It’s late, and we’re tired. In the last year of the Obama presidency, a certain fatigue has set in to domestic policy debates, especially over regulation. That debate has been framed as a lesser-of-two-evils choice: either the Republicans’ bane of “job-killing” and “innovation-stifling” regulations, or the Democrats’ specter of “big banks,” “big oil,” “big pharma,” “big tobacco,” and any other sizable industry whose collective behavior puts us at risk.

No Freedom Without
Regulation: The
Hidden Lesson
of the
Subprime Crisis

by Joseph William Singer
Yale University Press, 224 pp.

Yet Obama, who has been so skillful in reframing debates in other areas—health insurance, the war on terror, race relations, gun control policies, and more—has failed to change the paradigm in regulation, much less develop a new one. Even as his Treasury Department developed the Dodd-Frank Act of 2010 and he signed it into law, his rhetoric and action on regulation bought into the Reagan-era theory of deregulation. Not unlike his Office of Regulatory Affairs administrator Cass Sunstein, who championed his office as able to slay “job-killing regulations” in an op-ed for the Wall Street Journal, Obama defends regulations (especially outside of the environmental domain) as a necessary evil, worth tolerating mainly because the alternative of leaving matters to the large corporations is even worse. Even in this year’s State of the Union address, he lambasted “outdated regulations that need to be changed,” and gestured toward the inevitable “red tape that needs to be cut,” with Republicans loudly applauding.

If there was one potential exception to this stale thinking, it might have come in the advance of behavioral science, in part the “nudge” paradigm popularized by Sunstein and the behavioral economist Richard Thaler and now institutionalized in the Social and Behavioral Sciences team at the White House. Nudges include things like defaults—such as, for instance, automatically setting aside a portion of a worker’s income in a 401(k) account and letting the worker choose to opt out if she feels like it—which supposedly can improve welfare without taking away individual choice. Yet outside of insurance contracts, “nudge” has made little to no difference in regulatory policy. The tools of the major Obama-era regulatory initiatives—Dodd-Frank, the Tobacco Control Act of 2009, the Credit CARD Act of 2009—essentially use traditional means of imposed requirements (like disclosure), prohibitions, monitoring, and delegation of oversight to administrative agencies. The problem with Obama is not that these initiatives have not advanced under his watch but that he has failed to articulate a deeper justification for them other than that we cannot trust the Big Bad Industry du jour. As a result, Republicans have no argument to respond to. Their talking points remain the same as they were under Reagan, and they go unchallenged.

Into this tired debate enters Professor Joseph William Singer of Harvard Law School with an innovative new book-length essay, No Freedom Without Regulation. Singer is an internationally recognized scholar of property law (and the author of two of the most prominent law textbooks on the subject). This book is written more casually than legal scholarship so as to make an argument to the public. Frustrated by the left’s inability to voice a full-throated defense of regulation in the Obama years, Singer challenges the notion that regulation and freedom are at odds. In fact, he argues, most of what we mean by regulation is “the rule of law,” and ought therefore to be valued by both liberals and conservatives.

Singer’s essay starts from the proposition that nothing is more American than our revolt against feudalism. In the seventeenth century, the English and Dutch crowns deeded great swaths of land in New Jersey and the Hudson Valley to favored individuals who acted as lords over the small-scale farmers who worked the land. They demanded rents and required, in the feudal tradition, that a farmer not sell his property without the lords’ permission, and even then that ownership would eventually revert back to the farmer’s male heir. This had the effect of making the land hard to sell and binding future generations to those parcels. Not surprisingly, the small-scale farmers, many of whom had settled the land before the lords had even arrived on American shores, protested, sometimes violently. They called themselves “freeholders,” and over time, the courts sided with them over the lords.

