Is the Federal Judicial Cure for Protectionism Worse than the Disease?

AuthorHills, Roderick

I have three points that I will try to make as quickly as possible about whether or not the federal judiciary should become involved in the effort to end state and local protectionism.

First, certainly the best view of the doctrine is that protectionism is not a legitimate state interest as an end in itself. But it is a legitimate state mechanism by which it can accomplish other ends. So you have to distinguish between protectionism as a means and protectionism as an ends. That is the first point--the definitional point.

Second, and less certainly, having federal courts try to figure out whether protectionist means are actually protectionist ends is a fool's game. It probably is a game not worth the candle because the costs of the inquiry are probably greater than the benefits. And such federal judicial efforts could conceivably lead to even worse regulation.

And third, the solution, therefore, is federalism and separation of powers. I will give a few examples of why I think Professor Todd Zywicki is absolutely wrong to say that the political process is so hopelessly infected with special interest capture that you cannot trust institutions like the Federal Trade Commission, like Governor John Kasich of Ohio, or like the SEC to deregulate and to get rid of protectionist legislation. I will give you a few examples of deregulatory innovations that have been far more effective than anything that can likely be delivered by the federal courts.

First, why do I say that protectionism is a legitimate means but not a legitimate end? This assertion requires a definition of "protectionism," which I will stipulate is the providing of a subsidy to a private party by means of limiting competition against that party. (1) Is that sort of subsidy legitimate as a means? Of course it is. Protecting businesses with legally conferred monopolies as a way of subsidizing those businesses to serve the public interest has been used since the founding of the republic. Alexander Hamilton created the First Bank of the United States, giving it an exclusive right to serve as the federal government's fiscal agent. (2) Nicholas Biddle was president of the Second Bank of the United States. (3) Both had legally protected monopolies. Every bridge company, every grist mill company, every corporation before 1838--when New York enacted the free corporation law and the free banking law--had some sort of monopoly. (4) The bar association of this state and New York State and every other state enjoys a legally protected monopoly. Every zoning regulation creates noncumulative zones in which industrial users do not have to bid against residential users for the purpose of subsidizing the former with cheaper rents. (5) The medallion system in New York City is a legally protected monopoly, (6) and every union's collective bargaining agreement is a legally protected monopoly.

If you are going to strike those things down, you are going to be very busy, indeed. And you will not have troops behind you, because the people you offend will greatly outnumber the people who you please, depriving you of political support. And so the notion that a federal court is going to go around striking down those protectionist devices is ludicrous. Those protectionist devices, of course, are always justified as a means to an end. What is the end? The end is something like "protecting workers from exploitation," or "providing a reliable fiscal agent for the United States" as a justification for the Bank of the United States, or simply, "providing a subsidy for consumer welfare." The medallion system in New York City is an abomination, but it is justified as a way of ensuring that taxi cab drivers have revenue sufficient to "hack up"--that is to say, to spend a lot of money to bring their cabs up to the Taxi and Limousine Commission standards. The official justification for the medallion system is that we give taxis a subsidy to serve the public, not by appropriating tax money for that purpose but simply by giving them a monopoly through which they can charge higher rates. (7) If you do not like that idea, then you must strike down the copyright and patent laws, because they use exactly the same mechanism of exchanging an exclusive right for a public benefit.

Copyright and patent laws give somebody a monopoly, usually for a limited time, in order to put money in the pockets of the copyright or patent owners so that these owners have incentive to benefit the public. Is there a deadweight cost associated with it? Of course. And my colleague here, Yaron Brook, will explain what that deadweight cost is. But you know what taxes do? They also impose a deadweight cost. Property taxes deter sales of property. Sales taxes have inefficiently discouraged sales. Income taxes have discouraged people from working. There is no way you can avoid the deadweight cost of a public subsidy except through revenue measures that are almost never used--a lump-sum head tax charged to every person...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT