Panel IV: Economic Uncertainty and the Role of the Courts (Q&A)

Question 1: How do you square rent seeking behaviors against in

Zywicki: Interchange fees are logical and came from market. Merchants bear the cost of interchange and consumers get debit cards essentially for free. If we change, consumers are going to have to be more for bank accounts, debit cards, etc. Some consumers will be driven out of the market and won't use debit cards. The unintended consequences could be huge: limits would only be on debit cards not credit cards when credit cards interchange fees are much higher. Thus, consumers would then lobby again to solve unintended consequences. This is the path of interventionism that leads to more and more intervention and regulation.

Questions 2: Does economic freedom lead to more political freedom?

Mahoney: It depends on how you define political freedom. Many places have competitive political elections, but we doubt their actual freedom (Russia for example). At least for economic freedom we can look at certain indicators like low inflation, low regulatory environment, ... For political freedom, the best indicator is how frequently a government leaves voluntarily when people/voters no longer want in power. It is difficult to say if one leads to the other.

Question 3: Why did TARP and the bailouts pass without more resistance?

Zywicki: Congress was extremely weak during financial crisis. Bush-Paulson were able to push theories of imperial executive and many Republicans and Democrats in Congress, and the Federalist Society, did not resist. The GM/Chrysler Bailout is an example of deferring to the President when Congress didn't want to be on record supporting or opposing it. Finally, Congress pushed back a little bit when Secretary Paulson demanded trillions for more bailouts. Furthermore, TARP money might have been blatantly illegal, but the Court never heard it.

Question 4: How will people react if implicit guarantee of banking system was explicit?

Zywicki: The independence of the banking system form the government is one good example of economic freedom. Cronyism in big banks and big government is a sign of regime corruption. An example of the problem was Fannie & Freddie: an example of an implicit guarantee from failing since government owned.

Mahoney: It is hard to guarantee the opposite of bailouts. A system where everyone knows that a bank will not bailed out is hard because Congress would need to resist threats of wrecking the economy from big banks. It is akin to a hostage situation and hard for lawmakers to resist and deal with effect on economy and voter backlash.

Speech: The U.S. Financial Crisis: Causes and Consequences

In a speech before lunch, John Allison, the retired Chairman and CEO of BB&T Bank, began by analyzing the causes and consequences of the recent financial crisis, but concluded with a broader discussion of political and personal philosophy. Mr. Allison served as chairman and CEO for almost twenty years and over that time BB&T rose to become the tenth largest bank in the nation. Over the course of that period, Mr. Allison and BB&T funded over sixty college programs and donated large amounts of money to universities in an effort to combat what Mr Allison described as an orthodox liberal economic theory that has permeated the education system. Each of these programs funded professors and university chairs that taught Objectivist, conservative and libertarian philosophies of limited government, low taxes, capitalism, and free markets with emphasis on the works of Adam Smith and Ayn Rand.

As far as the recent collapse, Mr. Allison identified four themes that influenced the actions of government and banks.

(1) Government policy of fixing problems through increased regulation and control - a mixed regulated economy that has become increasingly regulated in recent decades

(2) Policies creating a bubble in the real estate market

(3) Refusal to let businesses fail

(4) Doing anything for short term gain at the expensive of long term strength and stability

Mr. Allison identified the Federal Reserve and the broad regulatory system as the primary problem in the crisis. Since the monetary system was nationalized in 1913, the market has had less and less control over the dollar. In his opinion, the idea of integrating the economic activity of seven billion people worldwide is not sustainable or feasible. The Fed is not able to fix prices and avoid a crisis for a long period of time. Negative margins and inverse ratios in the market led to bad loans and increased risk. Identified as "the proximate cause" of the crisis, the government's housing policy and the belief that simply owning a home was a goo in itself led to huge problems. Personal incentives to be frugal, have discipline, and buy within one's means were lost in this fervor. Both conservatives and liberals recognized the lack of sustainability of Freddie Mac and Fannie Mae. Intelligent legislators ignored the high leverage ratios and the increasing debt the housing policy would inevitably cause in the market. Mr. Allison identfied Barnie Frank as an example of an intelligent legislator who understood the risk, but ignored based on a "religious" devotion to housing for all.

Furthermore, Mr. Allison identified President Lyndon Johnson's administration and the Great Society as pivotal historical point after the New Deal, but before Fannie & Freddie, that led to this system. LBJ wanted to fund the Vietnam War and the vast expansion of the welfare state, but did not want to do the politically unpopular thing, raise taxes on the American people. Thus, the programs were funded by printing money under the watch of The Federal Reserve and the Treasury. Professor Allison pointed to this decisions is a harbinger of the increased regulation of the monetary system, mortgage rates, and the real estate market. Once the government was in the market, private companies were unable to compete with their rates and guarantees. Since the purpose of banks is to enable people to invest for longer periods of time by buying short and selling long. The Fed, the Treasury, and the FDIC's policies and intervention led to increased leverage ratios and unfair playing field. In the face of this controlled market, led to banks and accountants to make unnatural market decisions.

