Christopher DeMuth and Adam White Transcript

Taped November 30, 2016

Table of Contents

I: Our Out-of-Control Bureaucracies 0:15 – 32:38
II: What Is To Be Done? 32:38 – 1:13:08
III: The Courts and the Administrative State 1:13:08 – 1:26:40

I: (0:15 – 32:38) Our Out-of-Control Bureaucracies

KRISTOL: Hi I’m Bill Kristol, welcome back to CONVERSATIONS. I’m very pleased to be joined today by two good friends, Chris DeMuth, who served in the Reagan administration, as head of the American Enterprise Institute for a couple of decades, and now a Distinguished Fellow at the Hudson Institute. And Adam White, who didn’t serve in the Reagan administration. What, were you in elementary school? He was in elementary school during the Reagan administration. But is also a lawyer; two lawyers here. This is the first time we’ve ever done that on CONVERSATIONS. It’s a problem, right? You’re not a Distinguished Fellow?

WHITE: Not yet. Research Fellow.

KRISTOL: Research Fellow at the Hoover Institution, here, in Washington. Two of our leading students and writers on questions of administrative law, the administrative state, the constitutional separation of powers, etc. I thought we would all learn a lot from you today by asking you about that big range of topics.

Donald Trump says Washington is broken, the system is broken. Is it? Is it, and what is the real way in which it’s broken, as opposed to very superficial problems? Chris?

DEMUTH: I think he’s essentially correct. The system is broken if we think of our constitutional system of Congress writing the laws, making policy, and the executive branch executing the laws.

In recent [years], over many decades, essentially since the 1970s, Congress has delegated more and more effectively law-making power to the executive branch. We now have a Washington establishment where most of the laws that people live under are made by the executive bureaucracy, and the making of the laws is – it’s essentially unconstrained. It doesn’t face the sorts of constraints that you have in the Congress, where you have to negotiate with many, many different views and come up with some sort of reasonable balance.

We have hundreds and hundreds of highly specialized agencies, and they face few constraints, not only of politics but of others kinds. They’re free of many of what we would, most citizens think of as “rule of law” values. If people believe that their rights are being abused by an agency, they have to go before a tribunal that is setup by the agency itself. So that the enforcement officer will be in one office, and the judge – administrative law judge – is the in next office in the same agency. I’m speaking metaphorically, of course. So you tend to lose –

KRISTOL: But not metaphorically in the sense that this is literally correct: that if you appeal, I don’t know, if you don’t like an EPA decision, you can ultimately get to federal court, I suppose.

DEMUTH: Ultimately, but the courts are very deferential to what happens at the administrative level.

KRISTOL: Most of the people you’re appealing to are a part of the same bureaucracy.

DEMUTH: The rules that the agencies lay down are also unconstrained by the usual mechanisms of public finance. Where the government acts, it has to raise taxes., Congress appropriates funds. There are budget constraints. There’s lots and lots of people in the agencies that are doing good deeds that are faced with a budget constraint, the way most of us are in our personal lives or business lives.

But the regulatory agencies, now, issue rules that may have hundreds of millions of dollars of costs. No taxation, no budgets, no appropriation controls, it’s just an edict.

So we have a situation where there is an enormous concentration of power, in highly specialized agencies, that are doing things that, in general, most Americans are in favor of. Most Americans think that the federal government should look after the quality of the food supply, pharmaceutical drugs, air and water pollution. These are not highly controversial goals.

And the fact that the agencies are exercising all of this power in the name of goals that most people share makes it a highly intractable situation, and one that has produced, I think, a great deal of – I think there’s more public appreciation of it because there have many conspicuous abuses of power during the Obama administration. And that sets the stage for what our new president, Donald Trump, will do to try – he clearly wants to reign in the process and reestablish rule of law values. He wants to get the economy going again. He sees overregulation as an important – has become an impediment on economic growth. So, it’s one of the big challenges that he’s going to be facing.

