“Rational Basis” Extremism

Guest post by my former student John K. Ross:

Proponents of free markets can seem like a radical bunch. Privatized infrastructure, competing currencies, and other policy prescriptions from the free-market wish list generally do not have much intuitive appeal for those who have not yet digested The Road to Serfdom. It’s admittedly pretty radical stuff—if not in theory then definitely in practice.

But on some questions, libertarians turn out to be very moderate indeed. Instead, it is the defenders of status quo who turn out be astoundingly radical. For instance, consider current constitutional jurisprudence concerning economic regulation.

In 1938, in U.S. v. Carolene Products, the Supreme Court spelled out the doctrine of “rational-basis review,” which holds that some rights, like free speech, are more fundamental than others, such as the right to earn a living. Accordingly, for the last 75 years courts have ruled that legislatures need a really good reason to limit free speech. But judges regularly turn a blind eye to crony capitalism: laws purported to benefit the public that instead confer advantages on established businesses at the expense of would-be competitors.

A federal appeals court issued just such a ruling last week, rejecting a plea from 250 taxicab drivers in Kansas City, Missouri who want to work for themselves instead of the companies that own the limited number of permits the city dispenses. Two companies control almost 80 percent of the permits.

City leaders assert that there is no demand for additional cabs. Of course, cab drivers would be unlikely to spend years lobbying and then suing the city council to open the market to competition if they did not perceive demand for their services.

But the court did not rule on the city’s stated justification for its law: insufficient demand. Instead, the court, from the ruling, “identified other purposes: creating incentives to invest in infrastructure and increasing quality in the taxicab industry.” That is, the judges invented their own reasons why taxicab regulation might be valid—apart from what the city actually argued. Moreover, the court did not cite any economic evidence for the proposition that protecting established cabs companies yields a healthier cab market.

This is rational-basis review in action. As Judge Janice Waters Brown, a libertarian-leaning member of the U.S. Court of Appeals for the District of Columbia Circuit, writes, “The practical effect of rational basis review of economic regulation is the absence of any check on the group interests that all too often control the democratic process.”

Everyone learns the importance of checks and balances in grade-school civics. Legislators are fallible, and the legislation they write pass is, too. The notion that judges should selectively abandon their role as a check on legislators is radical, if engrained.

A more moderate approach would be for judges to scrutinize challenges to economic regulations as they do cases involving so-called “fundamental” rights. Thus, instead of uncritically accepting the government’s claim that capping the number of cabs on a city’s streets protects public health and safety (and, indeed, inventing their own claims), judges would instead demand some real evidence.

It really is as simple as the age-old admonition: listen to both sides of the story. There’s nothing radical about that.

Postscript from HB: John’s and my friend Clark Neily of the Institute for Justice has just published an important book on this topic, Terms of Engagement: How Our Courts Should Enforce the Constitution’s Promise of Limited Government.

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