Moreover, Mr. Allison rejected that greed and avarice is a primary cause the collapse. He acknowledged that Wall Street is greedy, but not more so than at any other point in history. Policy and government regulation, he argued, is the true problem despite the political points won by attacking the wealthy on Wall Street. Mr. Allison also rejected the idea of "too big to fail." He points to AIG as an example of a huge and successful firm that might seem too big to fail, but that in reality was only one firm in the grand scheme of the system. In a more controversial point, Mr. Allison suggested that AIG's connections to Goldman Sachs, which has large personnel and financial connections to the FDIC, was a major basis for the FDIC's view that AIG was an irreplaceable player in the market. He added that BB&T would have been fine without AIG. Finally, Mr. Allison defended BB&T's acceptance of TARP funds despite his personal opposite to the program. The Fed and chairman Ben Bernanke's decision to change the credit ratio and effectively force all major banks to accept the funds left him with no choice in the matter. However, he wanted to emphasize BB&T paid back all loans with interest.

In the closing portion of his speech, Mr. Allison turned to philosophy and his vision of how to approach life and politics. He ejected John Maynard Keynes economic philosophy of "digging holes and filling them up" to arbitrarily keep the market moving. In lieu of Keynesianism, the government should keep taxes low and deregulate to allow producers to create jobs and invest in the market. Mr. Allison argued that not wealthy people are productive, but in general when taxes are lower the wealthy is more active in the market and increases overall investment. From a political standpoint, Mr. Allison advocated for reduced scale of government, lower taxes, free trade, a reduction in regulation and public companies.

On a personal level, Mr. Allison advocated three major points. First, pure altruism leads to redistribution of wealth and turns the nation into a society of unproductive parasites. Since each person has a right to his own life, Americans should return to the Jeffersonian vision of freedom of the individual to pursue his own life and interests. Second, the devotion to pragmatism can lead to short term gains at the expense of long term virtue and strength. Abandoning virtue and compromising for security and short term protection will not work in the long run. The best personal approach is pursuing long-terms self-interest under the "trader principle." This approach rewards rationality and self-discipline and results in long term success. Finally, the "free lunch" mentality is not sustainable or a path to a successful life. Mr. Allison reminds us that neither Presidential candidate in the 2008 Election proposed any tenable or serious solution to the welfare or medicare system.

Mr. Allison encouraged the students in the audience to follow his three great values: Purpose, Reason, and Self-esteem. Self-esteem, he argues, comes from an earned life and work that leads to a sustained joy. Short-term security is not a substitute for life on one's own terms. The speech received a standing ovation from the crowd of nearly 400 students, attorneys, and scholars. (For further reading on Mr. Allison's philosophical approach, see the works of Adam Smith, Ayn Rand, or Tara Smith.)

The Welfare State and American Exceptionalism

Professor Rabkin began by inquiring whether the United States is an exceptional country. Our enemies certainly seem to think so. In fact, they seem to think that Americans are possessed of magical powers. All around the world, there are signs going up in English, signifying people's belief that America possesses the capabilities to save them.

In America, there used to be a discussion about why the country didn't pursue more socialist policies, but as one of our political parties moves to the left and things like the health care bill become realities, the situation has changed. The fact is that America has a very different background political culture, driven by a strong sense of personal responsibility. Americans, by a 2-1 margin, believe that their success is driven by their own personal choices, while every country in Europe has the opposite ratio, with the widespread belief that success is inevitably determined by factors beyond individual control. The United States is also unique, because generally as the wealth of a country increases, the response to religion decreases. This is not the case in the United States, where people actually believe America should become more religious. In addition, in the United States, Americans are overwhelmingly proud of their country, to a greater degree than most other countries.

Professor Rabkin theorized that these factors lead to an inevitable sense that there is something wrong with trying to make America more like Europe, which is especially relevant in the context of health care. We are one of the only countries where states mostly subsist on their own revenue. This is a hard and painful process, since states cannot borrow endlessly or print money, as the federal government is capable of doing. 26 states have now joined lawsuits against health care legislation, reflecting their fear of being stuck with the bill for these new pieces of legislation down the line. The very constitutional culture of the United States creates a wide variety of people who have a very serious belief in rights in the constitution, such as the right to bear arms. This is part of the group that find it so objectionable that Congress can force people sitting at home on their couch to buy health care because they are "affecting commerce." Professor Rabkin's prediction is that even without 5 votes on the Supreme Court to strike down the health care legislation, the debate will continue about this bill for a long time.

