Here Come the Kiddie Clothes Police
Reality Check (January 9, 2009)
On February 10, a new law goes into effect. It will become illegal for any company to sell children's clothes that have not passed rigorous tests imposed by the Federal government -- standards related to lead and "certain specific phthalates." This law does not confine itself to new clothes produced on February 10 or later. It includes all clothing for children, including a used clothing.
The Consumer Product Safety Commission allows no exceptions. So, on February 10, every thrift store in America is going to be legally compelled to put all of its children's clothing in the dumpster. Any person selling clothing for children 12 years old or younger will be subject to arrest or fined if he or she violates this law. This means that Goodwill, the Salvation Army, the local thrift store, and every garage sale in the country that violates this law is subject to prosecution. The story is here:
The initial regulations of the Consumer Product Safety Act are here:
The House of Representatives passed this law 424 to 1 in July, 2008. The one person who voted against it was . . . (take a wild guess) . . . Ron Paul.
In one of those rare instances, the media have begun reporting on this law, which was passed last August.
The protests have begun. People are really ticked off. The ludicrousness of the regulations has exposed the Consumer Product Safety Commission as having lost its collective mind. The CSPC now has to save face, but without backing down. To back down would mean that the original law was ridiculous. This would make for bad publicity. Only two things scare senior bureaucrats: bad publicity and budget cuts.
The CPSC has now backed off, sort of. In a January 8 press release, we read:
The new safety law does not require resellers to test children's products in inventory for compliance with the lead limit before they are sold. However, resellers cannot sell children's products that exceed the lead limit and therefore should avoid products that are likely to have lead content, unless they have testing or other information to indicate the products being sold have less than the new limit. Those resellers that do sell products in violation of the new limits could face civil and/or criminal penalties.
Here is a classic case of bureaucratic doubletalk. The press release even lets us know where the doubletalk begins: the word "however." No, the Salvation Army does not have to run tests. However, the Salvation army "cannot sell children's products that exceed the lead limit and therefore should avoid products that are likely to have lead content, unless they have testing or other information to indicate the products being sold have less than the new limit."
Where will the Salvation Army get such "testing or other information"? From the manufacturers? But no such testing has been done on used clothes. No such testing of new clothing is required until February 10. The press release makes things quite clear.
Those resellers that do sell products in violation of the new limits could face civil and/or criminal penalties.
The law applies to all children's clothing, not just recently manufactured clothing. There are no exceptions. The regulations will be enforced.
The kiddie-clothing police are ready to raid the Salvation Army at any time.
ON TERRORIZING CONGRESS
Congress, as usual, was terrorized by special interest groups to pass this legislation "to protect the children." There is nothing more sacred politically than protecting the children. The result of such legislation, in virtually all cases, is that more children wind up with the equivalent of no clothing.
The new law will not place a huge burden on parents with a lot of money, who can afford to buy new clothing from Federally regulated producers of children's clothing. Those companies that can afford to hire the required legal talent and pay to run the laboratory tests making sure that there is not one trace of anything that might hurt the little tykes, will do just fine. These firms will no longer have competition from all those cut- throat sellers of unregulated clothing and all those thrift stores. This is just what the doctor ordered, unless it is Dr. Paul.
The law will be enforced by the Federal regulatory agency that proposed the law and wrote the specifications: the Consumer Product Safety Commission. This is always the case, which is why Congress is constantly transferring sovereignty to the executive branch. Congress passes the laws, and the Executive Branch enforces them. The Executive agencies enforce them by means of what is known as administrative law. Administrative law is law is interpreted by the agency doing the enforcement. The agency hires people who are designated by the agencies as administrative law judges. This title sounds official. It sounds independent. But these law judges are not independent legal experts who are employed by the judiciary branch. They are executive salaried lawyers who have the power of the executive branch behind them. You have to prove that you are innocent; it is assumed that you are guilty. Executive agencies are only loosely bound by the principle of "innocent until proven guilty." They govern by the principle of "bankrupt the suspected company by means of astronomical legal defense fees." This is why the Federal government gets compliance. The only organizations that can escape this system are the ones that are large enough to hire even smarter lawyers than Federally salaried administrative law judges.
ADMINISTRATIVE LAW
In 1983, a Harvard University legal historian named Harold Berman wrote one of the most important essays in American history. It received almost no attention. It was the introduction to his book, "Law and Revolution." It was published that year by Harvard University press. The book is a detailed study of the first major legal revolution in the West, the legal settlement between the Pope and the Emperor in 1076. This sounds boring. Unless you are a historian of medieval law, it is boring. What is not boring was the introduction. Here, Berman sketched the history of Western law. It has had seven major revolutions since 1076. The seventh, administrative law, he regarded as an aberration of the Western legal tradition. He said the administrative law is the mark of tyranny. It is spreading all across the West. He warned that if this process is not reversed, Western civilization will lose the fundamental foundation of its liberty: a judiciary that is separate from the Executive. I regard this essay as the most important academic article I ever read.
