Hayek defined the Rule of Law as meaning that "government in all its actions is bound by rules fixed and announced beforehand - rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one's individual affairs on the basis of this knowledge...Within the known rules of the game, the individual is free to pursue his personal ends and desires, certain that the powers of government will not be used deliberately to frustrate his efforts." The Rule of Law provides a stable environment for all of man's myriad interactions, whether economic or otherwise, as well as the legal framework most conducive to freedom. Such a principle requires the state to limit itself to establishing formal rules that apply generally, to all persons, irrespective of time or circumstance, and those rules that are the must likely to benefit all of the people affected by them.
Contrast this principle with the concept of economic and social planning. In a planned system in which the goal is equality of outcome and distributive justice, the state is required to produce the same result for different people and, as a necessity, it must treat them differently. After all, in an imperfect world, some people are born healthy, but others sick, and some are intelligent and others not. Some people have the advantages of good parents, live in lands that are safe from natural disasters, and pass their entire lives without a significant illness or injury. Accordingly, a planned system can only pursue an equality of outcome and level the playing field by elevating those less fortunate or less endowed with superior characteristics, knowledge, skills, and talents. In short, it must offer the disadvantaged group some form of subsidy, typically, financial or legal in nature. However, there are both intended and unintended consequences of that action. Because the state has limited resources, it must first choose which of the groups it will benefit. This requires discriminating against on or more groups who either will not be the recipients of the subsidy or from which the material resources or wealth will be taken in order to benefit the less advantaged group. Moreover, the beneficiary of the subsidy will have an incentive not to achieve equality on their own since he/she is being sustained, in whole or in part, by the state. The government may reach a point at which it cannot remove the benefit because doing so will leave the beneficiary destitute or unable to fend for his/herself. At such time, it must adjust its laws, rules, and regulations to redirect or siphon more funds or resources from other groups. Ultimately, the Rule of Law is undermined as the planning authority must continuously adjust the laws to meet the various circumstances and changing needs of its beneficiaries, whose needs are often in conflict with the needs of others.
One way planned systems attempt to address these ever-changing circumstances is to delegate the law-making authority to agencies, bureaus, committees, and departments. The goal is efficiency. In theory, the legislature in a planned system does not have to debate and pass a law everytime that it is compelled to respond to a pressing need - it can merely defer to the bureaucrats who bear that responsibility. However, deferral to such a group only serves to make government action more arbitrary because, now, instead of having an elected legislature make the decisions, the rules are developed and implemented by unelected government employees who are politically-appointed and are not accountable to anyone other than the party in power. Rarely does anyone in the general public take the opportunity to learn what regulations are passed although it is certain that, at some point, they will feel the rules' effects, often without knowing the party responsible.
The legislature in a planned system is doomed to irrelevance. They are viewed as incompetent because, due to conflicting ideas of what priorities should take precedence, who should be the recipients of government benefits, and what actions should be taken, they will be slow to act and even slower to adjust to changes in circumstances. As noted above, bureaucracies, with their legions of so-called experts, are imbued with plenary authority with little legislative oversight to carry out the state's political goals. Unfortunately for advocates of this system, bureaucracies naturally only larger to combat the ever-growing list of problems that need immediate redress. This accretion of size and levels of structure leads to further inertia. At some point, the disgruntled masses of government beneficiaries cry out for someone to step up and do something. Almost invariably, that person is a dictator. Suddenly, things are getting done as the dictator, usually under the auspices of reform, implements sweeping reform, all of which is certain to grow the size of government and expand its intrusion into citizens' lives.
This scenario has played out time and time again. Carl Schmitt, the legal theorist of National Socialism, contrasted the National Socialist ideal of gerechte Staat (the "just state") with the concept of Rechstaat (the Rule of Law) and concluded that the type of justice that opposes formal justice must necessarily require discrimination against certain persons. I don't think that I need to elaborate on how those thoughts became actions.
