Topic: Government and Politics

Trump and the Emoluments Clause: What Congress Needs to Do

This morning President-elect Donald Trump announced via Twitter that “I will be holding a major news conference in New York City with my children on December 15 to discuss the fact that I will be leaving my great business in total in order to fully focus on running the country in order to MAKE AMERICA GREAT AGAIN! While I am not mandated to do this under the law, I feel it is visually important, as President, to in no way have a conflict of interest with my various businesses. Hence, legal documents are being crafted which take me completely out of business operations. The Presidency is a far more important task!”

With that announcement, Trump takes one important step toward addressing both the wider problem of conflicts of interest, and within it the narrower problem—of distinct constitutional dimensions—of the Trump Organization’s complex ongoing dealings with foreign governments. On those latter entanglements, I argue in a new Philadelphia Inquirer piece that under the Emoluments Clause of the Constitution, Congress will affirmatively need to “decide what it is willing to live with in the way of Trump conflicts”—and it should draw those lines before the fact, not after. Excerpt:

…That clause reads in relevant part: “And no Person holding any Office of Profit or Trust under [the United States] , shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.”…

The wording of the clause itself points one way to resolution: Congress can give consent, as it did in the early years of the Republic to presents received by Ben Franklin and John Jay. …

…it can’t be good for America to generate a series of possible impeachable offenses from a running stream of controversies about whether arm’s-length prices were charged in transactions petty or grand. …

There is no doubt that doing the right thing poses genuine difficulties for Trump not faced by other recent presidents. If he signals that he understands the nature of the problem, it would not be unreasonable to ask for extra time to solve it.

For reasons that Randall Eliason outlines in this helpful explainer, Emoluments Clause issues do not map well onto the concept of “bribery.” (Payments can violate the Emoluments Clause even if made with honest intent on both sides; bribery, for its part, is subject to a separate ban.) Removing himself from day-to-day management should help Trump avoid some violations of the Clause (for example, it will become less likely that a foreign state firm will wind up compensating him for his time). Stephen Bainbridge of UCLA has suggested that if the President-elect refuses to divest ownership of his business he at a minimum “needs to create an insulation wall separating his political activities from those of the organization. Such walls were formerly known in colloquial legal speech as ‘Chinese walls.’”

Even if Trump does that, serious Emolument Clause issues will remain, especially those surrounding favorable treatment that a presidentially owned business may not have sought out but which may nonetheless constitute “presents.” Congress should expect to ramp up the expertise it can apply to these problems, and (absent divestiture) assign ongoing committee responsibility to tracking them. And it should issue clear guidelines as to what it is willing and not willing to approve. Such a policy will not only signal that lawmakers are taking their constitutional responsibilities seriously, but could also benefit the Trump Organization itself by clarifying how it needs to respond if and when foreign officials begin acting with otherwise inexplicable solicitude toward its interests.

Expanded and adapted from Overlawyered.

OECD Economic Research Finds That Government Spending Harms Growth

At the risk of understatement, I’m not a fan of the Organization for Economic Cooperation and Development. Perhaps reflecting the mindset of the European governments that dominate its membership, the Paris-based international bureaucracy has morphed into a cheerleader for statist policies.

All of which was just fine from the perspective of the Obama Administration, which doubtlessly appreciated the OECD’s partisan work to promote class warfare and pimp for wasteful Keynesian spending.

What is particularly irksome to me is the way the OECD often uses dishonest methodology to advance the cause of big government:

But my disdain for the leftist political appointees who run the OECD doesn’t prevent me from acknowledging that the professional economists who work for the institution occasionally generate good statistics and analysis.

For instance, I’ve cited two examples (here and here) of OECD research showing that spending caps are the only effective fiscal rule. And I praised another OECD study that admitted the beneficial impact of tax competition. I even listed several good examples of OECD research on tax policy as part of a column that ripped the bureaucracy for some very shoddy work in favor of Obama’s redistribution agenda.

And now we have some more good research to add to that limited list. A new working paper by two economists at the OECD contains some remarkable findings about the negative impact of government spending on economic performance. If you’re pressed for time, here’s the key takeaway from their research:

Governments in the OECD spend on average about 40% of GDP on the provision of public goods, services and transfers. The sheer size of the public sector has prompted a large amount of research on the link between the size of government and economic growth. …This paper investigates empirically the effect of the size and the composition of public spending on long-term growth… The main findings that emerge from the analysis are… Larger governments are associated with lower long-term growth. Larger governments also slowdown the catch-up to the productivity frontier.

For those who want more information, the working paper is filled with useful information and analysis.

Our Sensitive President-Elect

Yesterday the President-elect of the United States tweeted:

Nobody should be allowed to burn the American flag - if they do, there must be consequences - perhaps loss of citizenship or year in jail!

This view directly contradicts First Amendment doctrine established in the case of Texas v. Johnson (1989). Texas had outlawed desecration of venerated objects including the American flag. The state argued this prohibition protected a symbol of national unity and precluded breaches of the peace by those who would take offense at the flag being burned.

