Whether or not our leaders want to admit it, there are some things in life that laws simply can’t prevent

by Randolph J. May
Legal Times, March 11, 2002

After the Holocaust became widely known, the world promised that “never again” would such a human tragedy take place. I’m not overly sanguine that humankind can keep that promise, although I understand the yearning that gave birth to the vow. But I also confess to a certain dismay at the frequency with which today’s politicians easily utter “never again” as they sound-bite the latest issue du jour. If you think “9/11” or “Enron” or “campaign finance reform,” you probably will recall some of these utterances. Here’s a small sampling:

Shortly after Sept. 11, Sen. Joseph Lieberman (D-Conn.) proclaimed that a hearing’s purpose was to make sure that we “never again” have to ask whether the government did enough to protect its citizens. Defending the administration’s domestic security measures, Attorney General John Ashcroft stated, “Foreign terrorists and agents must never again be allowed to use our freedoms against us.” In introducing her bill to federalize airport security and require background checks at flight schools, Sen. Jean Carnahan (D-Mo.) declared, “Never again can we allow our flight schools to become terrorist training camps.”

Sen. Carnahan may be a particularly adept “never againer.” Proposing new legislation to require more prompt disclosure of insider stock sales, she vowed, “Never again should workers and investors be violated as they have been by an American corporation.” And demonstrating that you don’t have to be a Republican or Democrat to be a “never againer,” Rep. Bernie Sanders, the socialist from Vermont, recently predicted that Enron’s campaign contributions might lead to campaign finance reform, “so that such contributions could never again be made.”

In one sense, the “never again” pandemic may be viewed simply as a harmless manifestation of today’s hyperventilated political discourse. Perhaps it is churlish and unrealistic to begrudge the politicians what most of us have come to accept as political hyperbole.

PROMISES VS. REALITY

But in another sense, this particular hyperbole is troublesome. Being promised “never again” when, intuitively, we know there are some events beyond the realm of law and regulation’s control, breeds a false sense of security and dependence on the government. This is true whether we are talking about our personal safety in the face of terrorist attacks or our financial safety nets in the face of corporate meltdowns. Moreover, when incessant “never again” assurances turn into inevitable “once again” realities, cynicism about government naturally festers.

All of this is a way of saying that our political leaders should refrain from making facile “never again” promises, and we should refrain from seeking them. Learned Hand, the wise judge, once wrote, “I often wonder whether we do not rest our hopes too much on constitutions, upon laws and upon courts. These are false hopes; believe me, these are false hopes.” I think he had in mind an appreciation that at times law’s noblest objectives will be defeated by the ignoble acts of some. Ultimately, all law can do is establish norms that we hope most people will follow most of the time. If we begin to believe otherwise, we will find ourselves moving quickly down a road paved with a surfeit of law. The costs will outweigh the benefits—and not just in strict economic terms.

Take the post-Sept. 11 push for new airline security measures. The gut reaction of most people is that a variety of new security measures are desperately needed to get people flying again. But in a timely new book, The Cost-Benefit State: The Future of Regulatory Protection, Cass Sunstein, the prolific University of Chicago law professor, points out that a sensible weighing of benefits and costs is useful even here. If we increase airport security to make flying safer, we will also make flying less convenient and more expensive, leading more people to drive instead. But because flying is much safer than driving, the new “safety” regulations may actually increase the number of travel-related deaths.

BITING BACK

According to Sunstein, cost-benefit analyses may be especially relevant in considering responses to highly charged events like 9/11 and the Enron collapse. “People often have intense, highly emotional reactions to particular incidents, and as a result they fail to think much about the probability that the underlying risks will come to fruition,” he explains. “Cost-benefit balancing should help the government resist demands for regulation that are rooted in a kind of hysteria.” So, the tallying of costs and benefits should take into account that “any effort to solve a single problem will have a range of consequences, some of them likely unintended.”

Take Enron (or Global Crossing, for that matter). Because free markets function best when pertinent information is readily available, the benefits of requiring more prompt disclosure of insider stock sales likely outweigh costs. On the other hand, the benefits of a rule that, in the interest of forcing portfolio diversification, caps the amount of company stock that an employee may hold in a retirement account may well be outweighed by the cost—reduced employer contributions to such plans.

Proposals to require firms like Arthur Andersen to separate their auditing and consulting businesses are all the rage. It is said that it is asking too much to expect that the firms can maintain their integrity and professionalism in performing audits while seeking consulting projects. The mandatory separation proposals have a certain appeal, and perhaps some restrictions are needed. But caution may be in order here as well.

There are benefits in terms of economic efficiencies that lead firms like Andersen to do both audit and consulting work. For example, some of the detailed knowledge of company operations acquired through the performance of audits usefully may be applied to consulting, say, in recommending ways to streamline company operations or to move into complementary lines of business.

But because of the high value a free market places on having accurate financial statements, firms like Andersen have a great incentive not to assist in issuing unclear and misleading audit reports. We already have seen the marketplace work in ways that may eliminate the need for new government mandates in this area. In late January, Andersen’s competitor PricewaterhouseCoopers announced it was separating its auditing and consulting businesses. And last month, a shareholder proposal to bar the Walt Disney Co. from using its auditing firm for nonauditing services almost received a majority vote—unusual for a shareholder proposal and likely to send a strong signal to company management.

Perhaps Enron will turn out to be just a case in which a group of Enron executives, Anderson accountants, and maybe even outside lawyers, committed gross negligence in performing their duties. If so, those involved will suffer severe financial consequences, not to mention forever-tarnished careers. More likely, it will turn out to be a case in which a few rogues acted fraudulently. We already have laws on the books, of course, designed to punish and deter such conduct. If people committed crimes, they should serve time “in the pokey” (in the words of Louisiana Rep. Billy Tauzin, chairman of the House Commerce Committee).

At bottom, events such as 9/11 and Enron, as different as they are, have something fundamental in common: As much as anything else, the root causes lay in failings of human nature that no amount of law or regulation reasonably may be expected to prevent. Long ago, Samuel Johnson, the 18th century English man of letters, reminded us, “How small of all that human hearts endure, That part which laws or kings can cause or cure.” Every time one of our leaders promises “never again” if only a new government restriction is adopted, he or she should be required to recite out loud Johnson’s couplet—and then perform at least a rough cost-benefit calculation.

Randolph J. May is a senior fellow and director of communications policy studies at the Progress & Freedom Foundation in Washington, D.C. The views expressed are his own and do not necessarily reflect the views of the foundation. He may be reached at rmay@pff.org. His column, “Fourth Branch,” appears regularly in Legal Times.

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