What do Senators Clinton, Corzine, Edwards, Kennedy, Kerry, Lautenberg, and Rockefeller have in common, other than their membership in the Democrat Party? They, like most of their fellow Democrats in Congress, want the rest of us to pay higher taxes to fund their favorite giveaway programs. They also possess great wealth. A little tax hike wouldn’t bother them, so why should it bother the rest of us?
The Erosion of the Constitutional Contract
Contracts come in many forms and serve many purposes. They may be as informal and ephemeral as the understanding between barber and customer that the barber will cut the customer’s hair and the customer will pay the barber a certain amount of money for the haircut. They may be as solemn and hopefully eternal as marriage vows.
In the public realm there is no more solemn contract than the Constitution of the United States. But the great national crises of the Twentieth Century — especially the Depression and World War II — fostered the habit of giving illegitimate power to the federal government. Thus the constitutional contract and the pillars of the Constitution — the States and citizenry — have been undermined.
The immense, illegitimate power that has accrued to the federal government cannot be found in the Constitution. It arises from the cumulative effect of generations of laws, regulations, and court rulings — each ostensibly well-meant by its perpetrators.
The habit of recourse to the federal government has become a destructive cycle of dependency. Elected representatives and non-elected elites have vested unwarranted power in the federal government to deal with problems “we” face — problems the federal government cannot, for the most part, begin to solve and which it demonstrably fails to solve many more times than not. The conditioned response to failure has been to cede more power (and money) to the federal government in the false hope that the next increment will get the job done.
There has been much bold talk in recent times about making the federal government smaller and devolving federal power to the States. The bottom line is that the executive branch still regulates beyond its constitutional license, Congress still passes laws that give unwarranted power to the federal government, and federal spending still consumes about the same fraction of economic output that it did two decades ago.
To break out of this cycle of addiction, we must restore the constitutional contract and thus enable the States and citizens — especially citizens — to realize their economic, social, and spiritual potential.
The Constitutional Contract, Its Reach, and Its Principles
The Constitution is a contract between the States. In it, the States cede certain powers to a government of the united States, created by the States on behalf of the States and their citizens. Thus, for example, in Section 10 of Article I, the States voluntarily deny themselves certain powers that in Section 9 they vest in Congress — creation of money, regulation of trade among the States and between the States and other nations, conduct of foreign relations, and conduct of war.
The Preamble lists the States’ reasons for entering into the constitutional contract, which are “…to form a more perfect union, establish justice, insure domestic tranquillity, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity….” These are ends desired, not outcomes promised.
To further these ends, the Constitution establishes a government of the united States, and authorizes it to enact, execute, and adjudicate laws within a delimited sphere of authority. The Constitution not only delimits the federal government’s authority but also diffuses it by dividing it among the federal government’s legislative, executive, and judicial branches.
The Framers knew what we are now only re-learning: A government is a power-hungry beast — even a representative government. More power in the hands of government means less power for individuals. Individuals are better off when they control their own lives than when government, directly or indirectly, controls their lives for them.
Thus the limited scope of the constitutional contract provides for:
• primacy of the federal Constitution and of constitutional laws over those of the States (This primacy applies only within the limited sphere of authority that the Constitution grants to the federal government. The federal government is not, and was not intended to be, a national government that supersedes the States.)
• collective obligations of the States, as the united States, and individual obligations of the States to each other
• structure of the federal government — the three branches, elections and appointments to their offices, and basic legislative procedures
• powers of the three branches
• division of powers between the States and federal government
• rights and privileges of citizens
• a process for amending the Constitution.
The principles embodied in the details of the contract are few and simple:
• The Constitution and constitutional laws are the supreme law of the land, within the clearly delimited scope of the Constitution.
• The federal government has no powers other than those provided by the Constitution.
• The rights of citizens include not only those rights specified in the Constitution but also any unspecified rights that do not conflict with powers expressly granted the federal government or reserved by the States in the creation of the federal government.
