Topic: Government and Politics

A Constitutional Amendment to Re-Empower the States

When the Framers designed our federalist system, they assumed that the federal government would be limited to those powers actually enumerated in the Constitution and that it would exercise those powers only when authorized by statute. Further, to give the states some say in the drafting of these statutes, one half of the federal Congress—the Senate—was elected by the state legislatures themselves and designed to reflect the interests of the state governments.

Today, none of these elements of our original design remain. The Supreme Court has allowed the federal government to control nearly limitless activities, supposedly as an exercise of its power to regulate interstate commerce. The executive branch acts as its own de facto legislative branch, “interpreting” statutes through executive actions and agency rulemaking to unilaterally give itself the powers it wishes to exercise. And after the passage of the Seventeenth Amendment, senators are now elected by popular vote, meaning there is no longer any direct link between the state and federal governments. The result of these three changes is that states have less power than ever – and there’s not much they can do about it.

To solve that problem, Representatives Rob Bishop (R-UT) and Cathy McMorris Rodgers (R-WA) recently introduced the “Re-Empowerment of the States Amendment,” a proposal that would allow two thirds of the state legislatures to repeal any “Presidential Executive order, rule, regulation, other regulatory action, or administrative ruling issued by a department, agency, or instrumentality of the United States.”

Importantly, this amendment would not allow states to repeal the text of statutes that have duly passed both houses of Congress. This isn’t an amendment to change the system of bicameralism that the Framers designed; instead, it’s an amendment to restore the checks on the executive branch that existed before the massive expansion of the administrative state. As the amendment’s creator David Hemingway has explained, “The practical result would be to enhance the power of Congress since it would encourage the president to work with Congress rather than govern by issuing executive orders.”

Trump Derangement Syndrome

Back in 2003 the psychiatrist and columnist Charles Krauthammer declared a new psychiatric syndrome, “Bush Derangement Syndrome: the acute onset of paranoia in otherwise normal people in reaction to the policies, the presidency – nay – the very existence of George W. Bush.” He had a point. But derangement can be generated by support as well as opposition for a political figure.

What do we say about conservatives – people who believe, variously, in limited government, free markets, Judeo-Christian values, and the importance of character in public life – who have been forced to utter absurdities in defense of Donald Trump? It’s one thing to say that Hillary Clinton and her Supreme Court justices and her 4,000 bureaucrats are on net worse than Trump and whatever menagerie he brings to the White House. But when free-market conservatives find themselves enthusiastically defending the most protectionist presidential candidate since Pat Buchanan, or Christian conservatives are forced to say that personal character isn’t really a big issue for them, I fear that derangement has set in. Take just a few examples in the past few days.

In Thursday’s Wall Street Journal Karl Rove writes that Trump needs “a Republican House to pass his agenda.” But his agenda is trade war, deportation, and banning adherents of the Muslim faith from entering the United States. Is that an agenda a Republican House would pass? Say it ain’t so, Karl (or Paul).

Trump Adviser Peter Navarro: Reagan Critic, Industrial Policy Fan

Donald Trump always sounded just like a Bernie Sanders Democrat when talking about international trade. “We have one issue that’s very similar,” he said, “and that’s trade.”  That Trump-Sanders hostility to trade liberalization, in turn, is identical to that of the AFL-CIO and the Economic Policy Institute, a leftist think tank created and largely financed by labor unions.

It should be no surprise that Donald Trump’s most influential adviser and spokesman on international trade, Peter Navarro, is a former unsuccessful Democrat politician who seems closer to an old-style Bernie Sanders leftist Democrat than to a Bill Clinton “New Democrat.”

The only academic among Trump 13 economic advisers, Navarro returned to being an economics professor at U.C. Irvine, after losing San Diego mayoral election to Republican Susan Golding. In 1993 Navarro wrote the book, Bill Clinton’s Agenda for America.

With one caveat, the book was full of glowing praise for everything Clinton promised to do – notably lots more federal spending (which, ironically, fell substantially).