KRISTOL: And I guess, maybe this is too simple, but if you take the EPA – the Environmental Protection Agency – there is also a problem of agency capture? That’s what they call it, I think? Where, “regulatory capture” or whatever – where you either get captured, I suppose, by the environmental activist groups who end up in a collusive effort, sometimes lawsuits, even, with the agency that forces the agency to do something it wants to do. And people go back and forth between the EPA and some environmental public interest group. Or I suppose, on the flipside, captured by industry – where some group or some agency is supposed to regulate oil and gas, gets captured by oil and gas.

But either way, you don’t get the normal, I guess is the argument, legislative tradeoffs and deliberation that you would hope to have in Congress. Is that a fair way of –

DEMUTH: The idea of capture goes back to the old, New Deal agencies that were regulating the airlines, and the telephone “Ma Bell.” The idea was that the big utilities and regulated companies were capturing the agencies. And there was a lot of truth to that. It’s a little bit different in the case of NHTSA, [National Highway Traffic Safety Administration] the highway safety regulator, or the EPA, Environmental Protection Agency. If you went to Exxon Mobil and asked them, “Has EPA been captured?” They’d say, “Absolutely! The Sierra Club and Friends of Wildlife are in charge.” If you go the Sierra Club, they’d say, “Exxon Mobil is running the game.”

So in fact, the capture idea doesn’t quite get you that far, but it’s certainly the case that if you the Sierra Club and Exxon Mobil just sit down at a table and come up with some national plan, it’s going to be something that favors the fundraising interests of the Sierra Club, or whatever organization, or large incumbent industries. So, it’s a problem in highly specialized law making, such as we have; but it’s not quite as simple as –

I do think that EPA, in recent years, has become a national industrial planning organization, especially focused on the energy sector. It wasn’t set up to regulate the energy grid, but it is doing that. The energy grid is going to be confined according to carbon dioxide emissions from power plants, and everything has to sort of bend to that imperative. That was nothing that any legislature that created the EPA, or created any of its statutes thought it would be doing. But EPA has just – over the last 8 years of an administration deeply committed to greenhouse gas controls, facing a Congress that, even when it was run by the Democrats, was unwilling to do anything – EPA has sort of been converted into an agency that is doing something very different from what its creators envisioned.

KRISTOL: From a textbook point of view, and I’ll let Adam chime in here, but yeah, what’s sort of disturbing, just in a very obvious way, is you would say, “Okay, what law got passed in 2009 or ‘10 that gave EPA these additional responsibilities and authorities?” And I think the answer is none. That’s not healthy from the point of view of democratic accountability. Why does Congress yield all this power, Adam? Isn’t ambition supposed to counteract ambition and all that kind of stuff?

WHITE: That’s right, and that’s the framework that Madison and Hamilton and the Framers expected, what they thought they had created. Each branch pushing its boundaries as firmly as possible. Instead, in recent decades, we’ve seen Congress hand over more and more power to the administrative state; the courts handing over more and more power to the administrative state. And at times, the executive branch is filling that vacuum, and at other times, the executive branch is ceding power to the administrative state.

KRISTOL: Or the political parts, you mean, of the executive branch are just letting the permanent bureaucracy go?

WHITE: That’s right. The White House, while in some respects it oversees what the agencies do, and in other respects, it’s perfectly happy to let the agencies go and do what they’re going to do, take credit for the good things and disclaim responsibly for the bad.

I think, in some ways, we’ve reached a point where the modern administrative state has its own sort of gravitational pull on our politics. It is now such a big and heavy part of our government that it’s deformed the rest of our politics.

Now, Congress knows, if a legislator knows if he’s not going to get his way in his own house of Congress, he has the administrative state to backstop him. The president knows that if he doesn’t get what he wants out of political process, he can fall back and let the agencies fill that vacuum. At some point – and I’m sure it was step by step – but at some point, the administrative state took on enough of a critical mass that, like I said, it now asserts its own gravitational pull on our politics.

KRISTOL: And how about Congress? It just seems to me that when people think – They think of the administrative state, and unelected bureaucrats doing things that no one thought they would do, and not much right to appeal, people also just look at Congress and say (and this is used in a partisan way by both parties, but I think it’s a fair): they don’t pass a budget; it’s a continuing resolution. People may not know what that is exactly, but you know, it’s as if you just Xerox last year’s budget and extend it for 6 to 12 months.

