Why the Revolving Door Will Never Close Until We Shrink the State

You have seen the headlines a hundred times. A former SEC chair takes a job at a Wall Street law firm and now helps clients navigate the very rules he helped write. A Pentagon acquisition executive retires and lands a senior vice presidency at a defense contractor. A White House climate adviser leaves the administration and becomes a partner at a firm that advises energy companies on sustainability compliance. The pundits shake their heads. Revolving door ethics scandal, they declare. Then we get the inevitable congressional hearings, the solemn promises of reform, the cooling-off period extensions, the disclosure requirements. And nothing changes.

Why? Because almost everyone is asking the wrong question. They ask: How do we stop corrupt individuals from exploiting the system? The right question is: Why does the system create such irresistible incentives in the first place? The revolving door is not a bug. It is a feature. It is the entirely predictable result of an administrative state that has grown far beyond its constitutional moorings. And until we understand that, no amount of ethics legislation will make a dent.

The Principle They Miss

Let us start with first principles. The Founders built a government of enumerated powers. A short, specific list of things the federal government was allowed to do. Everything else was reserved to the states or to the people. This was not an accident. It was a structural safeguard against precisely what we see today: a government so large, so entangled in every corner of the economy, that the line between public service and private profit has all but vanished. James Madison, in Federalist No. 10, warned that the most dangerous faction is one that can combine the power of government with private interest. The Constitution's separation of powers, federalism, and regular elections were meant to break that combination.

But over the last century, we have systematically dismantled every one of those protections. We expanded the federal footprint into education, healthcare, energy, finance, transportation. Areas the Founders never intended Washington to touch. And we created a regulatory state that, by its very nature, concentrates power and invites rent-seeking. The revolving door is what happens when you hand a small group of people the authority to decide who gets to compete and who does not. The market responds rationally: talent and money flow toward the people who hold that authority.

The Economics of the Revolving Door

Milton Friedman taught us that economic freedom is the foundation of political freedom. When the government can grant or deny permission to do business through licenses, permits, rulemakings, enforcement actions, the rational response for any business is not to innovate or serve customers better. It is to influence the people who hold those keys to the kingdom. And the best way to influence them? Hire them. Or better yet, become them.

Consider a concrete example. After the Dodd-Frank Act was passed in 2010, the Consumer Financial Protection Bureau was created with vast discretionary authority over nearly every financial transaction in America. The bureau's first director, Richard Cordray, left in 2017 and joined a law firm that represents financial institutions. His deputy, Leandra English, similarly moved to the private sector. Meanwhile, the bureau's rulemakings created an entirely new industry of compliance consultants. Many of them former CFPB staff who now charge banks and lenders hundreds of dollars an hour to interpret the rules they once wrote. This is not a story of individual greed. It is a story of incentives.

The CFPB has the power to issue rules that cost or save individual companies millions. Of course the market responds by rewarding those who understand the system from the inside. As Henry Hazlitt would say, we see the immediate benefit. The expertise brought from government to the private sector. But we ignore the unseen: the talented people who spend their careers angling for influence rather than creating value. The economist who could have started a business instead becomes a rule writer. The lawyer who could have defended clients instead becomes a regulator. And the cycle perpetuates itself.

The Knowledge Problem, Corrupted

Friedrich Hayek's great insight was the knowledge problem. No central planner can gather the dispersed, tacit knowledge that a free people use to coordinate their economic activity. The administrative state ignores this at its peril. But there is a perverse twist: the revolving door is what happens when the administrative state tries to solve its own knowledge problem. Proponents of the regulatory state argue that they need former industry professionals to write sensible rules. Who else understands the complexity of modern finance, they ask?

The answer is: nobody does, in the way a central planner would need to. But the expert who walks through the revolving door does not bring the market's dynamic wisdom. He brings the parochial interests of his former firm or sector. And he marries that interest to the coercive power of the state. The result is not sensible regulation. It is mercantilism. Government-created privilege for the well-connected. Thomas Sowell has documented this pattern across decades and continents: the gap between good intentions and catastrophic results is almost always filled by perverse incentives. The revolving door is a textbook case. It is what happens when you ask a fox to guard the henhouse, and then pay the fox a consulting fee to show other foxes how to get in.

The Founders' Forgotten Safeguard

We often forget that the Founders never intended a permanent class of professional bureaucrats. They envisioned rotation in office. Citizen-legislators who would serve for a time and then return to private life. George Washington himself was eager to return to Mount Vernon after his presidency. The very idea of a thirty-year career in a regulatory agency, followed by a lucrative lobbying career, would have horrified them. The Constitution's Emoluments Clause, Article I, Section 9, was written precisely to prevent the blending of public office and private profit. It prohibits any officeholder from accepting gifts or payments from foreign governments without congressional consent.

The principle was clear: a man whose salary depends on the continued favor of the state cannot be trusted to exercise independent judgment. Today, we have not just individual conflicts of interest. We have an entire ecosystem built on them. The Department of Defense, the Securities and Exchange Commission, the Environmental Protection Agency. Each generates a steady stream of former officials who trade on their government connections. And each generates an equally steady stream of private-sector hires who come into government to reform the very agencies they will later profit from. The Founders built walls between public trust and private gain. We have been dismantling them for a century.

The Futility of Ethics Reform

Every few years, Congress passes a new ethics bill. Longer cooling-off periods. More disclosure requirements. Bans on certain types of lobbying. And every time, the revolving door keeps spinning. Why? Because these reforms treat the symptom while the disease rages on. You cannot cool off a fire by rearranging the kindling. You must remove the fuel. And the fuel is the unconstitutional scope of the administrative state.

Think about it. If the Department of Education cannot dictate curriculum, there is far less incentive for textbook companies to hire former department officials. If the EPA cannot effectively shut down an entire industry with a single rule, there is far less reason for energy companies to maintain a Washington office full of ex-regulators. If the Federal Reserve cannot dispense trillions in emergency lending, there is far less reason for banks to hire former Fed staff. Every expansion of federal authority creates a new set of revolving doors. Every new regulatory agency becomes a training ground for a new class of influence peddlers. And every attempt to fix the problem with more rules only creates more opportunities for those who can navigate them.

The Only Real Solution

There is one answer, and it is the answer that nobody in Washington wants to hear. We must shrink the door frame. We must return the federal government to its enumerated powers. We must repeal the unconstitutional expansions of the last century. The New Deal's central planning. The Great Society's regulatory bloat. Every subsequent accretion of agency authority. We must restore the Constitution as written, with its separation of powers, its federalism, and its presumption of liberty.

This is not a fringe position. It is the original American position. It is what the Founders intended, what the Tenth Amendment commands, and what every generation of Americans until the 1930s understood. Yes, this would be disruptive. Yes, it would require political courage. But the alternative is a permanent class of professional bureaucrats and influence merchants, spinning the revolving door forever, enriching themselves at the expense of the free economy and the liberties it sustains. The revolving door is not a problem of individual ethics. It is a problem of power. And power, once concentrated, is never given up voluntarily. It must be reclaimed by the people, through the Constitution they have too long neglected.

We can continue to treat the symptoms. Passing futile ethics laws and wringing our hands over each new scandal. Or we can address the cause. A government too large, too powerful, and too entangled in the economy to remain free of corruption for long. The Founders gave us the tools. They gave us a Constitution that limits government to a few defined powers and trusts the people to govern themselves in everything else. It is time we used those tools. The revolving door will not close until the state that powers it is cut down to size. And that is a job that belongs to every American who still believes in liberty.