The Limits of Federal Power
The Constitution may be the “supreme law of the land” (Article VI), but as the ardent federalist Alexander Hamilton explained, the Constitution “expressly confines this supremacy to laws made pursuant to the Constitution…[Federalist number 33].”
Thus the authority of the federal government — the government formed by the united States — enables the States to pursue common objectives. But that authority is limited so that it does not usurp the authority of States or the rights of citizens.
Moreover, the “checks and balances” in the Constitution limit the federal government’s ability to act, even within its sphere of authority. In the legislative branch neither the House of Representatives nor the Senate can pass a law unilaterally. In his sole constitutional role — as head of the executive branch — the President of the United States must, with specified exceptions, sign acts of Congress before they become law, and may veto acts of Congress — which may, in turn, override his vetoes. From its position atop the judicial branch, the Supreme Court is supposed to decide cases “arising under” (within the scope of) the Constitution, not to change the Constitution without benefit of convention or amendment.
The Constitution itself defines the sphere of authority of the federal government and balances that authority against the authority of the States and the rights of citizens. Although the Constitution specifies certain powers of the federal executive and judiciary (e.g., commanding the armed forces and judging cases arising under the Constitution), federal power rests squarely and solely upon the legislative authority of Congress, as defined in Article I, Sections 8, 9, and 10. The intentionally limited scope of federal authority is underscored by Amendments IX and X; to repeat:
The rights of citizens include not only those rights specified in the Constitution but also any unspecified rights that do not conflict with powers expressly granted the federal government or reserved by the States in the creation of the federal government.
The Rise of Unconstitutional Laws and Regulations
The generations of laws and regulations that have seized the powers and rights of States and citizens are, to put it plainly, unconstitutional. Most such laws and regulations seem to rest on these foundations:
• the phrase “promote the general welfare” in the Preamble. This was a desired result of the adoption of the Constitution, not an edict to redistribute income and wealth.
• the power of Congress “to regulate commerce…among the several states [Article I, Section 8].” This power was meant to prevent the States from restricting or distorting the terms of trade across their borders, not to enable the federal government to dictate what is traded, how it is made, or how businesses operate.
• the authority of Congress “[t]o make all Laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the Government of the United States, or in any department or officer thereof [Article I, Section 8].” The words “necessary and proper” have been wrenched out of their context and used to turn the meaning of this clause upside down. It was meant to limit Congress to the enactment of constitutional legislation, not to give it unlimited legislative authority.
• the “equal protection” clause of Amendment XIV: “…nor shall any State…deny to any person within its jurisdiction the equal protection of the laws.” Amendment XIV was meant to secure the legal equality of those former slaves whose freedom had been secured by Amendment XIII. Amendment XIV became, instead, the basis for Supreme Court decisions and federal laws and regulations that have given special “rights” to specific, “protected” groups by curtailing the constitutional rights of the many who cannot claim affiliation with one or another of the “protected” groups. As the proponents of such groups might ask, is it fair?
Restoring the Constitutional Contract
The constitutional contract charges the federal government with keeping peace among the States, ensuring uniformity in the rules of inter-State and international commerce, facing the world with a single foreign policy and a national armed force, and assuring the even-handed application of the Constitution and of constitutional laws. That is all.
It is clear that the contract has been breached. Only by restoring it and reversing generations of federal encroachment on the rights and powers of the States and people can we “secure the Blessings of Liberty to ourselves and our posterity.”
In a future post I will link to a restored constitutional contract, one that would undo the damage that has been done to the Framers’ great work.
Privacy vs. Security
Having just flown for only the second time since 9/11, I was reminded that less privacy means more security. Thus, I will remain untroubled by potential abuses of the Patriot Act until actual abuses arise. Vigilance is the price of liberty, and vigilance takes many forms.
Labor Unions
Labor unions are “legal monopolies in restraint of trade.” (Students of anti-trust law will recognize the allusion to the Sherman Anti-Trust Act of 1890.) The acts of Congress that enabled labor unions were intended to improve the lot of laboring people. The result — owing to the inviolable law of unintended consequences — has been the opposite: Laboring people who belong to unions have steadily lost employment over the decades. Their jobs have been “taken” by other laboring people who are willing to work at the prevailing wage. Only one group has benefited from the legalization of labor unions: union bosses who thrive on the mandatory dues paid by union members.
