Liberal Democracy Is Not Too Big to Fail

Note: This post is part of our League Symposium on Democracy. You can read the introductory post for the Symposium here. To see a list of all posts in the Symposium so far, click here.

Three months after the infamous Kelo v. New London opinion was issued in June 2005, Professor Thomas W. Merrill testified to the Senate Judiciary Committee about his surprise at the public’s “stunning” and “overwhelming reaction” against the decision. After “giv[ing] a great deal of thought to what it is about the decision that has caused this,” Professor Merrill concluded that “the nub of the problem is that the American people believe that property rights are invested with moral significance.” Already well into a distinguished career, the good professor had finally stumbled onto the basic truth that other Americans, unbedecked by college degrees, have always known.

Mohamed Bouazizi knew it, too, as he would demonstrate to the world six years later. Misordering of moral values aside, his tragic case leaves no doubt that economic liberty is a deeply moral question, and a first principle of liberal democracy.

But how important is economic liberty, really? The right to earn a living, once thought so obviously fundamental that stipulation in the Constitution would embarrass the Founders in the eyes of the urbane, is among the least of concerns among contemporary elites. Like the good professor, our governing officials appear startled when their constituents’ perennial reminders that economic liberty means something. It is with great relief that we have not registered any acts of self-immolation over such distressing abuses as laws preventing new businesses from competing with existing businesses, laws requiring training and licensing in pesticides to operate a business that expressly does not use pesticides, laws requiring florists to take detailed exams that have nothing to do with public safety, laws requiring training and licensing in cosmetology for hairdressers who exclusively use only African hair-braiding methods, laws requiring taxi cab operators to pay hundreds of thousands of dollars for medallions, laws preventing a teenage boy from operating a hot dog cart (rendering his family homeless in the process), and even laws requiring a license to operate a children’s lemonade stand.

Liberal democracies rely on independent judiciaries to protect individuals from oppression, and to spare gentle professors the shock of public outrage. Yet our independent judiciary has, with rare exception, been unsympathetic to the outrage Americans register against infringements on economic liberties. This is because, I will argue, the court has elevated the fruits of liberal democracy—specifically, a robust, modern economy—above the first principles that give rise to and sustains liberal democracy. Liberal democracy is threatened, in other words, when modern economic planning becomes “too big to fail.”

With the exception of a 40-year period at the turn of the 20th century, the court has largely deferred to the political branches on questions of the role of government as the central organizer of the economy, and the rights of individuals to earn a living. To facilitate economic expansion during the republic’s first 150 years, American political leaders made concessions to private industry that undermined the relationship economy presupposed in our founding documents. Modern banks, corporations, easy credit, investment incentives, and the market revolution itself, all redounded to the benefit of all. Much of this machinery of the modern economy could not exist without concessions from a muscular central government.

For a brief period, the court asserted its independence during the Lochner era, protecting the individual’s right to engage in lawful economic activity against government obstruction in private enterprise—a position that might have more integrity had it also chastened government investment in private enterprise, too. When the New Deal economic policies ushered in a new economic revolution, political leaders again insisted that the practical effects of their policies were too important to liberal democracy to suffer meaningful judicial review. As it had early on, the court obliged, and constitutional principles groaned under the hooves of centralized economic planning.

Seldom has the judiciary insisted that these sweeping economic policies should require formal amendment to the Constitution. Instead, the court has seemingly accepted that the practical benefits of these policies should overcome the principled limitations in the Constitution. Modern economic policy became too big to fail.

This should not be. The Declaration of Independence provides that, when government ignores first principles, even otherwise duly enacted laws result in “a long train of abuses and usurpations . . . evinc[ing] a design to reduce [the people] under absolute Despotism.” In such an event, it becomes “their right, [] their duty, to throw off such Government, and to provide new Guards for their future security.” It is first principles that are too big to fail, not economic policy.

Unfortunately, the Court’s new twist on its “avoidance” doctrine seems to take the opposite view. In NFIB v. Sebelius, aka, the Affordable Care Act case, the Court actively misconstrued an unambiguous and unconstitutional penalty to be a constitutional “tax,” on the principle that the government should not suffer the indignity of seeing its abuses and usurpations reversed. It is widely suspected, with good reason, that the Court’s surprising decision upholding the Affordable Care Act was motivated by fear of harm to the Court’s legacy by overturning a high-profile law. Striking down the President’s signature policy achievement would make the left’s reaction to Citizens United and Bush v. Gore seem like a yawn. Keep people free, if you can, but whatever you do, keep them sedated. If this was the goal, NFIB v. Sebelius was a failure—as Professor Merrill was rudely reminded in 2005, Americans still do not approve of the Court downgrading economic liberty. But the thumb was already on the scale: “Signature Policy Achievements” are Too Big to Fail.

