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Our Totalitarian Regulatory Bureaucracy

Mises Daily: Monday, July 26, 2010 by

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In Chapter 5 of The Road to Serfdom ("Planning and Democracy"), F.A. Hayek warned that the state need not directly control all or even most of the means of production to exert totalitarian control over the economic life of the nation. He cited the example of Germany where, as of 1928, "the central and local authorities directly control the use of more than half the national income … 53 percent." (As the first director of the Austrian Institute for Business Cycle Research, Hayek was familiar with such statistics.)

In addition to this, Hayek wrote, private industry in Germany was so heavily regulated that the state controlled, indirectly, "almost the whole economic life of the nation." It was through such totalitarian economic controls that Germany travelled down the road to serfdom. As Hayek further stated,

There is, then scarcely an individual end which is not dependent for its achievement on the action of the state, and the "social scale of values" which guides the state's action must embrace practically all individual ends.

In other words, government regulation was so pervasive that the pursuit of profit, driven by consumer preferences and demands, was mostly replaced by the whims of regulatory bureaucrats. Ludwig von Mises recognized this as one of the great evils of regulation in his book Bureaucracy. The more time any business person spends catering to the demands and dictates of government bureaucrats, the less time is spent serving consumers in order to earn profits and survive economically.

It may sound shocking to some, but modern-day America compares "favorably" to fascist Germany of the 1930s with regard to the degree to which the state interferes with and controls economic activity. First of all, government expenditures at all levels of government account for about 40 percent of national income. It differs by a few percentage points, year by year, but it has been in the 40 percent range in the past few years. This doesn't count all of the off-budget government agencies that exist at the federal, state, and local levels of government as James Bennett and I documented in our book, Underground Government: The Off-Budget Public Sector. If this is included, government expenditures as a percentage of national income would be at least 45 percent, which is not so far from the 53 percent in Nazi Germany that Hayek alluded to.

In addition, as George Reisman pointed out in "The Myth that Laissez Faire Is Responsible for Our Present Crisis," there are nine executive-branch cabinet departments in the federal government that exist for the purpose of regulating, controlling, and regimenting housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce. That pretty much covers the entire economy.

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According to the White House website, there are also hundreds of federal regulatory agencies and commissions, among the better known of which are the Army Corps of Engineers, Bureau of Alcohol, Tobacco and Firearms, Commodity Credit Corporation, Commodity Futures Trading Commission, Consumer Product Safety Commission, Department of Veterans Affairs, Drug Enforcement Administration, Employment and Training Administration, Employment Standards Administration, Environmental Protection Agency, Equal Employment Opportunity Commission, Farm Credit Administration, Federal Aviation Administration, Federal Communications Commission, Federal Deposit Insurance Corporation, Federal Election Commission, Federal Energy Regulatory Commission, Energy Efficiency and Renewable Energy Commission, Federal Highway Administration, Federal Trade Commission, Nuclear Regulatory Commission, and others. New "commissions" are being formed all the time, and their budgets and responsibilities expanded. This is a short list. In addition, there are now more than 73,000 pages of regulations in tiny print in The Federal Register instructing all Americans how their lives are to be regulated by these bureaucratic monstrosities.

On top of all of this, state and local governments have literally thousands of regulatory agencies and commissions that regulate everything from allergies to zoos. As just one example, taken from the statelocalgov.net, the state of Alabama has regulatory agencies and commissions that regulate retirement systems, geological surveys, public health, education, conservation and natural resources, industrial relations, agriculture, seniors, tourism and travel, veterans affairs, environmental management, forensic science, business development, rehabilitation, banking, insurance, labor, transportation, youth services, children's affairs, film making, ports, disabilities, arts, real estate, oil and gas, forests, ethics, surface mining, alcoholic beverages, auctioneers, and "faith-based initiatives." And Alabama is a relatively conservative state with a modest-sized government compared to, say, New York, California, or Washington DC. Local governments are also active in regulating most of the things that are on the list for the state of Alabama.

Then there's the Fed. In addition to attempting to fix prices (interest rates) and causing perpetual boom-and-bust cycles with its monetary manipulation, the Fed performs dozens of regulatory functions. According to a Fed publication entitled "The Federal Reserve System: Purposes and Functions," the Fed regulates bank holding companies, state-chartered banks, foreign branches of member banks, edge and agreement corporations, state-licensed branches, agencies, and representative offices of foreign banks, nonbanking activities of foreign banks, national banks, savings banks, nonbank subsidiaries of bank holding companies, financial reporting procedures, accounting policies of banks, business "continuity" in case of economic emergencies, consumer protection laws, securities dealings of banks, information technology used by banks, foreign investment by banks, foreign lending by banks, branch banking, bank mergers and acquisitions, who may own a bank, capital "adequacy standards," extensions of credit for the purchase of securities, equal opportunity lending, mortgage disclosure information, reserve requirements, electronic funds transfers, interbank liabilities, Community Reinvestment Act subprime lending demands, all international banking operations, consumer leasing, privacy of consumer financial information, payments on demand deposits, "fair credit" reporting, transactions between member banks and their affiliates, truth in lending, and truth in savings.

Because of the inevitable failures of all government planning in a democracy, Hayek wrote that "the conviction [will grow] that if efficient planning is to be done, the direction must be 'taken out of politics' and placed in the hands of experts — permanent officials or independent autonomous bodies." Moreover, "the cry for an economic dictator is a characteristic stage in the movement toward [central] planning." This indeed describes many of the above-mentioned agencies and commissions, but is especially descriptive of all the central planning "czars" who now hold office in the federal government. These include the following, as of July 2010: Afghanistan czar, AIDS czar, auto-recovery czar, border czar, California-water czar, car czar, central-region czar (Middle East, Persian Gulf, Afghanistan, Pakistan, and South Asia), climate czar, domestic-violence czar, drug czar, economic czar (Paul Volcker), energy and environment czar, faith-based czar, government-performance czar, Great Lakes czar, green-jobs czar, Guantanamo-closure czar, health czar, information czar, intelligence czar, science czar, stimulus-accountability czar, pay czar, regulatory czar, Sudan czar, TARP czar, Technology czar, terrorism czar, urban-affairs czar, weapons czar, WMD-policy czar, war czar, oil czar, manufacturing czar, cybersecurity czar, safe-school czar, Iran czar, Mideast-peace czar.

In sum, it would be very difficult to argue against the proposition that the US economy today is even more heavily controlled, regulated, and regimented by the state than Germany was at the time Hayek wrote The Road to Serfdom. Americans have travelled many miles down the road to serfdom by deluding themselves that the god of democracy will somehow save them from statist slavery. But as Hayek warned 56 years ago, "There is no justification for the belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary…"

The exercise of arbitrary or dictatorial power is, of course, the whole purpose and function of all those agencies, commissions, and czars.