There seem to be no actual legislation, no actual appropriations. The kinds of debates, when I came here in ‘85, you’d have on “Should we spend this much on this part of the Education Department or that much?” And there would actually be a debate about, “Well, is the money being well spent? Do they need more?” None of that seems to happen. I’m really amazed by the, maybe I’m wrong, but the degree of congressional breakdown. If I’m right, or whether or not I’m right, how did it happen?

DEMUTH: I think that’s true. I agree. One has to be careful because, I mean, in the past year, Congress passed a considerable change in the No Child Left Behind statute [ESSA, the Every Student Succeeds Act]. It had become very unpopular, and they did come together. And you can disagree on the details, but it was traditional legislation. And there were Republicans, and there were Democrats, and people agreed and disagreed and they negotiated a compromise.

They passed a substantial reform to the way EPA regulates chemical substances [the Chemical Safety for the 21st Century Act]. That was also traditional legislation.

I think that, in part, because of criticisms of Congress’s lassitude and increasing tendency to fob-off hard decisions to the executive branch, they have kind of been coming back to the table. But it is still a considerable problem, and there are two parts to it.

One, members of the House and Senate have learned that they can vote bravely for “clean air,” or in opposition to “discrimination against the handicapped,” or for “sound finance,” and then take credit for that. They haven’t really made any decisions. Where they’re forced to make decisions, they tend to be statues that face squarely in a lot of different directions so that the discretion goes to the executive branch.

Another larger problem, in my view, is that Congress is faced with so many demands to do so much. It’s just fundamentally different from the era going all the way up through the ‘60s, including the New Deal, when the number of issues on the national agenda were very small compared to what they are today. And when members of Congress are just getting dozens and dozens of demands that the federal government do this, that, and the other thing, what they’ve learned is, “We don’t have time for all this; so, when an issue comes up, we’ll just set up an agency to deal with it. We’ll just kind of turn it over to the agency.”

So they’ve become in Congress more of a – they’re sort of founders of special-purpose, little, unilateral governments around the executive branch. I think that’s the ultimate reason for the problems we have, growth of specialized, unaccountable executive government.

There are many things I believe that President Trump can do just as president and the person preceding over this vast empire. But ultimately, it’s going to require Congress to become a more responsible legislature. Without that, the courts, the White House and the president’s political staff are not going to be able to make more than marginal changes.

KRISTOL: I want to come back to that, but just on the Congress thing, isn’t the budget process – which was reformed in a way that a lot of people thought was promising, more rational, more forcing tradeoffs and all that – seems to me now, kind of just nuts. There’s never, maybe a budget is nominally passed, maybe some appropriations bills are passed; they’re not really conferenced, and they don’t become law, usually. And then you’re 5 days before the end of the fiscal year and you’d have a government shutdown, or 5 days a debt limit increase, and then you have some frantic, all-night negotiation and basically pass something either that’s not been deliberated on by anyone, really, or is a Xerox of last year’s budget. It’s sort of the opposite of what was intended, no?  That just seems really broken. I mean you were there, at the Office of Management and Budget (OMB). Is this an unintended consequence? Has reform gone awry?

DEMUTH: I think it is a reform gone awry. If you trace back the history to the early 1970s when Congress passed this budget reform process, it was a time when the old bull of powerful autocrats that used to run the appropriations committees, and other committees, were losing a lot of their power. Congress was becoming more democratic. And what Congress tried to do was to substitute abstract rationality for incarnate power.

I mean, it used to be that so-and-so who was chairman of this committee and that committee and had some responsibility for keeping control over government expenditures. And those guys, they were all guys in those days, they loved to stand up to the president – of their own party, especially. It was not a highly partisan relationship in those days. But they lost power, for complicated reasons. Part of it was that they were all Dixiecrats, and after the civil rights revolution of the ‘60s, they were in eclipse. Part of it was just the more democratic ethos that has been part of all of our politics for the past 20 or 30 years.

So they passed this law, and it had all of these kind of rules: that in February, the president submits a budget proposal; in March and April, the Congress passes a concurrent resolution – not a law, just a resolution of both houses – setting overall budget totals; and then those go to the appropriations committees.