Gregory Johnson, a demonstrator at the 1984 Republican Convention, burned a flag as part of a protest. Johnson and his fellow protesters chanted “America, the red, white, and blue, we spit on you” while the flag burned. He was convicted of destroying the flag and sentenced to a year in jail and fined $2,000. Texas thus did exactly what the President-elect wants concerning flag burning.

A five-member majority of the Supreme Court ruled that flag burning constituted “symbolic speech” protected by the First Amendment. Indeed, Johnson burned the flag in 1984 to express a series of political views. The Court ruled that prohibiting this speech did not and was unlikely to prevent violence. As to national unity, Justice William Brennan noted an earlier statement by the Court:

If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.

Concurring with the opinion, Justice Anthony Kennedy wrote:

Though symbols often are what we ourselves make of them, the flag is constant in expressing beliefs Americans share, beliefs in law and peace and that freedom which sustains the human spirit. The case here today forces recognition of the costs to which those beliefs commit us. It is poignant but fundamental that the flag protects those who hold it in contempt.

This tweet marks at least the second time the President-elect has repudiated settled First Amendment doctrine. He earlier criticized the broad protection for free speech enunciated in New York Times v. Sullivan (1964), a decision that complicated suing speakers for libel.

Donald Trump wishes to criminalize flag burning for giving offense to those who value what the American flag represents. Many others have called for limiting speech that offends religions or ethnic groups. In The Tyranny of Silence, Cato’s own Flemming Rose recounts that some Muslim clerics in Europe called for censorship of speech giving offense to Islam. No doubt Mr. Trump would not join their calls for protecting the faith. But he does agree with those radical clerics that giving offense should justify government limits on free speech.

I wonder if the President-elect understands why his comments disturb so many people who differ otherwise about so much. He appears to oppose basic ideals underpinning liberal democracy. He is also the President-elect.

DC’s Paid Family Leave Bucks the Trend—and Economics

As the Washington DC City Council prepares to vote on a bill that would provide workers in Washington, DC up to 11 weeks of paid family leave upon the birth of a child, a fundamental question remains unanswered: how much should government intervene in how employers compensate workers?

The federal government does so quite a bit at present. By exempting employer-provided health insurance from income taxes, our tax law is responsible for the fact that a majority of Americans get their health insurance from their employer. The exemption is also largely responsible for the fact that so many of these employers have what can only be described as overly generous health insurance plans, which can cover health care expenses both routine and exceptional.

The tax code also nudged American businesses to provide pensions as well, since the money set aside in a defined benefit plan generally isn’t taxed. When pension law created the tax breaks for employer-provided health insurance these spouted up instead.

In the heyday of unionism, labor union leaders pushed for more fringe benefits for their workers, often more fervently than they sought out wage increases. They did so in part because of the tax break—why not get a tax-free benefit for workers rather than have workers pay for the same benefit with after-tax wages, they reasoned—and partly because such benefits could be made more durable than other forms of compensation. For instance, the UAW contracts in the 1970s-1990s typically provided health insurance for laid-off workers for up to a year after they were let go, and sometimes longer.

This wasn’t necessarily a good thing for the U.S. economy. Rigid compensation meant that companies resorted to overtime when demand picked up rather than hire more workers. While it also deterred them from laying off workers when there was a downturn in demand since the attendant cost savings would be slight, the short-term stability was an ephemeral benefit to workers. There were fewer jobs available as a result and it did nothing to encourage employment growth in such industries.

Some of these benefits were jettisoned—or at least scaled back—after the bankruptcy of GM and Chrysler in 2008—fifteen years after at Caterpillar—and today the manufacturing workers in a union are much more likely to have a 401k, health insurance with co-pays, deductibles and a monthly contribution, and modest ancillary benefits.

Unions changed course only in part because of their reduced leverage after the diminution of manufacturing in the U.S. economy. They also perceived that their workers would rather have money than an additional benefit. Also, the realization that many workers’ manufacturing jobs may be less permanent than a generation ago also helped change demand. A long-term benefit means little for someone who worries that their job may not exist after the next recession.

Does “Wagner’s Law” Mean Libertarians Should Acquiesce to Big Government?

There’s a lot of speculation in Washington about what a Trump Administration will do on government spending. Based on his rhetoric it’s hard to know whether he’ll be a big-spending populist or a budget-cutting businessman.

But what if that fight is pointless?

Back in October, Will Wilkinson of the Niskanen Center wrote a very interesting—albeit depressing—article about the potential futility of trying to reduce the size of government. He starts with the observation that government tends to get bigger as nations get richer.

“Wagner’s Law” says that as an economy’s per capita output grows larger over time, government spending consumes a larger share of that output. …Wagner’s Law names a real, observed, robust empirical pattern. …It’s mainly the positive relationship between rising demand for welfare services/transfers and rising GDP per capita that drives Wagner’s Law.

I’ve also written about Wagner’s Law, mostly to debunk the silly leftist interpretation that bigger government causes more wealth (in other words, they get the causality backwards), but also to point out that other policies matter and that some big-government nations have wisely mitigated the harmful economic impact of excessive spending and taxation by having very pro-market policies in areas such as trade and regulation.

