Hensarling at Hillsdale College: Government Management Risks Our Prosperity & Freedom
WASHINGTON – U.S. Congressman Jeb Hensarling (R-TX), a leading conservative and chairman of the House Financial Services Committee Chairman, delivered a speech to The Allan P. Kirby, Jr. Center for Constitutional Studies and Citizenship at Hillsdale College today entitled, “Government Management Risks Our Prosperity and Freedom.” The following is the text of that speech as prepared for delivery:
Thank you for that kind introduction, and thank you to Hillsdale College for inviting me to speak today at this impressive facility, the Kirby Center. Hillsdale is indispensable to the cause of liberty, pure and simple. Like many freedom-loving Americans, I’ve been a follower of Hillsdale’s work and lecture series for many, many years and I always look forward to receiving the latest copy of Imprimis. There is nothing else like it. Anyway, I’m delighted and honored to be invited to speak here today.
As many of you probably know, just this week Congress returned from its August district work period. It was great to be back home in my native Texas for an entire month. But when I got home at the beginning of August, my wife told me she thought it was time to get a family pet.
I wasn’t convinced and told her I thought we should wait. The next day, I came home and she said it was official, we were getting a pet. So, I told her I thought we should get a dog. I came home the next day and there was a cat in my house. I’ll admit, at first I was a little upset. I mean, as a Congressman, I have to persuade voters every two years to re-elect me, but I couldn’t even persuade my family to see my side when it came to the family pet. So I asked my wife why my opinion wasn’t considered and she said, “I guess after dealing with President Obama and Senator Reid for so long, I figured you were used to being completely ignored.”
On a more serious note, none of us can ignore the troubling headlines we’re seeing today.
They’re dominated by news of ominous foreign threats to our safety and security that emanate from faraway capitals like Moscow, Damascus, Tripoli and Tehran. But as real and serious as these foreign threats are, we cannot and must not lose sight of the domestic threats to our freedom and prosperity that emanate from another capital city far closer to home. Namely, Washington, DC.
Some of these domestic threats may appear less evident in the short-term, but over time they are corrosive to our Constitution and to our wellbeing both as individuals and as a nation.
None of us can afford to lose sight of James Madison’s famous warning that, “there are more instances of the abridgement of the freedom of the people by gradual and silent encroachment by those in power than by violent and sudden usurpations.”
Today I want to speak about one such threat. It is a threat that has grown markedly worse in the last four years but receives far too little attention. It is the threat posed by the rise of what some have termed the fourth branch of government. Namely, omnipotent and ubiquitous agency government which I believe has clearly made us a less prosperous, less entrepreneurial, less optimistic and a less free society.
Today, a record number of Americans – more than 46 million – find themselves dependent on food stamps. Median household income is down by more than $2,000 in real terms since January 2009, while working Americans are having to pay more at both the grocery store and at the gas pump. The so-called “Obama recovery” is now officially the slowest and weakest of the last 70 years.
One of the reasons we are less prosperous is because we are less entrepreneurial. In fact, America is less entrepreneurial now than at any point in the last three decades, according to a recent report by the Brookings Institution. New business start-ups are at their lowest level in 30 years. And during the most recent three years of that study, businesses in America were actually closing down faster than they were starting up. The Brookings authors went on to say that if this decline in entrepreneurship continues, America will suffer “a continuation of slow growth for the indefinite future.”
Less prosperity and a depressed entrepreneurial spirit have made us less optimistic. Americans today are anxious. They’re pessimistic. They increasingly believe our best days are in the past. According to the most recent Wall Street Journal/NBC News poll: 71 percent believe our country is headed in the wrong direction;
60 percent believe the U.S. is in a state of decline; And when asked if “life for our children’s generation will be better than it has been for us,” 76 percent said they do not have such confidence. Sadly, that’s an all-time high.
In a Washington Post column with the depressing headline “Americans’ optimism is dying,” one commentator took a deep dive into these poll results and found that this lack of confidence cuts across economic status, gender, race, age and ideology. It touches nearly all Americans.
Among them is Monica Alexander, an African-American single mom who is one of nearly 8 million Americans today who can’t find a full-time job so they settle for part-time work.
“It’s been a struggle to keep food in the house, to keep gas in the car,” she says. Her son asked her: “Mom, do we really have to live like this?”
