The Robert F. Kennedy Building in 2006, the headquarters of the U.S. Department of Justice. DOJ’s Operation Choke Point is an important case study in how democracies can evolve toward authoritarian government.
Wikimedia Commons / Sebmol

It is sometimes very hard  for some people to envisage just how we could possibly lose the freedoms the American people have enjoyed since the founding of the republic. To some of my acquaintances, bringing up such a possibility is the height of hyperbole and a totally ridiculous thought. Yet, over the past eight years we have come closer to realizing that nightmare than ever before.

Friedrich Hayek’s Metaphor of the Road to Serfdom

The Austrian economist Friedrich Hayek  saw how it could happen, up close and personal, as the government of Germany evolved from the democratic Weimar Republic into the fascist hellhole of Nazi Germany. Long before Hayek, a

French visitor to the infant United States, Alexis de Tocqueville, prophetically surmised how a democratic republic like the United States could develop into an authoritarian regime. De Tocqueville called that path the “Road to Servitude.” During the young French noble’s time, democracy was thought most likely to evolve into a state of anarchy.  However, in his book of observations about the young United States, Democracy in America, de Tocqueville writes in Chapter I of Section 4,

Of all the political effects produced by the equality of conditions, this love of independence is the first to strike the observing and to alarm the timid; nor can it be said that their alarm is wholly misplaced, for anarchy has a more formidable aspect in democratic countries than elsewhere. As the citizens have no direct influence on each other, as soon as the supreme power of the nation fails, which kept them all in their several stations, it would seem that disorder must instantly reach its utmost pitch and that, every man drawing aside in a different direction, the fabric of society must at once crumble away. I am convinced, however, that anarchy is not the principal evil that democratic ages have to fear, but the least. For the principle of equality begets two tendencies: the one leads men straight to independence and may suddenly drive them into anarchy; the other conducts them by a longer, more secret, but more certain road to servitude. Nations readily discern the former tendency and are prepared to resist it; they are led away by the latter, without perceiving its drift; hence it is peculiarly important to point it out. [P3, p. 486]

The emphasis in the quotation is mine. Hayek was very impressed with de Tocqueville’s observation, having personally seen it come true

in Germany. Toward the end of World War II, Hayek wrote a book of his own observations about this danger facing all democratic governments, which he entitled The Road to Serfdom [E2].

According to Hayek the beginning of the road to serfdom is found when economic or other national distress causes people to demand the government do something, anything, to relieve the distress. In more recent decades, belief in the efficacy of government actions on the economy has greatly waned under the assault of such men as Milton Friedman, Robert Lucas, Jr., Finn E. Kydland, Edward C. Prescott, and many others in various neoclassical economic movements. However, as the economist and economic historian Mark Skousen tells us,

But it wasn’t always that way. In fact, during most of the twentieth century, heavy-handed central planning was considered more efficient and more productive than laissez-faire capitalism. [E1, Chapter 16]

In Hayek’s view centralized economic planning by the government is intrinsically undemocratic, as both elected and unelected government appointees begin to work their will and impose it upon the people. Slowly, little by little, increasing amounts of economic power are centralized in the state. In chapter 7 of The Road to Serfdom, Hayek immediately reminds us with a quote from Hilare Belloc that, “The control of the production of wealth is the control of human life itself.” Then he declares

Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his mercy. And an authority directing the whole economic system would be the most powerful monopolist conceivable.

Hayek goes on to observe that as economic power is increasingly centralized in the government, that increased power tends to gravitate into the hands of the most unscrupulous politicians. These human sharks, attracted to power the way actual sharks are drawn to blood in ocean water, are elected to office on promises to use that power to alleviate society’s ills. However, as I have tried to show in many of my posts (see, for example, How Is the Weather Like a Country’s Economy?), the use of government economic power is most often counterproductive, usually making economic conditions worse. However, the picture statist politicians attempt to sell the public is that the economic failures are free-market failures, due to the intrinsic nature of free-markets themselves. The politicians then use their own failures as an argument for the accumulation of even more economic power in the state. Following this trajectory of increasing government economic power toward dictatorship is what Hayek means by the Road to Serfdom.

