Realists might say, “Save your ivory‐tower doubts for the law journals.” Supreme Court Justice Robert Jackson famously wrote, “The Constitution is not a suicide pact.” Douse the flames first; then repair the bad wiring.
But a declaration of unconstitutionality, if justified, serves three vital purposes today. It imposes a heavy burden on proponents of the bailout to explain why the Constitution can be violated with impunity. It reinforces the case for abandoning the program once any true emergency has passed. And it helps establish a presumption against adopting similar measures that might be proposed to resolve future “emergencies.”
Even now some experts, including my colleagues at the Cato Institute, believe that alternative proposals (perhaps even constitutional proposals) could achieve the desired ends without socializing the financial sector and without establishing statist precedents that could haunt us for decades or longer.
Opponents of the bailout are unconvinced when media pundits and presidential candidates carp about the failure of deregulation, the need for immediate government intervention, and the final days of capitalism. According to bailout skeptics, government created this crisis‐with everything from artificially low interest rates to political pressures for “affordable” housing, quick loans for bad credit risks, and the subsidization of agencies such as Fannie Mae and Freddie Mac. The predictable result of those perverse incentives: greater leverage and more risk. Heads, the private sector wins; tails, the taxpayer loses. Critics ask why a solution to the problem should now be entrusted to the bureaucrats who got us into this mess.
On that question, I concede insufficient expertise. More important, events on the ground seem to have superseded the policy debate. The bailout moves ahead, never mind that many economists and public finance specialists insist it is more invasive than required and unlikely to address root causes. We embark on this adventure notwithstanding the controversy regarding its necessity and effectiveness.
I turn, therefore, to the threshold question that should have, but has not been, adequately examined: Is the bailout constitutional?
It is not. The federal government has no constitutional authority to spend taxpayers’ money to buy distressed assets, much less to take an ownership position in private financial institutions. And Congress has no constitutional authority to delegate nearly plenary legislative power to the Treasury secretary, an executive branch official.
Congress can proceed only from legitimate authority, not from good intentions alone. That means we must find a constitutional pedigree for each proposed law.
One possible rationale for the bailout is the all‐encompassing commerce clause. As the country grew and some people came to believe that most of its problems required national regulatory solutions, Congress sought to find a specific constitutional power that would justify an ambitious federal agenda. The commerce clause became the vehicle of choice.
Yet that is not why the clause was written into the Constitution. Under the Arti cles of Confederation, the national government lacked the power to regulate interstate commerce. Each state was free to advance local interests and to create barriers to trade without regard to possible prejudice to out‐of‐state interests. That process devolved into what Justice William Johnson, concurring in Gibbons v. Ogden (1824), characterized as a “conflict of commercial regulations, destructive to the harmony of the States.”
The solution: a constitutional convention at which, according to Johnson, “If there was any one object riding over every other in the adoption of the Constitution, it was to keep the commercial intercourse among the States free from all invidious and partial restraints.”
Instead of serving as that shield against interference by the states, the commerce power has become a sword wielded by the federal government in pursuit of a boundless array of regulatory programs. That financial markets are interstate does not authorize the federal government to do anything and everything to manage those markets. The commerce power is to “regulate,” but commerce is not regulated by eliminating private risk and substituting tax‐funded handouts to favored economic actors. The Framers who crafted the commerce clause could not have intended to empower Congress to give an executive official virtual carte blanche over all financial institutions.
Moreover, it is not a commerce clause argument to say that Congress created the mess and, therefore, Congress can do whatever it wants to fix the mess. Legislators’ misdeeds do not ipso facto justify the socialization of private banks, brokers, mortgage companies, and insurance companies‐and who knows where it stops.
Even if Congress could defend the bailout as a means of preventing interstate impediments to commerce, that would not legitimize any and all means.
No Intelligible Principle
To legitimately invoke the commerce power, Congress must show not only that a federal program is necessary, but also that it is proper‐that is, the program does not violate other foundational principles, such as federalism, separation of powers, and limited government. Congress has not made that showing.
Indeed, the bailout quite clearly violates the Constitution’s separation‐of‐powers principle‐in particular, what has become known as the nondelegation doctrine, which states that Congress may not delegate its legislative power to any other entity, including the Cabinet departments of the executive branch. Article I, section 1 of the Constitution states, “All legislative Powers … shall be vested in a Congress.” A plain reading of that text shows that lawmaking is for the legislative branch, which does not include the Treasury Department. Yet when Congress authorized the bailout package, it gave Secretary Henry Paul son Jr. unprecedented power to act as a super‐legislature.