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Perspectives from FSF Scholars       


Vol. 8, No. 6                     February 28, 3013 
The Perilous Position of the Rule of Law and the Administrative State




Richard A. Epstein *


[Below is an excerpt from this latest FSF Perspectives. A PDF version of the complete Perspectives, with footnotes, is here.



The operation of government with enhanced powers invites the use of government discretion. A well-known Supreme Court decision about the delegated authority of the Federal Communications Commission (FCC) ... illustrates this principle. National Broadcasting Co. v. United States was a case which technically involved the breakup of the National Broadcasting Corporation (NBC) and its blue and red network into two networks, one of which became the American Broadcasting Corporation (ABC) and the other of which remained NBC. The statutory question before the Supreme Court in National Broadcasting Co. involved the definition of the phrase "public interest, convenience, or necessity" - the standard that Congress gave to the FCC for determining how to allocate frequencies.


Justice Frankfurter, the author of the majority opinion in National Broadcasting Co., was not inclined to limit the FCC to the modest task of defining frequencies that private parties could utilize without interference from each other. He, like James Landis, another famous Harvard figure, extolled the expertise and impartiality of administrative agencies. The central issue in National Broadcasting Co. was as follows: Is the job of the FCC to make sure that property rights are consistent so that there is no interference between one station and another? Justice Frankfurter, in the most confident terms, stated that it was quite clear that in regard to this particular statute, the Court was obligated not only to let the FCC set the rules of the road, but also to determine the composition of the traffic:


Yet we are asked to regard the Commission as a kind of traffic officer, policing the wave lengths to prevent stations from interfering with each other. But the Act does not restrict the Commission merely to supervision of the traffic. It puts upon the Commission the burden of determining the composition of that traffic. The facilities of radio are not large enough to accommodate all who wish to use them.


But how does anyone in government decide to set the composition of the traffic? To Justice Frankfurter, it was not possible to create a series of frequencies and then to sell them to the highest bidder, be it a private citizen or firm. Creating these frequencies and policing the interferences would require some modest administrative system, but the overall cost of its operation, both public and private, would likely not reach one percent of the complex system now in place with his blessing.


As is often the case in administrative proceedings, Justice Frankfurter decided that it was impossible for the Court to determine the appropriate standards, so he remanded the case back to the FCC to determine the assignment of these frequencies. Unfortunately, during the sixty-nine years between 1943 and 2012, none of the countless efforts to figure out the appropriate system of allocation has succeeded. The various approaches that have been adopted have thus introduced into the system a level of discretion that places real pressure on rule of law values. For example, would local broadcasting be more important than diverse forecasting, broadcasting, and everything else? This uncertainty resulted in comparative hearings that allowed multiple supplicants to plead their respective cases. The final decisions were largely non-reviewable except on technical procedural grounds, as establishing a normative framework to solve the problem that Justice Frankfurter delegated to the FCC - but could never accomplish himself - proved to be impossible.


What should have happened? The moment the frequency is allocated to a party, the question becomes whether it is assignable. The answer is, of course it is freely assignable once it has been given to an individual institution. As a result, all the rents from the bidding would go to the person who won the lottery the first time around and who sold the frequency to somebody else. But the second assignee does not get a permanent interest in the frequency because the process requires the party who received the initial assignment to go through a license renewal on a periodic basis, which only injects more cost and some long-term uncertainty into the system. To be sure, one risk of the property-rights solution to frequency allocation is that it could result in oligopoly ownership by a few major companies who broadcast to mainstream audiences, eliminating some fringe groups. Instead of creating a sensible system of antitrust regulation for frequencies, though, Justice Frankfurter conferred huge amounts of discretion on an administrative agency whose raison d'etre is the disregard of stable systems of property rights.


Left to their own devices, private broadcasters could have solved the concerns about minority voices being denied access to the frequency spectrum. An interesting example is that of Cosmopolitan Broadcasting Corporation v. FCC, in which Cosmopolitan found its own way to let minority voices onto the spectrum, within the FCC licensing system; it turned itself into a leasing agency for timeslots on its station. What that innovation meant, in effect, was that anybody could buy the frequency between one and two o'clock in the afternoon on a Tuesday. We now can have a Greek show, after which we can have a Turkish show, and then we can have any other show, in any other time slot, by someone willing to lease the appropriate time slot. Subleasing solved the problem of enabling minority voices to be heard. But despite this seemingly desirable result, the FCC lifted Cosmopolitan's license. Why? Because when the station adopted the subleasing strategy, the Court found that it did not discharge the specific statutory task that the Federal Communications Act conferred upon it, namely, to make conscientious personal decisions as to how the frequency ought to be used.


Such decisionmaking as to how scarce resources should be used is extremely costly because of the necessary level of discretion it entrusts to agencies, without any clear sense of how such discretion is to be used. The implicit premise of Mr. Landis's defense of the modern administrative state is that the abundance of agency expertise could meet whatever challenge was put before them. In truth, any experts in this area would abandon the entire licensing venture as unworkable in light of its intrinsic difficulties. Nonetheless, the FCC was forced to lurch forward despite the absence of an orderly body of knowledge or the possibility of acquiring one. Agency expertise instead became a cover for agency delay or agency bias.


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Even this brief sketch illustrates this uneasy proposition about administrative agencies. In all too many settings they intervene when they should stay their hand, which is true about much of what transpires in the FCC and NLRB. In other cases, the EPA blocks common-law and equitable remedies that should be routinely allowed. These ad hoc motions put ever greater strains on the rule of law, which leads me to this somber assessment - that much of the work of the administrative state is at cross-purposes with both sound public policy and the rule of law.



* Richard A. Epstein is a Distinguished Adjunct Senior Scholar at the Free State Foundation and the inaugural Laurence A. Tisch Professor of Law at NYU Law School. Prior to his joining the faculty, he was a visiting law professor at NYU from 2007 through 2009, when he was the James Parker Hall Distinguished Service Professor of Law at the University of Chicago. Professor Epstein also has served as the Peter and Kirstin Bedford Senior Fellow at the Hoover Institution since 2000. He has been a member of the American Academy of Arts and Sciences since 1985 and has been a Senior Fellow of the Center for Clinical Medical Ethics at the University of Chicago Medical School since 1983. He served as editor of the Journal of Legal Studies from 1981 to 1991, and as editor of the Journal of Law and Economics from 1991 to 2001. From 2001 to 2010 he was a director of the John M. Olin Program in Law and Economics at the University of Chicago.


This essay was previously published in Volume 36, Number 1 of the Harvard Journal of Law & Public Policy (Winter 2013). It is republished by the Free State Foundation with the Harvard Journal's permission, which is gratefully acknowledged.


The Free State Foundation is a nonpartisan, Section 501(c)(3) free market-oriented think tank located in Rockville, Maryland.



A PDF version of the complete Perspectives, with footnotes, is here.



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FSF's new book, Communications Law and Policy in the Digital Age: The Next Five Years, is chock-full of many good reform-minded ideas for implementing a free market-oriented communications policy suitable for the digital age. There are essays by Christopher Yoo, Jim Speta, Bruce Owen, Michelle Connolly and other prominent scholars. You may order the book from Carolina Academic Press here, from Amazon here or from Barnes & Noble here.


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