Navarro’s doubts about Clinton concerned NAFTA, which Bush created but Clinton promised to change. “I thought the NAFTA agreement ought to have been more properly called ‘SHAFTA,’” says Navarro.  But he notes that “candidate Clinton later acknowledged the problems of the environment and lost jobs raised by NAFTA, and called for wage safeguards and stricter environmental regulations. It remains to be seen whether this was merely rhetoric, or a serious concern that will have policy follow-through.”

Proposed Spending Cap in Brazil Could Be a Key for Economic Recovery and Renaissance

One of the most remarkable developments in the world of fiscal policy is that even left-leaning international bureaucracies are beginning to embrace spending caps as the only effective and successful rule for fiscal policy.

The International Monetary Fund is infamous because senior officials relentlessly advocate for tax hikes, but the professional economists at the organization have concluded in two separate studies (see here and here) that expenditure limits produce good results.

Likewise, the political appointees at the Organization for Economic Cooperation and Development generally push a pro-tax increase agenda, but professional economists at the Paris-based bureaucracy also have produced studies (see here and here) showing that spending caps are the only approach that leads to good results.

Heck, even the European Central Bank has jumped into the issue with a study that reaches the same conclusion.

This doesn’t mean balanced budget requirements are bad, by the way, but the evidence shows that they aren’t very effective since they allow lots of spending when the economy is expanding (and thus generating tax revenue). But when the economy goes into recession (causing a drop in tax revenue), politicians impose tax hikes in hopes of propping up their previous spending commitments.

With a spending cap, by contrast, fiscal policy is very stable. Politicians know from one year to the next that they can increase spending by some modest amount. They don’t like the fact that they can’t approve big spending increases in the years when the economy is expanding, but that’s offset by the fact that they don’t have to cut spending when there’s a recession and revenues are falling.

From the perspective of taxpayers and the economy, the benefit of a spending cap (assuming it is well designed so that it satisfies Mitchell’s Golden Rule) is that annual budgetary increases are lower than the long-run average growth of the private sector.

And nations that have followed such a policy have achieved very good results. The burden of government spending shrinks as a share of economic output, which naturally also leads to less red ink relative to the size of the private economy.

But it’s difficult to maintain spending discipline for multi-year periods. In most cases, governments that adopt good policy eventually capitulate to pressure from interest groups and start allowing the budget to expand too quickly.

That’s why the ideal policy is to make a spending cap part of a nation’s constitution.

That’s what happened in Switzerland early last decade thanks to a voter referendum. And that’s what has been part of Hong Kong’s Basic Law since it was approved back in 1990.

Fiscal Choices in the Election

An upcoming Cato event examines whether or not you should vote in the election. If you decide to go ahead with it, National Taxpayers Union (NTU) has resources to you help assess the fiscal issues at stake.

Regarding your choice for president, NTU has tallied the spending promises of Hillary Clinton, Donald Trump, and Gary Johnson. Clinton has proposed dozens of spending increases and a few cuts, which add up to a net $203 billion a year in higher spending. Trump’s promises add up to a net $20 billion a year in higher spending.

By contrast, Johnson is promising to save us money. NTU calculates that his net spending cuts would be $143 billion a year. Such reforms would be a good start, but less than my proposed cuts of $1.2 trillion a year.

If you don’t plan on voting for president, or any politician this year, another useful NTU guide describes other important issues at stake on state ballots. Here are a few highlights:

  • Marijuana legalization (and taxation) for recreational use is on the ballot in five states: Arizona, California, Maine, Massachusetts, and Nevada.
  • Tobacco tax increases are on the ballot in four states. My governor’s report noted that a dozen states have enacted tobacco tax hikes just since 2014. In the minds of some politicians, smokers are “deplorables,” so it is easy to target them.
  • New taxes on sugary drinks are on the ballot in a number of local jurisdictions. Cola drinkers are becoming a new class of deplorables.
  • Voters will decide on bond issues in many places. One statewide California proposition would authorize $9 billion in debt to fund schools and colleges. My governors report explains why state and local debt issuance is bad policy, even for capital improvements. State and local capital projects should be funded pay-as-you-go. It is cheaper, more transparent, and less conducive to corruption.
  • Coloradans will vote on Amendment 69, “which would create a government-run health care scheme (ColoradoCare) aiming to cover all residents. The amendment includes a $25 billion tax increase … This would nearly double the state’s budget.” Wow, that’s big.
  • Corporate welfare choices are on the ballot in a few places. Voters in Arlington, Texas, will decide on new taxes to fund a $1 billion stadium for MLB’s Texas Rangers. Voters in San Diego will decide on new taxes to fund a football stadium for the NFL’s Chargers.