But nobody had any particular incentives to follow these procedures. They lasted for a while, but they’ve fallen into utter disuse in recent decades. And we have these ridiculous continuing resolutions in September, as the new fiscal year looms, where the committees have lost a lot of their control.

And it’s not just a matter of losing control of the budget process and increasing deficits. Congress used to use the appropriations process to keep a pretty good watch over what their agencies were doing.

You worked in the Reagan administration, I worked in the Reagan administration, appropriations riders constrained me. I had these campaigns I was on, on behalf of the public good, and Congress would come in with a rider and say the office that I was running in OMB “cannot spend any appropriated funds on this, that, and the other thing.” I’m sure you saw the same things in the Education Department. So, we had to move on to doing some other mischief because Congress had taken us out of particular battles.

It infuriated me, but it was a way that the generalist – sometimes special interest – but Congress itself could say, “the agencies are going to extremes here, there, and the other place,” or “they’re doing something that is not in accord with popular sentiment right now.” I don’t want to paint too rosy a picture of it, because sometimes special interest would capture Congress. But at least there was this competition between the two branches, that has essentially gone away.

KRISTOL: Yeah, well there was log-rolling, and ear marks, and all kinds of stuff in the bad days – the good ol’ days, it wasn’t necessarily good ol’, perfect governance.

But I remember being in the Education Department, I was Bill Bennett’s Chief of Staff, and we were committed to cutting most of the – Originally, Bennett and President Reagan, of course, were committed to getting rid of the Education Department, that was Reagan’s first education secretary. By ‘85, that was hopeless; so we were committed to cutting programs. And we had real studies that showed that this part of the department did no good, and other parts you actually could spend more money in.

I remember when I was new to Washington, and going with Secretary Bennett to see the chairman of our appropriations committee, or I guess it would be sub-committee of the full appropriations committee, the education appropriations sub-committee, in the House, William Natcher. Remember him? Of Tennessee or Kentucky, something like that. Very courtly, southern gentleman. I had never really heard of him; he wasn’t a famous congressman or anything. But this was his bailiwick, and he had strong views. Whether they were based on personal idiosyncrasies or his own staff’s study of the issue, or his particular judgements, or lobbying because he had a cousin who liked vocational education.

I just remember – I don’t know what part of the department it was, but we said, Bill said, “Mr. Chairman, I think we can really save money here by cutting this, and cutting that,” and we had a long presentation, and here’s a booklet of all the stuff. I’m sure we had worked with OMB, your agency, on making the case for all this. And Natcher [said], “Mr. Secretary, we’ll give you a good budget.”

“Thank you. Well, what does that mean?”

“We know what we’re doing, we’ve been appropriating for the Education Department for a long time.” And sure enough, they totally ignored all of our studies about how they were spending too much on vocational education. Bill Natcher and his ranking Republican, they believed in vocational education, and they were going to appropriate money for it. It wasn’t a model, I suppose, of enlightened policy making, perhaps, but they were accountable, elected officials.

DEMUTH: So, he was more in favor of vocational education than you were?

KRISTOL: I don’t remember if that was the particular case.

DEMUTH: I think I’m on his side.

KRISTOL: Yeah, no, I know; we were probably wrong. But at least they did have – the bills had to go through Congress, and others had to vote on it so there was an actual chance to appeal and say, “wait a second,” which, really, you don’t have in the modern administrative state, I guess.

WHITE: At least the power of the purse was a tool that Congress could use. I mean, after Congress legislates, the only tools they really have to enforce things through oversight is the power of the purse and the appointments process, the appointments power. And this new sort of world of budgetary brinksmanship just takes the entire appropriations power really away from Congress. The battlefield is totally stacked in favor of the executive branch, at that point.

So, there’s not a whole lot that Congress can do through the power of the purse to enforce its will on the agencies; it really gives that all way.

And among the many problems of the current budget process is the fact that it really doesn’t align with Congress’s interests in reigning in the administrative state anymore.

KRISTOL: I hadn’t really thought about that. So it’s a negotiation between the leadership and the White House, and the fact that you could, in the old days, use a particular education appropriation bill to make sure this did or didn’t happen, tends to go away in that, or there’s no discussion of it, anyway. It gets stuck in or it doesn’t get stuck in, I guess.

