Laissez-Faire Capitalism

I've done quite a bit of reading lately concerning what different people have to say about capitalism. One thing to notice is that capitalism seems to have hundreds of different meanings. Long ago, I memorized the definition as "private property ownership of the means of production." This definition was also specifically contrasted with socialism, which was defined as "government ownership of the means of production." As you can guess, I tell the students in my courses this is how we should define capitalism and socialism.

I have also tended to see capitalism as Adam Smith's "simple system of liberty." With my recent readings I've encountered authors who call capitalism: Financial Capitalism, or Global Capitalism, or Corporate Capitalism, or Free-Market Corporate Capitalism, or Consumerist Capitalism, or Neoliberal Capitalism, or Disaster Capitalism. Not one of these capitalisms corresponds with my thinking of capitalism as Smith's simple system of liberty.  My concern is that when I use the word capitalism I am thinking about liberty while often my listener is thinking I mean one of these capitalisms.

To make these matters worse in my opinion, many people, perhaps most people, say that our system of political economy in the United States is capitalism. Certainly our system of political economy is characterized by private property ownership of the means of production, but our system of political economy is not Smith's simple system of liberty.  Confusion seems to characterize the analysis of capitalism.

What to do? I've recently read a number of people, who see capitalism much as I do, discussing whether or not to stop using capitalism as the word for "that simple system of liberty." Because capitalism has come to have so many different meanings, I am tempted to try to stop using the word. 

Or perhaps I can follow the lead of Deirdre McCloskey and say that I'm cool with just about any definition so long as the definition does not tautologically mean capitalism is bad:

I don't much care how "capitalism" is defined, so long as it is not defined a priori to mean vice incarnate.  The prejudging definition was favored by Rousseau -- though he did not literally use the word "capitalism," still to be coined -- and by Proudhon, Marx, Bakunin, Kropotkin, Luxemburg, Veblen, Goldman, and Sartre.  Less obviously, the same definition was used by their opponents Bentham, Ricardo, Rand, Friedman, and Becker.  All of them, left and right, have defined commercial society at the outset to be bad by any standard higher than successful greed.

Such a definition makes pointless an inquiry into the good and bad of modern commercial society.  If modern capitalism is defined to be the same thing as Greed -- "the restless never-ending process of profit-making alone. . . ., this boundless greed after riches," as Marx put it . . . -- then that settles it, before looking at the evidence. 

Still, since capitalism is a word that has been in use for so long by both proponents and opponents, I don't think it is going to work to try to stop using the word.  I suspect that the list of capitalisms above is not so much the consequence of prejudging capitalism as it is the consequence of mistakenly thinking each of these as invariably what becomes of capitalism over time.  Why mistakenly?  Because it seems the authors using each of these capitalisms has neglected to see that it is a system of political economy they are criticizing, and that means their concerns involve government as much as the private property ownership of the means of production.

As I think about each of the capitalisms I've read about lately, it seems to me there is nothing inherent in private property ownership of the means of production that requires capitalism to become Disaster Capitalism or Neoliberal Capitalism or any of these capitalisms.  Nor does it mean we cannot say any of these capitalisms is not truly capitalism when we define capitalism merely as the private property ownership of the means of production.  After all, there is private property ownership of the means of production in the US today, and each of the authors using these types of capitalism are criticizing aspects of the US system of political economy today.

In the past I have not wanted to give in to the idea that there could be different versions of capitalism.  I've wanted to say, "Now, look here, capitalism means Smith's simple system of liberty.  It cannot mean what people call Disaster Capitalism, or Consumerist Capitalism."  But, perhaps I've been wrong in this regard.  Perhaps I should accept the approach of saying there can be different versions of capitalism, and then make very clear the version of capitalism I'm writing and talking about.  I think it might be good to follow the lead of George Reisman and make clear that I'm writing and talking about Laissez-Faire Capitalism:

Laissez-Faire Capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual's rights against the initiation of physical force.  This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual's own government.

I might want to modify this definition just a bit, but it pretty much expresses what I mean by capitalism.  So, my intuition is that the best way to try to reduce confusion is to explicitly say that there are different versions of capitalism, and therefore the task is not to learn about capitalism but to learn about Laissez-Faire Capitalism, and perhaps the other versions as well.

