Why Capitalism Cannot Regulate Itself
The Supreme Court of the United States made a long-expected ruling in Loper Bright Enterprises v. Raimondo, overruling decades of precedent for how courts interpret law enforced by federal agencies. In a more obscure decision on the same day, SEC v. Jarkesy, the Court held that agencies like the SEC (as well as many others like the FDA and the CFPB) could not impose fines through administrative proceedings and could only do so through jury trials. I cannot imagine the joy that Chief Justice John Roberts felt — not only did he succeed in his lifetime judicial quest of dismantling the power of the administrative state, but he also won a major political victory by getting every rightwing Justice to join him in both majority opinions, assuaging concerns that he cannot corral his unruly cadre when it really matters.
The Loper Bright Enterprises decision’s reasoning is maddening, not only to proponents of the administrative state but to proponents of basic logic. “When the best reading of a statute is that it delegates discretionary authority to an agency,” C.J. Roberts writes, “the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits.” You may be excused for thinking I made some kind of typo — no, he really made the argument that where a law says it is the agency’s decision that it is the court’s decision. He provides no authority, and the surrounding context makes it all the worse because this “will of Congress” that the courts are expected to “effectuate” is specifically where such intent is ambiguous.
In the words of the dissent written by a Justice Kagan (who is barely containing her rage), “A rule of judicial humility gives way to a rule of judicial hubris.” The Court’s far-right, so quick to accuse other courts past and present of judicial activism, has vested with two decisions a larger transfer of power from the executive to the judiciary than any other decision in the last century. Contrary to the Court’s insinuations, the doctrine of Chevron was neither radical in its interpretation of precedent or Congressional intent when it tasks a federal agency with carrying out a law. The neoconservative idea of expanding Article II power at the beginning of the 21st century to carry out rightwing goals seems as much of a fever dream today as how neoconservatives led the charge to nationalize an industry (by centralizing airport security under the TSA). In just a couple of decades, the far right of the legal world has embraced the attitudes, and in many cases the legal interpretations, of the “Four Horsemen” of the Hughes Court. At least that Court was more honest in decisions like A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935) that it was expressly holding that it was overruling Congress’ delegation of power to the executive. Here, the Roberts Court has the audacity to claim it is effectuating Congress’ will as it strips the agencies that Congress expressly vested with that power and turns that power over to itself and other courts.
Lets clarify one thing before I continue — this was a debate between different factions of capitalist politics. While the Left, from social democrats to its most radical anarchists and Communists, benefited from Chevron deference by the mere tendency of administrative agencies to be less reactionary than the courts (especially in the realm of deference to the CFPB, EPA, NLRB, and OSHA), the technocrats that provide the majority of administrative agency interpretations are either apolitical, liberal capitalists, or even as right wing as the Justices that just stripped them of power. Chevron deference did not implement Left wing policy, but rather prevented capitalists from padding their profit margins by using nonsensical interpretations to avoid basic regulation.
One could be forgiven based on the current feverent anti-regulation attitude on the far right for thinking that advocates of capitalism, and capitalists themselves, are or should have a material interest in being anti-regulation. But not all capitalists are anti-regulation. I would wager most American capitalists are not. Arguably it was capitalists who recently saved the Consumer Financial Protection Bureau from being held unconstitutional by the Supreme Court. While claiming that it was filing an amicus in support of “neither party” (eyeroll-inducing political posturing in my opinion), a brief by the Mortgage Bankers Association was clearly in support of the CFPB when it declared:
“If the Court issues a decision that extends beyond the Payday Lending Rule and asserts that these mortgage-related rules are potentially invalid because they were promulgated using funds appropriated through § 5497, it could set off a wave of challenges and the housing market could descend into chaos, to the detriment of all mortgage borrowers. Lenders, servicers, and consumers have operated by the CFPB’s guideposts for more than ten years, and without those rules substantial uncertainty would arise as to how to undertake mortgage transactions in accordance with federal law.”
The key here is “substantial uncertainty.” The role of the State in a capitalist economy is to provide certainty — from its most basic form of enforcing a contract between two parties to the most complex conflict of law issues. The principle of stare decisis, of not departing from prior binding decisions by the courts, is so bedrock because it creates certainty. When companies know how the court is going to interpret a contract, their duty to consumers, their tax liabilities, and so on, the company may not be happy about the rule but it can plan for it. Compliance work is expensive — it requires lawyers, which in the U.S. are essentially an unregulated cartel so companies will pay a pretty penny for their services. Even a legal change that is beneficial to a company in a vacuum (i.e. eliminating required disclosures in mortgage transactions) could be detrimental to a company in the immediate aftermath of the change, or even years later depending on how much uncertainty is created by the change. The one thing more expensive than compliance is litigation. If you are unsure what disclosures your company is required to make to enter into mortgages with consumers, it is likely better for you to continue making the old ones rather than chancing a violation of the law that could get you sued.