These battles over property and contract rights informed the Framers’ thinking. Singer points out that Article I, Section 9, Clause 8 of the U.S. Constitution—“No Title of Nobility Shall Be Granted by the United States”—not only limits the government from creating legal classes, it also constitutes a new form of property relations, in that property no longer accrues to individuals on the basis of status but rather on the basis of sale in a marketplace. “The freedom we espouse,” Singer writes, “requires outlawing property and contract rights that are characteristic of indentured servitude and fealty.” Singer continues,

Our Lockean tradition is so ingrained that it is quite counterintuitive to believe that freedom came from outlawing certain types of contracts and regulating the rights of owners. But the idea that freedom comes from regulation is easier to understand if we focus on the forms of living we have rejected. Democracy, liberty, and private property, as we conceive them, rest on a rejection of feudalism.

These anti-feudal ideas, Singer shows, migrated to other areas. They form the basis for the First Amendment’s prohibition against the establishment of religion; for the post-Civil War Thirteenth Amendment, abolishing slavery; for the Married Women’s Property Act of 1882, giving married women the right to own and sell property without her husband’s consent; and for the 1960s civil rights laws that affirmed that access to the marketplace cannot be conditioned on one’s race. They undergird bankruptcy laws that make sure you will not be thrown into prison for failure to pay debts, and laws that say renters do not have to ask landlords for permission to have guests over (as long as the guests aren’t using the property for criminal activity or staying on the property long term).

Singer further argues that this same idea—that prohibiting certain kinds of property and contract rights enhances overall liberty—justifies, and explains the public’s widespread support of, consumer protection regulations. Some of these rules reduce transaction costs and enhance marketplace trust. When the state sets minimum standards of safety and transparency for the manufacture and sale of consumer products, it affords me the freedom to buy a toaster oven without first hiring a lawyer to read the fine print and an electrician to look over the specs to make sure it won’t catch on fire. Other restrictions protect us from negative externalities. Building codes may limit my neighbor’s ability to contract for the construction of a house with cheap material and bad wiring, but it protects my house from the fire likely to erupt in his.

Singer then converts this logic into a thoughtful argument on how supposedly perverse effects of regulation on the poor are a weak justification for deregulation; if the point is to make property or any other good more affordable to the poor, the solution is not to weaken the common minimal standard (so that rental apartments do not come with guaranteed heating or fire alarms), but to ensure that the poor have the resources to purchase in a market that observes basic standards of decency. Such a market is also one in which consumers of all sorts are more willing to purchase the goods being offered them, as their transaction costs are reduced by regulation.

He then applies these arguments to the example that is the heart of his book, the subprime crisis. To those who invoke the buyer-beware warning, Singer rightly argues that in any free market worthy of its name, “there are some things we should not have to bargain for,” such as contractual clarity and transparency. He quotes Elizabeth Warren’s observation that subprime mortgages are the moral equivalent of exploding toasters. Those who sold subprime mortgages justified them at the time as helping lower-income families achieve the dream of homeownership. In fact, the various deceptions built into them hurt not only the borrowers—many of whom were in fact not low income—but also the financial institutions that purchased the mortgages, communities with high rates of foreclosure, and the rest of us who lost jobs, income, and wealth in the recession that resulted.

In the fourth and perhaps best chapter of the book (“Why Private Property Needs a Legal Infrastructure”), Singer shows how the damage of the subprime crisis was compounded by a deregulated system of keeping track of mortgage transactions the banks had created a decade earlier. For centuries, state property law has encouraged buyers, sellers, and lenders to record mortgages, titles, notes, and their subsequent sale or transfer with state and local government offices. Any citizen or real estate agent can then check these public records to make sure that the property isn’t encumbered by, say, a lien by a third party. That system worked well and provided the very basis of American property rights. As Singer writes, “Property rights can exist only if we have relatively clear rules about who owns what.”