The Politics Of Friends & Enemies

Hayek:

While in the tribal society the condition of internal peace is the devotion of all members to some common visible purposes, and therefore to the will of somebody who can decide what at any moment these purposes are to be and how they are to be achieved, the Open Society of free men becomes possible only when the individuals are constrained only to obey the abstract rules that demarcate the domain of the means that each is allowed to use for his purposes.  So long as any particular ends, which in a society of any size must always be the ends of some particular persons or group, are regarded as a justification of coercion, there must always arise conflicts between groups with different interests.  Indeed, so long as particular purposes are the foundation of political organization, these whose purposes are different are inevitably enemies; and it is true that in such a society politics necessarily is dominated by the friend-enemy relation.  Rules of just conduct can become the same for all only when particular ends are not regarded as justification for coercion (apart from such special passing circumstances as war, rebellion or natural catastrophes). [The Mirage of Social Justice, p. 143]

Order & Power

Hayek:

The ultimate justification of the conferment of a power to coerce is that such a power is required if a viable order is to be maintained, and that all have therefore an interest in the existence of such a power.  But this justification does not extend further than the need.  There is clearly no need that anybody, not even the majority, should have power over all the particular actions or things occurring in society. [The Political Order of a Free People, p. 6]

Not Every Legislative Act Is Law

Justice Matthews for the Supreme Court in Hurtado v People of the State of California, 110 US 516, 535-36 (1884):

But it is not to be supposed that these legislative powers are absolute and despotic, and that the amendment prescribing due process of law is too vague and indefinite to operate as a practical restraint.  It is not every act, legislative in form, that is law.  Law is something more than mere will exerted as an act of power.  It must be not a special rule for a particular person or a particular case, but, in the language of Mr. Webster, in his familiar definition, ‘the general law, a law which hears before it condemns, which proceeds upon inquiry, and renders judgment only after trial,’ so ‘that every citizen shall hold his life, liberty, property, and immunities under the protection of the general rules which govern society,’ and thus excluding, as not due process of law, acts of attainder, bills of pains and penalties, acts of confiscation, acts reversing judgments, and acts directly transferring one man’s estate to another, legislative judgments and decrees, and other similar special, partial, and arbitrary exertions of power under the forms of legislation.  Arbitrary power, enforcing its edicts to the injury of the persons and property of its subjects, is not law, whether manifested as the decree of a personal monarch or of an impersonal multitude.  And the limitations imposed by our constitutional law upon the action of the governments, both state and national, are essential to the preservation of public and private rights, notwithstanding the representative character of our political institutions.  The enforcement of these limitations by judicial process is the device of self-governing communities to protect the rights of individuals and minorities, as well against the power of numbers, as against the violence of public agents transcending the limits of lawful authority, even when acting in the name and wielding the force of the government.

Economic History of the World

Here we have the economic history of the world in one picture, as summarized for us by Gregory Clark in A Farewell to Alms:

The basic outline of world economic history is surprisingly simple. . . . Before 1800 income per person--the food, clothing, heat, light, and housing available per head--varied across societies and epochs. . . . the average person in the world in 1800 was no better off than the average person of 100,000 BC.  Indeed in 1800 the bulk of the world's population was poorer than their remote ancestors. . . . Life expectancy was no higher in 1800 than for hunter-gatherers: thirty to thirty-five years. . . . average welfare, if anything, declined from the Stone Age to 1800.  The poor of 1800, those who lived by their unskilled labor alone, would have been better off if transferred to a hunter-gatherer band.  The Industrial Revolution, a mere two hundred years ago, changed forever the possibilities of material consumption.  Incomes per person began to undergo sustained growth in a favored group of countries.  The richest modern economies are now ten to twenty times wealthier than the 1800 average.  Moreover the biggest beneficiary of the Industrial Revolution has so far been the unskilled.  There have been benefits aplenty for the typically wealthy owners of land or capital, and for the educated. But industrialized economies saved their best gifts for the poorest. [Introduction, pp. 1-3]

In other words, for most of human history and in most places in the world, almost all people lived very near subsistence.  But, something happened around 1800 in some places, and the masses of people in those places began to break away from subsistence living and to prosper.

This is the Great Fact of history, as Deirdre McCloskey refers to it in Bourgeois Dignity.  This Great Fact seems to be something most people are unaware of, even among the people who are living in those places in the world where most people live far from subsistence.  It is a fact which seems to be missing from the curricula materials in our schools.  It even seems that this missing fact contributes to many people taking our own prospering for granted.  So, I suppose it should be no surprise that many people seem to believe ideas that are inconsistent with the explanation for why, in some parts of the world, the masses of people began to prosper and continue to prosper today.

What explains the Great Fact of history?  I was reminded of this question earlier this morning while finishing Hayek's The Political Order of a Free People:

However little it may often appear to be true, the social world is governed in the long run by certain moral principles on which the people at large believe.  The only moral principle which has ever made the growth of an advanced civilization possible was the principle of individual freedom, which means that the individual is guided in his decisions by rules of just conduct and not by specific commands.  No principles of collective conduct which bind the individual can exist in a society of free men.  What we have achieved we owe to securing the individuals the chance of creating for themselves a protected domain (their 'property') within which they can use their abilities for their own purposes. [pp. 151-152]

There are lots of specific details we might pay attention to in answering this question, but the simple bottom line seems to me just what Hayek writes here, i.e., individual liberty.  Unfortunately, our system of political economy today seems to move farther and farther away from a society of a free people.

