Assignment: Chpt 1, esp. 11-14
What is Administrative Law?
- legal control of govt
- legal principles that define the authority and structure of administrative agencies, specify the procedural formalities that agencies use, determine the validity of administrative decisions, and outline the role of reviewing courts and other organs of govt in their relation to administrative agencies
- deals with three basic bodies of law: constitutional law, statutory law and a form of federal common law
Problems thought to call for administrative regulation:
- (1) Admin regulation as attempt to solve various problems of “market failure” identified by economists; many market defects fall within one of the following categories:
o Need to control monopoly power
o Need to compensate for inadequate information, in particular when
§ Suppliers mislead consumers whose available remedies, such as court actions, are expensive or impractical
§ Consumers can’t readily evaluate the info available (drugs)
§ Market on the supply side fails to furnish needed info
o Collective action problems
§ Prisoner’s dilemma
o Need to correct for externalities (spillover costs), or existence of transaction costs that make bargaining difficult
§ Price of a product may not reflect costs that its production and use impose on society
- (2) Less conventional economic arguments for admin regulation
o Need to control windfall profits
§ Goal is to transfer undeserved profits from producers or owners to consumers
o Need to eliminate excessive competition
§ Excessive competition could force out most firms, and the one firm left can raise prices
§ Helps industries with large fixed costs and cyclical demand
§ Against predatory pricing – dominant firm sets prices very low, with object of driving out competition, and then raises prices to recoup losses before others can enter market
o Need to alleviate scarcity
§ TV licenses
o Agency problems
§ When someone other than the buyer makes purchasing decisions for the buyer, like medical care
- (3) Redistribution
o regulation is justified as means of redistributing resources from one group to another
§ unequal bargaining power is invoked as the rationale
§ not clear that these efforts work
- (4) Nonmarket or Collective values
o regulation as an effort to promote values on the part of some segments of society
o govt engages in a degree of preference-shaping
- (5) Disadvantage and Caste
o regulation as attempt to overcome social disadvantage (civil rights law)
- (6) Planning
o Regulation justified on ground that w/o it firms in an industry would not produce their products in an economically efficient manner
- (7) Paternalism
o Regulation justified on the grounds that government has a certain obligation to protect individuals from their own confusion and irresponsibility
The Classic Regulatory Tools
- (1) cost-of-service ratemaking
o most commonly used method for regulating prices in a wide variety of individual industries
- (2) allocation in accordance with a public interest standard
o commonly used when govt wants to hand out a commodity in short supply
- (3) standard-setting
- (4) historically based price-setting, or allocation
- (5) screening or licensing
- (6) fees or taxes
- (7) provision of information
- (8) subsidies
o used to regulate agricultural prices
- (9) noncoercive efforts to produce cooperation through moral suasion or political incentives
- These programs operate and are subject to the following four constraints:
o (1) regulator and regulated are likely to have an adversarial relationship b/c regulator often compels industry to act in ways it would not choose to act
o (2) regulator is an institutional bureaucracy operated by administrators who may well prefer to design rules that they can administer with relative ease
o (3) new regulatory programs usually copy old ones
o (4) regulatory decisions are subject to the requirements of administrative law, including the APA (Administrative Procedure Act)
Class Notes – Monday, September 25, 2000
What is ad law?
