, we think, when you're dealing with civil trials, and so forth. You give a great deal of discretion on particular evidentiary facts that try a fact, a little bit less discretion with respect to whether or not the ultimate facts are made up. Is or is there not negligence? And no discretion on having de novo review with respect to the way in which legal questions are decided.
And the structural differences that you see with the administrative state is all of this stuff can easily get whacked up. If it turns out that an administrative agency approves a sensible private project, you get now hard look review. And that stuff is often completely corrosive because what it means is, given the rules on standing, is that the strongest objector can now have the largest say on whether or not a collective project should take place. And so what you do is you put the locus of power on one extreme, which is what you have when you can challenge things not on grounds of ultra vires but on the grounds that you disagree with it. So you look at all the nature of the environmental protesters. They're the same guys all the time, and it's always the same mistakes all the time because they want to kill everything. And the moment you have hard look review, they have a very good chance of succeeding. Then on the legal questions, you defer to agencies with the aggrandizement of its own power being very much at issue, and that's backwards as well.
So what you have to do, again, is to try to think of an administrative agency in a judicial situation as being a trial court, and the courts then having appellate responsibilities. And by that test, basically both the two great mistakes are transitional cases in the early Reagan years. Chevron – too much deference on questions of law, State Farm – too much of a hard look in a case by Justice White whose ignorance about how you make automobiles was so colossal that you're trying to basically -- what he said is, "You know what you should have done? We don't know whether airbags work. Let's put them in every car." And that was what he said in the case, so you have to basically take the pattern of adjudication you see in ordinary civil litigation and think of it as a template for administrative state, and then you'll do a lot better.
And the problem with all the modern judges is they're tinkerers in the Wilsonian tradition. They always think that they have something better that they could come up with. And it's not the question of administrative failure. State Farm, last I looked, was a Supreme Court decision. Chevron was a Supreme Court decision. If you get the wrong theory, you're always going to get the wrong result. And then the problem of an academic is they tend to celebrate error, whereas what we have to do is to deplore the kind of mistakes that we see on matters this structural and this fundamental.
Hon. Britt Grant: Professor Kovacs, we've obviously got sustained and strong disagreement about whether it is, in fact, too difficult for agencies to regulate. But supposing we agree with your theory that it is too hard, could that be a feature rather than a bug in terms of a reflection of the type of tension that Senator Lee said is built into our system overall? A feature rather than a bug, a good part of the process that reflects the difficulty in reaching agreement that's baked into our structure?
Prof. Kathryn Kovacs: Oh, sure. And I think that the APA was designed so that rules -- agencies couldn't just roll out rules. They do have to go through a notice-and-comment process. I would add a little bit to it now to reflect modern realities, but that process was meant to build in a deep deliberation before the rule is rolled out. I think the problem is that we have a Congress that for, what, 80 years now, has been delegating broad authority and responsibility to make policy to agencies, and yet, the agencies are not able to do that job in an efficient fashion. And in this world, we need policy fast and now, and we expect, when circumstances change, that we get a new rule reflecting those circumstances. We expect that when an election is had that policies will change in response to that election, and yet, the mechanism that our Congress set up to do that is broken.
So what happens is that the system is askew. We have the Supreme Court making decisions that go beyond its expertise. I love the example of the five-member majority in State Farm that said rescinding the rule about those idiotic automatic seatbelts -- I love showing my students the video. You remember those seat belts from the 80s, and when you tried to get out of your car in a rush, it would strangle you? And the Court said, "Oh, but you didn't consider the value of inertia." Inertia? With seat belts? Those things were never sitting still. So I think that that's the problem. It was not -- yes, there certainly are and should be constraints on agency policy making, but the system has become askew.
And I think one of the ways to get it back into balance is to convince the courts to try what Congress wanted us to try in 1946, which we've never really tried because we have SEC v. Chenery. We have pre-enforcement review, thanks to Abbott Labs. We have all these common law doctrines that came out of nowhere, that came out of pre-APA law, and we've never actually implemented the APA as written. I would really love for us to try that.
Prof. Richard Epstein: I agree with this on many --
Hon. Britt Grant: Professor Hamburger, I think, was going to --
Prof. Philip Hamburger: -- Who's going to invite you? I appreciate your comments on APA. I want to invite you to consider the possibility of signing briefs against Chevron on the grounds that it violates the APA.
Prof. Richard Epstein: That would be wonderful.
