Commentary Magazine

Topic: Regulatory state

Smash the Regulatory State from Within

The rise of the regulatory state is not something conservatives need to make peace with, nor should they accept the role that unaccountable bureaucrats are increasingly playing in American governance. But they should also understand that working within that system while working to dismantle aspects of it are not mutually exclusive activities.

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The rise of the regulatory state is not something conservatives need to make peace with, nor should they accept the role that unaccountable bureaucrats are increasingly playing in American governance. But they should also understand that working within that system while working to dismantle aspects of it are not mutually exclusive activities.

With all the talk of reform conservatism, this is a more limited variant of the ambitious reform efforts gaining momentum. There are two categories of such reform, and the abuse-of-power scandals proliferating throughout the Obama administration’s bureaucratic power agencies make it all the more necessary to realize the opportunity they present to conservatives seeking to protect the public from big government.

The first has to do with regulations, and Texas presents a good example. Because so much of the Obama-era Democratic regulations are poorly thought-out and destructive, it’s easy to get the impression that when the government regulates something, it will do so in a deeply stupid way. But it doesn’t have to.

In April 2010, the Washington Post ran an interesting article investigating the following question: Why did Texas escape the real-estate bust? As the Post explained:

Texas’s 3.1 million mortgage borrowers are a breed of their own among big states with big cities. Fewer than 6 percent of them are in or near foreclosure, according to the Mortgage Bankers Association; the national average is nearly 10 percent. …

Texan subprime borrowers do especially well compared with their counterparts elsewhere. The foreclosure rate among subprime borrowers in Texas, at less than 19 percent, is the lowest of any state except Alaska.

Part of the answer seemed to be restrictions on refinancing and home-equity lending:

A cash-out refinance is a mortgage taken out for a higher balance than the one on an existing loan, net of fees. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans cannot total more than 80 percent of a home’s appraised value. There’s a 12-day cooling-off period after an application, during which the borrower can pull out. And when a borrower refinances a mortgage, it’s illegal to get even a dollar back. Texas really means it: All these protections, and more, are in the state constitution. The Texas restrictions on mortgage borrowing date from the first days of statehood in 1845, when the constitution banned home loans.

It turns out such restrictions went a long way toward preventing homeowners from taking out the kind of loans and refinancing that increased the chances of default when the bubble burst, protecting many in Texas from suffering the same fate. It’s the kind of “smart” regulation that not only benefits the private sector but also can prevent future “dumb” regulations: the less prone to such crises states (and especially the federal government) are, the less demand there will be for the kind of “do-something” regulatory pile-ons and bailouts that follow those crises.

Texas is also, of course, a testament to the benefits of limited regulations in other areas of ownership and private property. Another part of the state’s insulation from the real-estate bubble was, as Wendell Cox explained, “the state’s liberal, market oriented land use policies. This served to help keep the price of land low while profligate lending increased demand.” Overregulated housing markets inflated prices and restricted supply. Texas got the balance just right.

So there’s “smart” regulations vs. “dumb” regulations. But the other category of this kind of reform has to do with the bureaucracy. Especially in the Obama era, policy is being made more and more by unelected bureaucrats. As the IRS scandal (and others) showed, the power and insulation from the public eye is a dangerous combination.

Conservatives have generally approached this by concentrating on the need to eliminate either bureaucratic agencies or the powers of those agencies. They should also, however, keep in mind that as long as those agencies exist, personnel is policy. Perhaps no one on the right has internalized this message more than Senate Minority Leader Mitch McConnell.

In a piece for National Review last year (still paywalled, alas), Daniel Foster wrote about McConnell’s attitude toward staffing decisions made by each party. When bureaucratic commission openings must be filled, it generally falls to the leadership. That means President Obama for the Democrats and McConnell for the Republicans. The Democrats still tend to view such job appointments as patronage positions. But McConnell has rejected the cronyism in favor of competence:

To translate his instincts into names, he brought in GOP veteran Dan Schneider. To look at Schneider’s government rap sheet — stints at the Department of Health and Human Services, the National Endowment for the Humanities, the Labor Department — you’d think he was a die-cast liberal. But when I spoke with him for this story, he said he likes to think of himself as a loyal conservative sent behind enemy lines “to monitor the radicals.”

Schneider came onto McConnell’s radar via the senator’s wife, Elaine Chao. When George W. Bush appointed Chao to head his Department of Labor, Schneider became her first White House liaison, and she gave him free rein to find conservatives to fill more than 200 slots inside the department. He impressed, and, after the Obama transition, migrated into McConnell’s office, where he oversees a sort of national conservative talent search with the title “Policy Advisor and Counsel for Nominations.”

Schneider operates according to a set of five criteria for screening potential nominees first developed by E. Pendleton “Pen” James, Ronald Reagan’s director of personnel management. First, were the nominees competent in the subject matter? Second, were they philosophically compatible with Senator McConnell? Third, did they possess high character and integrity? Fourth, were they tough? Fifth, were they team players?

The result, two or three hundred appointees later, is measurable.

Of course the ultimate aim for such bureaucracies should be to get rid of them or limit their power–something McConnell also engages in, as when he spearheaded the challenge to Obama’s unconstitutional recess appointments, which resulted recently in a unanimous Supreme Court rejection of Obama’s power grab.

But conservatives can fight those fights while engaging in limited reform from within the regulatory state. They don’t have to cede ground just because they wish that ground didn’t exist.

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