Cato Studies: Supreme Court Finally Considers Key Issue

November/​December 1994 • Policy Report

Are There Any Constitutional Limits on Federal Powers?

A case to come before the U.S. Supreme Court in November givesthe nine justices the first opportunity in many decades to ruleon fundamental questions about the power of Congress to legislate,according to Glenn Harlan Reynolds, an associate professor at theUniversity of Tennessee College of Law. In “Kids, Guns, andthe Commerce Clause: Is the Court Ready for Constitutional Government?”(Policy Analysis no. 216), Reynolds shows that United States v.Lopez raises the fundamental issue of whether the U.S. Constitutionlimits the power of the federal government. In Lopez theFifth Circuit Court of Appeals struck down the 1990 GunFreeSchool Zones Act, finding it beyond the power of Congress toenact. Such a finding is all but unheard of in the post‐​New Dealera. The act prohibited the possession of a gun within aspecified distance of a school. At bottom, writes Reynolds, Lopez is not about gun control, or even about federal‐​state relations,but about whether the Court is ready to hold Congress to its constitutionallimits.

Reynolds argues that, as written and originally understood,the Constitution limits the federal government primarily by enumeratingits powers, which the Tenth Amendment confirms by declaring thatthose powers not delegated to the federal government are reservedto the states or to the people. For a century and a half, theSupreme Court enforced those restraints. But with the New Dealand Franklin Roosevelt’s threat to pack the Court with sixadditional justices, Reynolds explains, the Court retreated fromits traditional role, enabling Congress to indulge an everexpanding array of powers. Today, under the Court’s boundlessreading of the Commerce Clause, which gives Congress power to regulate commerceamong the states, the doctrine of enumerated powers is all butdead, Reynolds writes. Yet that doctrine was meant by the Framersto be the centerpiece of the Constitution, the principalrestraint on federal power.

Reynolds says that the Court should strike down the act, forif the enumerated powers doctrine is in fact dead, other constitutionalprotections are in jeopardy as well.

World Bank Faces S&L-Style Crisis

As the World Bank celebrates its 50th anniversary this year,its irresponsible lending practices are exposing Western taxpayersto a possible bailout comparable to that of the U.S. savings andloan industry. According to Patricia Adams’s study, “TheWorld Bank’s Finances: An International S&L Crisis”(Policy Analysis no. 215), taxpayers in the industrializedcountries are on the hook for $100 billion. U.S. citizens wouldbe liable for nearly $30 billion.

The World Bank and Western governments have used varioustechniques to create the appearance of a fiscally sound institution,writes Adams, executive director of Probe International, aCanadian environmental group. During the debt crisis of the1980s, for example, borrowing countries paid their old debtsthrough more borrowing from the World Bank. That practice of“round-tripping” money helped bail out manyprivate‐​sector creditors but worsened the bank’s financialposition. Loans from rich countries’ bilateral aid agencies andfrom the International Development Association (the World Bank’s concessionaryloan window) also have helped to keep the World Bank afloat. Eventhough the bank is now receiving more than it lends, Adamswrites, its meager loan‐​loss provisions and confidential notes suggestthat there is ample reason for concern.

Adams argues that reform will not solve the institution’sproblems. It must be shut down, she says. There are at least fiveways to do that: dissolution according to the bank’s articles ofagreement, privatization, selling its assets, swapping bank debtsfor equity, and unilateral withdrawal by individual countries. Closingthe World Bank now would be less damaging than waiting for itscollapse, Adams concludes.

Capping State Spending in Missouri

In November 1980 Missouri voters approved the Hancockamendment, a constitutional amendment intended to prevent the Missouristate budget from growing faster than the budgets of Missouri families. Sincethen the effectiveness of that amendment has been eroded aslegislators have discovered ways to evade its restrictions byexempting certain revenues from the cap. Those evasions have costMissourians $5 billion in higher taxes. This November’s HancockII amendment, which more precisely defines “total staterevenue,” would be more difficult for politicians to evade.

In “Missouri’s Hancock II Amendment: The Case for RealReform” (Cato Briefing Paper no. 20), Dean Stansel, a fiscal policyanalyst at Cato, reveals the flaws in the arguments of opponentsof Hancock II. Using simple arithmetic, Stansel shows that theopposition’s scare tactics — claiming that Hancock II will requirea $1‐​billion tax refund and necessitate massive spending cuts andservice disruptions — are inaccurate and misleading. Any reductionin spending that might be necessary to comply with Hancock II wouldbe only about one‐​eighth the size of the opposition’s alarmist predictions,Stansel says.