More significantly, we see the same derogation of the Rule in Law in the last two Administrations. Billion dollar bailouts benefited some Wall Street entities, but did not benefit others nor did they extend to industries other than the financial industry. GM and Chrysler receive bailouts, while Ford does not (at least, not directly. Although not a technical government bailout, many firms, including Ford, McDonald's, Toyota, and GM received huge low interest loans from the Federal Reserve). Some companies receive exemptions from Obamacare (a decision based solely on authority delegated to the Department of Health and Human Services who has no regulatory criteria with which to determine who is eligible for an exemption). The green industry received government subsidies, while the oil industry did not. States whose employees are predominantly members of government employee unions received government stimulus money while non-unionized employees did not. Of course, all of these allocations of taxpayer funds are based on politics and reveals the corrupt nature of our government and its leaders, but, ultimately, the biggest blow to our freedom is that the Rule of Law has been persistently undermined and disregarded. A precedent has been established that says that there are no formal rules restricting government, that it can do whatever it deems necessary to further its own political goals. In the final analysis, a foundation has been laid for unbridled tyranny.
Thomas Paine
Monday, July 18, 2011
Tuesday, July 12, 2011
They will never learn
During the late 1920s and early 1930s, many influential progressives, including members of FDR's Brain Trust and other close advisers like Rexford Tugwell, Harold Ickes, and Stuart Chase couldn't wait to implement the economic planning of Russia, Germany, Italy, and Japan in America. Later, when knowledge of those nations' derogation of basic human rights, concentration camps, and the Gulag reached the light of day, progressives immediately began distancing themselves from their previous positions, at least, publicly. Those members of the general public that bought into the idea of government control of the economy fell into 2 groups: 1) the desperate, the poor, and the hungry who benefited from New Deal programs; and 2) those who may not have been the direct recipients of government handouts, but, nevertheless, believed that government provided the only path out of the Depression - in short, those who fed on a steady diet of pro-New Deal, pro-FDR propaganda. Both groups failed to comprehend the overwhelming weight of history: no government has been able to control the economy without exerting political control on its citizens. Freedom cannot be neatly compartmentalized into economic freedom and all other types of freedom - the concepts must go in hand. After all, what is more important than a man being able to work hard in a trade that he has chosen, being fairly compensated for his efforts, holding on to as much of those hard earned wages as possible, and spending it in the manner that he chooses? Economic freedom opens doorways to a better life. The head of the household does not have to worry about the fear of being unable to maintain a roof over his family's head and put food on the table. He can send his children to better schools, take family trips with them, enroll them in summer camp and pay for them to play sports. He can save for their education and his and his spouse's retirement.
If you take away economic freedom, then you become a slave to the whims of the state unless, of course, you belong to the ranks of the politically privileged. That concept, more than anything, has led to the economic ruin in which the world finds itself.
Although patronage has been a part of the American political landscape since the days of Andrew Jackson and Martin Van Buren, it was FDR who transformed it into a science. FDR understood that, once Americans realized the ineffectiveness of his policies and the sad state in which the economy wallowed, there was no way that he could win in an open and fair election. FDR's strategy was to create as many special interest groups as possible, ensure their loyalty by distributing taxpayer money to them, and then rely upon them to return the favor by re-electing him in perpetuity and donating to his campaign. How did he do it? He created agencies like the TVA which provided cheap electricity to certain areas of the country. The fact that the electricity was supported by taxes paid by people in other parts of the country was never really mentioned nor would it have mattered to the recipients of such largesse. FDR signed the Wagner Act into law which, by tilting the balance of power in favor of unions, led to 1000% growth in the number of Union workers - all of whom showed their appreciation by voting for FDR in national elections. FDR counted among his fans farmers, whom his programs subsidized (in fact, farmers were paid not to produce in order to drive up prices which further benefited them), academics (since he gave them jobs and a say in government), and the elderly and the retired (by creating Social Security). Everyone else, the so-called "Forgotten Man" of the 1940s, who did not benefit from government handouts, was left out on the cold. [Note: See William Sumner's quote - not the one that Roosevelt twisted for his own purposes].
The parallels with the Obama Administration are astounding. The members of his cabinet and the heads of the various government agencies with which he implements his policies are a microcosm of the broader group of special interest groups that form his core supporters: Wall Street bankers and hedge fund managers, academics, the unions, the youth, trial lawyers, and government employees. The stimulus was specifically designed to funnel taxpayer money into the coffers of those groups. Of course, those groups then turn around and repay Obama's magnanimity by donating to the DNC and to the President's reelection campaign (which, as of the date of this post, amounts to approximately $1 billion).