The Justice Department’s Operation Choke Point

Over the past year I have occasionally pointed out several signs that we were traveling the Road to Serfdom. My last general summary of the evidence was last June in the post Are You Unconvinced Democrats Are Growing More Authoritarian?. Some of the more egregious violations of American constitutional government listed there are the following:

• IRS targeting of conservative groups to silence them during elections.
• Violations of the U.S. Constitution through presidential edicts.
• Attempts by Wisconsin Democratic district attorneys to shut down conservative groups from supporting the state’s Republican governor, Scott Walker.
•  Attempts by the junior Democratic senator from Rhode Island, Sheldon Whitehouse, assisted by AG Loretta Lynch, to motivate prosecutions of serious scientists who disagree with the Anthropogenic Global Warming (AGW) model under the Racketeer Influenced and Corrupt Organizations Act (RICO).

One reason why it is becoming increasingly easy for progressive politicians to concentrate accumulating amounts of government economic power arises from the nature of the U.S. regulatory state. In recent times, rather than specify exactly the powers and duties of the executive branch to achieve the aims of some piece of legislation, the Congress has delegated the responsibility to the executive branch to determine exactly how they should be fulfilled. As a part of this delegation of legislative authority, the applicable executive departments are authorized to make whatever regulations the departments believe necessary. As a result, regulatory rules, authored by a large number of unelected bureaucrats, can greatly expand the applicability of actual legislative acts. Annually, between 2,500 and 4,000 new regulations are published.

One key to amassing new powers for the executive branch then is to be very inventive in using the delegated powers granted by legislation. A particularly interesting and important case study of this process is provided by the Justice Department’s Operation Choke Point, which began in early 2013.

Justice envisioned Operation Choke Point as a way to enlist banks in the effort to help enforce laws against commercial fraud, illegal businesses, and to protect consumers. Or at least that is what DOJ claims. Instead, what they are really doing is putting regulatory pressure on banks to terminate accounts for businesses the government considers undesirable. While supervised by the Department of Justice, the operation is a policy initiative of the president’s Financial Fraud Enforcement Task Force, and the policy is mostly enforced by the Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau and other regulatory agencies. By eliminating financial services to these businesses, the government hopes to destroy them, or at least to constrain their activity. The Wall Street Journal reported in April, 2014,

Most of these merchants are legally licensed businesses on a government list of “risky profiles.” These include payday outfits and other short-term lenders.

However, it also turns out that DOJ is pressuring many banks to terminate accounts to businesses not charged with a crime by DOJ in court, indeed without even establishing that the business committed a crime. If Justice thinks that fraud is clearly being committed by a company, why will it not prosecute? The inescapable conclusion is that the regulatory agencies are to a large extent going after otherwise legal enterprises they consider socially undesirable. Among these “undesirables” are gun and ammunition dealers, short-term lenders, pharmaceutical sales, and credit-repair programs. One ambition appears to be to effect total gun-control despite the Constitution’s second amendment.

Because they are so heavily regulated, banks are especially vulnerable to this kind of regulatory pressure. If a bank does not terminate a company’s bank account after being so directed by a regulator, the bank can get slapped with a penalty for a wrong-doing that may not even have happened.There is no necessity, amazingly enough, for a court order. Mr. Frank Keating, president and CEO of the American Bankers Association, as well as a former U.S. attorney, FBI agent, and associate attorney general of the United States, writes

The government is compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties. This puts them in a difficult business position. … Operation Choke Point’s goal to fight financial fraud is admirable. But forcing banks to make judgments about criminal behavior and then holding them accountable for the possible wrongdoing of others is not a legal or effective way to do so. Banks contribute significantly to the law-enforcement mission and remain committed to helping agencies detect terrorist financing, money laundering and fraud. Justice shouldn’t turn that commitment against them.

Operation Choke Point is a perfect example of how the government can creatively interpret enabling legislation to put itself in a position to dictate to companies in ways not intended by the Congress. Administrative law and economic regulations are a back-door way for the federal government to end up with far more control of the economy than was Congress’ intention.

One Price of Freedom is Eternal Vigilance

Thomas Jefferson is often quoted as saying,  “Eternal vigilance is the price of liberty.” Certainly, it is one of the more important prices, right up there in importance with voting, paying taxes, and defending the country in time of war. Without vigilance something like the abuses of Operation Choke Hold could be totally missed and our economic freedoms correspondingly lessened.

However, if we could find some way to lessen the volume of regulations created, we could focus our attentions more on  the acts passed by Congress, and much less on the creative writing of the more numerous executive branch bureaucrats. After all, the function of legislating was intended by the founding fathers to be completely insulated from executive branch functions as a precaution against tyranny. The leakage of legislative power to the executive branch has a great deal to do with the federal government’s almost tyrannical activity in many cases. If Donald Trump is to make good on his pledge to “drain the swamp,” he could do no better than to find ways to shrink the regulatory state.

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