[Laughter]
I have another operation. Look, some of the great problems that you have are because you try to get an administrative agency to do what it cannot do. Agencies are good at enforcement. They're very bad at giving away public goods to private individuals. So when you start with one of the early pre-APA cases, the NBC case, how do you allocate the spectrum in the public interest convenience and necessity? There is no metric that you can use to figure out which of your favorite friends ought to get something. You need to use a bid system. And so what you did is you had Felix Frankfurter coming up with his typical ignorance on these things, saying, "Well, the market can't possibly allocate resources when they are scarce," not having studied Economics 101.
[Laughter]
I mean, it's just an amazing statement. And so we're going to have the agency do more than set the rules of the road. They're going to determine the composition of the traffic. And they have 80 years to try, and they've never been able to do that. And so that one has to recognize that if you have a valuable resource in public hand, the way to maximize it is to figure out whether you sell it off in bits and pieces, lease it, or whatever it is to maximize its net value, and use a market mechanism over publicly owned rights rather than to try to use an administrative procedure to determine which person should get them and why. And that's one of the fundamental conceits of administrative state is it gets itself out of enforcement mode where it actually can have some sensible things to do. And it starts to distribute goodies to its friends, and that's a massive situation of corruption and favoritism.
Hon. Britt Grant: Well, we've had all the fun up here, so I trust that this has inspired a lot of questions from our audience. Over here?
Steve Calabresi: Hi, I'm Steve Calabresi. I'm the Chairman of The Federalist Society Board of Directors. And I had a question for --
Prof. Kathryn Kovacs: His microphone doesn't appear to be on, for anybody who can do that.
Steve Calabresi: -- essentially a separation of powers -- the separation of power issue raised by agencies. You have in one building agency commissioners making rules. In the same building, enforcement personnel executing those rules. And in the same building, administrative law judges appointed by the agency deciding cases that are being prosecuted by the agency with a right of appeal to the agency. And this makes a complete mockery of the separation of powers. I think there are two simple reforms which the Supreme Court in a 5-4 decision could impose on the system that would help a lot.
On the problem of agencies having too much rulemaking power, it seems to me that part of the problem is that Congress likes to delegate power to agencies because it doesn't want to have to make hard decisions. And so it's constantly throwing hot potatoes to agencies rather than making hard decisions. I don't think we'll ever get Congress to stop doing that, and I don't think we'll ever get the President to stop signing bills that do that. The courts had been unwilling to use the nondelegation doctrine -- apologies, Philip, for using that label -- the courts have been unwilling to use the nondelegation doctrine because they can't figure out how to draw a clear line between what delegations are excessive and what aren't.
What I'd like to suggest is a very clear line that could be drawn, and that is any time Congress attaches an unconstitutional legislative veto to a bill, it should be presumed that it's delegating legislative power, and the bill should be struck down and sent back to Congress. INS v. Chadha striking down legislative vetoes was a huge victory for the separation of powers, but it was also a huge victory for the administrative state because all this power that had been delegated since the 1930s subject to legislative vetoes was suddenly no longer subject to legislative vetoes. And looking at whether there's a legislative veto in the statute or not would provide the Supreme Court and other federal courts with a clear line for enforcing the nondelegation doctrine.
With respect to adjudication, I cannot fathom how anyone could think that administrative law judges ought not to be life tenured Article III judges with a right to jury trial. And I cannot fathom the notion that administrative law judges shouldn't be housed in a separate building of administrative courts rather than where they're rubbing shoulders with prosecutors and agency commissioners in the cafeteria. So those are my questions for Professor Michaels.
My question for Professor Kovacs goes to her work in the Interior Department. And my big complaint with the Interior Department is that it owns 80 percent of Montana, 80 percent of Wyoming, 80 percent of Idaho, 50 percent of California, 95 percent of Alaska, and whole lot of other land. Back in the 19th Century, we passed homesteading laws and we privatized a lot of land. We stopped doing that in 1970. It seems to me we should go back to doing that. I know the current outgoing Secretary of the Interior has been opposed to privatization of land, but I wonder what your thoughts are on that. If we can't privatize land, can we at least sell drilling and gas rights permanently to individuals who can buy them so that future administrations can't rescind those rights?
Prof. Jon Michaels: Katie, do you want to go first? You've got the question.
Prof. Kathryn Kovacs: I think I'd like to decline to talk about public lands because it's a different form of regulation. I think there are historic reasons why the government owns so much land in the West. There are subsidies that western states get for that land, so privatizing -- selling off the land, giving it to the states, would throw a lot of historic compromises way out of balance. It is possible to do it, but the states east of the Mississippi would need to be involved because it would rebalance a lot of historic compromises.