WHITE: And there’s downsides to that. I mean, when you have every little committee or sub-committee with its own purse, then nobody is really responsible for the sum total of cost of spending. But by taking it totally away from the committees that are overseeing the agencies, all that goes away.

KRISTOL: And incidentally, that was the argument for the budget reform. Of course, it’s not as if the budget deficit has gone down under the modern system. So, the claim that this was going to control spending and be more responsible seems a little dubious, as well.

What else about these sort of modern – before we get to the remedies, which you all are going to lay out for the Trump administration and beyond; and for Congress, too, and the courts, I suppose. What other characteristics should people know of this “being” that we’re talking about: the modern administrative state. What are the other – ?

WHITE: I mean, there’s a few, but one – we were speaking earlier about capture. Another capture that I think we should worry about is capture of the agency, or the agency’s leadership, or its agenda by the bureaucrats. You have this giant force of employees inside of an agency that can tend to just sort of take things over. They create inertia.

The EPA is perfect example, actually. Whether under a Republican president or a Democrat, the folks inside the EPA know basically what they want to do. My favorite example, of recent memory, had to do with climate change. In the last Bush administration, the Bush EPA’s position is, “We don’t have authority to regulate greenhouse gas emissions.” And some states and environmental activists sued, and it went all the ways to Supreme Court, and the Bush Administration lost.

And one of the EPA officials from that era, she wrote a memoir recently, and she describes the scene on the day the EPA lost. The EPA employees threw a party, and popped champagne to celebrate the fact that their agency had lost and now would have this power and this duty to regulate greenhouse gas emissions. And so, even though the elected leadership and the appointed leaders of the agency were against this, the bureaucracy had its own agenda and celebrated the loss of their agency when it gave them more power.

And that’s a kind of capture that I think is very important to keep an eye on. And it’s difficult, because even when you change from a Democratic president to a Republican, or vice versa, you don’t just show up and fire everybody. The leaders change, but the, most of the agency stays the same, and that’s a constant struggle trying to turn the agency toward the new agenda.

KRISTOL: Which is one reason, I suppose, that one should be wary of such big, sprawling government in the first place. Almost by definition, you’re not going to control – as Chris was saying – a government that does so many things. I remember this today, even in education – which was small department when I was there – there was an awful lot going on. And I was no expert, and Bill Bennet was no expert, and how do you know if they’re doing the right thing in some parts of the higher ed student loan process or not? And by the time you figure it out, you’re out, and they’re still there, you know.

WHITE: One other great example I love, it’s in my colleague Niall Ferguson’s new book, his biography of Kissinger. There’s just this anecdote, it’s funny though, Arthur Schlesinger and the Kennedy administration is complaining, just a couple years into the administration – he says, “So much for the new frontier.” The new frontiersmen couldn’t push pass all the bureaucrats; even Kennedy, and the energy of the Kennedy administration gets bogged down by the bureaucrats.


DEMUTH: One thing that I would add: If you’ve been in Washington as long as we have, one gets used to something that is very disturbing, that I think most people outside of occasional victims in the country do not understand, and that is the frequency of very serious abuse of individuals and business firms by the bureaucracy.

Now, there are many good, very well-meaning people that work at EPA, and the FDA, and the FCC, but the amount of discretionary power they have, and combined with their zealous belief in the importance of what they are doing, leads them – as a routine matter, not as an exceptional matter – to engage in abuses that I think would shock many people.

Twice during the Obama administration – once EPA, once the Army Corps of Engineers under the Clean Water Act – essentially just kind of squished a couple of innocent land owners, and effectively denied the many hearings on the loss of their property rights that went up to the Supreme Court. We hear about all the divisions on the Supreme Court, these were decided unanimously against the agencies.

When I was at AEI, American Enterprise Institute, there was a businessman coming to town, didn’t know Washington too well, and he was engaged in a merger transaction that the Federal Communications Commission had authority over, because they had to transfer some licenses, for spectrum licenses. He came into my office, and he after this meeting at the FCC, and he was just ashen faced. He looked like Kurtz. He’d sat down with the commissioner, who gave him a list of things that he should do. I think one was to fund a park in a town in some congressman’s district. To agree to comply with certain FCC rules that did not have any formal, legal status. And he thought he was there to talk about the merits of this merger, and they didn’t want to talk about the merits – they just wanted to talk about – it was a shake down, frankly. And people in Washington are used to this. It’s a very bad state of affairs.