This is not how a republic functions. Instead, we are witnessing some bastardized form of direct democracy: the special interest groups elect their man who represents them exclusively - the rest of the nation be damned. Moreover, not only has our political system been transformed, our economy has experienced the same perversion: the stimulus bill, Obamacare, etc. are all redistributionist actions designed to only help the privileged few. It is as if the US has a two-tiered economy: on one level we find the special interest groups willing to play ball with the regime for financial gain and a second level of the virtually ignored who just happen to pay the tax dollars that support the other group. If we do not correct this imbalance of power and return to the principles of economics and government that created the greatest nation in the history of the world, then we will be doomed to an inferior existence, a mere extension of the economically weak and morally bankrupt Europe.
Lastly, as I mentioned above, the intelligentsia and social engineers have engaged in an enormous act of self-deception. In their blind pursuit of "change," whatever that term means, they have completely ignored the clear lessons of history. Those four (4) nations I listed at the beginning of my post all had planned economies. We fought a war against 3 of them and a cold war against the remaining one. The evidence is overwhelming that all 4 engaged in horrific acts of inhumanity, primarily against dissidents or those who were different. Eventually, the social planners will realize that they must firmly place their black boots on the necks of the opposition if they are ever going to realize their dreams of a socialist Utopia. Unfortunately for them, that fantasy never materializes and never will so long as the price is the end of human freedom.
If you take away economic freedom, then you become a slave to the whims of the state unless, of course, you belong to the ranks of the politically privileged. That concept, more than anything, has led to the economic ruin in which the world finds itself.
Although patronage has been a part of the American political landscape since the days of Andrew Jackson and Martin Van Buren, it was FDR who transformed it into a science. FDR understood that, once Americans realized the ineffectiveness of his policies and the sad state in which the economy wallowed, there was no way that he could win in an open and fair election. FDR's strategy was to create as many special interest groups as possible, ensure their loyalty by distributing taxpayer money to them, and then rely upon them to return the favor by re-electing him in perpetuity and donating to his campaign. How did he do it? He created agencies like the TVA which provided cheap electricity to certain areas of the country. The fact that the electricity was supported by taxes paid by people in other parts of the country was never really mentioned nor would it have mattered to the recipients of such largesse. FDR signed the Wagner Act into law which, by tilting the balance of power in favor of unions, led to 1000% growth in the number of Union workers - all of whom showed their appreciation by voting for FDR in national elections. FDR counted among his fans farmers, whom his programs subsidized (in fact, farmers were paid not to produce in order to drive up prices which further benefited them), academics (since he gave them jobs and a say in government), and the elderly and the retired (by creating Social Security). Everyone else, the so-called "Forgotten Man" of the 1940s, who did not benefit from government handouts, was left out on the cold. [Note: See William Sumner's quote - not the one that Roosevelt twisted for his own purposes].
The parallels with the Obama Administration are astounding. The members of his cabinet and the heads of the various government agencies with which he implements his policies are a microcosm of the broader group of special interest groups that form his core supporters: Wall Street bankers and hedge fund managers, academics, the unions, the youth, trial lawyers, and government employees. The stimulus was specifically designed to funnel taxpayer money into the coffers of those groups. Of course, those groups then turn around and repay Obama's magnanimity by donating to the DNC and to the President's reelection campaign (which, as of the date of this post, amounts to approximately $1 billion).
This is not how a republic functions. Instead, we are witnessing some bastardized form of direct democracy: the special interest groups elect their man who represents them exclusively - the rest of the nation be damned. Moreover, not only has our political system been transformed, our economy has experienced the same perversion: the stimulus bill, Obamacare, etc. are all redistributionist actions designed to only help the privileged few. It is as if the US has a two-tiered economy: on one level we find the special interest groups willing to play ball with the regime for financial gain and a second level of the virtually ignored who just happen to pay the tax dollars that support the other group. If we do not correct this imbalance of power and return to the principles of economics and government that created the greatest nation in the history of the world, then we will be doomed to an inferior existence, a mere extension of the economically weak and morally bankrupt Europe.
Lastly, as I mentioned above, the intelligentsia and social engineers have engaged in an enormous act of self-deception. In their blind pursuit of "change," whatever that term means, they have completely ignored the clear lessons of history. Those four (4) nations I listed at the beginning of my post all had planned economies. We fought a war against 3 of them and a cold war against the remaining one. The evidence is overwhelming that all 4 engaged in horrific acts of inhumanity, primarily against dissidents or those who were different. Eventually, the social planners will realize that they must firmly place their black boots on the necks of the opposition if they are ever going to realize their dreams of a socialist Utopia. Unfortunately for them, that fantasy never materializes and never will so long as the price is the end of human freedom.
