Why Government Fails So Often: And How It Can Do Better (45 page)

Finally, I emphasize law’s limits for an important ideological reason as well. The “old system” described in
chapter 1
placed a thumb on the scales to restrict ambitious social policy, creating a kind of rebuttable presumption against more public law. It demanded affirmative justification for more public law—not because it opposed change but because its deepest commitment was to individual freedom and autonomy. It preferred to risk too little public law than to risk too much. This system, of course, was transformed by the progressive, New Deal, and Great Society eras, and by the rights revolution that began to flourish in the 1960s. Today, our far greater experience of law’s limits in a more activist state may help to guide us toward a more nuanced use of it.

In this chapter, I consider seven limits on law’s policy effectiveness. Again, these limits apply
inevitably
,
whenever we use law
—which in the policy realm essentially means all the time. These inherent, policy-impairing properties of law are (1) its ubiquity; (2) the simplicity-complexity trade-off; (3) its ambiguity; (4) its discretion;
(5) its procedural apparatus; (6) its inertia; and (7) its crowding-out effects on spontaneous, low-cost cooperation. To be clear, these limits have many desirable aspects. Indeed, some of the procedural apparatus is constitutionally required. But as I propose in
chapter 12
, some of the costs that they entail might be reduced.

UBIQUITY

Our culture exhibits plenty of lawlessness, but it is never “lawless.” No state of nature devoid of law exists. Indeed, even when law claims to be merely observing or regulating human or physical nature as a distinct, objective thing, law is actually constructing it, altering it. The law designating parts of the Grand Canyon as a national park transformed it from an awesome natural panorama into an object of administration, albeit one that retains its physical grandeur and veneration. Even the most intimate, spontaneous action is governed by at least one enforceable rule, although that rule is often one that protects privacy or autonomy by creating a zone in which other rules are not allowed to intrude.

Several important policy implications follow from this inescapability of law. First, law’s distinctive limitations—the focus of this chapter—prevent it from doing certain things well. It can police domestic violence but it cannot mandate affection or equitable sharing of household responsibilities. It can reward character but it cannot create character. (Indeed, in a dynamic that Immanuel Kant explained, a law that seeks to reward character—for example, by awarding a prize for exemplary behavior—may actually reduce the motive and value of the autonomous will that is character’s ultimate source.
³
) It can subsidize innovation but it cannot innovate itself. When policy makers’ choices are law or nothing, they may opt for law even if it risks a failed policy, and we may deem this choice reasonable. This dilemma helps to explain, for example, why foster care policies are always so troubled. We understandably refuse to leave the welfare of at-risk children up to parental authority, informal social norms, or the market
. Nevertheless, the gravitational force of law’s limits increase the likelihood of failure.

A second policy implication is that any effort by law to transcend its inherent limits still depends on a new law that inescapably possesses many if not all of those same limits. This is what I mean by “inherent” limits. Because there is no metalaw that is not law, policy reform must itself take the form of law. Reform may improve the policy’s substantive content, of course, and this may produce a desirable change in direction or execution, but law’s limits will still haunt the reformed policy. Again, there is no escaping them so long as law is the policy’s vehicle. This is one reason (there are usually others) why policy reforms often replicate some (hopefully not all) of the deficiencies of the original—why, for example, tax and campaign finance reforms that were designed to close undesirable loopholes always seem to create new ones. (One person’s loophole, of course, is another person’s targeted policy.) The reform law, like its predecessor, will exhibit (among other inherent limits) ambiguity and discretion, which are the progenitors of many loopholes.

THE SIMPLICITY-COMPLEXITY TRADE-OFF

Ordinarily, we assess people and things according to the numerous dimensions along which they vary—for example, size, strength, beauty, speed, intelligence, morality, humor, culpability, and value. In contrast, law often attempts to govern this complex reality through simple binary, yes-or-no, in-or-out categories (e.g., guilt or innocence, eligible or ineligible). Even when law opts for more complex rules, however, the ones that it uses tend to be far simpler than the reality that they mean to govern; they seldom use the continuous more-or-less categories that refine our perceptions and discourse and render our understanding of everyday life nuanced, apt, and intelligible. The citizen beholding law’s artificial, reductionist classifications often protests in the name of common sense: “The real world isn’t black or white; it is all a matter of degree.”
⁴

This limitation accounts for a major complaint about legal rules, often expressed with “one size fits all” and “cookie cutter” metaphors. Among countless examples is the Small Business Administration’s essentially uniform treatment of all small businesses, defined as entities with fewer than five hundred employees. Small businesses are indeed the main engines of jobs, innovation, and economic growth, but this is true of only a small percentage of them, as economist Aaron Chatterji notes: “Less than a quarter of America’s 27 million small businesses have employees. An even smaller portion grow beyond 20 employees. And many of them don’t want to…. 75 percent of small-business owners aren’t aimed for growth at all. They’re basically just looking for a steady job as their own boss…. Yet the government has traditionally placed the neighborhood store and the high-potential startup in the same catchall category. It offers them the same loan programs, counseling services and other assistance. And that means lots of small companies, not to mention the economy as a whole, get short-changed.” Despite some recent legislation seeking to focus more attention on the innovators and job creators, the lack of differentiation still dominates small business policy.
⁵
Regulations under the Dodd-Frank Act similarly lump banks of very different sizes together despite the very different kinds of markets they serve and their different capacities for regulatory cost-spreading.
⁶

Let me first define
simplicity
and
complexity
before going on to consider the trade-offs between them. A legal system is complex to the extent that its rules, processes, institutions, and supporting culture possess four features, which I define immediately below: density, technicality, differentiation, and indeterminacy or uncertainty. The Volcker Rule, discussed in
chapter 8
, is a paradigmatic example of complexity. To the extent that the law does not possess those features, it is simple. Density and technicality are features of the system’s rules.
Dense
rules are numerous and encompassing. They occupy a large portion of the relevant policy space and seek to control a broad range of conduct, which causes them to collide and conflict with their animating policies with some frequency. An example of a dense legal regime is pension law, which cuts across and seeks to integrate a wide
variety of practices in a large number of disparate industries calling for many different legal specialties such as tax, labor and employment, investment, fiduciary, and social entitlement law.