But financial institutions, which wanted more flexibility to buy and sell mortgages on a national and international market, found the system too confining. So in the 1990s they outsourced the job of keeping track of all the sales records to a new privately held corporation, Mortgage Electronic Registration Systems, Inc. In 2009, when millions of homeowners couldn’t handle their mortgage payments, it became apparent that MERS hadn’t done a good job of convincing banks to notify it when a mortgage or note was transferred to another party. So in millions of cases no one could prove to whom the homeowner owed the money, or with whom he should negotiate, and banks that thought they owned the mortgages and notes couldn’t prove it in court. Nor could citizens defend themselves, because MERS, unlike government offices, would not open its records, such as they were, to the public. To paper over the problem, the banks had employees “robo-sign” affidavits falsely claiming that they had the records needed to prove that the bank owned the loan and therefore had the right to foreclose on the homeowner. When that fraudulent practice became apparent to the courts, another scandal ensued. Thus did a bold experiment in libertarian deregulation become both a catastrophe for basic property rights and a full-employment program for lawyers.

One possible response to Singer by libertarians is that this is what they have been saying all along. Of course, libertarians believe that the government must enforce property rights, manage contracts, and handle police fraud, as well as print money and staff and arm a military capable of defending the system. It’s all those regulations beyond these limits, they might say, that are offensive. Yet Singer turns this argument on its head by showing that even the most intrusive regulations debated by conservatives and liberals have this feature of property- and liberty-protecting constraint. These include consumer protection laws that (at the end of the day) reduce equilibrium fraud, and antidiscrimination laws that require white property owners to sell to blacks who are willing to pay. Once property enters the marketplace, there must be free alienation, or else property is not free, and the market-based means by which all of us get property are also not free. Property acquired under conditions of deception is not freely enjoyed and freely maintained.

Scholars and regulation geeks may see some oversimplification in this book, but that was entirely Singer’s intent. If readers are looking for in-depth analysis of feudal origins of property and the meaning of revolution, or understandings of externalities, or other aspects of property law, they can turn to Singer’s law review articles and textbooks.

Singer’s road not taken is intentional but also instructive. The historian William Novak has famously described state-level regulation from the nation’s founding through the nineteenth century as a republican paradigm embodied in the Latin motto salis populi suprema lex eat (“the people’s welfare is the highest law”). Singer is an unapologetic liberal in many senses of that word. He defends regulation not because it makes us better off (though he might believe that, too) but because it supports the freedom and value of property. Markets, too, are valuable for that reason; the value of property and the freedom of property are intimately (and indissociably) connected to the markets in which they are alienated and acquired, as well as those in which the products from that property (as capital or land) are commodified. But markets might be useful to us because they provide value both individually and collectively, and regulation might be useful to us because it provides public value that is different from more individualized enjoyment of property rights (for example, environmental regulation that protects a commons).

On the subject of regulation, President Obama has largely conceded turf to the Reagan administration, apologizing for regulation as an inefficient nuisance necessary only as the last bulwark against leviathan industries. The candidates now running for president need not make the same mistake. Regulations aren’t necessary evils. They are vital weapons in defense of freedom.

They are especially needed now to revive freedoms we’ve been losing to the creeping neo-feudalism of the deregulatory era. Not so long ago, a citizen who was swindled out of a small amount of his or her property by a large corporation—say, through a hidden fee in a cable bill—could band together with others and bring a class-action suit. The Supreme Court has made that far less possible by ruling that corporations can put “mandatory arbitration” clauses into their contracts, whereby an individual gives up the right to sue with others in open court and instead must go alone to an arbitration panel—one typically chosen by the corporation and whose proceedings are closed to the public. Not so long ago, the federal government encouraged the widespread ownership of property in the form of small independent businesses by prohibiting larger companies from growing so big that they monopolized markets. But since the 1980s, when the Reagan administration rewrote the rules of antitrust enforcement, industry consolidation has run rampant while the rate of entrepreneurship has declined dramatically. We need a new conversation about regulation, one that rightly roots the subject in the Framers’ vision of property and liberty. Singer has started that conversation.

Daniel Carpenter

Daniel Carpenter is the Allie S. Freed Professor of Government at Harvard University.