You look at really powerful agencies such as those two, the Food and Drug Administration, and people that operate in these agencies see this sort of thing all the time. And I don’t want it to lose its ability to shock.

KRISTOL: That’s a good point. When I joined the board of a set of mutual funds – and I’m probably going to say here more than I should; I mean, there’s no scandal or anything – but I was struck, they would always report each quarter on what the SEC was up to. It’s a well-run company and funds, and there were no issues most of the time, but I was always struck at the beginning, it really shocked me – this was a long time ago – there wouldn’t just be, “Well, this new legislation has passed, and therefore we may have to adjust X, Y, Z in our practices and our meetings,” etc. It wasn’t even, “Well, there’s a new rule that’s out for notice and comment,” is that what it’s called? And, “Therefore, if this becomes an established rule in the federal register, we’ll have to, we should adjust this or that.”

It was, “Well, there’s someone who works at the SEC who came in for a review and seems to have kind of a view” – and it wasn’t, again, a necessarily foolish view – “that things probably should be run a little more this way, because they kind of think the mutual fund boards aren’t quite doing enough here, and maybe they should be doing more there. And we probably should accommodate that and take account of it.” I had no idea the merits – it could well be right – but this is how the government now works and how businesses adjust to and work with government? And that’s not, really, what one’s image of the rule of law and limited government is. That it’s kind of a negotiation between a general counsel of a business and a –

And then of course, if things get a little dicey, then you call your Senator and then there’s pressure, and again, that’s traditional in a way, but none of it is public, none of it is legislation, none of it is deliberation; it’s all string pulling, I guess.

WHITE: I think that’s key to the current moment, the current debates we’re having. Even within the traditional administrative state, we have this vision that they make rules, or they make adjudications. The agency does something specific that people have to react to.

But now – especially the agencies that have this all-encompassing reach, like financial regulators, the FDA and others – the more difficult challenge is their sort of passive aggressive regulation. They’re not passing a rule, they’re not taking a final action, they’re just suggesting something or they’re issuing guidance.

Or as Chris illustrated, you come to them needing their approval on something and they’ll say, “Well, sure – we’ll approve this merger or grant this permit, but you need to do all these other things.” And it’s that aspect of administration that doesn’t fit within the old categories of administrative law, and the reform debates now are really focused on how to bring that back within a legal framework where there’s a rule of law and accountability, in a way that there just isn’t right now.

KRISTOL: I suppose – maybe final point on the diagnosis, then we can get to the solutions. Am I right that this whole system – this is sort of what you hear from people – advantages the very big firms, the very well-connected ones who have a million lawyers they can hire and can stay on top of what this SEC person does or doesn’t prefer, and it’s the mid-level businessman from the Midwest, who doesn’t have a permanent lobbyist in Washington, who suddenly is getting blindsided by something. Is that fair?

WHITE: Yeah. I remember, in the Romney/Obama presidential debates, Romney had a line – he said that “Dodd-Frank is the biggest kiss that Washington ever gave Wall Street.” And at the time, there was some chortling about it, especially on the left – “Well, don’t you know, of course, Dodd-Frank punishes Wall Street?” But I think in the last 4 years, there is this awareness that Dodd-Frank and other statues like that really do favor the big players over the small, that that really is part of the larger crony-capitalism problem.

My friend and old colleague Boyden Gray and I did a cover story for the Standard at one point on this, with a picture of the old sort of money-bag cartoon characters giving Obama shoulder rubs. And that was the image of Dodd-Frank, really – this combination of big government and the biggest business. I think Jamie Dimon of JP Morgan gave an interview where he said, “These financial regulations are the moat that keep the smaller competitors at bay and protect our interests.”

KRISTOL: So, it is more – then it gets kind of a European-style corporatist discussion with the regulatory state as opposed to a vigorous, bottom-up free market and all that.

DEMUTH: The European term is syndicalism.

KRISTOL: Yeah, I guess so. You should revive that term.

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