Unlimited Democracy

Hayek:

The true value of democracy is to serve as a sanitary precaution protecting us against an abuse of power.  It enables us to get rid of a government and try to replace it by a better one.  Or, to put it differently, it is the only convention we have yet discovered to make peaceful change possible. . . . In its present unlimited form democracy has today largely lost the capacity of serving as a protection against arbitrary power.  It has ceased to be a safeguard of personal liberty, a restraint on the abuse of governmental power which it was hoped it would prove to be when it was naively believed that, when all power was made subject to democratic control, all the other restraints on government power could be dispensed with.  It has, on the contrary, become the main cause of a progressive and accelerating increase of the power and weight of the administrative machine. . . . As everything tends to become a political issue for which the interference of the coercive powers of government can be invoked, an ever larger part of human activity is diverted from productive into political efforts . . . . In other words, we have under the false name of democracy created a machinery in which not the majority decides, but each member of the majority has to consent to make bribes to get majority support for his own special demands. [The Political Order of a Free People, 137-138]

The Court & The Commerce Clause

Reading a Court opinion, as I am doing this morning, I am some times bored, some times entertained, some times nauseated, and some times I'm just baffled.  Consider the following tidbits from Chief Justice Roberts in the health care opinion announced yesterday:

1. The Federal Government "is acknowledged by all to be one of enumerated powers."

2. The enumeration of powers is also a limitation of powers, because "[t]he enumeration presupposes something not enumerated.

3. If no enumerated power authorizes Congress to pass a certain law, that law may not be enacted, even if it would not violate any of the express prohibitions in the Bill of Rights or elsewhere in the Constitution. 

4. The Constitution authorizes Congress to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."

5. We have recognized, for example, that "[t]he power of Congress over interstate commerce is not confined to the regulation of commerce among the states," but extends to activities that "have a substantial effect on interstate commerce." 

I'm baffled.

Of course these quotes come from what Justice Roberts has written over several pages.  Quotes 1-3 summarize the meaning of our Constitution of enumerated powers.  Quote 4 is the enumerated power in our Constitution which is known as the commerce clause.  Quote 5 is a good statement of what the Court has come, over the years, to actually think about the Constitution's commerce clause.

I don't understand how quotes 1-4 can fit with quote number 5.  The last quote says that Congress has been granted more power over commerce, specifically it has been granted power to regulate intrastate commerce, than the power we find granted to Congress when we read the words actually written in the Constitution.

I do like the Justice's choice of words "not confined."  I think this is telling.  I think it is inconsistent with quote 2 which says our Congress is a legislature of limited powers.  It seems to me reasonable to suggest that "not confined" is pretty much the opposite in meaning to "a limitation of powers."

It also seems to me reasonable to conclude that over the years the Court has come to change the meaning of the commerce clause.  But, in doing that, the Court has done more.  It seems the Court has turned a constitution for a government of limited powers into a constitution for a government that is "not confined" to expressly enumerated powers.

And, if so, it seems reasonable to conclude that the Court, over the years, has essentially amended the Constitution.  Of course, if you read the Constitution, you will not find that the Court has the constitutional power to amend the Constitution.

Perhaps it is time to put away the Court's commerce clause jurisprudence and end the contortions the Court must go through in presenting it's opinions to convince us that a written constitution for a limited government can also be a constitution for a government that is unconfined?

McCloskey on Markets & Government

Deirdre McCloskey has posted a wonderful short essay over at Bleeding Heart Libertarians.  You should read the entire piece because there is far too much good stuff in the essay for me to make not of here.  However, I will make note of her summary of the master narrative of High Liberalism:

The story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s: Modern life is complicated, and so we need government to regulate. Government can do so well, and will not be regularly corrupted. Since markets fail very frequently the government should step in to fix them. Without a big government we cannot do certain noble things (Hoover Dam, the Interstates, NASA). Antitrust works. Businesses will exploit workers if government regulation and union contracts do not intervene. Unions got us the 40-hour week. Poor people are better off chiefly because of big government and unions. The USA was never laissez faire. Internal improvements were a good idea, and governmental from the start. Profit is not a good guide. Consumers are usually misled. Advertising is bad.

McCloskey finds this narrative to be factually mistaken.  I agree.  So, now, click through to the essay and read her defense of the conclusion that this narrative is mistaken.