Professor Rao spoke of the values that lie behind American exceptionalism, which are linked to the concepts of negative rights that underlie our Constitution. As time goes on, it increasingly seems that social and political limits will be the primary constraints on the welfare state. Professor Rao identified that in fact this country already has a significant welfare state, even though it hasn't reached quite European proportions, and the extent of where the limits lie and where they should lie is a subject of much debate.

Before World War I, debates revolved around liberty and equality. But in recent years, "dignity" has pushed these values to the side and dominated the debate. This is especially true in Europe, where dignity means being part of a community. This is reflected in constitutions and other legislation through the idea that humans have a right to a certain living standard that the state or community will provide for them if they are unable to do so themselves. This has become a constitutional right that is not limited to a conception of social equality, but develops into a "second-generation right" that extends to mean protection and care by the government, with personal dignity depending on receipt of these benefits.

By contrast, in America, dignity is primarily about negative rights, for example, when the government respects our rights to free speech, free assembly, and treats us as equal citizens. This conception runs through the majority of Supreme Court decisions, and this reflects our history and the ideals that underlie our constitutional system. This is largely unique to America, since in many other countries these values take a backseat to communitarian values. Professor Rosen did identify instances where dignity as a positive right has made an appearance in the United States, such as when Franklin Roosevelt asserted that our constitutional rights have failed to ensure human flourishing, which requires a guaranteed minimum standard of living. This has been brought up in a modern context by President Obama, in the context of regulatory reform.

One of the problems with dignity is that it is not a traditional legal term, but simply one that you "know it when you see it." The conception of dignity in the welfare state is not compatible with the concepts of individual dignity that underlie American exceptionalism, and these ideals must be traded off each other to seek an uneasy balance. The Constitution provides a framework, but when it comes down to it, exceptionalism depends on us as individuals.

Professor Marshall began by acknowledging that views of conservative and liberal judicial power have changed over the past thirty years, and there are many possible reasons for this. The idea that the federal government could provide free health care to everyone seems clearly constitutional, so the real problem with the health care bill is the individual mandate portion of the bill. The question to ask is whether the welfare state is inconsistent with American exceptionalism. What people are really objecting to in the context of health care is the idea of the federal government becoming involved in another welfare program of this magnitude. There are two primary objections: 1.) Rugged individualism, and the ability to make your own choices, and 2.) Mistrust of government, and a lack of faith in their ability to make the right choices for everyone.

The idea of "rugged individualism", no question, is one of the sources of the greater optimism present in the United States than in other countries. Society is much more integrated in the world today, and this has made everything so much more complex. It's not clear in global markets that the success of rugged American individualists benefits the country as much as it used to.

The narrative of distrust in government also made sense to Professor Marshall, who originally hails from the "Live free or die" state of New Hampshire, and said there was no question that the government is too big. The question is where to cut down on the government. This distrust is healthy, but the fact is that the only entity that can stand up to the excesses of large corporate power is the federal government, and the danger of cutting the federal government too drastically would only leave private power, and there is a similar distrust of private power in this country.

Regarding health care, one of the reasons for the state of affairs in Europe is the lack of social mobility. In recent years we have seen this in the United States, as we have become more of a society of classes. Health care is unique because it is so essential to freedom of opportunity, and it is the key to upward mobility. Health care is such a uniquely personal and powerful issue, causing great financial and personal difficulties. At least eliminating the barriers that are outside of one's own control, like preexisting health conditions.

RESPONSE: Professor Rabkin addressed the health care debate by admitting that the federal government might have power to tax everyone and create federal clinics, but that's not what's happening in this case. The federal government has never extended its right to regulate commerce to a complete lack of activity, creating a completely unlimited regulatory power. There is something bizarre about saying the states can limit people's choices to in-state insurance providers, which goes back on Supreme Court decisions regarding substantive due process. There are other options and other ways to regulate and change the health care system.

Judge Kavanaugh questioned how, philosophically, taxing someone is different from telling them to purchase something. In response, Professor Rabkin spoke of the need for an actual thing to tax, and the taxes need to be able to be avoided somehow, which is not the case here. This bill runs the risk of political subterfuge that cloaks the real objective and goal of the government in enacting this bill. Professor Marshall added that it is the question of individualism and distrust of government that would prevent health care, not the Constitution, since it doesn't seem there's a good argument that the Constitution does that. Health care is a political question. He expanded on this by saying that we're not talking about governmental power, we're talking about constitutional culture. We believe in this country in fighting wars for other people's freedoms. The fact that we have conflicting narratives about individualism and the welfare state in our culture is just a function of how our culture works.