I don’t know whether or not you should vote for president. But you should check out the NTU guide and www.ballotpedia.org to see what state and local issues you will be able to weigh in on.

Alan Reynolds in 1997 on Exchange Rates and Trade

I stumbled on this 1997 talk abut NAFTA by my old friend Roberto Salinas-Leon, making a case for Hillary’s Wikileak dream of Hemispheric free trade (but not for her other dream of “open borders” if that really meant unhindered migration).  

I may be biased, but the following heretofore lost quote from me still seems relevant, but for the U.S. too, not just Mexico. Trump adviser Peter Navarro thinks the dollar is 45% too strong against the Chinese yuan, which supposedly excuses Trump’s threat of a 45% tariff.  (I’m more in the “strong dollar is good for America” camp, though strong doesn’t mean continually rising.) 

As Alan Reynolds has recently explained, “the explicit goal of devaluation is to worsen the terms of trade”-for instance, to make Mexico trade more exports for fewer imports. Reynolds continues: “…even if Mexico wanted to impoverish itself in this way, it does not work. When the peso was devalued at the end of 1994 that did not result in Mexican oil or beer being one cent cheaper in terms of U.S. dollars. After a devaluation, interest rates soar, real tax receipts collapse, and the foreign debt burden increases. This causes a squeeze on the government’s budget, and on the budgets of families, farms and firms. This is no way to make a country “competitive.” Economic growth depends on more and better labor and capital, neither of which are encouraged by a currency of unpredictable value. A weak currency has never produced a strong economy.”

To be sure, concerns surrounding currency revaluation are closely mixed with the fear of generating a substantial trade deficit. Reynolds again explains the misdiagnosis of increased imports as a sign of bad times: “current account deficits have nothing to do with ‘competitiveness.’ They are caused by a gap between investment and domestic savings that is filled by foreign investment (which is good) or loans (which are not so good). To the extent that a devaluation might “fix” such a gap, it does so by slashing investment, not raising savings.”

Farm Subsidy Outlook

An important issue on the plate of the incoming president will be the next farm bill. Current farm programs run through September 2018, and farm bill supporters are already making plans to extend and expand them.

I have posted a new essay on why farm subsidies should be repealed at DownsizingGovernment.org. I describe eight types of farm subsidies and six reasons to repeal them.

The durability of farm programs over the decades encapsulates just about everything that’s wrong with Washington. The programs make no economic or environmental sense. They subsidize higher-income households, including billionaires. They run directly counter to the American ethos of independence and rugged individualism. Farmers should be proud rural businesspeople, but some have become like cattle feeding at a subsidy trough.

Farm programs survive not because they make practical sense, but because Washington’s agenda is controlled by special-interest insiders exploiting a key flaw in our Madisonian system—logrolling. In a recent news story about the next farm bill, a top farm lobbyist basically admits that farm programs don’t have the votes to pass on the merits, so they are packaged in legislation with food subsidy programs to gain the support of urban legislators.

The current farm bill, passed in 2014, is costing more than originally promised, yet farm-state legislators will soon go on “listening tours” to ask farmers how to expand the subsidies even more. Meanwhile, neither of the two main presidential candidates seem interested in reforming the grotesque system.

Nonetheless, there was a lot of talk about Washington corruption and cronyism on the campaign trail over the past year, so maybe the public will get fired up to oppose welfare for the well-to-do in the upcoming farm bill.

See here for more on federal agriculture subsidies.