Sunday, July 10, 2011
Where are the jobs?
The United States created a paltry 18,000 jobs in June and the unemployment rate increased to 9.2%. The number of long-term unemployed (those jobless for 27 weeks and over) sits at 6.3 million and accounts for 44.4% of the unemployed. Let that marinate for a while: almost half of all unemployed persons have been without a job for more than 6 months. Also, do you recall a few months ago how this Administration and its propagandists in the media trumpeted an alleged reduction trend in the jobless rate? The decrease in the jobless numbers apparently was not as reported. From the BLS website: "The change in total nonfarm payroll employment for April was revised from +232,000 to +217,000, and the change for May was revised from +54,000 to +25,000." The 15,000 discrepancy might be excused due to miscounting or slightly-off estimates, but being off by 29,000 (approximately 54% difference)? It appears as if someone is fudging on the figures.
So, in spite of the New Dealesque stimulus spending and over a trillion dollars in government bailouts, unemployment has not fallen lower than 8.8% since March 2009 - the date the original stimuls bill became law. The average unemployment rate under the Obama Administration has been 9.4% (I did not include January 2009 since the President did not take office until January 21, 2009). Unemployment has averaged 9.5% since the passage of the stimulus bill. For those who argue that we need to give the stimulus bill time to work, unemployment has averaged 9.5% for a period beginning 6 months after the stimulus bill was passed. It has averaged 9.4% for a period beginning 12 months after the bill passed.
The multi-trillion dollar question is: WHY?
Many bloggers and pundits blame corporate job outsourcing for the lack of jobs. The same group often bundles the ephemeral concept of hoarding with outsourcing in its condemnation of evil corporations.
If corporations are "hoarding," which I believe detractors define as "not spending greater money on employee compensation and not hiring new workers," then what is the reason for their failure to spend their cash reserves? One reason is that the US currently exists under a regime that plays favorites, only helps its friends (i.e. its pet special interest groups) and punishes its enemies (i.e. everyone not willing to play ball). If you do not have a multi-million dollar lobbying budget or cannot order hundreds of thousands of workers contribute to and vote for this President and his cronies in Congress, then you are insignificant. If, like the US Chamber of Commerce, Boeing, or Fox News, you attempt to challenge this President's agenda, then you will feel his wrath via a facilitating media or punitive legislation. How can you operate a business in that type of environment? How can you plan for the future, including determining whether you can hire more employees.
Moreover, the first 18 months of the Obama Administration has resulted in the passage of the most sweeping redistributionist legislation since the New Deal. Regulation continue to accumulate. Businesses are unable to determine their future finances because they have no way of determining whether or not some new law will pass in the near future that will result in higher compliance costs or a reduction in production (and revenue). This means that it would not be advisable for many businesses to take the risk of hiring new employees and spend the time and resources to train them if they only have to let them go in a few months because of a future increase in costs. In addition, those same businesses are equally reluctant to invest in capital goods because of potentially higher costs. That means there is less spending on big ticket items like buildings, equipment, and vehicles because the businesses do not know if they will be able to afford them in the future. Businesses' inability to predict their costs translates into an inability to obtain credit. After all, commercial lenders will not loan to businesses because they have no way of assessing their risk since the businesses themselves do not know what their costs will be. Along those same lines, in an environment in which lending money to businesses is much more risky (and other investments options like stocks, due to their volatility, or real estate, due to the collapse of prices, are rendered highly unattractive), they will invest in government securities since there is a guaranteed return. Said differently, banks will invest in treasury bonds because of their guaranteed return over running the risk of lending to a business that may default or file bankruptcy.
Because businesses are reluctant or, due to the inability to obtain credit, incapable of purchasing capital goods, it creates a snowball effect of ever-increasing unemployment. Less capital goods purchased means fewer revenue for manufacturers which means fewer manufacturing jobs. But the negative tidal wave does not end there. Fewer capital goods being made means that the producers of raw materials, transportation companies, wholesalers, salespeople, repairmen, etc. (together with all of the countless industries that support the various industries) all experience a drop in revenue. Less revenue means less money for capital goods purchases and hiring.
