Balkinization: The Deep State

The Deep State

Gerard N. Magliocca

One idea that I'm exploring for an article is that the United States possesses a "deep state" that wields tremendous influence that is not captured by traditional constitutional analysis. The term "deep state" comes from semi-authoritarian states and describes the secret institutions (usually the military and the security services) that hold the real power at the expense of the formal or legal ones. I'm not using the term in the same way. What I want to examine are institutions and norms that are practically important but under-theorized.

Numero uno on my list is the Federal Reserve. It is common wisdom that the Chairman of the Fed is one of the most powerful officials in Washington. That was made clear during the 2008 financial crisis, and is especially true in a period (like now) where fiscal policy is at a deadlock. Nevertheless, the Fed is usually ignored by constitutional lawyers. It looks like just another administrative agency, but it is not. First, the central bank's governing board consists partly of private individuals, which is not true for any other agency. Second, the Fed can finance itself (by printing money or dipping into its reserves) in a way that makes it impervious to the budgetary controls the Congress uses to discipline other agencies. Third, there is a strong political norm (though eroding) that the Fed should not be subjected to political control when it comes to the conduct of monetary policy, even though those decisions have enormous political implications.

In a way, the Federal Reserve is the fourth branch of government. In one key respect, though, the Fed now looks more like the third branch. In recent years, the Federal Open Market Committee (FOMC) has released a statement to accompany its monetary decisions, and there are sometimes dissents to that statement. These "opinions" are carefully scrutinized by economists for clues about future actions, and in some respects they purport to set down a rule of action. (The current one, for example, is trying to make a credible promise that interest rates will not be raised until 2014.) There is no custom that a Fed statement binds any future Fed meeting, but that principle may emerge over time.

Anyway, the point is that someone should be doing more serious work on the Federal Reserve's place within the living Constitution.

Posted 3:13 PM by Gerard N. Magliocca [link]

Comments:

United States possesses a deep state that wields tremendous influence that is not captured by traditional constitutional analysis. That is so right..
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# posted by

Anonymous : 2:10 AM

Turns out there are some other federal agencies that have private board members. Perhaps I should have said that the Fed's structure is unique among powerful or well-known administrative agencies.

# posted by

Gerard N. Magliocca : 9:36 AM

Gerard:

The entire regulatory bureaucracy is an unconstitutional fourth branch of government.

There is a strong political norm among the political class (though eroding among conservatives) that the entire regulatory bureaucracy should not be subject to political control. The raison d'être for the regulatory state under progressive theory over the past century-plus was that democracy was corrupt (because it did not enact progressive policy to the extent progressives would like) and the United States required a rule by "experts" enacting regulations to impose such policy.

I do not see how the service of private individuals on the Fed board substantially distinguishes it from the rest of the bureaucracy. Partial industry capture of all agencies routinely occurs through political appointments of folks who take temporary leave from private business.

While the Fed can officially fund itself, Congress has never fully or even substantially defunded a regulatory agency (and almost never changed a rule). The checks and balances between the elected branches meant to prevent the exercise of government power without supermajority popular support now protect the regulatory bureaucracy from any effective discipline by our elected representatives.

The "deep state" regulatory bureaucracy wields far more than tremendous influence, it sets most federal policy and enacts the vast majority of federal law with very little public debate apart from input from direct stakeholders.

The Federal Register of regulations dwarfs Congress' U.S. Code. For example, the roughly 2,500 pages of Obamacare legislation primarily delegated power to the bureaucracy to direct the health insurance industry and thus indirectly the entire health care industry. To this end, HHS has reportedly drafted over 13,000 pages of rules directing the operations of health insurance companies and designing the policies they will be permitted to sell and we will be required to purchase.

Finally, the Obama bureaucracy is setting new precedent by declining to enforce regulatory rules against politically connected companies and groups of voters it needs to cast ballots to reelect the President. The regulatory bureaucracy can not only enact the policy it pleases, but also arbitrarily enforce that policy for political gain.

If the arbitrary rule of the unelected Federal Reserve disturbs you, then the entire regulatory bureaucracy making up a fourth branch of government should similarly upset you.

# posted by

Bart DePalma : 1:05 PM

Bart says:

"The entire regulatory bureaucracy is an unconstitutional fourth branch of government"

Oddly enough, there is an unbroken, nearly 80-year-long string of appellate decisions holding to the contrary. But feel free to continue to adhere to that bizarre notion.