If regulation overall is beneficial to capitalists by the creation of certainty in the marketplace, why would C.J. Roberts, possibly the greatest friend to capitalists the Court currently has, overturn Chevron deference? The simple answer is because while capitalists can and do act at times to do what is best for their class as a whole (like the aforementioned amicus to protect the CFPB), they are more often than not incentivized to act in their immediate interests over the interest of their class or the economy as a whole.
In the seventh chapter of his dense but must-read Marxist economics textbook “Capitalism,” Anwar Shaikh lays out his theory of “real competition”:
“Real competition is the central regulating mechanism of capitalism. Competition within an industry forces individual producers to set prices with an eye on the market, just as it forces them continually to try to cut costs so that they can put prices and expand market share. Cost-cutting can take place through wage reduction, increase in the length or intensity of the working day, and through technical change. The latter becomes the central means over the long run.
In this context, individual capitals make their decisions based on judgments in the face of an intrinsically indeterminate future, one that remains to be constructed. Competition pits seller against seller, seller against buyer, and buyer against buyer. It pits capital against capital, capital against labor, and labor against labor…The notion of competition as a form of warfare has important implications. Tactics, strategy, and resulting prospects for growth are central concerns of the competitive firm. In turn, the relevant profit must be that which is defensible in the medium term, which is quite different from the notion of short-term maximum profit emphasized in neoclassical theory. In the battle of real competition, the mobility of capital is movement from one terrain to another, the development and adoption of technology is the arms race, and the struggle for profit growth and market share is the battle itself.” pp. 259–260
Years ago I argued to the ClassCrits conference that government regulation was a “terrain” of “warfare” in Shaikh’s concept of real competition. The most obvious examples of this are of course in the antitrust space. When a company sues the NFL for an exclusive licensing agreement with Reebok, that is a clear example of regulation being used to compete against Reebok. It goes the other way as well — while the aforementioned Mortgage Bankers Association claimed its concern was certainty, a more cynical analysis could argue they have an interest in maintaining CFPB regulations because enormous banks are far more equipped to comply with them than their upstart competitors in the fin-tech realm.
These uses of regulation in competition are not systemically destabilizing. To the contrary, they rely on enforcing principles of certainty prescribed the law. The same cannot be said of using deregulation in competition. Again and again throughout American history, economic crises have been set off by a company or group of companies using deregulation to gain competitive advantage that destabilizes the economy as a whole. Probably the two most famous examples of this are the deregulation that led to the savings and loan crisis and the deregulation that led to the Great Recession.
The deregulation of savings and loan institutions was done by Presidents Jimmy Carter and Ronald Reagan for the express purpose of making S&Ls more competitive with other financial institutions. Similarly, the Gramm-Leach-Bliley Act overturned Great Depression era regulations that prevented consolidation of banking companies, securities companies, and insurance companies. While this may have provided short-term competitive advantage to financial companies that could not previously compete with the kinds of returns made by investment banks, it brought along with it the kind of high risk investments made by investment banks, thus leading to the Great Recession.
This is why capitalists cannot regulate themselves. While they will occasionally collaborate to oppose deregulation where the systemic harms are existential enough (as in the case of possibly declaring the CFPB unconstitutional), they ultimately are making decisions based on Shaikh’s “intrinsically indeterminate future” and in that scenario it is inevitable that companies will choose achieving or maintaining a competitive edge now over speculative stability. And they know this, and want the ability to make that choice, which is why they have advocated for the ability to dismantle the administrative state as they may see fit in any given moment. The elimination of Chevron deference gives capitalists the ability to put “deregulation” as a more regular tool in their competition toolbox. No longer faced by a wall of administrative expertise but the flexibility of a judge in the same social class of the owners of the companies petitioning him rather than the poor and working class people who will be harmed by deregulation, the capitalists rejoice. But ultimately this precedent will just supercharge the aforementioned systemic destabilization prompted by deregulation, because now it will not have to pass through the hurdles of Congress as S&L and banking deregulation did over decades, but instead can just petition a judge with little accountability to the people.
As the hand of the constitutional crisis moves closer to midnight, we should be asking ourselves whether we are satisfied with the political options set before us of incompetent senility or psychopathic greed. Even for those who hang on to the hope of a capitalism tamed by liberal regulation, you should be asking yourselves whether the Democratic Party as it has been led is up to the task of bringing the judicial vandals under heel. A president too busy defending himself from criticisms of his clear and obvious dementia is not up to the challenge of saving the federal regulatory apparatus. An administrate state which, as Justice Kagan noted, is responsible for such basic and important decisions as (1) when an alpha amino acid polymer qualifies as a “protein,” (2) what distinct animal species are considered “endangered,” (3) how Medicare should be geographically implemented, (4) how to maintain the “natural quiet” of national parks, and (5) how to determine whether a factory is causing too much air pollution.
Buckle in my friends — it is only going to get rougher from here.