Lastly, in such an environment, one in which corporations are constantly demonized, investors who would otherwise run the risk of investing their money in shares, funds that corporations would have been able to use to purchase capital goods and hire employees, instead invest in other vehicles such as treasury bonds guaranteed by the full faith and credit of the United States government, or they save (i.e. investing in money market accounts, CDs, etc. - lower return but safer investments). Without investment, the economy suffers deleterious effects in other ways. There is less capital available to support innovation. In fact, the only investment in innovation is typically government subsidies that go to political favorites resulting in distortions in the economy, malinvestment (often creating bubbles), and inefficiencies (i.e. allocations of resources to areas that do not provide the maximum benefit to consumers or for the production of items that consumers neither want nor need).
So, in spite of the New Dealesque stimulus spending and over a trillion dollars in government bailouts, unemployment has not fallen lower than 8.8% since March 2009 - the date the original stimuls bill became law. The average unemployment rate under the Obama Administration has been 9.4% (I did not include January 2009 since the President did not take office until January 21, 2009). Unemployment has averaged 9.5% since the passage of the stimulus bill. For those who argue that we need to give the stimulus bill time to work, unemployment has averaged 9.5% for a period beginning 6 months after the stimulus bill was passed. It has averaged 9.4% for a period beginning 12 months after the bill passed.
The multi-trillion dollar question is: WHY?
Many bloggers and pundits blame corporate job outsourcing for the lack of jobs. The same group often bundles the ephemeral concept of hoarding with outsourcing in its condemnation of evil corporations.
If corporations are "hoarding," which I believe detractors define as "not spending greater money on employee compensation and not hiring new workers," then what is the reason for their failure to spend their cash reserves? One reason is that the US currently exists under a regime that plays favorites, only helps its friends (i.e. its pet special interest groups) and punishes its enemies (i.e. everyone not willing to play ball). If you do not have a multi-million dollar lobbying budget or cannot order hundreds of thousands of workers contribute to and vote for this President and his cronies in Congress, then you are insignificant. If, like the US Chamber of Commerce, Boeing, or Fox News, you attempt to challenge this President's agenda, then you will feel his wrath via a facilitating media or punitive legislation. How can you operate a business in that type of environment? How can you plan for the future, including determining whether you can hire more employees.
Moreover, the first 18 months of the Obama Administration has resulted in the passage of the most sweeping redistributionist legislation since the New Deal. Regulation continue to accumulate. Businesses are unable to determine their future finances because they have no way of determining whether or not some new law will pass in the near future that will result in higher compliance costs or a reduction in production (and revenue). This means that it would not be advisable for many businesses to take the risk of hiring new employees and spend the time and resources to train them if they only have to let them go in a few months because of a future increase in costs. In addition, those same businesses are equally reluctant to invest in capital goods because of potentially higher costs. That means there is less spending on big ticket items like buildings, equipment, and vehicles because the businesses do not know if they will be able to afford them in the future. Businesses' inability to predict their costs translates into an inability to obtain credit. After all, commercial lenders will not loan to businesses because they have no way of assessing their risk since the businesses themselves do not know what their costs will be. Along those same lines, in an environment in which lending money to businesses is much more risky (and other investments options like stocks, due to their volatility, or real estate, due to the collapse of prices, are rendered highly unattractive), they will invest in government securities since there is a guaranteed return. Said differently, banks will invest in treasury bonds because of their guaranteed return over running the risk of lending to a business that may default or file bankruptcy.
Because businesses are reluctant or, due to the inability to obtain credit, incapable of purchasing capital goods, it creates a snowball effect of ever-increasing unemployment. Less capital goods purchased means fewer revenue for manufacturers which means fewer manufacturing jobs. But the negative tidal wave does not end there. Fewer capital goods being made means that the producers of raw materials, transportation companies, wholesalers, salespeople, repairmen, etc. (together with all of the countless industries that support the various industries) all experience a drop in revenue. Less revenue means less money for capital goods purchases and hiring.
Lastly, in such an environment, one in which corporations are constantly demonized, investors who would otherwise run the risk of investing their money in shares, funds that corporations would have been able to use to purchase capital goods and hire employees, instead invest in other vehicles such as treasury bonds guaranteed by the full faith and credit of the United States government, or they save (i.e. investing in money market accounts, CDs, etc. - lower return but safer investments). Without investment, the economy suffers deleterious effects in other ways. There is less capital available to support innovation. In fact, the only investment in innovation is typically government subsidies that go to political favorites resulting in distortions in the economy, malinvestment (often creating bubbles), and inefficiencies (i.e. allocations of resources to areas that do not provide the maximum benefit to consumers or for the production of items that consumers neither want nor need).