Or Dominick Finelle. For 15 years, Dominick earned a six-figure salary for his family as a book illustrator. But for the past four years he’s been able to find only part-time jobs. “I’m panicking,’ he says. “All I think about is looking for work.”
Americans’ growing lack of faith in the future is disturbing. It’s alarming. It’s “un-American” in the sense that it is so out-of-character for us as a people.
And it corresponds not only to economic hard times but to the perceptible loss of individual freedom in America today. Indeed, the Heritage Foundation’s Index of Economic Freedom records a loss of freedom here in the United States during each year of the Obama Administration. Heritage attributes our erosion of freedom to a loss of property rights, a decline in the rule of law, and the substantial growth in the size and scope of government.
Americans are beginning to take note. As a Pew Research poll last year found, for the first time a majority of the public says the federal government threatens their personal rights and freedoms.
It is not lost on them that Washington now decides what their children’s teachers can teach, what kind of light bulbs they’re allowed to buy, what credit cards go in their wallets, whether they can choose their own doctor or even keep the health plans they like.
Perhaps the first step in regaining our prosperity is to appreciate the critical role entrepreneurship has played in our history and economic growth.
When researching the subject, I was pleased to discover that Hillsdale had already done much of the work for me when they published author John Steele Gordon’s speech on the very same subject in Imprimis. Parenthetically, one more reason you should always read Imprimis.
What we should all recall is that the colonists came to America not just to seek political liberty or religious liberty, but economic liberty as well.
Several of the colonies – such as Massachusetts Bay, Plymouth, and Virginia – were founded not by the Crown of England, but rather by profit-seeking corporations. Others, including Pennsylvania and Maryland, were founded by proprietors.
And profit was the primary reason the Dutch founded New York and settled Manhattan. “Indeed,” Gordon said in his Hillsdale remarks, “so bent on money making were the Dutch that they did not get around to building a church for 17 years, worshiping instead in the fort.”
This entrepreneurial drive helps explain why the 13 colonies were the richest place on earth on a per capita basis by the time they declared their independence, Gordon recalls.
From its earliest beginnings, America has always been the land of the entrepreneur, the dreamer, and the risk-taker- and that includes the risk of failure.
Someone who clearly understood this was Steve Jobs, the co-founder of Apple. In an interview, Jobs said, “I look at myself as …sort of a trapeze artist.” “With or without a net?” he was asked. “Without,” Jobs replied. Because Steve Jobs was a risk-taker, Apple became the most valuable company in the world whose innovations revolutionized our lives.
Another entrepreneurial risk taker is Robin Chase, the co-founder of Zipcar, the largest car-sharing company in the world. When she launched Zipcar in 2000, she was left with $78 in her bank account. “It was a preposterous, ridiculous thing to have done,” she said.
But it worked. Zipcar became a quintessential business success story. And 13 years later, Avis purchased Zipcar for half a billion dollars.
What’s most important isn’t the amount of money Steve Jobs or Robin Chase were able to make for themselves, but what they were able to do with it: namely build successful companies to employ and serve others, and exercise their God-given right to pursue happiness.
But it’s not just the famous entrepreneurs and nationally known names like Apple or Zipcar that drive the American economy. It’s the millions of small business entrepreneurs who take risks that create the vast majority of the new jobs in our economy.
Small business owners like Rick Carmona, who lives in the Fifth Congressional District of Texas I have the honor of representing in Congress. 30 years ago, Rick started his own business, a Tex-Mex restaurant. His mother was the cook and for several years. Rick pretty much did everything else. “We didn’t make money for a long time,” he said. “But I never gave up. I just kept working at it.”
But today, something is changing in America. The spirit of free enterprise, of entrepreneurial risk-taking and dream-chasing that has defined us as a nation seems to be fading away.
Robert Samuelson of the Washington Post wrote a recent column headlined “Where Have All the Entrepreneurs Gone.” After analyzing the Brookings Institution data, he wrote the U.S. economy is increasingly dominated by older firms rather than new start-ups. This phenomenon is unusual for our country and it is a trend that has occurred in every state and industrial sector.
Fewer entrepreneurs taking fewer risks leads to fewer jobs. It’s that simple.
But what’s causing this disturbing drop in entrepreneurial risk-taking?