- Study of the legal control of the structure and process of federal govt
o Includes executive branch, and in particular:
§ (1) Cabinet levels are where admin agencies are located
§ (2) Entities w/in cabinets
§ (3) White House staff
· Chief of Staff
§ (4) Staff of executive office of president
· OMB (Office of Management and Budget)
§ (5) Free-standing executive agencies
· EPA (but now it’s a cabinet agency)
§ (6) Independent commissions and agencies
· More distance from president than the above, so president has less control
· NLRB, SEC
· Constitutional bases of these are more questionable than others
§ (7) Govt chartered corporations
· Post Office
· Run more like a regular corp
§ (8) Officials who discharge executive functions
· Independent Counsel
Admin Law has very broad coverage
- We’re focusing on just the general framework
Regulators have a number of tools for regulation:
- we think of mandates most often
- taxes and fees
- subsidies
- license
Agencies have several methods for using these tools:
- adjudication
o AdLaw judges, just like a court case
§ Disability (SSI)
- Rule-making
o Looks legislative
- Courts are more insulated politically
- Courts don’t have to give reasons for decision like agency heads
- Agencies can use enforcement procedures, use penalties against those violating agency law
Three unifying themes: (sources of law)
- (1) Constitutional law
o what ought to govern, what’s most efficient
- (2) Statutorily based course
o two sources:
§ Administrative Procedure Act (APA)
· Quasi-constitutional status, provides default structure for all agencies
§ Organic statute
· Sets up particular regulatory regime involved
· Clean Air Act, for example
o Courts are increasingly using cost-benefit analyses when language is variant among statutes
- (3) Common law
o Courts sometimes ignore what legislatures say and go with common law
Other themes:
- (1) Try not to limit focus to Court decisions; also focus on Agencies, Congress, and the President
- (2) Goals of particular regulatory statutes
- (3) Goals of a modern regulatory state in organizing society
o Start can be with the New Deal, which had these two objectives:
§ (a) Centralize decision-making in executive branch
· attempt to take advantage of technical expertise, and under a unified entity (the president)
· avoids some collective action problems
· Institutionalize a different sort of democratic decision-making
o attenuated political accountability, (it’s under the president who is accountable, but agency itself isn’t as accountable)
o allows for wider participation by interested citizens
o agencies must explain why they chose one particular route over another
§ (b) attack on common-law ordering
· don’t accept laissez-faire as the natural order
o society must justify its decisions, not just accept one as the end-all-be-all
· common-law is a choice, and it can be assessed against other systems of regulation
History and Background
- first hundred years, most regulation was through courts, state govt or private markets
- beginning of administrative state came in the Progressive Era (1890-1915)
o driven by fears of monopolies
o Interstate Commerce Commission
o Federal Trade Commission
o All these agencies were independent agencies, so president could not fire heads of the agencies
- Real beginning is with the New Deal
o Many say this brought change in constitutional structure
§ Reconception of individual rights, federalism, separation of powers; before New Deal:
· There had been fear of giving fed govt too much power
· People believed state govt was more democratic
o 1944 FDR promulgated Second Bill of Rights
§ Right to useful job, to earn enough to eat, to decent home, to decent medical protection
o Pragmatic readjustment of capitalism in shadow of enormous economic crisis
o Designed to redistribute wealth, promote confidence in economy, and regulate people in their social roles (as a consumer, laborer, etc.)
- Rights Revolution (1970s)
o Biggest growth of administrative state, says Garrett
o Shift to expand regulation in three areas:
§ Civil rights (end of discrimination laws)
§ Expansion of New Deal focus to redistribute wealth; Johnson’s war to stamp our poverty
§ Expansion of risk regulation
· OSHA
· EPA
· National Highway Traffic Safety Admin
- Today’s era of regulation: reconsidering some of the tenets of the New Deal
o Some has been undone in the last decade
§ Reassertion of old-time rights
· Laissez-faire choices are defended more often now
§ Reinventing government, using different tools of regulation
· Market-mechanisms as regulation
§ New emphasis on cost-benefit analysis in all regulatory areas
· Some in Congress have pushed for a new APA mandating that every regulatory decision comply with cost-benefit analysis
§ Trend toward devolution
· Sending things back to state and local levels, like welfare
Preliminary discussion of State Railroad & Warehouse v. Chicago, M & St. P. Railroad
- Question of whether intrusion is justified in the Railroad industry
o Monopoly problem was main argument for regulation
o Also concerned about allocation of wealth – may want to help farmers transport their goods; or should we make farmers subsidize the RRs?
o Passengers – should they pay higher rates in order to help farmers?
o Within RR industry, there are various types of RR companies
o Should we directly subsidize?
o Is systematic regulation better as a whole for the RRs?
o Two basic reasons for regulation here:
§ Redistributive arguments to deal with monopolies
§ Prevention of excessive competition
§ Can you have both at same time?