The argument that the 14th Amendment allows the Treasury Department to borrow as much money as it wants is hogwash
From the National Review Online:
July 4, 2011 4:00 A.M.
Obama’s Spendthrift Constitution
Congress, not the president, authorizes new borrowing.
All those pesky people attempting to tie raising the debt limit to reducing the debt through spending cuts must be unreconstructed southerners. How so? Well, they are clearly obstructing the president’s efforts to enforce the 14th amendment!
A constitutional claim newly minted by some administration asserts that the president can raise the debt ceiling if Congress doesn’t. This novel claim rests on Section 4 of the 14th Amendment, which says:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The argument claims: (1) The federal government is constitutionally prohibited from defaulting on its debt; (2) therefore, Congress must raise the debt ceiling in order to avoid a default; and (3) if Congress refuses to do so, the 14th Amendment’s Section 4 impliedly allows the president to authorize the issuance of additional debt.
For many liberal constitutional-law professors — including former constitutional-law professor Barack Obama — the 14th Amendment is the only part of the Constitution that really matters. Still, even if the rest of the Constitution did not exist, Section 4’s language could not support this argument.
The argument blurs the meaning of “public debt.” It fails to distinguish deficit spending from issuing debt instruments to cover that deficit.
No one has questioned the federal government’s obligations to pay the debt instruments already issued — Treasury notes, bills, and bonds held by investors and foreign governments. Congress has authorized issuance of debt instruments of up to $14.29 trillion.
The controversy concerns whether Congress will authorize the Treasury to issue additional debt instruments. Section 4 specifies “public debt of the United States, authorized by law” (emphasis added). Only Congress — not the president — makes laws. Nothing in Section 4 requires Congress to “authorize[] by law” any additional debt.
Nevertheless, some who claim Section 4 supports implied presidential powers cite dicta in the Supreme Court’s plurality opinion in Perry v. U.S. (1935). This case involved a Treasury bond written as “payable in United States gold coin,” which the Treasury refused to pay in gold after Congress barred gold payments in 1933. In reality, the plurality opinion’s discussion of Section 4 cuts against arguments for expanded presidential power. It states:
We regard [Section 4] as confirmatory of a fundamental principle, which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the Amendment was adopted. Nor can we perceive any reason for not considering the expression “the validity of the public debt” as embracing whatever concerns the integrity of the public obligations. [Emphasis added.]
Perry confirms that Section 4 deals with debt “duly authorized by Congress.”
Even if Congress refused to pay debts already authorized — which no one is suggesting — the president could not provide a remedy. As the Perry plurality also stated, Congress has no duty to provide a remedy: “While the Congress is under no duty to provide remedies through the courts, the contractual obligation still exists and, despite infirmities of procedure, remains binding upon the conscience of the sovereign [emphasis added].”
Obligations “binding on the conscience” are also recognized by Article VI of the Constitution. It obligates the payment of “All Debts” incurred under the Confederation. Nevertheless, both that provision and Section 4 rely on Congress’s power “to borrow money on credit of the United States” (Article I, Section 8).
The struggle between House Republicans, who insist on spending cuts, and the president, who advocates higher taxes, simply exemplifies our separation-of-powers system in action. By design, the system usually forces resolutions of policy conflicts through some kind of compromise. And if the president and Congress fail to reach an agreement, the Constitution has not left the president powerless. As Senator Toomey insists, the Treasury can easily pay interest to bondholders first. The remaining funds would cover about two-thirds of the budget, and the president would simply be forced to make drastic cuts because he lacked money to pay all the bills.
Ultimately, public opinion will dictate whether a compromise occurs and whether spending cuts or tax increases prevail. That is as it should be in a self-governing republic.
On the debt ceiling, House Republicans have both the moral and the constitutional high ground. The 14th Amendment’s Section 4 and Article VI recognize the general obligation “binding upon the conscience of the sovereign” to pay lawful debts. Congress — not the president — decides the lawful debt level under its Article I power to borrow. Section 4 cannot imply novel presidential powers of enforcement because Section 5 provides: “The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”
The Congress need not even pass legislation requiring that current debt holders be paid first. Nor should House Republicans be intimidated by the Section 4 argument. In fact, they should use it against the president. The argument recognizes the president’s obligation to pay existing debt instruments. He can do so regardless of whether Congress raises the debt limit.
