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Reaganomics and Regulation Through Litigation

Marking the 25th anniversary of Ronald Reagan�s first inauguration, the Wall Street Journal is opining on the last two and one-half decades of Reaganomics: the view that lower tax rates and reduced governmental regulation of business prompt greater investment, more jobs, higher productivity and a concomitant improvement in public welfare.

The Journal concludes, rightly I think, that history has vindicated Reaganomics. More than anything else, this vindication is apparent from the topic�s absence from public debate.

Few serious spokespersons today take the position (as many economists did in the early and middle 20th century) that strict regulation of the means of production is necessary to keep corporations in check. The debate is largely in the margins, whether pollution credits promote or hinder improvements in the environment, for example.

Politicians of both parties routinely refer to the power of the free market as an organizing principle of our economy and of the need to avoid excessive regulation.

And yet the collectivist spirit that motivated economics in the early 20th century (John Kenneth Galbraith and the New Deal, for example) has found other forms of expression, most notably in our judicial system.

Populist arguments that once prompted politicians to adopt rules and regulations are now re-tooled as tort claims and made in court before judges who, in varying degrees, are immune to the political process.

Do you think that Corporation X�s wage and benefit policies are unfair to workers? Don�t ask Congress to do anything. Refashion your argument as a class action on behalf of the workers.

If you think a particular industry harms the environment, don�t expect the legislature to change the laws that permit that harm. Instead, file suit on behalf of the class of persons who are offended.

While Reaganomics may have prevailed in two of the three branches of government, it has not yet carried the day in the judiciary where courts have been all too willing to accommodate the creative claims of various activist groups who have tried to regulate our economy through the courts.

Regulation through litigation, in some ways, is even more pernicious than outright regulation through legislation. The legislative process allows competing interests to make their points in public. The judicial process, while public, is far less responsive to the public. The legislative process admits multiple points of view and takes place over time, allowing experts and advocates many opportunities to persuade legislators and the public. The judicial process is technical and rules-driven. Judicial decisions made on the basis of factual judgments are often immune from review, susceptible of being overturned only when appellate courts can find technical or legal infirmities in their reasoning. By some accounts, the burden of excessive litigation in the U.S. imposes an indirect �tax� of nearly $300 billion per year on our economy.

President Reagan convinced America that high taxes and excessive regulation were not only unfair, but ineffective. History has demonstrated he was right. What will it take to make that same point to those who now try to regulate through litigation?



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.