Technical
rules require special sophistication of expertise on the part of those who wish to understand and apply them. Technicality is a function of the fineness of the distinctions that a rule makes, the specialized terminology it employs, and the refined substantive judgments it requires. The Internal Revenue Code is probably the leading example of a set of technical rules.

A legal system is
institutionally differentiated
insofar as it contains a number of decision structures that draw upon different sources of legitimacy, possess different kinds of organizational intelligence, and employ different decision processes for creating, elaborating, and applying the rules. Product safety, for example, is governed by statutory provisions, regulatory standards promulgated by several different agencies and private technical organizations, tort litigation, and common law contract principles.

Complexity’s final feature—
indeterminacy
—is a quality both of rules and of legal processes and institutions. Indeterminate rules, processes, and institutions are usually open-textured, flexible, multifactored, and fluid. Turning on diverse mixtures of fact and policy, indeterminate rules tend to be costly to apply and their outcomes are often hard to predict. The familiar reasonableness standard in tort and many other areas of law is such a rule. Indeterminacy’s relation to legal complexity is itself complex. Ironically, rules and institutions that are designed to reduce the law’s indeterminacy may actually increase it, due to the cumulative effect of their density, technicality, and differentiation. Indeterminacy, then, may be a consequence, as well as a defining feature, of complexity.

Some of the fundamental trade-offs between simple and complex legal rules are obvious, and sophisticated policy makers surely appreciate them. Still, it is difficult for them to know in any given context what the different trade-offs presented by all the rules under consideration actually are, and it is also difficult to go on to the next steps, comparing and then evaluating the choices that these competing
trade-offs present. Yet getting these trade-offs “right” is essential to effective policy making. (I put “right” in scare quotes to call attention to the difficult normative issues that these trade-offs will raise).

There are some good arguments for using simple classifications and rules in particular policy contexts. Legal scholar Richard Epstein, cleverly making a virtue of an apparent paradox, has called for “simple rules for a complex world.”
⁷
By strategically suppressing complexity, simple rules allow us to make, apply, and comprehend law more cheaply and apply it with more predictability than if the rules sought to track the profuse variety and complexity of social life.
⁸
We can more readily and cheaply bargain around bright-line legal rules that we find inefficient or otherwise undesirable
⁹
—assuming that the law permits us to do so, which it often doesn’t.
¹⁰

Policy makers also know about certain familiar legal techniques that can temper and counteract this simplicity of categories and rules. Lawmakers can include more categories, replace bright-line tests with more flexible, contextual standards (this technique is discussed below), and permit exceptions to rules. Unfortunately, each of these three complexifying techniques carries its own disadvantages. Multiplying categories makes law more costly to understand and to apply, and makes its outcomes less predictable. Moving from rules to more open-ended standards delegates more discretion to those who apply and enforce them, such as citizens, juries, or bureaucrats, which makes them more difficult to control and thus invites arbitrariness while reducing their predictability. Allowing exceptions to a rule may swallow, weaken, delegitimate, or transform it.
¹¹

In the remainder of this section, I first explain why public law has become more complex over time in almost all areas of public policy,
*
and then consider how this increased complexity affects government performance.

Increasing complexity seems to be a feature of almost all other systems, physical and social; it perhaps reflects a secular, even universal, process of entropy.
¹²
In law, this dynamic is certainly not inexorable, as the replacement of writ pleading with much simpler code pleading and the replacement of tort law for industrial accidents with workers’ compensation systems demonstrates. Nor does the complexity grow at the same rate and at the same time in all areas of the law. Yet for all these qualifications, the strength and generality of this trend are striking. One can discern it throughout the legal system—in the form, subject matter, goals, interpretation, and remedial infrastructure of legal norms. The term
legal norms
is used here rather than
legal rules
to avoid confusion from the distinction, made immediately below, between rules and standards, both of which are legal norms. I discuss these four features in turn.

The form of legal norms
. Many legal norms have evolved from relatively precise, acontextual, determinate, and hard-edged forms to relatively ambiguous, contextual, indeterminate, and open-ended ones. These two forms are often referred to as
rules and standards
. (My colleague Carol Rose calls them “crystals and mud.”)
¹³
Rules are not always simple, and standards are not invariably complex, but these two formal categories do describe paradigmatic, antipodal types. They express distinctive ways in which the law views, values, argues about, and influences the nature of social relationships. Further, these formal types affect substance, shaping both particular legal outcomes and the balance among competing social ideals and practices.

A movement from rules to more complex standards has been evident for some time. At the “metalaw” level, the evolution of legal norms from common law principles to statutes to administrative regulation, although animated in part by a quest for greater certainty, has only produced more open-ended complexity and indeterminacy. Efforts to achieve greater certainty have generally failed, as the history of administrative law demonstrates. A generation of scholars, officials, and reformers urged that agencies make policy through rule making rather than through the traditional case-by-case
adjudication, in large part because of the greater certainty that rules were thought to afford. Nevertheless, there has been a retreat from rule making back to adjudication in several important policy sectors, largely because of the higher political and judicial review costs of the former.
¹⁴