As for permit -- well, here I am, answering the question anyway. I think permanently giving away federal mineral rights -- if there is a public trust in the federal fiduciary obligation vis-à-vis the ownership of land, I think the Illinois Central case made it pretty clear that giving away permanent rights to the federal mineral estate would be unlawful. So that is something that can certainly be changed, but it would be a big job to do it, and it wouldn't just be between the Department of the Interior and the Governor of Utah.
Prof. Richard Epstein: One comment on that -- two things. One, on the public trust doctrine, the great mistake that was made in that case was to assume that things were held in public trust were inalienable, at which point you have to figure out the line between a short-term lease and a long-term ownership interest. The correct rule was always you could get rid of it, but you can't give it away. You have to receive fair value back, and you scrutinize the transaction to see that that's done. And at that point, getting these mineral rights out would be good. You also have to worry about externalities, what easements you get to go in and all the rest of that stuff. As far as the west of it, on western lands, the whole point of selling it off is it's going to have a huge allocative efficiency instead of having the worst-run departments running these things, it's going to be privately owned. Just think of the number of fires that you could protect against if you had Georgia Pacific instead of the Department of Interior running some of these forest lands. So I think one really ought to try and do that.
Hon. Britt Grant: Professor Michaels?
Prof. Jon Michaels: Yeah. So I'm not sure exactly what the question was other than why do I believe what I believe? But I will say that I have deep misgivings about the politicization of agency adjudicators. If I suggested otherwise, I apologize. I think that agency adjudicators should be much more insulated than they currently are, as evidenced just a couple of weeks ago by the decision to -- in the Veteran's Administration to allow some adjudicators to continue in their job and others not. That seemed to fall entirely on partisan lines. Whether they're housed in the same office or elsewhere, again, I don't have a problem with that, and I think it probably would be healthy for the reasons that Professor Calabresi suggested.
On the legislative veto issue, if that's a helpful touchstone, it probably would -- even if it were a helpful touchstone, I imagine Congress would pick up on it pretty quickly. So I don't know how much that would help us if we were truly concerned about overbroad delegations of that sort, given that most members of Congress presumably know now that those provisions would be struck down.
Prof. Philip Hamburger: Just one sentence, if I may, about Steve's point concerning ALJs. It's a very serious problem. The solution's not that difficult. By one estimate, this is Bill Funk's estimate, there are 257 ALJs that exercise significant binding power. Another estimate puts it more like 150. We're not talking about that many judgeships. And of course, one can take a Burkean step by step approach. Imagine if the SEC, under pressure from judges, recognized how prejudiced its proceeding are. Imagine that the SEC were simply to send its cases to court. It only has five ALJs. The burden on the judges spread across the United States would not be that great. It would be a very good experiment in shifting to real judges.
Hon. Britt Grant: We --
Prof. Richard Epstein: Can I ask one question?
Hon. Britt Grant: Sure.
Prof. Richard Epstein: I disagree with Steve on one point. I quite agree that the current ALJ system with rotating judges, Lucia, the situation in Oil States, is unforgiveable. I have no particular objection to, and in principle, prefer the kind of Article I judges with 15-year terms and think that federal judges should be subject to similar kinds of restraints because I don't see any abuse coming in long-term appointments, and I see having a rotation in offices being something good. And I would rather amend the United States Constitution, for example, to limit Supreme Court judges to 18-year terms, something of that sort, to get rid of some of the huge pressure that takes place on the confirmation value battles.
Hon. Britt Grant: Thank you. And we've only got a few minutes left, so I'll encourage all of our questioners to keep your questions brief and make sure that we can get to as many of you as possible.
Art Macomber: I think next time we'll get Steve on a panel. My name's Art Macomber from Coeur d'Alene, Idaho. And briefly, with all due respect to Professor Kovacs from my home state of New Jersey, if New Jersey was 65 percent owned by the federal government, you might see fit to change your view on public lands.
My question is on judicial function for Professor Epstein. Professor, in many states, administrative rules are not -- they say they don't rise to the level of law. They're not law, they didn't go through the presentment process, the Executive didn't sign them. And my question is to you, as a judge, say a state judge, and I'm confronted with an administrative rule, is this a case where we apply law, or is it a case where we apply equity? Or from a judge's perspective, what is the approach to taking on an administrative rule case? Thank you.
Prof. Richard Epstein: Well, I think if you're talking about a question of law, I would generally favor de novo review on those things, which is, I think, consistent with the original design of the Administrative Procedure Act. Remember in Chevron, this great case of statutory construction, Justice Stevens does not cite the provision, Section 706(a), at all.