Economists at the University of Maryland and the Census Bureau have written that “the cumulative effect of regulations” is a prime suspect and discriminates against new businesses by favoring “established firms that have the experience and resources to deal with it.”
Listen to the words of Bernie Marcus, a co-founder of Home Depot: “Having built a small business into a big one, I can tell you that today the impediments that the government imposes are impossible to deal with. Home Depot would never have succeeded if we’d tried to start it today. Every day you see rules and regulations from a group of Washington bureaucrats who know nothing about running a business. And I mean every day. It’s become stifling.”
Last year, a page one story in the Wall Street Journal declared a “risk-averse culture” had infected our economy and was harming U.S. workers. That story generated a lot of discussion among the newspaper’s readers, who responded with their own personal stories of how Washington policies were dashing their dreams of going into business for themselves. One reader wrote:
“…government has expanded exponentially, creating self-sustaining bureaucracies that busy themselves with rules and regulations imposed on – essentially – the private sector, putting the bar higher at every turn and exhausting entrepreneurs’ energies on meaningless formalities and bleeding them with ever-increasing social burdens.”
Of course, I don’t need to read the newspaper to hear this angst and frustration. I hear it from by fellow Texans all the time. Typical is what I heard a small businessman named Hal in Terrell, Texas, who told me, “The greatest risk I worry about is that, someday, my business will be destroyed by OSHA, EPA, IRS, or the Department of Labor. This is not any exaggeration. The reason so many small business folks worry about these risks is that most of us know we cannot defend ourselves. A business that, rightly or wrongly is the target of one of these agencies, is completely outgunned in terms of resources.”
And I’ll never forget the day a small business owner running a cabinetry shop in East Texas came up to me and said the regulatory burden had gotten so bad he closed his business.
“It got to the point where I thought my Federal government just didn’t want me to succeed,” he sadly told me, and a dozen or more people lost their jobs.
So while the American people are repeatedly told that nothing is getting done in Washington, entrepreneurs across the land can only wish that were true. They know, better than anyone, that the federal bureaucracy is busier than ever.
Earlier this year, a Wall Street Journal editorial reviewed the record-breaking statistics: Washington set a new record in 2013 by issuing final rules consuming 26,417 pages in the Federal Register. And not one of them was voted on by Congress – not one.
Another 3,305 regulations are moving through the pipeline at the historic rate of roughly one new regulation every two hours.
Whether it’s the 20-plus pages needed to define what a “retail pet store” is, to rules concerning the interstate movement of Sharwil avocados, to the thousands of pages of rules comprising the federal takeover of our healthcare system, every Washington regulation has an impact on our struggling economy. Every Washington regulation impacts the ability of someone to get a job. And let’s be honest - many of these regulations are written to protect current businesses from future competition.
One study estimates the overall financial cost of regulatory compliance and its economic impact has reached $1.9 trillion annually, which translates to an annual hit of approximately $15,000 to household budgets and more than $10,000 per employee to small business budgets.
I do not recall ever in my lifetime when the challenges of upward mobility and economic opportunity for low and moderate income Americans have been greater. Not surprisingly, I also do not ever recall in my lifetime when the bureaucratic regulatory, red tape burdens on our entrepreneurs and small businesses have been greater. The evidence is overwhelming that there is a clear, causal link between the two.
But the true cost is not strictly financial or even measured by the harm to the American entrepreneurial spirit. The true cost is even more profound: the loss of our personal freedom. As what many term the “fourth branch of government” has risen, due process, checks and balances and the separation of powers -- all cornerstones of our political liberties -- have waned.
Now, the rise of this “fourth branch of government” is not a new phenomenon. As Heritage scholar Robert Moffit notes, it began in the early twentieth century when Progressives became disillusioned with the Constitution. They believed that its purpose of securing individual rights through limited government and its structure of the separated powers could no longer meet the needs of the modern world.
In short order, they advocated for the application of what they called a “new science” to politics, and they pushed for the creation of “Bureaus” to be staffed by non-partisan social scientists armed with massive amounts of data and procedures for eradicating all of society’s ills.
Herbert Croly, a leading progressive voice of the Wilson era, noted that this new agency government “exercises an authority which is in part legislative and in part judicial….it is simply a convenient means of consolidating the divided activities of the government to a certain practical social purposes.”