Of Course It’s About Oil
And a lot of other things, like defeating Islamo-fascists and making the world a safer place for men of goodwill. But if the Islamo-fascists had their way we’d certainly lose our access to Middle Eastern oil.
Would the limousine liberals and anti-war yuppies give a damn about the resulting shock to our economy? Would they care about the working poor, who are usually hit first and hardest by recessions? Probably not, but they might nevertheless take to the streets and demand drilling in the Alaskan wildlife refuge, more drilling in the Gulf of Mexico, and more nuclear power plants.
After all, they’ve got to have power for their computers, cell phones, and SUVs — don’t they?
Tax-Exempts: A Ripoff of Taxpayers
Today, on a different topic, ProfessorBainbridge.com quoted Berle and Means (The Modern Corporation and Private Property, 1933): “The separation of ownership from control produces a condition where the interests of owner and of ultimate manager may, and often do, diverge….” Well, that reminded me of tax-exempt organizations.
Taxpayers effectively “own” tax-exempt organizations. Every dollar a tax-exempt organization avoids paying in taxes adds a dollar to the collective tax bill of all taxpayers. So where do our tax dollars go, aside from subsidizing tax-exempts’ often useless and self-aggrandizing activities?
Well, the truth about tax-exempt organizations is that they earn a profit, but it’s not called profit. The managers of tax-exempt organizations — in particular, major foundations, associations (lobbying groups), “public” radio and TV stations, large charities, and government-sponsored think-tanks — take their profit in the form of six- and seven-figure compensation packages. That’s quite a haul for fairly risk-free work in typically sumptuous surroundings. You have to screw up badly to lose a major contributor or long-standing government sponsor.
You’d think that tax-exempts’ audit committees and boards would keep the lid on compensation. Ha! If it doesn’t work in the private sector, where there’s a profit motive, why would you expect it to work in the “quasi-public” sector where there isn’t a profit motive? Tax-exempts typically justify their large compensation packages by reference to the large compensation packages of other tax-exempts. Well, you can see how that works; it doesn’t even require overt collusion.
The solution isn’t wholesale revocation of tax-exempt status or even repeal of the portions of the tax code dealing with tax-exempt status. It’s simpler and more effective: Require tax-exempts to pay income tax at the prevailing corporate rate on all compensation (including typically tax-exempt benefits). Let the tax-exempts choose between funding compensation and funding those activities for which they purportedly exist. Let the tax-exempts incur the wrath of their contributors and government sponsors if they make the wrong choice.
Cowardice or Fear?
Many bloggers are accusing Spaniards of cowardice because they rejected the Aznar government in the aftermath of the Madrid bombings. I think “fear” is the better word in the circumstances. Spaniards voted as they did because they feared that Spain’s continuing involvement in Iraq would lead to more terrorist attacks. That they acted out of fear make their action no less palatable.
Civilized nations must act with resolve in the face of terror, even if the cost of resolve is sometimes high. In the end, the cost of submission to terror will be far greater than the cost of combating it.
The Terrorists’ Election Strategy? Take 3
A few days ago, I suggested that “terrorists might stage a spectacular attack in the U.S. and claim that it’s retribution for the invasion and occupation of Iraq. Such a claim would be cynical, of course, but it would probably swing the election to Kerrry.”
Well, it seems to have worked in Spain.
IQ and Politics
This content of this post is now incorporated in “Intelligence, Personality, Politics, and Happiness.”
IQ and Personality
This content of this post is now incorporated in “Intelligence, Personality, Politics, and Happiness.”
The Terrorists’ Election Strategy? Take 2
The Terrorists’ Election Strategy? Take 2
A few days ago I suggested that terrorists might “[w]ithhold attacks on the U.S. until after November 2, to distract Americans — enough of them anyway — from the war on terror. That would divert attention from Bush’s (rightful) strength as a war leader and toward the economy, where Bush (wrongly) seems to be vulnerable.”