You should also read the interchange of comments to follow the essay.  She writes some remarkable responses there are well.  Here is one response I especially like:

Dear Jason, Your sober and sophisticated words are correct. As I said, some state action is desirable. I lived in England in 1959 as the laws against soft-coal burning were taking effect, and there is no entity but a state that could have achieved such a good compulsion. But good compulsions are much rarer factually than people think who talk of "services" or congresspeople who talk of "programs," and that's most people these days. It is why I lean against. It is wrong to put the issue at the "cosmic" level. That after all was my point: let us get down to the facts, if facts is what we are assuming. But this much is true in the cosmos: states have monopolies of violence, and use them; markets and gifts do not. Of the three realms of state, market, and grace, I want every time, acknowledging in the style of Ronald Coase that we can't do this analysis on a blackboard, to see the actual evidence that violence is necessary before I sign on to using it to achieve "actual consequences." I have a bias towards markets and what Boulding called the grants economy ("grace" I am calling it here, theologically speaking: caring for children, loving your friends, feeding the poor), and I have a bias against monopolies of violence, so easily tempted to be used to enrich ones friends and tyrannize over the poor and weak. I repeat what I said to Brian: I do not understand the reflex to defend the massive modern state. As Hayek said, the more complicated the society the worse is the argument for top-down Reason as the way to organize it. Sincerely, Deirdre McCloskey

I tell my students all the time that when thinking about government and public policy it is important to recognize that social interactions involve either voluntary behavior and cooperation or they involve force and compulsion.  Government operates in the realm of force and violence, while the market process is what emerges from the realm of voluntary human interactions.  I suggest that the way McCloskey has described the use of government force in this comment is the best way to think about government and policy issues.  I too have a bias against the use of violence and a bias toward the use of markets and grace.  I suggest that voluntary social interactions should be the normative default position, and to move away from the default position should require some good evidence that a proposed act of government violence is necessary.

ACA Oral Argument

There were many interesting things said in oral argument before the Supreme Court yesterday with respect  to whether or not the Affordable Care Act (ACA), a.k.a. Obamacare, is constitutional.  At issue is whether the enumerated constitutional power of Congress to regulate interstate commerce includes the power to compel a person to purchase health insurance.

Very early on Justice Kennedy asked the Soliciter General, who was arguing in support of the constitutionality of the health insurance mandate, the following question: "Can you create commerce in order to regulate it?"  The answer was: "That's not what's going on here, Justice Kennedy, and we're not  seeking to defend the law on that basis."

I wish Justice Kennedy had asked his question in the following way: "Can Congress compel commerce in order to regulate it?"  I think this is a better, more precise, way to put the key constitutional question with respect to the health insurance mandate.  The action of Congress is actually not to "create," it is to compel many individuals to do something they would not choose to do on their own volition.  It seems to me that the constitutional power of Congress is the power to regulate voluntary exchanges between a buyer and a seller located in different states.  It seems obvious that the power to regulate exchanges (commerce) cannot include the power to compel exchanges.

Of course, Justice Kennedy's question seems very close to my question, but I think that there are many potentially different implications that follow from using "create" rather than "compel."  I suggest that using "create" makes the action of Congress seem much more benign than it truly is.  A definition of "create" at dictionay.com suggests the Justice was asking: "Can you cause commerce to come into being in order to regulate it?"  Certainly, put in this way, the action by Congress under Court review seems almost a good thing.  After all, "creation" is generally a good thing, and in the realm of economic affairs it seems to be generally accepted that more economic activity is better than less.

So, I fear, that asking the question in the way Justice Kennedy did, makes it conceptually pretty easy to decide the answer is yes.  After all, if the action of Congress is to create commerce that is "good for everyone" then it could seem to make sense for Congress to create commerce in order to regulate it.

However, we should conclude that Congress cannot create commerce.  Congress might participate in commerce, but it cannot create commerce.  Searching online dictionaries provide a couple of useful definitions of "commerce" in this regard:

an interchange of goods or commodities

the buying and selling of goods.

These definitions suggest that my definition of interstate commerce, i.e., a buyer and a seller located in different states, is on target.  It also suggests that we should not think that commerce is created.  Commerce emerges through the voluntary actions of different individuals. Commerce is not created by the actions of either a buyer or a seller alone.  Commerce emerges from the actions of a buyer and seller in an interaction between the voluntary actions of each.

Consider that Congress can engage in commerce by being either a buyer or a seller, but of course it cannot be both buyer and seller.  What would we say if Congress attempted to "create" commerce by either (a) telling a person she must buy something from the US Government, or (b) telling a person she must sell something to the US Government?  On the surface either (a) or (b) might appear to be commerce because we could observe a "buyer" and a "seller," but neither would be commerce.  Both (a) and (b) involve an action by Congress to compel either a buyer or a seller to act as the government commands.  Congress cannot "create" commerce, or create an exchange between a buyer and a seller without using force to compel one or the other individual, or perhaps even both, to act in a way that would not otherwise be chosen for themselves.

I suggest the appropriate question to evaluate the constitutionality of the health insurance mandate in the ACA is: Does Congress have the power to compel a person to purchase something she would not otherwise purchase?  The answer, of course, is NO.