July 4, 2011 4:00 A.M.
Obama’s Spendthrift Constitution
Congress, not the president, authorizes new borrowing.
All those pesky people attempting to tie raising the debt limit to reducing the debt through spending cuts must be unreconstructed southerners. How so? Well, they are clearly obstructing the president’s efforts to enforce the 14th amendment!
A constitutional claim newly minted by some administration asserts that the president can raise the debt ceiling if Congress doesn’t. This novel claim rests on Section 4 of the 14th Amendment, which says:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The argument claims: (1) The federal government is constitutionally prohibited from defaulting on its debt; (2) therefore, Congress must raise the debt ceiling in order to avoid a default; and (3) if Congress refuses to do so, the 14th Amendment’s Section 4 impliedly allows the president to authorize the issuance of additional debt.
For many liberal constitutional-law professors — including former constitutional-law professor Barack Obama — the 14th Amendment is the only part of the Constitution that really matters. Still, even if the rest of the Constitution did not exist, Section 4’s language could not support this argument.
The argument blurs the meaning of “public debt.” It fails to distinguish deficit spending from issuing debt instruments to cover that deficit.
No one has questioned the federal government’s obligations to pay the debt instruments already issued — Treasury notes, bills, and bonds held by investors and foreign governments. Congress has authorized issuance of debt instruments of up to $14.29 trillion.
The controversy concerns whether Congress will authorize the Treasury to issue additional debt instruments. Section 4 specifies “public debt of the United States, authorized by law” (emphasis added). Only Congress — not the president — makes laws. Nothing in Section 4 requires Congress to “authorize[] by law” any additional debt.
Nevertheless, some who claim Section 4 supports implied presidential powers cite dicta in the Supreme Court’s plurality opinion in Perry v. U.S. (1935). This case involved a Treasury bond written as “payable in United States gold coin,” which the Treasury refused to pay in gold after Congress barred gold payments in 1933. In reality, the plurality opinion’s discussion of Section 4 cuts against arguments for expanded presidential power. It states:
We regard [Section 4] as confirmatory of a fundamental principle, which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the Amendment was adopted. Nor can we perceive any reason for not considering the expression “the validity of the public debt” as embracing whatever concerns the integrity of the public obligations. [Emphasis added.]
Perry confirms that Section 4 deals with debt “duly authorized by Congress.”
Even if Congress refused to pay debts already authorized — which no one is suggesting — the president could not provide a remedy. As the Perry plurality also stated, Congress has no duty to provide a remedy: “While the Congress is under no duty to provide remedies through the courts, the contractual obligation still exists and, despite infirmities of procedure, remains binding upon the conscience of the sovereign [emphasis added].”
Obligations “binding on the conscience” are also recognized by Article VI of the Constitution. It obligates the payment of “All Debts” incurred under the Confederation. Nevertheless, both that provision and Section 4 rely on Congress’s power “to borrow money on credit of the United States” (Article I, Section 8).
The struggle between House Republicans, who insist on spending cuts, and the president, who advocates higher taxes, simply exemplifies our separation-of-powers system in action. By design, the system usually forces resolutions of policy conflicts through some kind of compromise. And if the president and Congress fail to reach an agreement, the Constitution has not left the president powerless. As Senator Toomey insists, the Treasury can easily pay interest to bondholders first. The remaining funds would cover about two-thirds of the budget, and the president would simply be forced to make drastic cuts because he lacked money to pay all the bills.
Ultimately, public opinion will dictate whether a compromise occurs and whether spending cuts or tax increases prevail. That is as it should be in a self-governing republic.
On the debt ceiling, House Republicans have both the moral and the constitutional high ground. The 14th Amendment’s Section 4 and Article VI recognize the general obligation “binding upon the conscience of the sovereign” to pay lawful debts. Congress — not the president — decides the lawful debt level under its Article I power to borrow. Section 4 cannot imply novel presidential powers of enforcement because Section 5 provides: “The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”
The Congress need not even pass legislation requiring that current debt holders be paid first. Nor should House Republicans be intimidated by the Section 4 argument. In fact, they should use it against the president. The argument recognizes the president’s obligation to pay existing debt instruments. He can do so regardless of whether Congress raises the debt limit.
Wednesday, July 6, 2011
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