Here’s another possibility: Terrorists might stage a spectacular attack in the U.S. and claim that it’s retribution for the invasion and occupation of Iraq. Such a claim would be cynical, of course, but it would probably swing the election to Kerrry.
The Rule of Law
So, the Cailfornia Supreme Court has ordered San Francisco not to issue any more marriage licenses to gay couples. Although the court didn’t rule on the legality of gay marriage in California, it has, in effect, upheld a state law and voter referendum that say marriage is a union between a man and a woman. Perhaps, in its subsequent decision on the merits of the case, the court will find authority for gay marriage in California’s constitution.
Whatever the outcome of the case, California’s high court has upheld the rule of law. The court — not the impetuous mayor of San Francisco — should decide the legality of gay marriage. And if the citizens of California don’t like the court’s ruling, they can strive to negate the ruling by amending California’s constitution.
The Terrorists’ Election Strategy?
Withhold attacks on the U.S. until after November 2, to distract Americans — enough of them anyway — from the war on terror. That would divert attention from Bush’s (rightful) strength as a war leader and toward the economy, where Bush (wrongly) seems to be vulnerable.
Campaign Rhetoric
The two sides (if not more) of John Kerry:
1. The war on terror
a. Kerry will proclaim the war on terror a phony war if there is no significant terrorist attack against the U.S., its overseas interests, or its forces in the Middle East.
b. Kerry will proclaim Bush’s war on terror a failure if there is a significant terrorist attack.
2. The recession
a. Kerry will continue to blame Bush II for the recession, which began under Clinton.
b. Kerry will seek to identify himself with the so-called Clinton boom of the 1990s, which began under Bush I (or Reagan, if you prefer).
3. Consistency
a. Kerry will oppose Bush on every issue, even if it means that Kerry must contradict his earlier positions on many of the issues.
b. Kerry will fault Bush for having done what he said he would do about Iraq.
And so it will go.
Kerry for President of What?
A report in yesterday’s New York Times about John Kerry’s decision-making style includes this observation about Kerry’s inability to take a position and stick to it: “Some aides and close associates say Mr. Kerry’s fluidity is the mark of an intellectual who grasps the subtleties of issues, inhabits their nuances and revels in the deliberative process.”
I worked for a CEO who might have been described in just the same way: He, like Kerry, fancied himself an intellectual and sought every nuance of every issue before making a decision — which he would then almost invariably regret if not reverse. He, like Kerry, mistook his “style” for nuance and intellectual rigor, when it merely betrayed his self-doubt and lack of consistent principles.
My former CEO ran a think tank and was very well compensated for all of his intellectual pains. Kerry would do the country a great favor if he would retire to a similar sinecure.
What Liberals and Conservatives Have in Common
So-called liberals (or “progressives” as many of them now prefer) and conservatives (as distinguished from libertarians or libertarian conservatives) have this in common: a penchant for using the coercive power of the state to enforce their views of proper economic and social arrangements.
Because the courts have in the past 70 years allowed the Executive and Legislative Branches to assume unconstitutionally broad power, and because that broad power has been mainly at the service of liberals, we now live under a highly regulated economic and social regime.
Would the courts restrain non-libertarian conservatives if they were to hold a strong majority in both houses of Congress for a considerable time, while the presidency was also held by a non-libertarian conservative?
Don’t bet on it. Sooner or later the courts “follow the election returns.”
P.S. on Privatizing Social Security
The plan I outlined in the previous post assumes that the government will force people to save for their retirement. Why should the government do that? Any forced savings plan, be it traditional Social Security or private accounts, implies a governmental obligation to bail out those who make imprudent investment decisions. If very many private accounts go sour because of imprudent decisions, there will be a hue and cry to bail out the holders of those accounts. (If it was done for Chrysler it will certainly be done for a bloc of voters.)
When individuals are confronted with the consequences of their actions — as they still are to some extent under criminal law — they tend to make better decisions. A case in point: I took my private retirement savings out of the stock market before the bubble burst in 2000. I, like many contemporary observers, could see that there was a bubble. If more investors had been like me, the bubble wouldn’t have been as large and there would have been less damage when it burst.
