Cato Studies: Supreme Court Finally Considers Key Issue

Are There Any Constitutional Limits on Federal Powers?

A case to come before the U.S. Supreme Court in November gives the nine justices the first opportunity in many decades to rule on fundamental questions about the power of Congress to legislate, according to Glenn Harlan Reynolds, an associate professor at the University of Tennessee College of Law. In "Kids, Guns, and the 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. Constitution limits the power of the federal government. In Lopez the Fifth Circuit Court of Appeals struck down the 1990 GunFree School Zones Act, finding it beyond the power of Congress to enact. Such a finding is all but unheard of in the post-New Deal era. The act prohibited the possession of a gun within a specified 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 constitutional limits.

Reynolds argues that, as written and originally understood, the Constitution limits the federal government primarily by enumerating its powers, which the Tenth Amendment confirms by declaring that those powers not delegated to the federal government are reserved to the states or to the people. For a century and a half, the Supreme Court enforced those restraints. But with the New Deal and Franklin Roosevelt's threat to pack the Court with six additional justices, Reynolds explains, the Court retreated from its traditional role, enabling Congress to indulge an ever expanding array of powers. Today, under the Court's boundless reading of the Commerce Clause, which gives Congress power to regulate commerce among the states, the doctrine of enumerated powers is all but dead, Reynolds writes. Yet that doctrine was meant by the Framers to be the centerpiece of the Constitution, the principal restraint on federal power.

Reynolds says that the Court should strike down the act, for if the enumerated powers doctrine is in fact dead, other constitutional protections 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 taxpayers to a possible bailout comparable to that of the U.S. savings and loan industry. According to Patricia Adams's study, "The World Bank's Finances: An International S&L Crisis" (Policy Analysis no. 215), taxpayers in the industrialized countries are on the hook for $100 billion. U.S. citizens would be liable for nearly $30 billion.

The World Bank and Western governments have used various techniques to create the appearance of a fiscally sound institution, writes Adams, executive director of Probe International, a Canadian environmental group. During the debt crisis of the 1980s, for example, borrowing countries paid their old debts through more borrowing from the World Bank. That practice of "round-tripping" money helped bail out many private-sector creditors but worsened the bank's financial position. Loans from rich countries' bilateral aid agencies and from the International Development Association (the World Bank's concessionary loan window) also have helped to keep the World Bank afloat. Even though the bank is now receiving more than it lends, Adams writes, its meager loan-loss provisions and confidential notes suggest that there is ample reason for concern.

Adams argues that reform will not solve the institution's problems. It must be shut down, she says. There are at least five ways to do that: dissolution according to the bank's articles of agreement, privatization, selling its assets, swapping bank debts for equity, and unilateral withdrawal by individual countries. Closing the World Bank now would be less damaging than waiting for its collapse, Adams concludes.

Capping State Spending in Missouri

In November 1980 Missouri voters approved the Hancock amendment, a constitutional amendment intended to prevent the Missouri state budget from growing faster than the budgets of Missouri families. Since then the effectiveness of that amendment has been eroded as legislators have discovered ways to evade its restrictions by exempting certain revenues from the cap. Those evasions have cost Missourians $5 billion in higher taxes. This November's Hancock II amendment, which more precisely defines "total state revenue," would be more difficult for politicians to evade.

In "Missouri's Hancock II Amendment: The Case for Real Reform" (Cato Briefing Paper no. 20), Dean Stansel, a fiscal policy analyst at Cato, reveals the flaws in the arguments of opponents of Hancock II. Using simple arithmetic, Stansel shows that the opposition's scare tactics — claiming that Hancock II will require a $1-billion tax refund and necessitate massive spending cuts and service disruptions — are inaccurate and misleading. Any reduction in spending that might be necessary to comply with Hancock II would be only about one-eighth the size of the opposition's alarmist predictions, Stansel says.