Saturday, August 28, 2010

Taking Economic Liberty Seriously

by Damon W. Root

August 26, 2010

On March 5, 1934, the U.S. Supreme Court declared New York shopkeeper Leo Nebbia to be a criminal because he sold two quarts of milk and a 5 cent loaf of bread for the combined low price of 18 cents. As Justice Owen Roberts explained in his 5-4 majority opinion in Nebbia v. New York, the state’s Milk Control Board had fixed the minimum price of milk at 9 cents a quart to eliminate the “evils” of price-cutting.

As for the constitutionality of this action, which raised the price of milk during the lean years of the Great Depression in an effort to boost the profits of New York dairy farmers, while doing absolutely nothing to improve the health or safety of the milk-drinking public, Roberts simply shrugged. “A state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose." Furthermore, “If the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied.” In other words, when it came to economic regulations, the courts needed only to rubber stamp whatever the lawmakers deemed “reasonable.”

Today, we call this highly deferential approach the “rational basis test,” and as Timothy Sandefur explains in his superb new book The Right to Earn A Living: Economic Freedom and the Law, the results have been disastrous for the judicial protection of economic rights. “Modern government is at liberty to violate a citizen’s right to earn a living almost at will,” Sandefur observes, pointing to a depressing array of occupational licensing schemes, state-sanctioned monopolies, price controls, regulatory takings, eminent domain abuse, and other government misdeeds that receive almost no meaningful scrutiny from the courts.