We have seen no reversal of this trend since 1983. If anything, we have seen an acceleration of this trend. The latest legal monstrosity, which will make felons out of millions of women who run garage sales, is representative of what goes on, day in and day out, in Washington DC. The "Federal Register" is over 70,000 pages long every year. The 70,000 pages of fine print are the essence of administrative law. If your company gets hit by an administrative inquiry by an administrative law judge, it had better have a very expensive lawyer on retainer, or it had better have deep pockets.
CONGRESS ROLLS OVER
Congress thinks nothing about all this. Congress passes laws that it thinks the public wants, or ought to want, or darn well better want. The $700 billion bailout of the financial industry last October is a typical example. The public did not want it, but Congress was told by the Secretary of the Treasury and the Chairman of the Federal Reserve System that the industry absolutely needed all this money, and needed it immediately. So, Congress dutifully buckled, passed the law, and the found out two months later that half the money has not even been spent. Congress's reaction is not outrage. Congress's reaction is to get its hands on to whatever remains of the money. Congress is perfectly happy that it was able to pass the bailout. This is money that would not otherwise have been able for Congress to get its hands on. There is no bill before Congress to return the money to the Treasury, so that no Treasury debt need be sold.
Congressmen do not go before the press and admit that they been hornswoggled by the Bush Administration. Not even Democrats do this. They voted $700 billion on direct bailouts, plus they added $150 billion in pork. Now that there are $350 billion lying around unused (not counting the pork), Congress wants to bail out the underwater home owners who cannot meet their mortgage obligations.
But what of all those Americans who are meeting their monthly obligations? Simple: they get to dig into their pockets for the next five or more years to pay off investors in Treasury debt, whose money will go to less prudent home buyers . . . half of whom will default next year.
Here is a basic law of government. It was summarized to me as a teenager by my father, who was an FBI agent. He had learned how administrative agencies work. They operate in terms of this law of reciprocity:
You play ball with us, and we'll smash you in the teeth with the bat.
(Actually, he used a more graphic description of what the bat would be used for.)
Most voters do not protest, so Congress just keeps on doing this sort of thing.
Occasionally, the public does get upset. I have a feeling that when the Salvation Army ceases to sell used children's clothing, or some Federal bureaucrat arrests some woman who has held a garage sale, the story will get in the newspapers. There will be a hue and cry against all this nonsense -- maybe -- if it turns out to be a public interest story that has legs. If it is a story that gets people to buy more newspapers, or at least stop canceling their newspaper subscriptions, and if it gets on local TV news, maybe voters will write to Congress and say that Congress had better exempt the sale of used children's clothing.
So far, the public is not heard of any of this. The thrift stores are not handing out postcards to send to the local congressman. So, on February 10, it will be illegal to sell used children's clothing, or even give it away.
If this sounds utterly idiotic, this is because you do not understand the basics of civil government.
Congressmen do not read the bills. The bills are 400 pages or 500 pages long. No Congressman has enough staffers to read all this material. They simply pass the laws. Then the Executive agencies enforce the laws any way they see fit. They see fit to enforce them in such a way as to expand the authority of the agency. This means that the agency can hire more people. This is the most important single goal of an administrative agency. It wants to attain more power, a larger budget, and more employees. There are a lot of thrift stores, a lot of garage sales, and the public must be protected from itself. So, there will have to be all a lot of enforcement agents to make certain that nobody violates this law.
SAVING WALL STREET FROM ITSELF
Today, we are told that the financial industry is broken. We are told that the government must now regulate the financial industry.
What do we think the government has been doing since 1933?
We are told that capitalism once again has failed. But if capitalism has failed because of insufficient regulation, what were all those Federal agencies doing in Washington from the inauguration of Ronald Reagan until last week? How is it that all of these agencies existed, and all of those salaries were paid, and yet the financial crisis took place in 2008?
How is it that the Federal government had to come to the aid of all of those banks that were regulated by multiple layers of bureaucracy by the Federal government, and have been for 70 years? How is it that the agencies failed to regulate these enormous entities?
Why is it that the secretary of the Treasury under Clinton and the secretary of the Treasury under Bush were both former CEOs of Goldman Sachs?
The media do not ask these questions, because the media know who holds the hammer. The media fully understand that the government regulatory structure continues to foul up, decade after decade. These foul-ups become lead stories, month after month. But the religion of the media is the religion of salvation by law. This is an ancient heresy. Men believe that they can make the world better, make people more honest, and extend goodness and light by passing a law.
