Wednesday, July 10, 2013

The Peril of Prosecutorial Discretion

The Obama Administration generated quite a controversy last week when it announced that it would delay the enforcement of the employer mandate requiring companies with at least 50 employees to provide health care to all of their workers for a year.

Republicans immediately denounced the act as political maneuvering for the midterm elections and how it represented a breach in the rule of law. The Wall Street Journal had quite a popular op-ed yesterday about it. The argument is this: the decision to delay enforcement represents a bridge too far when it comes to the selective enforcement of the country's laws.

As a rule, I favor laws that give enforcers and prosecutors as little room for interpretation as possible when it comes to execution and enforcement of them. Because wiggle room results in uncertainty and uneven enforcement. And it also introduces an exceptionally corrupting influence into the government. At the Federal level, this manifests itself most obviously in the revolving door between the private sector and top level bureaucrats in DC. Companies directly lobby bureaucrats for more lenient or preferential treatment from regulators and promise them cushy, high paying jobs in the private sector should they decide to leave public service.

If bureaucrats had less discretionary power, corporations wouldn't bother lobbying them. Likewise, if a President couldn't make good on promises to reward favored constituencies and donors with his extraordinary level of power over the Federal bureaucracy, you'd see political campaign contributions shrivel up as well. This phenomenon is best observed in the low level bureaucracies of emerging markets. Corruption runs rampant because government officials are poorly paid but have extraordinary discretionary power over the private sector.

A government of laws is much more appealing because power is more clearly rooted in the political process rather than the bureaucracy. And it allows for a much more efficient bureaucracy. The IRS is probably the most efficient and effective organ of the Federal government because its duties are clear and allow almost no wiggle room. IRS officials can't selectively enforce the tax laws for favorable treatment. The result? Companies lobby Congress for tax loopholes instead of the IRS. This makes the IRS much more professional and gives it much more legitimacy. And lobbying Congress is a higher profile activity than trying to bribe/cajole an IRS auditor, so the process becomes more transparent.

Although it is perfectly legal for the Administration to delay enforcement of a new law, it represents further deterioration in the competency and legitimacy of the bureaucracy. Right now, we have a dysfunctional political ecosystem and a highly functioning bureaucratic organization. If the latter becomes as dysfunctional as the former, then expect to see economic growth slow substantially as more and more activity is geared towards wealth preservation rather than wealth creation.

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