# posted by

burnspbesq : 2:01 PM

burnspbesq said...

Oddly enough, there is an unbroken, nearly 80-year-long string of appellate decisions holding to the contrary. But feel free to continue to adhere to that bizarre notion.

I base my interpretation of the Constitution on the actual text of the Constitution. Article I, Section 1 states rather unequivocally: "All legislative powers herein shall be vested in a Congress of the United States..."

I recognize and reject as unlawful progressive court rewrites of Article I to allow an unelected executive bureaucracy nowhere mentioned in the charter to exercise any degree of legislative power.

When the judiciary created the regulatory bureaucracy, the days of our Republic were numbered as Congress delegated more and more of its powers and responsibilities to unelected and unaccountable bureaucrats.

The general belief among the voters that they have no control over their own government regardless how many elections they win is well founded.

# posted by

Bart DePalma : 2:26 PM

Rejecting reality is Blankshot Bart's strongest debating skill.

# posted by

Anonymous : 4:31 PM

If only reality would oblige by behaving the way he believes.

His illusions accommodate him. Why won't reality?

# posted by

jpk : 11:43 PM

I think this particular bete-noire is one place where Bart and I can find common ground. However, I imagine he finds the rule-makers of such agencies to be unelected liberal authoritarians pushing an agenda, whereas I see them as the embedded cronies more concerned with the continued success of relevant corporations than the well-being of the American people or the agenda of any particular political party.

# posted by

PMS_CC : 4:25 AM

Recommended: Suzanne Mettler, "The Submerged State: How Invisible Government Policies Undermine American Democracy" (Chicago: 2011)

# posted by

Nisan Chavkin : 10:58 AM

The modern administrative state is going to have some of this sort of thing so the issue is how to handle it. Though more trivial things were focused upon during the hearings, e.g., Elena Kagan wrote about the administrative state a few years back.

# posted by

Joe : 11:12 AM

"Anyway, the point is that someone should be doing more serious work on the Federal Reserve's place within the living Constitution."

I'm not sure of the point of this: The 'living' constitution, by design, isn't stable enough to do serious work on. It represents not so much a constitution, as a decision that actually having a constitution is too confining. So you pretend the thing's meaning has changed, any time it gets in your way.

I suppose you could do serious work on what a good policy was visa vi the federal Reserve, and then advocate that 'living' constitutionalists imagineer that policy into their 'constitution'.

# posted by

Brett : 7:15 AM

PMS_CC said...

I think this particular bete-noire is one place where Bart and I can find common ground. However, I imagine he finds the rule-makers of such agencies to be unelected liberal authoritarians pushing an agenda, whereas I see them as the embedded cronies more concerned with the continued success of relevant corporations than the well-being of the American people or the agenda of any particular political party.

The regulatory bureaucracy features both progressive ideologues and capture by the biggest players in the regulated industry, who often work hand in hand to give the bigger businesses a comparative advantage over smaller rivals or a guaranteed source of income.

Obamacare is a wonderful example.

The insurance industry dropped their objections to Obamacare turning them into a public utility when the administration promised to compel customers to buy the resulting product. The two groups only fell out when the Dem Senate reduced the individual mandate fine to a mere nuisance.

The larger insurers also supported Obamacare caps on administrative spending because the larger insurers have smaller overhead than do smaller independent insurers who have to extensively market to gain customers.

The regulatory bureacracy is inherently corrupt.

# posted by

Bart DePalma : 4:51 PM

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# posted by

Unknown : 3:53 AM

The "deep state" regulatory bureaucracy wields far more than tremendous influence, it sets most federal policy and enacts the vast majority of federal law with very little public debate apart from input from direct stakeholders.

The Federal Register of regulations dwarfs Congress' U.S. Code. For example, the roughly 2,500 pages of Obamacare legislation primarily delegated power to the bureaucracy to direct the health insurance industry and thus indirectly the entire health care industry. To this end, HHS has reportedly drafted over 13,000 pages of rules directing the operations of health insurance companies and designing the policies they will be permitted to sell and we will be required to purchase.

Finally, the Obama bureaucracy is setting new precedent by declining to enforce regulatory rules against politically connected companies and groups of voters it needs to cast ballots to reelect the President. The regulatory bureaucracy can not only enact the policy it pleases, but also arbitrarily enforce that policy for political gain.

If the arbitrary rule of the unelected Federal Reserve disturbs you, then the entire regulatory bureaucracy making up a fourth branch of government should similarly upset you.
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