Interstate Commerce & the Health Insurance Mandate

Today the Supreme Court begins three days of oral argument with respect to judging the constitutionality of the Affordable Care Act (ACA), which is often referred to as either "health care reform" or "Obamacare." The Constitution is conceptually constructed on the idea of "we the people" granting specific powers to Congress by writing a list of "enumerated powers" in Article 1, Section 8 of the Constitution. Congress is supposed to have only the powers that are specifically enumerated, and when Congress creates a statute that falls outside the enumerated powers such a statute is supposed to be declared to not be law.

Thus, a key issue before the Supreme Court is whether or not the Constitution includes an enumerated power by which members of Congress (along with the President who also swears an oath to protect and defend the Constitution) have the power to create various statutory provisions in the ACA. Specifically, the question is whether Congress has the enumerated power to require every person to purchase government defined "minimum" health insurance coverage.

It is clear that such a power is not directly enumerated in the Constitution. The Congress may still have the power to act as it has in the ACA if the power to require the purchase of insurance can be said to fall within one of the enumerated powers. Congress and the President have asserted that the power does in fact fall within the enumerated power to regulate interstate commerce. Here is the relevant constitutional text:

The Congress shall have Power . . . . To regulate Commerce . . . among the several States . . . .

Notice that the words in the Constitution do not say "Congress shall have the power to regulate interstate commerce." However, I do think "interstate commerce" is a good modern statement of the meaning of the words "among the several states."

Does this enumerated power mean that Congress has the power to compel a person to purchase health insurance with certain "minimum" coverage? Former Senator Tom Daschle says yes:

"From both a legal and practical perspective, the choice is clear. Congress was well within its authority in passing the individual mandate to regulate the interstate effects of an industry that is almost 20 percent of our nation’s economy— more than $2.5 trillion each year."

It seems to me Mr. Daschle must think the interstate commerce clause of the Constitution is: Congress shall have the power to regulate economic activity. In addition, Mr. Daschle must think that the word "regulate" includes the meaning of the word "mandate." Mr. Daschle is not alone in this view of the interstate commerce clause, and many decades of Supreme Court constitutional jurisprudence has, at times, come very close to explicitly writing just what Mr. Daschle writes in this quote. So, if your reading of the Constitutional text suggests to you that Congress does not have the power to compel a person to purchase anything, not even health insurance, don't be quick to assume that the Supreme Court will say the Congress does not have this power.

In my view, such conclusions about the meaning of the interstate commerce clause amount to the Court's constitutional jurisprudence having essentially amended the Constitution to say something like: Congress shall have the power regulate, compel and prohibit economic activity. Well, maybe the Court hasn't yet said that Congress has the power to compel economic activity, but if it decides that the health insurance mandate is constitutional, then I suggest the Court's own copy of the Constitution must read as I suggest.

What does the power to regulate interstate commerce mean? First, I suggest commerce means an exchange between two persons, one being the buyer and the other the seller. Commerce does not mean any and all economic activity. For example, commerce does not include production activities (and the Court said this was so for many, many years, but not often now). Second, interstate commerce would mean an exchange such that the buyer is in one state and the seller is in another state. It does not mean an exchange between a buyer and a seller in the same state (and the Court said this for many years, but not so much now). Third, regulate means to specify rules, not to compel or to prohibit. It doesn't make sense to specify rules for commerce, or for exchanges, when there are no exchanges, regardless of whether there are no exchanges because there are people who do not want to exchange or there are people who want to exchange that have been prohibited from doing so because of government's prohibition (and the Court has said this at times with respect to prohibition).

Therefore, it seems to me that Congress has the constitutional power to specify rules for the interactions between a buyer and a seller who are located in different states.

Contrary to Mr. Daschle's apparent view of the Constitution, Congress does not have the power to regulate or to compel any economic activity just because such activity, in aggregate, can be said to involve a big number for the money that changes hands in all exchanges combined. There can be only exchanges by persons in one state that when accounted for in aggregate involve a large dollar figure.

The Court should say the Congress has the power to specify rules by which a buyer in one state and a seller in another state will exchange money for a health insurance contract. The Court should also say that this is the extent of the constitutional power of Congress with respect to health insurance. Of course, many today will say this limits Congress far too much. Such an understanding of the Constitution does indeed imply a Congress, and a President, with little power to intervene in our economic affairs. But, this is what the words in the Constitution actually say, and it is a view of limited government that the constitutional framers put before "we the people" to be ratified. If many today think the words in the Constitution should be different, then these words should be made different by a proper amending of the Constitution. After all, regardless of Court opinions, unless the words are amended, the words in the Constitution are still "The Congress shall have Power to regulate commerce among the states."

An Idea Intolerable To Modern Man

Hayek:

But when developments take an undesirable turn, the suggestion that this is not the effect of circumstances beyond our control, but the necessary consequence of our earlier decisions, is rejected with scorn. The idea that we are not fully free to pick and choose whatever combination of features we wish our society to possess, or to fit them together into a viable whole, that is, that we cannot build a desirable social order like a mosaic by selecting whatever particular parts we like best, and that many well-intentioned measures may have a long train of unforeseeable and undesirable consequences seems to be intolerable to modern man." [Law, Legislation and Liberty, vol 1, Rules and Order]

Hmm, seems to me this idea that is intolerable to modern man is one of the basic insights of economics. No wonder so few people seem interested in economics, and no wonder so few who study some economics come away with much understanding about the consequences of public policy for the world around them.