§ Should we worry about excessive competition?
Assignment: p35-47
Agency’s Power to Legislate
- Early cases said legislative power which Constitution had delegated to Congress could not be redelegated to others
o Congress specifically granted this authority in the Hepburn Act of 1906, and courts simply assumed the constitutionality of this
State ex rel. Railroad & Warehouse Commission v. Chicago, Minneapolis & St. P Ry.
- state constitutional challenge to Minnesota legislature’s delegation of rate-setting authority to an administrative commission
o rates for milk carried on passenger trains were brought down by the Commission, and they brought a mandamus action in state court t compel railroad to obey its order
- Court says if just look at plain language, it’s perfectly evident that legislature wanted the rates decided on by the Commission to be more than just advisory
- Question is whether legislature can confer such powers upon the Commission
- YES
o Public highway can’t be under control of private owners
o Legislature did not delegate power to make the law, but rather conferred an authority of discretion to be exercised under and in the pursuance of the law
o Legislature can’t set rates b/c they meet only once every two years for 60 days, and there needs to be someone on top of the situation at all times
The Nondelegation Doctrine in Federal Law
- Only year Supreme Court used nondelegation to invalidate a statute was 1935
- 1933 FDR passed the National Industrial Recovery Act (NIRA) with objective to have representatives of management and labor in each industry meet and develop codes of “fair competition”
o critics feared development of a “corporate state”
o the codes contained regulations for hours worked, wages paid, devices of price competition, etc.
o Panama Refining Co. v. Ryan involved challenge to NIRA’s Petroleum Code; SCt held this section of the NIRA was unconstitutional b/c it did not provide a standard of governing WHEN a president was to exercise the authorized power
A.L.A. Schecter Poultry Corp. v. United States
- with Panama Refining, the other 1935 case that used nondelegation to invalidate a statute
- “Live Poultry Code” provided for hours and wages, and type of chicken that could be sold
- “The Congress is not permitted to abdicate or transfer to others the essential legislative functions with which it is vested.”
- The codes try to stamp out “unfair competition”, but this term has a much broader range and new significance than has been used in other statutes, says the Court
o Delegation of power to industrial and trade groups for the purpose of rehabilitating and expansion is unknown to our law and inconsistent with the duties of Congress
o Actions of agencies have no sanctions beyond the will of the president
o Section 3 gives President unfettered discretion to approve or proscribe codes for trade and industry, and there are no rules of conduct prescribed in the code; therefore it’s unconstitutional delegation of power
- Cardozo concurrence:
o If codes eliminate “unfair” methods of competition, it’s fine
o This code has no reference to standards though, so there is unfettered discretion; code does much more than just stamp out “unfair” competition
Class Notes – Tuesday, September 26, 2000
Railroad Case
- Rational for Regulation:
o deals with monopoly problem
§ but have to be able to define relative market
§ what is regulatory strategy?
· What kind of profits and costs will be allowed for?
o Redistribution
§ From whom to whom?
· Consumer-producer, opposite, consumer-consumer?
§ Is it just interest group clout?
§ Is regulation the best mechanism for redistribution?
· Maybe should be transparent subsidies, or higher taxes
- Is too much competition bad?
o Yes: can lead to monopolies
o Yes: can lead to poor quality products, corner-cutting by competing companies
- Perhaps lack of information (on part of the consumers) is the problem here, so regulation wouldn’t be the right way to go
- Other rationales for regulation:
o Want to give entire population ability to use rail system
- What institution should implement the regulations?
o Court discusses administrative industry vs. legislators
§ Election: Legislators can be TOO responsive to constituents (b/c they’re more accountable politically); also have favored constituents
· Need balance between accountability, arbitrariness
· But it may be easier to influence a regulatory commission (if it has just three people on it, easier to get to them then to get to the entire legislature); also, many regulators go into the business that they regulate when their terms are up, so they may want to look good for the Railroads and have sympathies for the industry