In any event, Will includes a chart showing that there certainly has been a lot more redistribution spending in the United States over the past 70 years, so it certainly is true that the political process has produced results consistent with Wagner’s Law. As America has become richer, voters and politicians have figured out how to redistribute ever-larger amounts of money.

By the way, this data is completely consistent with my recent column that pointed out how defense spending plays only a minor role in America’s fiscal challenge.

Defending Privilege in a World of Disruptive Innovation

Two front-page stories in the Metro section of Monday’s Washington Post depict protected service providers desperately trying to fight off innovations that might serve customers better and threaten the comfortable incomes of the established providers.

First up, Tesla and the automobile dealers:

Don Hall, president of the Virginia Automobile Dealers Association, was making the hard sell.

Staring directly into the camera, using the language of war, he urged car dealers to unite against a force that he said threatened their livelihoods: electric-car-maker Tesla….

The reason that Hall was sounding the alarm: Tesla, which sells its cars directly to consumers rather than through franchise dealers, is trying to open a second store in Virginia.

Car dealers in Virginia and across the country have been fighting Tesla, seeing the company’s direct-to-consumer sales model as a threat to the franchise system that they say protects consumers as well as their own business interests.

In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers.
Like all regulatory rent-seekers, the automobile dealers have some public interest rationales, such as the claim that customers benefit by being able to shop for service among multiple dealers of the same automobile. But their arguments may rest more firmly on the fact that “over the past decade, VADA has given Virginia politicians $4 million in campaign contributions.”
 
Private companies aren’t the only protected providers. Just below the Tesla story was one about advocates of the federally funded school voucher program in the District of Columbia hoping that a new president will be more supportive of school choice than President Obama has been. Defenders of the traditional school monopoly are not giving up:

The prospect of an expanded voucher program is not a welcome one among the District’s elected officials, who chafe as Congress — where the District has no vote — passes laws that shape the landscape of city education. Many also are ideologically opposed and worry that an expanded voucher program could threaten the progress and growth of the city’s traditional public and public charter schools.

“I’m 100 percent opposed to public dollars going to private schools like this,” said D.C. Council Member David Grosso (I-At Large), who has spoken forcefully against the voucher program for years.

In a world where millions of students, especially low-income and urban kids, are getting a poor education, teachers unions and school bureaucracies have been fighting choice programs for more than two decades. Just like automobile dealers, they put their own interests ahead of those of their customers.

I should note that Clayton Christensen, who coined the term “disruptive innovation,” would probably say that these examples don’t qualify. Maybe I should just use the older term “creative destruction.” By any name, it’s people trying to protect their own lucrative position against competitors who think they can serve consumer needs better.

Donald Trump, Stephen Bannon, Andrew Jackson, and Infrastructure

On his radio show last night, Mark Levin asked his audience whether they thought President-elect Donald Trump would turn out to be a big-government Richard Nixon or a small-government Ronald Reagan. On the infrastructure issue, I fear that we may be headed in a big government direction.

Trump, of course, is a “populist,” not a small-government conservative. His advisor, Stephen Bannon, indicated the other day what that means:

Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” Stephen K. Bannon told the Hollywood Reporter. “The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan.

Bannon should know that on fiscal policy, Jackson’s populism was anti-debt and small government. Echoing Thomas Jefferson’s views, Jackson thought that federal debt undermined liberty, and he pushed to eradicate it. Jackson’s views were in tune with the public, which strongly supported frugality in the federal government.

Jackson and his allies were dubious of federal investments in infrastructure (“internal improvements”). His vice president, Martin Van Buren, thought that “Congress had no power to construct roads and canals within the states.” He said that spending on such projects “was sure in the end to impoverish the National Treasury by improvident grants to private companies and State works, and to corrupt Federal legislation by the opportunities it would present for favoritism.”

On assuming office, Jackson made a list of his priorities, including “the Public debt paid off, the Tariff modified and no power usurped over internal improvements.” In his first inaugural address, he promised “extinguishment of the national debt, the unnecessary duration of which is incompatible with real independence.” Jackson famously vetoed funding of Kentucky’s Maysville Road in 1830, citing constitutional objections and his goal of debt elimination.

Jackson was also skeptical of federal investments for practical reasons. In his 1830 message to Congress, he said, “Positive experience, and a more thorough consideration of the subject, have convinced me of the impropriety as well as inexpediency of such investments.” One practical concern was what we now call “crony capitalism.” Jackson noted that when the government gave some initial subsidies to companies, they tended to get hooked on the hand-outs and kept coming back for more.

In his book about the Jackson era, Carl Lane concluded that federal debt elimination, “Americans in the Jacksonian era believed, would improve the material quality of life in the United States. It would reduce taxes, increase disposable income, reduce the privileges of the creditor class, and, in general, generate greater equality as well as liberty.”

Back then, the belief was that a frugal federal government that balanced its books and did not interfere in state and local matters would secure liberty and benefit average citizens. That is the type of Jacksonian populism that Bannon and Trump should pursue.