Hon. Britt Grant: Next question.
Brian Bishop: Yeah. Brian Bishop from the Stephen Hopkins Center for Civil Rights in Rhode Island, and certainly a salute to Philip's recognition of the civil rights issues here. I'd actually like to ask Professor Kovacs and Mr. Michaels if they see a point that Richard has made that judicial review in this case is reversed, that individual cases are subject to extreme precautionary principle advanced with almost limitless standing, whereas the ability to challenge and obtain hard look on the broader regulatory questions has been exceedingly constrained. Could you agree with Richard that that is an area that might deserve address?
Prof. Richard Epstein: What do you think about hard look?
Prof. Kathryn Kovacs: I'm not sure I really understand the question, but I can tell you I was employed for 15 years based on hard look review and the courts. I don't think I agree with you that the ability to challenge government policy is constrained in that way.
Prof. Jon Michaels: Yeah, and I would just say that one of the bases for deference, which isn't always met or satisfied, but one of the bases for deference by my lights is that the process is rigorous. And I know folks can say, "Well, what does rigorous mean?" But it means that there is an extensive record with opportunities for all different viewpoints to be heard, and for those viewpoints to be vetted and presented to political leadership for the ultimate kind of curation and generation of rules in those cases.
And so if a challenge comes under those terms, I think it is appropriate for courts to give a look, but not de novo, kind of readdress or reexamine a rule from scratch because we pay respect to that process that, again, is open and it is one that is both met with political and expert input. You may not like the outcome, but that is the process that engenders the most deliberative framework. And I think that's a lot better than just having maybe no process, just a black box, and then whatever judicial panel you get maybe saying, "Yeah, I like that," or "Yeah, I don't like that, but we're going to substitute our best preference for your best preference."
Prof. Richard Epstein: But, I mean, look, what happens is the hard look review is imposed in those cases where administrative agencies have actually granted an approval. And what happens is you fly speck this thing, find something which you think is -- should have been considered that was ignored or something that was ignored that should have been considered, it turns out in any complex proceeding, you always miss something or add something in, and so you can negate it. The illustration of a simply dreadful opinion on this was the recent decision that took place with respect to the Keystone Pipeline in Montana where they vetoed it because of the ostensible effects on mitigation plans and on climate change. And this is something which had been reviewed 15 times, and a judge basically has one unreasoned paragraph that says, "I need a full statement," and then they give me another one, and it's just a de facto veto of a project which essentially has passed all sorts of sensible administrative rigor.
So I think hard look situation makes the extremists in the general population rule what the court is doing, and I don't think that that is an appropriate way in which to run an administrative state. So that, I think, is the difficultly with hard look review. It's doing it on the wrong question. De novo for law, deference for questions of fact.
Prof. Kathryn Kovacs: I just have to take up the Keystone Pipeline point. As a matter of fact, the federal government, federal agencies win, I think, somewhere in the neighborhood of 75 percent of APA cases, and the Keystone -- the problem in the Keystone case was not the court fly specking. The problem that the court identified was that the administration changed positions without justifying the change in position.
And that's one of the things we've seen so much in the past year and a half, the administration trying to change policy and getting struck down some, what is it, 38 times now in attempting to change policy because they're not supporting the decision enough. And yes, I think agencies should have to justify their decisions, but I do agree with Richard that hard look review -- the Supreme Court has never used that term. And I think the courts of appeal should probably get the message. Arbitrary or capricious was meant to be quite deferential.
Prof. Philip Hamburger: I just want to observe that Kathryn earlier said that when there's a change of election, the President should be able to get his policies carried through quickly.
Hon. Britt Grant: I shall now exercise my moderator's prerogative and move to the next question.
Questioner 3: Yeah, I was wondering to what extent the psychology of the regulator comes into play? And what I mean by that is I spend my days litigating for and against decisions of a particular state agency in my home state that is almost exclusively populated by engineers and scientists. And no offense to engineers and scientists, but I tend to find that by education, training, and temperament, they're particularly resilient to the idea that deliberative processes can come up with a better solution to problems. They tend to grab a solution and stick with that, and they view the APA and the due process requirements as merely check boxes on the way to get to where they ultimately want to go, and not as the notice, and the hearing, and the deliberative process to try to get to a better decision or to consider alternative viewpoints. And so I'm just curious -- how do you see that as an -- how do you create a structural system whereby you get the benefit of their expertise and their knowledge of the agency, but actually temper that so that they're not just checking off the boxes of the APA rules and the due process requirements?
