Here come the regulators, with muzzles in hand

We're in for a new round of business regulation, if the current political climate is any indicator. Both Democrats and Republicans are excoriating Wall Street, blaming the financial meltdown on business decisions made beyond the guiding hand of the state. Never mind that Harvard economist Jeffrey Miron points to "ill-conceived federal policies" and reminds us, "beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending." Congress will take time off from the difficult task of running up the national debt to tell the business sector how to order its affairs.

And that's a problem not just for economic freedom, but for civil liberties too.

How can that be?

Because once the government extends its reach into our lives, it can use its intrusive presence in unintended ways. Powers targeted at one sort of behavior can easily be redirected at another.

Much was made a couple of years ago over how easily Time Inc. folded in its battle with prosecutor Patrick Fitzgerald, surrendering notes taken by journalist Matthew Cooper in the course of reporting the Valerie Plame story. The Salt Lake Tribune, among others, accused Time of "corporate cowardice." But Time Inc. faced pressures that had never really been brought to bear against a media company before. Fitzgerald threatened Time Inc.'s executives and board of directors with fines and jail time if they didn't force their employee to comply. He was able to do this because of recently passed business regulations. Reason magazine had the full story.

How could a prosecutor bring one of the largest and most powerful media organizations in history so completely to heel?

In 2002, with many journalists cheering him on, President Bush signed the Sarbanes-Oxley Act, one of many new laws that have expanded the list of corporate crimes and ratcheted up criminal penalties to terms longer than some serve for murder. Critics have complained that these laws criminalize risk taking. Fitzgerald's use of anti-corporate rhetoric and new legal precedent shows that can include risk taking by media companies. ...

[I]t's the law's broad definition of "obstruction of justice" that has First Amendment and civil liberties experts concerned. Because of the media coverage of accounting firm Arthur Andersen's memo shredding during the Enron scandal--shredding the Supreme Court has now said was not necessarily improper--Sarbanes-Oxley increased penalties and created new offenses related to document concealment.

And journalists' notes, through a little prosecutorial sleight of hand, became corporate documents, the withholding of which is now subject to stiff penalties under the law.

Unfortunately, that's not an isolated case. In a 2003 law journal article, Professor David E. Bernstein of the George Mason University School of Law detailed a series of situations in which anti-discrimination laws had been held by courts and government agencies to trump the right to free speech and free association.

[I]n Berkeley, California, the federal Department of Housing and Urban Development (HUD) threatened to sanction three neighborhood activists for organizing community opposition to a plan to turn a rundown hotel into a homeless center. ...

In Minneapolis, Minnesota, a group of librarians complained of sexual harassment because patrons using library computers viewed images the librarians saw and found offensive. [FN14] The Equal Employment Opportunity Commission found that the librarians had "probable cause" to pursue their claim. ...

In Eugene, Oregon, the state Newspaper Publishers Association published a list of eighty words and phrases that its members should ban from real estate advertisements to avoid liability under federal, state, or local fair housing laws. [FN16] The forbidden words and phrases include language that signifies an obvious intent to violate fair housing laws (e.g., "no Mexicans"), but also language that is merely descriptive, such as "near church" or "walking distance to synagogue."

He was treading perilous ground, Bernstein conceded, in criticizing the mission-creep of laws generally seen as well-intentioned.

Given the moral authority of antidiscrimination law in a society still recovering from a viciously racist past, writing an essay critical of many of antidiscrimination law's applications is necessarily perilous, the law professor's equivalent of a politician disparaging mom and apple pie. The laudable goal of the ever- broadening antidiscrimination edifice is to achieve a fairer, more just society. Yet even, or perhaps especially, well-meaning attempts to achieve a praiseworthy goal must be criticized when the means used to achieve that goal become a threat to civil liberties.

The Securities and Exchange Commission has long been the target of complaints that the regulations it promulgates in an effort to keep financial experts honest have the effect of stifling free speech. Fortune columnist Adam Lashinsky told NPR that these rules have morphed from guidelines on the provision of financial advice into strict dictates as to what people can say and how those experts and even broadcast and print media can present information. "There is a constitutional problem, because it's telling the press what they must write, and there, there's no precedent for that --certainly not in the newspapers."

Yes, regulations targeted at business activity really do have a track record of expanding their scope and becoming weapons in the hands of bureaucrats who want to reach just a bit farther afield to restrict or stifle activity they disapprove -- even if that activity is not only beyond their legitimate jurisdiction, but well within the rights of the actors.

So as poisonous populist sentiment spreads throughout the country, get ready for a rough ride. When politicians rush to pummel business executives for their sins, real and perceived, they're likely to leave the rest of us pretty badly bruised in the process.