Last week, Congress passed and the President signed the Emergency Economic Stabilization Act of 2008 (the EESA). Under the EESA, the Secretary of the Treasury is authorized to spend billions to purchase and manage troubled assets from financial institutions. These troubled assets developed from government-encouraged lending practices whereby mortgages were granted with practically zero down payments and minimal concern the about buyers monthly income relative to their monthly payment amounts. Americans bought McMansions they could not afford and the banks were left holding worthless commercial paper.
The debate over the EESA covered many subjects: executive compensation, the global economy, markets v. government planning, the importance of home ownership, etcetera. Strangely missing from the debate was any meaningful discussion of the constitutionality of the EESA. Whence does Congress derive the authority to give the Secretary of the Treasury the power to purchase and manage billions of dollars worth of private assets?
Questions of constitutionality are unfortunately given short shrift by our leaders. With any billespecially one as momentous as the EESAit should be the first question debated. The Constitution is the fundamental law of the United States. It was adopted not by state governments or legislatures, but by the people of the states assembled in convention and wielding sovereign authority. Hence, the Constitution is not merely a framework of government, but the final word of the people on what powers the federal government may and may not exercise.
Today, many Americans see issues of constitutionality as belonging to the courts. We must not forget, nor should our leaders, that all three branches of the national government (Congress, the President, and the judiciary) take an oath to support and defend the Constitution. Constitutional interpretation and fidelity are as much the business of Congress as they are the business of the judges.
Congress powers are enumerated in Article I, Section 8 of the Constitution. A number of specific powers are listed (e.g., coining money, establishing a post office, raising armies), but nothing is mentioned about intervening in private markets and managing large portfolios of assets. According to James Madison, the powers of Congress were carefully enumerated so that the federal government can only operate in certain cases. Unfortunately, over the years Congress has become so used to exercising plenary authority that no one even discusses the basis of its power to act. Questions of constitutionality were not raised by congressional leaders, the mainstream media, or by the presidential campaigns of John McCain and Barack Obama. The peoples fundamental law received the silent treatment.
Enumerated powers aside, the national debate also ignored the EESAs lack of standards for directing the broad grant of discretion to the Treasury Secretary. Even if one assumes that Congress may meddle in private markets at will, the method employed under the EESA is legally suspect. Under separation of powers principles, legislative power typically cannot be exercised by members of the executive branch or the judiciary. The Supreme Court, however, permits some delegation by Congress as long as Congress provides an intelligible principle to guide the executive branch officials. With the EESA, the Secretary of the Treasury is given czar-like power over a large segment of the private market. The purchase and management of bank assets is left to his best judgment. Congress delegation of power under the EESA raises serious separation-of-powers concerns and threatens to improperly mix legislative and executive authority.
Americans should be concerned that a constitutional discussion was completely absent from the national debate about the bailout package. The EESA is the largest government intervention in the private economy in the history of the United Statesit makes FDRs New Deal and President Trumans seizure of the steel mills look like Mickey Mouse.
Before our leaders ever reached the pros and cons of the bailout, they should have carefully examined the Constitution and considered whether the people ever delegated such broad powers to the national government. Sadly, our fundamental law was never part of the discussion.
Undoubtedly, the bailout package will have long-term effects on the American economy. The greatest impact, however, is the loss of any real constraint on government power. If the Constitution is not consulted or debated when the government seeks to acquire and manage billions in private assets, then we may safely assume that there are no limits on Congress powers. Untrammeled government authoritynot economic stabilizationwill be the lasting legacy of this Wall Street bailout.