“Government by Whim”

The spring 2011 issue of National Affairs included several essays exploring “government by whim” in contexts like economic policy, law and the auto bailouts. These pieces got me thinking about other examples in our state and country.

The term “government by whim” means governing via a series of regulations and rules that can be capricious and confusing. In such a structure, regulators and government officials are often granted broad latitude when it comes to implementing provisions from legislative acts. In turn, special-interest pressure can lead to a convoluted network of laws that inhibit economic and personal freedom. As Yuval Levin, the founding editor of National Affairs, put it in a recent National Review Online post: “One of the problems with massive, complicated government regulations is that they create a lot of room for regulator discretion, and therefore a lot of room for unequal treatment of different players in the market.”

Of course, the idea of government by whim was neither discovered nor originally popularized by Levin. Friedrich A. Hayek wrote extensively about the dangers inherent in technocratic government, in which bureaucratic institutions attempt to fine-tune large and complex swaths of economic activity. In “Road to Serfdom,” Hayek wrote: “The important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans … or whether the state is in a position to frustrate individual efforts.”

Instead of heeding Hayek’s warning, government by whim seems to be catching on at all levels in the United States. On the federal stage, the controversial Patient Protection and Affordable Care Act has codified a health care system that invests broad powers in government agencies. This can be seen in the actions of the Department of Health and Human Services, which has granted some companies waivers from the health care law. These waivers have allowed corporations like McDonald’s to avoid increasing the annual benefits of their “Mini-Med” employee health plans. Meanwhile, companies that were not fortunate enough to receive such waivers must cope with the burdensome costs of the statute. Most frustratingly, the HHS criteria for granting waivers are nebulous and thus fail to provide a guideline.

Government by whim does not end at the swamp’s edge of Washington, D.C., either. State governments have proven just as adept at pursuing erratic, special interest driven programs. For example, the Michigan Economic Growth Authority awards tax credits to select businesses as an inducement for them to increase operations within state borders. In addition to the dubious economic benefits associated with MEGA, the very structure of the program proves problematic too. As Michael LaFaive and James Hohman discuss in their 2009 study, “The Michigan Economic Development Corporation,” companies can initiate requests for tax credits from MEGA. After evaluations on the potential economic impact of a proposed project, the MEGA board votes on whether to approve the deal. This quasi application and approval process amounts to a whimsical game of choosing “winners” and “losers” in the market place as MEGA creates competitive advantages for companies receiving the tax credits.

Other cases in which this topic could be further explored include Michigan’s film subsidy program, the regulatory agencies created in the recently passed Dodd-Frank Act and the Federal Reserve’s unwillingness to engage in rule-based monetary policy. Until and unless we eschew government by whim, efforts to stimulate economic growth will be frustrated. If individuals and corporations cannot engage in strategic planning with assurances that the rules of today will remain the same tomorrow, they will be hesitant to invest and expand. We must return to an economic environment that treats market players equally and consistently. By setting basic initial guidelines and then deferring to market forces, government can lay down a foundation for growth – not a series of roadblocks.


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