Turning back to Kelo, the Court there likewise ruled individual property rights are unenforceable when they compete against a government policy to promote “economic development.” This abdication resulted in a transfer of power in every local jurisdiction from thousands of individuals to centralized authorities, thus making it simpler for developers to acquire large swaths of property cheaply and easily, centralizing wealth at the expense of the middle class. The result was preordained, however, because Economic Redevelopment is Too Big to Fail.

Government also shares blame for irresponsible mortgages and foreclosure fraud. The federal government’s frenzy to swell homeownership numbers through the Home Mortgage Disclosure Act of 1975, the Community Reinvestment Act of 1977, and regulatory amendments in 1989, 1995, and 2005, pressured banks to approve risky loans to advance homeownership and “social justice” goals. One particularly egregious practice, “robo-signing,” effectively meant banks had adopted a policy of lying to the court, deciding that complying with legal procedure was simply not worth the hit to the bottom line. Neither the attorney general nor any U.S. district attorneys have brought suits against any bank for foreclosure fraud, however, because Housing Policy is Too Big to Fail.

The regulatory state, though almost entirely unsupported by the Constitution and insulated from democratic checks besides, nonetheless enjoys broad discretion in making and enforcing regulations. A “regulation” is different from a “law” in no meaningful way, but carries a separate label so as to avoid the Constitution’s bicameralism and presentment requirements. Because federal agencies deal with such technocratic policy decisions across such a broad array of human activity, from pharmaceuticals to the environment to the constitution of hot dogs, it is simply beyond the Court’s skill and ability to meaningfully review all their actions.

The most recent egregious example, the Consumer Financial Protection Bureau, is twice-insulated from democratic checks, an independent agency itself tucked inside another independent agency, the Federal Reserve. As Todd Zywicki explains in a post “celebrating” the CFPB’s first birthday, “its long-awaited rule to simplify mortgage disclosures landed with a 1,099 pages thud last month—a rule so convoluted and confused that Jonathan Macey noted that it even drew criticism from Habitat for Humanity, which expressed concern that it would impede its ‘ability to enable low-income families to become homeowners’ because of the barriers it erects to extending home-ownership to low income households.” In a political culture in which the solution to every regulatory unintended consequence is more regulation, we might expect a foray into the same kinds of risky lending policies mentioned above that contributed to the housing boom-bust cycle. All because the Regulatory State is Too Big to Fail.

The financial industry is so enmeshed in every facet of our economy that literally no one had any good idea what would happen if one or more major firms defaulted. Nevermind that we also don’t have any good idea what would happen were we to do what we did—subvert our laws and norms by excusing these firms of responsibility for their own risks and allow them to free-ride on the public. But financial organizations are creatures of statute so complex that, with rare exception, judges simply rubber stamp favorable settlements and sweep their wrongdoing under the rug. Finance is just Too Big to Fail.

Public sector unions are also in on the action. In the state of California, no fewer than three constitutional provisions bar the government from retroactively increasing pension benefits. But the courts of this state have refused to enforce any of them, putting pensions in a class by itself and exempting them from the law, because Public Sector Pensions are Too Big to Fail.

And on it goes. Our institutions are failing us because too much of our political discourse fails to engage beyond matters of mere policy and contingent propositions. Rarely do we regard fixed principles as having any significance. The media sneers at the Tea Party’s call for a return to principles of limited government and individual freedom. Our leaders show contempt when asked about the Constitution, and otherwise punt issues to the Court, fully aware that the Court is steeped in anti?Lochner, anti?economic liberty doctrine.

The project of self-governance is no longer about the principles of liberal democracy. It is merely about “getting the policy right,” because centralized economic policy is, and has always been, too big to fail. But failure is often the only way forward. We have a Constitution sorely in need, through formal amendment, of being put back in harmony with the realities of a modern economy and society. Periodically, movements like the Tea Party will seek to remind the government that the people intend to regard the Constitution as a legible document. But the long, shifty line of precedent, and of mealy-mouthed legislative reforms, designed to put off controversy and quell the masses, cause that project to be deprioritized. A governing class that bends over backwards to preserve economic policies that are at odds with our moral principles is no friend of progress.

Liberal democracy succeeds or falls not on such contingent propositions as the success of policies and programs. It succeeds or falls on its fidelity to its stated principles. As Paul Ryan said this morning after being introduced as the Romney’s running mate, “we will not replace our founding principles, we will reapply them.” For too long, economic planners have ignored our founding principles, refusing either to replace or apply them. It is not out of the question that liberal democracy can exist with different founding principles. But it is out of the question that we can continue as a liberal democracy by ignoring them as we have.