Hayek on American Constitutionalism

Hayek:

When Montesquieu and the framers of the American Constitution articulated the conception of a limiting constitution that had grown up in England, they set a pattern which liberal constitutionalism has followed ever since. Their chief aim was to provide institutional safeguards of individual freedom; and the device in which they placed their faith was the separation of powers. In the form in which we know this division of power between the legislature, the judiciary, and the administration, it has not achieved what it was meant to achieve. Governments everywhere have obtained by constitutional means powers which those men had meant to deny them. The first attempt to secure individual liberty by constitutions has evidently failed. [Law, Legislation and Liberty, Volume 1: Rules and Order, p. 1]

Does this seem correct? If so, are there any means by which limited government might be achieved?

HAPPY TAX DAY!

LARRY CORREIA rants about government on tax day. I think his rant is excellent. I'm going to have to check out his novels.

Congress and the Constitution

The Senate has an "omnibus" spending bill and Senator Coburn's webpage has a spreadsheet the summarizes all the "earmarks" in the bill. The Senator's spreadsheet is worth a look. Here are a few of the things Congress is considering spending money on. Keep in mind that since the government is running a deficit, we might as well say these are some of the things Congress is borrowing money for:

• $1 million - City of Rockville sanitary sewer rehabilitation project
• $2.5 million - Long Creek Watershed Management District for a stormwater and water quality project
• $1 million - City of Hamtramck for water and sewer line rehabilitation
• $1 million - County of Riverside, Moreno Valley, CA, for facilities and equipment related to trauma care
• $16.1 million - John F Kennedy Center for the Performing Arts and its affiliate, as authorized by the Elementary and Secondary Education Act
• $10.5 million - National Board for Professional Teaching Standards. . . .
• $25.6 million - National Writing Project . . . .
• $1 million - Planning, Design, Renovation and Revitalization of Historic Building
• $1 million - For event and meeting space infrastructure at the Bangor Regional Arena and Meeting Complex
• $0.5 million - To acquire blighted property and renovate facilities to create an industrial park
• $1 million - For the acquisition of facilities in Covington, LA to be used for community services and economic development
• $1 million - (City) Demolition of Blighted Buildings
• $1.25 million - For construction of a senior center
• $1.55 million - For improvements to the Pigeon Harbor Industrial Park
• $1 million - For construction of facility that will accommodate an education and interactive learning center
• $1 million - To renovate the facility for the Jewish Vocational Service and to provide equipment and furnishings
• $2.5 million - Legal Advocacy for Crime Victims (Nationwide)
• $1 million - Bronx River and South Bronx Waterfront
• $1 million - Washington State Methamphetamine Initiative
• $4 million - Marine Aquaculture Lab Operations
• $4.5 million - Center for Water Technology and Policy
• $2 million - Sensors for Monitoring Chesapeake Bay Watershed Health
• $2 million - Center of Teacher Excellence
• $4 million - Life Sciences Commercialization Laboratory
• $5 million - Phase II construction, National Center for Natural Products Research, Oxford, MS
• $2 million - Market Development, WI
• $2.6 million - Agricultural Pest Facility, HI
• $3.49 million - Formosan Subterranean Termites Research, New Orleans, LA
• $1.65 million - Human Nutrition Research, Boston, MA; Houston, TX; Kannapolis, NC
• $1.45 million - Mosquito Trapping Research/West Nile Virus, Gainesville, FL
• $1.25 million - University of Alabama, Rural Health Entrepreneurial Development Project, Tuscaloosa, AL
• $2.4 million - Bank On USA demonstration projects, HI

This is just a really, really small part of the entire list.

Why is Congress spending money on these things, much less borrowing money for them? I suppose the answer to this question is simple, i.e., this is the way our rent seeking system of politics works these days.

I think the more important question is: Why do members of Congress think they have been granted the power to spend money on such things? Our Constitution defines our government, presumably, to be a limited government with specifically enumerated powers. You've read the Constitution. It goes something like this:

The Congress shall have Power . . . . To borrow money on the credit of the United States; To regulate Commerce with foreign Nations, and among the several States . . . . To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States; . . . . To establish Post Offices and Post Roads; To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries; . . . . To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years; To provide and maintain a Navy. . . .

I just can't find in my copy of the Constitution that Congress has the power to create a center for teacher excellence, or the power to renovate buildings for religious vocational services, or the power to create industrial parks, or the power to be an advocate for crime victims, or the power to demolish blighted buildings for city governments, or the power to provide facilities for trauma care. I suspect that if I had time to read through Senator Coburn's entire spreadsheet I would find no more than one or two percent of the spending items were associated with the actual enumerated constitutional powers of Congress.

