Regulation after September 11

Since the terrorist attacks last September, Americans’ support for government has increased as they come together in the face of outside threats.

A poll conducted by Gallup a few days before the attacks asked whether the government is trying to do too many things that should be left to individuals and businesses, or whether it should do more to solve the country’s problems. Fifty-five percent thought the government was doing too much, while 36 percent thought it should do more.

When the same poll was repeated after the attacks, the results flipped; only 41 percent believed the government was doing too much, while 51 percent felt it should do more.

As Robert Higgs documented in his 1987 book, Crisis and Leviathan, federal expenditures increase during periods of national crisis ... but then never fully recede to their pre-crisis levels. Periods of crisis tend to create a feeling among citizens that extensions of government power are legitimate and necessary to maintain order and economic stability. That leads to a more permanent reliance on government and an erosion of individual responsibility and freedom.

President Woodrow Wilson first introduced the income tax as we know it while the nation was preparing for World War I. During World War II, income tax rates increased, and automatic paycheck deduction was implemented. That wartime tax collection vehicle remained after the conclusion of the war.

Regulatory Ratchet

This ratchet effect also is evident in regulatory activity. The number of pages in the Federal Register, which has served as a daily compendium of federal rules and notices since 1936, increases by 20 percent on average during national crises (including wars and the “moral equivalent of war,” such as the 1970s energy crisis). Growth in the number of pages appears to continue on a steeper path after the crisis ends.

History suggests we are more likely to see economic rather than social regulations during periods of war. During both World Wars, for example, the federal government took over factories and railroads to secure supplies for defense efforts. Most of these confiscated resources were returned to private hands at the conclusion of hostilities, but with residual regulatory controls that hadn’t existed before the war. The railroads were returned to their owners in 1920, but the powers of the Interstate Commerce Commission were expanded to include complete control over rates, securities offerings, mergers, and construction, as well as use and abandonment of rail facilities.

Since September 11, airport security is the most visible case of the federal government taking over a private activity. The November 2001 aviation security legislation puts federal employees in charge of airport security screening for at least the next three years. Like the resources commandeered during previous wars, airport security operations may be returned to private hands after three years, but only at the request of individual airports, and only with increased federal scrutiny.

Unlike economic regulations, “social regulations” are generally intended to promote environmental quality, or the health and safety of consumers and workers. The greatest increases in social regulations historically have occurred during times of peace and prosperity, rather than in response to crises. The sharpest increase in social regulatory activity occurred during the post-Vietnam period of the 1970s.

Will History Repeat Itself?

America is at a pivotal point in its history. We have witnessed a major shift in our national priorities. Environmental and other domestic social issues have taken a back seat to national security matters. The government has enacted, with little dissent, federal laws the public would not have tolerated before September 11. For example, the USA Patriot Act, signed into law on October 26, includes money-laundering provisions very similar to a “know-your-customer” proposal the Federal Deposit Insurance Corporation withdrew two years ago in the wake of unprecedented negative public comment.

From our country’s founding, Americans have been skeptical of government. It remains to be seen whether that skepticism can be preserved through these troubled times. As the threat from terrorism fades, elected officials may feel pressure to take a major role in domestic as well as national defense issues. If historical patterns hold true, we may see a further erosion of our individual freedoms as the federal government moves beyond its unique and essential role in national defense, toward greater federal regulation of private activities.

Combating Terrorism, Protecting Freedom. Malcolm Wallop (former U.S. senator), David Kopel (Independence Institute), and Nadine Strossen (ACLU) were among the speakers at a fall 1996 Cato Institute conference addressing terrorism in the modern world. (Cato Institute, 1996, 3pp.)

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