Now Congress is going to pass many, many laws regulating investments. We can be sure of this: the performance of the investment markets will decline.
Every time Congress votes on a new 500-page bill which guarantees to increase the transparency of the financial system, think about how transparent the 500 pages are. Congressmen do not read the 500 pages. Congressmen do not understand anything in those bills. The bills are written in legalese. But they vote for them. Then the Executive Branch enforces them. Then the agencies send out administrative law judges to monitor what the investment companies are doing. Meanwhile, the investment companies are going bust. Merrill Lynch got bought out for pennies on the dollar by Bank of America. No administrative law judge is competent enough to tell the lawyers at Bank of America what to do. So, power is transferred to the large banks that survive, even if this takes hundreds of billions of taxpayers dollars to keep them afloat.
Do you honestly think that the Federal government is going to tell the Federal Reserve System how to regulate the banking system? The Federal government, including your congressman, cannot compel the Federal Reserve system to reveal which banks received how much of the hundreds of billions of dollars of bailout money.
Bloomberg News sued the Federal Reserve System under the Freedom of Information Act to learn which banks got how much. The courts threw it out. Why? Because the Board of Governors of the Federal Reserve System, which is a government agency, turns over the handling of all of its transactions to the Federal Reserve Bank of New York, which is a privately owned organization. The Federal Reserve Bank of New York then says that it is not under the Freedom of Information Act, because it is a private agency. The court upheld this logic.
The Federal Reserve Bank of New York has run the Federal Reserve System ever since 1914.
The new Secretary of the Treasury is the man who was the President of the Federal Reserve Bank of New York until a few weeks ago.
You think this system isn't rigged? It has been ever since 1914. It is the ultimate rigging in world finance.
No Congressman knows who owns the Federal Reserve System, although the Federal Reserve System says it is owned by member banks. We have to take their word for this. We also have to believe that Ben Bernanke is not running a giant equivalent of Bernard Madoff's investment program.
HOW THE SYSTEM WORKS
The political system that decided last year that the children of America are threatened by garage sales is the same system that has created the entire regulatory structure of the United States. It has created the regulatory structure that led to every disaster in the financial markets in 2008. Under the very noses of Congress, as well as the noses of the Federal Reserve System, the financial system used the FED's fiat money, borrowed at low interest rates, to create what has turned out to be a disaster. Virtually no academic economists warned about this disaster. The only person who got any publicity for his forecasts is Nouriel Roubini. He is a Keynesian. He started warning about it back in 2006. The economists, the politicians, the regulators, the bankers, the credit-rating agencies, the financial press, and certainly the publicists for the financial institutions were all agreed: it was a new era. Their mouthpiece was Alan Greenspan.
The lemmings were sucked in, and now, having been ruined, they will be taxed to bail out the institutions that betrayed them.
When you think "government regulation of the financial industry," think "garage sales." The Federal government's administrative agencies are terrified to take on the largest, most prestigious financial institutions. The salaried bureaucrats of the agencies are no match for the Wall Street law firms, and they never have been. This goes back to 1933. This is nothing new.
The administrative agencies can terrorize small local banks, or some small brokerage firm somewhere, but they are impotent to have any effect on the largest institutions. On the contrary, they promote the largest institutions. And, when the largest institutions go belly up, the heads of these agencies petition Congress to pass multi-billion-dollar bailouts of these institutions. Congressmen do it, and congressmen get reelected.
The result of the new wave of regulation is going to be the destruction of the financial dreams of the public. It is the public's fault, and the public is going to pay. Democracy is a system of government in which the voters get what they want, and they get it good and hard. They trust Congress, and Congress betrays that trust. Voters believe in salvation by legislation, and Congress gives them damnation by legislation. Such it has been since 1788. This is nothing new.
You may think that you are going to be protected by Congress. You may think that an administrative law judge is going to see to it that your interests are protected. Or, even if you don't think this, most American voters either think it, or don't know anything about it, and are content to ignore it.
Over the next four years, or perhaps over the next eight years, or even longer, the Federal government is going to extend its control over the financial and investment markets. The result will be thousands of pages of legislation and armies of new lawyers hired by administrative agencies to enforce these laws. There will be massive quantities of paperwork. There will be large increases of costs by the regulated companies. On both sides, there will be new jobs for lawyers.
What will be the result? Less efficiency, less responsibility, less accountability, and more financial losses for investors. The public does not learn. When something fails at the government level, the public allows the government to increase its control over whatever aspect of life has been fouled up at a previous attempts of the government to regulate it.
CONCLUSION
When you think government regulation of your financial future, think garage sales. Think about the administrative law judges who are confident in bringing charges against the Salvation Army.
Harold Berman was correct in 1983. The West is on a slippery slope to tyranny. We have surrendered control over our legal system to administrative law judges.