Prof. Philip Hamburger: So I think that's a profoundly important question. I think we can question expertise. Expertise is usually old science. We all know about expert bias, right? Experts fall in love with their area, and they don't adequately consider other matters. And the solution to all of this, I think, is to distinguish between expertise and expert decision making. The administrative state has justified on the grounds of expertise, and it's assumed that experts should then decide. But the reality is we need scientific input -- whether that's expertise is a different matter -- but experts surely should be able to talk, but that doesn't mean experts should decide.
And we have a solution to this, oddly enough. It's actually up to date, even if old. It's called the Constitution. We can have agencies that can be filled with experts, hopefully more expert than we have since they produced orange rivers and the like, but we should have expert decision -- input. Experts can draft bills if they wish and just send them up to Congress to decide. And then we get more balanced decision making that's more responsive to the people.
Hon. Britt Grant: Do you have a response?
Prof. Jon Michaels: Yeah. So I'll just say that I think that's right to focus on there's certain technical aspects where, for instance, lay participation wouldn't be particularly useful. And in those cases, one way to think about this is that what are the private interests that are mobilized to care about a particular technical question? And one of the issues to think about is are those private interests better able to be heard and dealt with within an administrative proceeding or within a legislative proceeding?
And my general sense of this, and my general take on this is that agencies are much more amenable to hearing from all different sides on an issue, particularly because of judicial review, because someone's going to say, "Well, did you -- why didn't you take into consideration this comment?", or "Why didn't you take into consideration this position?", which the legislature never has to justify. And secondly, as it turns out that we do have a Congress, but that Congress is beholden to special interests of a monied sort, and so it's not clear that everyone would get the same fair shake. I could submit comments on rules every single day. I can't get a meeting with members of Congress, probably, any day.
Hon. Britt Grant: We have time for one last brief question with a brief answer.
Mark Chenoweth: Mark Chenoweth with the New Civil Liberties Alliance. I wanted to come back to Professor Hamburger's earlier question to Professor Michaels and Professor Kovacs and just narrow it a little bit. And that's to say why are you comfortable with the loss of civil liberties in administrative adjudication? He went through all of the things that you lose. There's no jury. You can't even contest constitutional problems with the prosecutions being brought against you. There's no federal rules of evidence, et cetera, et cetera. There's also no expertise with administrative law judges. None of the five ALJs at the SEC practiced securities law before they became judges at the SEC. That's crazy, right? So there's no positive tradeoff with expertise. Why are you willing to give up all of the due process rights in order to have administrative adjudication when we could just get rid of those 200 judges and put all these cases into Article III courts?
Prof. Kathryn Kovacs: Well, the Supreme Court has decided that post-deprivation process is sufficient. Now, I think that it's been a very long time since the Supreme Court has taken procedural due process doctrine to task. I think there are -- the way agency adjudication has developed and the role that -- and this gets back to the earlier question about separation of functions within agencies, an issue that Congress hasn't addressed since 1976, I agree that post-deprivation process is sufficient in most cases. If the --
Mark Chenoweth: -- Then the process is the punishment because it takes a decade --
Prof. Kathryn Kovacs: -- Yeah. And I take --
Mark Chenoweth: -- and no one can afford it.
Prof. Kathryn Kovacs: And Philip's point is well taken that a lot of litigants may be afraid to go to court because it gets them on the bad side of the regulating agency, but I do think that procedural due process doctrine is ripe for a new look from the Supreme Court, and I sure wouldn't be surprised to see it.
Prof. Richard Epstein: One sentence on this, which is what you do is you take all the adjudicative function outside the administrative agencies and to put them into either Article I or Article III Courts. Period. Nothing else will do.
[Applause].
Prof. Kathryn Kovacs: Look, there are good reasons why Congress --
Prof. Richard Epstein: -- Not in this case.
Prof. Kathryn Kovacs: -- put these adjudications into agencies, including not just adjudications about public rights --
Mark Chenoweth: -- But why does the agency get the choice to go to Article III courts? How about you let the defendant have the choice about going to Article III courts --
Prof. Kathryn Kovacs: -- But it's not the agency's choice, it's Congress's. It's Congress that made the decision to do this and the Supreme Court that gave it its blessing.
Prof. Richard Epstein: So both take a pass on a serious structural issue.
Hon. Hon. Britt Grant: This question is a great example of our commitment to debating ideas freely here. I think we've done a lot of that on this panel, and I thank you all for your attention. Thank you to all of our panelists. And those of you who have questions, I hope you'll approach them outside and pose them.