Madison, in Federalist number 47 had a different take. He wrote, “the combination of all power legislative, executive, and judiciary in the same hands…may justly be pronounced the very definition of tyranny.”
The seed of this form of tyranny was planted during the Wilson Administration, bloomed during FDR’s New Deal, became overgrown in LBJ’s Great Society, and has now reached crisis proportions under President Obama -- our chief executive who possesses both a pen and a phone, but regrettably lacks a copy of the Constitution.
This century-long Progressive expansion of government has unleashed the modern regulatory state as we know it – extremely powerful, extremely intrusive, terribly opaque, bafflingly bureaucratic, distinctively un-republican and alarmingly unaccountable.
As we all know, Article One, Section One of our Constitution states “all legislative powers herein granted shall be vested in a Congress.” Thus, when Congress delegates its fundamental legislative authority to an unelected and unaccountable bureaucracy, it has arguably acted in an unconstitutional manner.
And as it does, the people’s right to both self-government and due process is undermined. The citizen’s right to carefully deliberate proposed legislation through their representatives in Congress becomes reduced to nothing but a “notice and comment” period when they are permitted to merely lodge complaints and suggestions – all of which the unelected bureaucrats are free to ignore, all of which the unelected bureaucrats may use to retaliate.
In Federalist number 52, Madison wrote: “The definition of the right of suffrage is very justly regarded as a fundamental article of republican government.”
But who elected the legions of bureaucrats who now have become legislator, cop on the beat, prosecutor, judge, jury, and often compensated victim all rolled into one? The public rarely even knows their names.
Today, Americans are less and less governed by the rule of law and more and more governed by the discretion of regulators.
It is OSHA now, not Congress, that governs over workplace safety.
It is the EPA now, not Congress, that governs our air quality.
It is HHS now, not Congress, that governs over our health care.
And most alarmingly to our economic opportunity and economic liberty, it is now the bureaucratic progeny of Dodd-Frank that rules over our financial markets.
Jonathan Macey of Yale Law School was most prescient when he noted that, “laws classically provide people with the rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats and instructs them to make still more regulations and to create more bureaucracies.”
Specifically, after weighing in at over 2,000 pages, Dodd-Frank demands 400 new mandates be promulgated and multiple new agencies be spawned.
Two of the most worrisome of these agencies are the Orwellian-named Bureau of Consumer Financial Protection, otherwise known as “the Bureau” or CFPB, and the Financial Stability Oversight Council – known as FSOC. Both operate largely out of public view. Both are subject to virtually no checks and balances.
And both have been granted sweeping, unilateral powers to fundamentally control huge swaths of the U.S. economy.
Arguably, the Bureau is the single most powerful and least accountable federal agency in our nation’s history.
It operates outside our Constitutional system of checks and balances.
The Bureau, or more specifically its one unelected director, has almost absolute discretionary power to find any consumer credit product “abusive” and, thus, functionally outlaw it. When it comes to credit cards, auto loans and mortgages of hardworking taxpayers, the CFPB has unbridled power not only to make them less available and more expensive, but to absolutely take them away.
In doing so, the Bureau is fundamentally unaccountable to the president since its director can be removed only for cause.
It is fundamentally unaccountable to Congress because the Bureau’s funding is not subject to appropriations. The Bureau is fundamentally unaccountable to the courts because Dodd-Frank requires courts to grant the CFPB deference regarding its interpretation of Federal consumer financial law. Thus, the Bureau is regrettably unaccountable to the American people -- one of the hallmarks of agency government.
All of us are familiar with the axiom that absolute power corrupts absolutely. It also breeds waste, abuse and hubris.
Such is the case at the CFPB, which is why there are newspaper stories about the CFPB with headlines like “Bureaucrats Gone Wild”…“[CFPB] is Rife with Discrimination, Employees Say,” and “CFPB’s Renovation Costs Skyrocket to $216 Million; Inspector General Sees ‘No Sound Basis’ for It.”
The CFPB is also engaged in the most sweeping data collections of personal, private financial records our nation has ever seen, an effort rivaling that of the NSA. Regrettably, there is no one on the CFPB payroll who can be voted out of office. There is no one to be held accountable.
