Knowledge And Decisions

Administrative agencies enforce their decisions in ways which escape the constraints of the Constitution or of Anglo-Saxon legal traditions in general. American laws are prospective — that is, they describe in advance what the citizen can and cannot do. The citizen cannot simply be punished because his actions prove in retrospect to be displeasing to the government. In addition, the burden of proof is on the government, or on the plaintiff in general. Moreover, the citizen cannot be forced to incriminate himself, under the Fifth Amendment. All these safeguards are readily circumvented by administrative agencies. As noted in Chapter 8, the National Maritime Commission has a financial life-and-death power over merchant shippers by its choice of when and where to grant or withhold the subsidies made necessary by costly, government-prescribed practices which would bankrupt any American shipping company solely dependent on revenue from customers. Legally, these subsidies are not a right, and so the denial of them is not a punishment subject to constitutional constraints. Economically, however, massive government subsidies to one’s competitors are the same as a discriminatory fine for having displeased the government, but legally the latter is not a constitutional violation. The maritime industry has no constitutionally mandated right to a subsidy, and indeed many economists find the whole scheme ridiculous, but the point here is that once the industry as a whole is being subsidized, to any individual competitor the loss of that subsidy does not restore him to the position of being in an ordinary competitive industry. On the contrary, it is a discriminatory fine for having displeased the National Maritime Commission.

The principle is far more general than the maritime industry, and affects federal revenue sharing, “affirmative action” contract compliance procedures and other administrative activity in which the federal government makes benefits available to other entities on condition that those other entities follow policies which the government has no existing legal power to directly force them to follow otherwise. As a matter of incentives and constraints, it makes no difference whether (1) someone pays X dollars in taxes and is then fined Y dollars for displeasing the government, or (2) pays X + Y dollars in taxes and receives Y dollars back for pleasing the government. Legally, however, it matters crucially. The constitutional safeguards which apply in the first approach are circumvented by using the second approach. There is no prospective law on the books allowing the government to control the racial, sex, or other composition of university faculties, but only such universities as please the government in that regard are eligible for the mass federal subsidies which make up much of the revenue of the leading “private” universities. Universities as a group have no constitutional right to the subsidies, but once most of Harvard’s revenue comes from the federal government, Yale cannot survive as a competitor if it displeases administrators who control its eligibility for federal money. Similarly, the federal government can require state and local governments to follow various policies on highways, schools, or welfare, not because the federal government has either constitutional or statutory authority to control such things, but because administrators of various funds can unilaterally make those requirements a precondition for receiving the funds. Again, it is the general availability of the subsidies which puts the individual competitor to whom they are denied in a worse position than if the subsidy had never existed. The glib doctrine, “to get the government off your back, get your hands out of the government’s pocket,”¹¹ misses the point entirely. To an industry or sector (such as universities or local governments) that doctrine would make sense — if whole industries or sectors were decision making units. The real objection, however, is not the vicissitudes of particular claimants but the growth of extralegal powers of the federal government — powers never granted by the Constitution nor by legislation, and never voted on by the public, but as real as any law passed by Congress, and often carrying heavier penalties, including the total destruction of institutions by massive subsidies to their competitors.