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Could This Ruling Radically Reshape Government? | Insight

A federal court curbed the power of financial regulators. The judges’ legal argument could upend centuries of law-making.

The Briefing: A radical court ruling?

  • The players
    • US Fifth Circuit Court: an appellate court one step below the Supreme Court
    • Securities and Exchange Commission (SEC): a federal agency that regulates financial markets
  • What happened
    • SEC investigated, tried, found guilty, and punished someone for fraud
    • The court ruled the SEC's conduct illegal
    • Three main reasons are central to the ruling, but only one is relevant here
  • That one crucial reason
    • After the 2008 financial crisis, Congress wanted to regulate Wall St more strictly
    • To do so, they formulated vague rules and delegated the details to the SEC
    • The court found that Congress had been too vague
    • That could upset how Congress works with federal bureaucracies like the SEC

The Big Question: Can Congress delegate its work to bureaucrats?

The right has been pretty quiet about the ruling, but those on the left who are in the know are in the throes of a minor uproar. Mark Joseph Stern, who writes at Slate about courts and legal issues, tweeted that:

Why are people on the left concerned? Well, this is the first time a federal court has struck down Congress’ capacity to delegate rule-making powers to bureaucrats in decades, and they think it’s the beginning of a major effort by the conservative-dominated judiciary to usher in a new era of unregulated hypercapitalism.

Now, the obvious counter to the left’s concern is that the Fifth Circuit only took issue with Congress being too vague in this case, rather than with delegation as a practice on the whole. And it’s true that in this case Congress did not provide guidance to the SEC when it granted it the powers that the Fifth Circuit has overruled.

But additional context suggests that the practice of delegation in general could be subject to change. Back in 2019 the Supreme Court heard a case on the subject of Congressional-bureaucratic delegation, and the liberals on the court were only able to rule in favor of the practice with the help of arch-conservative Justice Alito (who had his own reasons). The other conservatives, meanwhile, made it clear in their dissent that this was an issue of debate and interest.

With a now-6-3 conservative majority on the Court, future cases on delegation could seriously upset bureaucratic business-as-usual. The Court may not, in Stern’s words, “[strike] down the administrative state” wholesale, but rulings like the Fifth Circuit’s could easily end up chipping away the federal government’s power to regulate the behavior of powerful private actors.

The Theory: Separation of powers and non-delegation.

It’s worth diving deeper into this idea of “non-delegation,” given its potential to rock the functioning of the American state, as well as the conservative legal movement’s decades-long commitment to seeing it implemented.

The idea stems from the constitutional doctrine of the separation of powers. As James Madison writes in Federalist no. 47, “The accumulation of all powers, legislative, executive, and judiciary, in the same hands…may justly be pronounced the very definition of tyranny.” Following that logic, any non-tyrannical government needs to work to the utmost to prevent any one individual or group from possessing more than one of the mentioned powers. Hence, three branches of government.

Especially in the last century, Congress has focused on passing laws that signal its general intent while expecting relevant agencies to write the specifics of the rules. But writing such rules could easily be seen as “legislating.” Since agencies like the SEC are part of the executive—not legislative—branch, this whole practice could be a violation of the principle of separation of powers.

The Takeaway: Ok, but let’s be realistic.

The argument for “non-delegation” is a darling of conservative originalists. It’s true that, in the strictest possible sense, delegation is a violation of the doctrine of the separation of powers. But according to both the Founders’ example and common sense, it’s an entirely impracticable standard.

Both before and immediately after the ratification of the Constitution, various forms of government in the thirteen colonies and the young American republic saw plenty of delegation of authority by legislative powers to executive powers. A very nice article in the Columbia Law Review marshals robust evidence that even as far back as the late 1700s Congress often delegated authority to executive officials and gave them fairly wide latitude in the exercise of that authority. This ranged from the distribution of pensions to veterans, to tax collection, to the management of territories that were not yet federal states. As the authors of the article note, thinkers like Madison didn’t raise objections to these practices, even as they served in the highest echelons of government. The reality is that—although strong proponents of the separation of powers—the founders were probably not as strict in their interpretation of their own words as today’s conservatives are.

Perhaps more importantly, we live in a society that is enormously complex. To understand today’s technology, financial practices, and what have you requires immense technical knowledge. While we expect the people we elect to Congress to be smart, it’s far too much to expect that they can understand the intricacies of every issue that confronts them. At best—and yet all too rarely—they’re smart generalists who can set broad objectives for smart specialists and professionals, all in the public interest. I’m not one to defend Congress as an especially competent body of officials, but (or perhaps, as a result) eliminating its ability to delegate rule-making power to administrators is bound to cause a veritable train wreck, not motivate Congress to get its act together. Fraud on Wall Street would proliferate; standards for clean air and food safety would collapse. Modern liberal democracies simply would not be possible without large and, yes, powerful bureaucracies. Our world is simply too complicated.

Now, it’s probably fair to say that Congress has gotten too lazy and begun to delegate far too much. However, the reasons for Congress’ abdication of responsibility are not that bureaucrats have become too powerful. Rather, we have sclerotic political institutions that have proven unable to stand up productively in the face of deepening political polarization. If we want better oversight of the administrative state from the officials we elect to represent us, we ought to start with Congress, not the bureaucracy.

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