Now let’s look at FSOC. FSOC is an amalgamation of regulators heading agencies that either helped cause the financial crisis or were largely negligent in preventing it, notwithstanding they had the regulatory power to do so.
Dodd-Frank rewards their failures by granting them the most sweeping powers over our capital markets since the New Deal.
Dodd-Frank allows Federal regulators to unilaterally define vague statutory terms like “systemic risk,” “financial stress,” and “financial stability.”
And by doing so, dictate the capital standards, product mix and lending activities of major financial firms within our economy. They are even empowered to break them up.
As AEI scholar Peter Wallison summarized, “The FSOC’s authority is in effect a blank check to consign to Federal regulation any large firm the government wants to regulate.” Ladies and gentlemen, this is nothing short of a functional occupation of our capital markets by Federal regulators who have been empowered to now be central planners.
And all of this is done outside of public view.
With the exception of agencies dealing in classified information relating to national security, FSOC may very well be the nation’s least transparent federal entity. The public cannot view their proceedings because two-thirds of them are conducted in private executive sessions.
Better Markets, a Washington organization that consistently advocates for more regulation of our financial system, said: “FSOC’s proceedings make the Politburo look open by comparison. No one in America even knows who they are. At the few open meetings they have, they snap their fingers and it’s over, and they are all scripted. They treat their information as if it were state secrets.”
It’s obvious those who drafted Dodd-Frank fear risk-taking and innovation. But if we trade freedom for safety, in the long run we’ll get neither – and less of everything else, too.
The raison d’etre of the Dodd-Frank Act was the risk of the “shadow banking system.” Yet a far greater danger is instead posed by the “shadow regulatory system.”
As University of Chicago Professor Raghuram Rajan wrote in his book Fault Lines: “We have to recognize that the only truly safe financial system is a system that does not take risks, that does not finance innovation or growth, that does not help draw people out of poverty, and that gives consumers little choice.”
Yet, as we see, that’s exactly what Americans are getting as Washington tries to regulate risk out of existence: today there is less innovation and growth, more people in poverty and fewer consumer choices.
Ladies and gentlemen, despite the enormous challenges we face, you and I should be optimistic about the future of America. I know it to be cliché, but it is truly darkest before the dawn.
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Never in our lifetimes have the failures of big government liberalism been more evident to all. What an opportunity before us!
What we need today – more than any time in the last 30 years – is to return our country to its first principles of personal liberty and limited government. What we need today – using the title of Hillsdale’s Matthew Spalding’s bestseller, is to loudly and proudly proclaim that “We Still Hold These Truths” self-evident.
First, Congress must reaffirm the primacy of congressional authority. Congress must end the practice of delegating lawmaking authority to unelected and unaccountable agency government. No more passing vague laws that direct agencies to fill in the blanks with specifics.
The REINS Act, which has passed the House, would introduce both constitutionally and accountability into the system by requiring Congress to approve any major new regulations. The Act is as simple as it is profound. Its ultimate passage into law must be a major priority of the Conservative Movement.
Secondly, Members of Congress must take back from the 4th branch of government the “power of the purse” granted in Sections 8 and 9 of Article 1 of the Constitution. If you grab a bureaucracy by its budget, its heart and mind will soon follow.
Thirdly, Congress must rediscover and reinvigorate the 10th Amendment in order to reinstitute federalism, which is one of the cornerstones of our Constitutional system. As most here are familiar, in Federalist number 45, Madison wrote: “The powers delegated…to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite.”
Finally, we must all celebrate the role of risk taking as an American right, our American heritage and our destiny as a nation. We must educate our fellow citizens that when we entrust government agencies to manage our risks, we risk losing both our freedom and our prosperity.
All this requires strong, dedicated and consistent leadership in Washington and in every state of our great country. Everyone has a role to play, so I call upon you not to merely be passive observers of this debate, but active participants. As for me, I intend not only to participate, I intend to lead.
Because at the end of the day, the future is not in my hands as a member of Congress. It is in our hands as citizens of this great Republic. I’m reminded of Jefferson’s message to Madison, when he said, “The people are the only sure reliance for the preservation of liberty.”
And that’s another reason why I am optimistic about the future of America. The American people may be anxious today, but they’re not hopeless. They may have lost faith in Washington, but they have not lost faith in America. And with the help of institutions like Hillsdale College, we never will.
Thank you.
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