Does it make sense to ask if the United States Government is now, properly speaking, a constitutional form of government?

Constitution & Health Care

I've been reading Judge Hudson's opinion concerning the recently passed "health care reform" statute. I'm not sure I can continue to endure the pain. I am suspicious of the logical gyrations that seem to be integral, these days, to constitutional jurisprudence. I think we should weep for our lost Constitution. But, perhaps, when the smoke clears on all the court challenges a bit of our Constitution will have been returned. After all, it seems to me that the gyrations of constitutional analysis are probably most needed when it should be easy for us to see that an act of Congress, and/or the President, is unconstitutional.

Let's consider a bit of the analysis in support of the constitutionality of the statute as summarized by Judge Hudson:

"Critical to the Secretary's argument is the notion that an individual's decision not to purchase health insurance is in effect 'economic activity.' The Secretary rejects the Commonwealth's implied premise that a person can simply elect to avoid participation in the health care market. It is inevitable, in her view, that every individual--today or in the future--healthy or otherwise--will require medical care. . . .The Secretary maintains that the irrefutable facts demonstrate that '[t]he conduct of the uninsured--their economic decision as to how to finance their health care needs, their actual use of the health care system, their migration in and out of coverage, and their shifting of costs on to the rest of the system when they cannot pay--plainly is economic activity.'" (p 11-12).

This analysis by the Secretary seems pure nonsense to me. The analysis seems to conclude that the actions of the uninsured, whatever the actions are or aren't, are plain old "economic activity." Well, I have been known to suggest to the students in my economics classes that "everything is economic." So, I'm with the Secretary in concluding we have lots of "economic activity" involved in choosing or not choosing "health care." But the nonsense in all of this is that we really should be asking what that "economic activity" has to do with the constitutional powers granted to Congress. Does Congress have the power to regulate any (and all) "economic activity?"

I think the short answer to this question is simple. NO.

Article 1 Section 8 specifically grants the power to Congress to regulate interstate commerce. It is not the case that economic activity is equal to interstate commerce. Commerce means someone buys a good or service from someone else. Interstate commerce means the buyer involved in the act of commerce is in one state and the seller involved in the same act of commerce is in a different state. If the buyer and seller engaging in the act of commerce between consenting adults are in the same place, such as when I buy a big mac at McDonalds for lunch, then it is an act of intrastate commerce. Congress has the power to regulate the buying and selling between people in different states, it does not have the constitutional power to regulate the buying between people in the same place or in the same state.

The Secretary's analysis is fun, but it seems a waste of time, resources, and taxpayer dollars because Congress is not supposed to have the constitutional power to regulate any/all economic activity, only the specific form of economic activity that involves exchange between a buyer in one state and a seller in another state.

Of course, the constitutional issue in this case involves whether Congress has the power to mandate that people purchase health insurance coverage. I certainly think that a person who chooses not to purchase health insurance has made an economic choice, but an economic choice is not economic activity, nor is an economic choice always an act of commerce. Apparently Judge Hudson concluded that the constitutional power to regulate interstate commerce was not the power to compel an act of commerce, whether of the interstate or intrastate variety. That certainly seems the sensible and correct conclusion to me. If I choose not to purchase insurance, or any other good, I have chosen not to engage in an act of commerce. It is even sensible to point out that I might sometimes not choose to engage in an act of commerce because I think the tax Congress has imposed on the commerce results in a price that is too high for what I get in return from my purchase. I hope that Congress does not have the power to both tax an act of commerce and then compel me to engage in that act of commerce as well.

I think the constitutionality, or unconstitutionality, of this statute should be quite straightforward. Congress has the power to regulate an act of commerce between a buyer in one state and a seller in another. Pretty much all of my actions to purchase health care services involve intrastate commerce. Why? Because I go to see my doctor in his office, and even if my doctor's office is in another state, the act of commerce between me and my doctor always takes place at one location. And, while the prescription drugs I purchase may come from a factory outside of Colorado, I always buy my prescription drugs from the Walgreens around the corner, which once again is a act of commerce at one location. The straightforward analysis of Congress's constitutional power is that Congress does not have the power to regulate, prohibit, or compel any of these sorts of acts of commerce I engage in frequently.

I can think of one sort of act of commerce in all of this that might involve me in an act of interstate commerce. I might purchase health insurance from a business which has its offices in a state other than Colorado. If I did, then Congress would have the constitutional power to regulate this act of purchasing/selling insurance. But, the power to regulate this commerce is not the same thing as the power to compel the act of commerce (which would then not be an act between consenting adults). In this area of constitutional power, I suspect that Congress has actually been neglecting it's constitutional duties. I think many states regulate health insurance providers in a way that amounts to erecting a barrier to interstate commerce. State law in many cases does not allow an individual to purchase health care insurance coverage from an insurance business which is located in a different state. If Congress would use it's interstate commerce power to prohibit such state regulations, then the cost of health care insurance would be less than it is these days. But, noooo, Congress acts instead to use power in unconstitutional ways.