Government guarantees — implicit or explicit — have perverse results. They foster imprudent decisions and transfer the cost of those decisions to the taxpaying public.
Why It Makes Sense to Privatize Social Security
1. The Social Security system will begin running a deficit in 2018, a deficit that will grow ever larger unless Congress enacts a combination of benefit cuts and tax increases. Retirees will be “taxed” by benefit cuts; workers will be taxed at higher rates to sustain those reduced benefits.
2. Why is there a looming crisis in Social Security? Social security taxes yield an effective return of about 3%, and that return will diminish as the ratio of workers paying taxes to workers receiving benefits declines.
3. A worker who makes $40,000 a year (in 2004 dollars), for example, will receive about $15,000 a year in Social Security benefits if he retires in 2018 at age 66. Workers who make the same amount but retire later will receive less than $15,000 a year (unless those then working pay higher taxes).
4. If a worker making $40,000 a year had been allowed to invest his taxes (including the so-called employer’s share) in a strong instrument (e.g., AAA corporate bonds) he would receive an income of more than $30,000 a year beginning in 2018, even if he had paid income taxes on the interest he earned. Moreover, he would be able to draw a larger income every year as a hedge against inflation.
5. What about the transition from the present system to a private system? Who will pay current retirees and those who retire having worked under both systems. Simple: Guarantee that every worker will receive at least as much as he would have under the present system, then collect just enough Social Security tax to meet that guarantee. That tax would diminish over time until all retirees are covered by private accounts. (Those who can’t afford to pay the residual Social Security tax in addition to investing in their private accounts would be allowed to tap their private accounts to pay the tax.)
6. At the end of the transition, the government will no longer have a liability on its hands and every worker will be far better off than under the present system.
P.S.
The examples in the previous post illustrate an important truth about economics: It may be dismal but it’s not science.
On the Other Hand, Let’s Kill All the Economists
The old saying has it that if all the economists in the world were laid end to end they wouldn’t reach a conclusion. Economists can’t agree on the past, let alone the future. Who needs them?
There are, for example, economists who say that Clinton’s 1993 tax increase caused the subsequent economic boom by (a) reducing the deficit, which (b) resulted in lower interest rates, which (c) stimulated consumer and business spending. There are, on the other hand, economists who say that (a) deficits have no discernible effect on interest rates and, therefore, (b) the boom of the ’90s was a normal post-recession recovery pumped up by rapid gains in productivity — phenomena beyond the influence of presidential power.
The Bush tax cuts have economists equally divided, pro and con. Some economists argue that reversing the cuts in higher tax brackets wouldn’t harm economic recovery but would reduce the deficit, which would in turn…blah, blah, blah. Other economists say that reversing any of the Bush cuts would put the economy into a nosedive by discouraging investments in new technology and business ventures.
Switching from macroeconomics (the study of aggregate economic activity) to microeconomics (the study of, what else, disaggregate economic activity), we find opposing camps on such issues as the minimum wage. Some economists say that raising the minimum wage has little effect on the employment of minimum-wage earners. Others argue the opposite. Both sides have data to support their conclusions — of course.
Then there’s Social Security — the economic issue of the Twenty-first Century. Some economists argue that Social Security can be “saved” by “tweaking” the system, namely, by increasing Social Security taxes (oops–“contributions”) and/or cutting Social Security benefits. Others argue that the system is moribund and the only way to save it is to kill it and replace it with private retirement accounts.
Now, if you’ve been reading carefully you’ll have noticed a trend. There are those economists who think the federal government should intervene in the economy (unless there’s a Republican president), and there are the others who believe we’d all be better off if the federal government didn’t try to fine-tune the economy, kept its hands out of taxpayers’ wallets, didn’t interfere with businesses’ (legal) operations, and didn’t run (badly) the world’s largest ponzi scheme (oops — pension program).
Can you guess which side I’m on?
Next post: why Social Security should be privatized, in one easy lesson.
Politics and Prosperity 