It is unfortunate, perhaps even characteristic of an unjust government, that the Supreme Court, over time, has come to understand the Constitution in ways that encourage all the conceptual gyrations of lawyers and professors because, I think, the gyrations are efforts to encourage us to conclude the Constitution means something other than what the words in the Constitution actually mean. The words written into the Constitution seem to me to describe a government significantly limited in scope, and not a government that is supposed to have the power to regulate any "economic activity." The words written into the Constitution were chosen from the conceptual perspective of individual liberty and it seems to me the constitutional power of the Court was meant to be exercised in defense of individual liberty. Conceptual gyrations and gymnastics seem to me to serve the purpose of removing limits from Congressional power and thus infringing on individual liberty.

A Repeal Amendment

RANDY BARNETT & WILLIAM HOWELL:

Any provision of law or regulation of the United States may be repealed by the several states, and such repeal shall be effective when the legislatures of two-thirds of the several states approve resolutions for this purpose that particularly describe the same provision or provisions of law or regulation to be repealed.

Why amend the Constitution in this way?

The Repeal Amendment would help restore the ability of states to protect the powers "reserved to the states" noted in the 10th Amendment. And it would provide citizens another political avenue to protect the "rights . . . retained by the people" to which the Ninth Amendment refers. In short, the amendment provides a new political check on the threat to American liberties posed by a runaway federal government. And checking abuses of power is what the written Constitution is all about.

I think this is probably a good idea. However, I'm not sure 2/3 of the state legislatures would ever act to repeal a federal law or regulation. Still, I think it would probably be good if a number of state legislatures made efforts today to push this amendment. It would probably be a good thing is there were more people who looked at the Constitution and compared and contrasted the government implied by the Constitution to the governments we have today.

Liability For An Uncertain Future?

WALL STREET JOURNAL:

The nation's three dominant credit-ratings providers have made an urgent new request of their clients: Please don't use our credit ratings.

The odd plea is emerging as the first consequence of the financial overhaul that is to be signed into law by President Obama on Wednesday. And it already is creating havoc in the bond markets, parts of which are shutting down in response to the request.

Standard & Poor's, Moody's Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law.

The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

[ . . . ]

Once the bill is signed into law, advice by the services will be considered "expert" if used in formal documents filed with the Securities and Exchange Commission. That definition would make them legally liable for their work, meaning that it will be easier to sue an firm if a bond doesn't perform up to the stated rating.

That is a change from the current law, which considers ratings merely an opinion, protected like any other media such as a newspaper.

Perhaps this is a nice illustration of the unintended consequences of actions taken by government, in this case Congress and the President. I assume Congress and the President did not intend for providers of bond credit-ratings to respond to their legislation by deciding to no longer be providers of bond credit-ratings.

On the other hand, perhaps Congress and the President did intend for this result. Who will provide bond credit-ratings if private businesses won't? I guess government could.

I also wonder why it is thought to be a good idea to say a provider of credit-ratings has liability for actions taken by others who consult these ratings. It seems to me that trying to create such liability amounts to saying the providers of credit-ratings should be liable for an uncertain future. The future is inherently uncertain, and while credit-ratings may provide some information about the risk involved in certain kinds of actions taken today, it seems to me foolish to believe that credit-ratings accurately predict the uncertain risk, much less remove the risk.

Congress Created Them All

DON BOUDREAUX in a letter to the Washington Post:

You’re right to worry that Uncle Sam responded to the public’s anxiety about terrorism by creating an overgrown intelligence bureaucracy with bloated budgets that strain our wallets and arbitrary powers that mock the Constitution as they threaten our freedoms . . . Will bureaucrats in, say, the new Bureau of Consumer Financial Protection spend taxpayer funds more wisely than do bureaucrats in the NSA? Is the power to command people to purchase health insurance, or the power to prohibit consenting adults from buying and selling certain kinds of financial instruments, really so mild and beneficial that we should calmly welcome the exercise of these powers while we simultaneously quake with fear at the exercise of “intelligence” powers?

Independence Day?

CHIDEM KURDAS:

Our government has managed to create endless opportunities, but not for ordinary people—only for political operators and influence peddlers, with the Obama Administration pushing some 4,500 pages of medical and financial regulation just in its first 18 months.

Something to celebrate this Independence Day, eh?

Taxing Incomes & Estates

Ludwig von Mises:

If the present American methods of taxing incomes and estates had been adopted fifty years ago, most of those new things which no American would like to do without today would not have been developed at all or, if they had, would have been inaccessible to the greater part of the nation. (Theory and History, p. 238)