Judge Kavanaugh also asked about the role of the courts in enforcing limits on the power of the other branches, and how cognizant they should be of not exceeding limits on their power. To Professor Marshall's assertion that the courts should decide a case where Congress is exceeding an enumerated power, Professor Rabkin seized the chance to return to the health care debate, and remark that courts have been interpreting the Commerce Clause since Gibbons v. Ogden, so this is not new judicial activism. Also, he offered comfort in the fact that the constitutional culture and beliefs of the country are much more complex than whatever may be expressed by a majority of the justices sitting on the Supreme Court.

Judge Kavanaugh's next question revolved around distrust of government, if it was getting worse, and how we can fix it. Professor Marshall said that distrust in government is a good thing, especially when its bipartisan. The problem is that it currently is so partisan in nature that parties don't have to work with each other anymore, and this is a problem. Professor Rao added that one of the most unique things about our country is that, along with our distrust in government, we believe we have an ability to change our government and prevent it from doing things we don't like.

To a very interesting question about the role that philanthropy plays as a part of American exceptionalism, and whether Americans can take care of our own people through philanthropy, there were glimpses into the competing ideologies of the panelists. Professor Rao said that philanthropy is more likely to flourish with smaller government and less taxes, and Professor Rabkin mentioned that there's great honor in taking care of your community. There is a role for the government, but Americans do have a history and tradition of giving, and this is partially lost if this is left to the government. Professor Marshall pointed out that an issue arises when some communities are simply unable to have the monetary base to provide for their own people, but acknowledged that philanthropy is a major part of who we are as a nation.

Judge Kavanaugh asked whether, if all 50 states enacted their own version of the health care bill, would there still be objections? Professor Rabkin seemed hesitant, but said he would object much less. He said it's helpful to have constitutional norms to reassure people that things will never tip too far to one side to the other. It makes a difference how the end sought to be achieved by a piece of legislation are put into place, and whether it's the federal government or the states.

In keeping with the tenor of the entire panel, which Professor Barnett correctly identified as returning over and over to a conversation about the health care legislation, many of the questions related to the Patient Protection and Affordable Care Act. One question was whether, since health is intrinsic, we ultimately take part in the healthcare market and do affect the economy, and these costs get passed on to the taxpayer, and how this affects the argument. Professor Rabkin acknowledged that health care is dysfunctional, there's no doubt, but there are two things: 1.) People would have been much more receptive to crisis or accident insurance instead. Part of the negative reaction comes from the comprehensive nature of what the mandate requires. 2.) The government has also not been completely honest about the bill, for example, people who already have insurance were told they could keep the insurance they have, but this is not totally accurate.

In response to how the argument squares with the commerce clause precedent, Lopez and Morrison excepted, and the lower court decisions that have come out on the case so far, Professor Marshall said that he thinks the lower court decision by Judges Hudson and Vinson are wrong, because not purchasing health insurance is not inactivity, it's self-insurance. Professor Rabkin revisited his point that this is unprecedented expansion of the power of Congress under the Commerce Clause. Judge Kavanaugh inquired next about the relation of the necessary and proper clause, and Professor Rabkin insisted that even Alexander Hamilton said that the necessary and proper clause had meaning as a limitation on federal power. It must be both necessary and proper, and proper in the sense of implementing the actual power it's claiming to be connected to. The Necessary and Proper Clause is not a blank check for Congress. The last question was whether the healthcare cases would lead to Wickard being overturned, to which Professor Rabkin replied that no, the challenge is framed in such a way that it's not required that you find that. The line is activity/nonactivity, and the Court would likely be very hesitant to overturn such an old precedent even if the challenge was framed in that way.

The Welfare State and American Exceptionalism

Following the recent passage of President Obama's health care legislation, this panel will reassess whether it is possible to have a welfare state that meshes with the American constitutional tradition. Is the enduring presence of government entitlements antithetical to our system of government, or is there a way to accommodate these programs without changing the historical American relationship between the individual and the government? Will the growing role of government in the United States cause the country to increasingly mirror Europe, or can the nation chart an alternate course? Does the U.S. Constitution's relative lack of positive rights compared to its counterparts around the world pose problems for proponents of an American welfare state? Is the American suspicion toward state entitlements the product of a longstanding philosophical commitment or the result of historical contingency? Are there currently any constitutional limits on the growth of the welfare state? Should there be?

Panelists:

William P. Marshall, University of North Carolina School of Law

Jeremy Rabkin, George Mason University School of Law

Neomi Rao, George Mason University School of Law

Moderator:

Judge Brett Kavanaugh, U.S. Court of Appeals for the D.C. Circuit

Federalism and Interstate Competition

This morning's first panel:


Federalism and Interstate Competition
This panel will assess American federalism as a competitive institution that offers a marketplace of state regulatory regimes. With the recession impacting some states more heavily than others, it is time to ask whether interstate competition is good for the nation. Should state-by-state approaches to issues such as healthcare, financial regulation, environmental protection, and same-sex marriage be encouraged? Does competition among the states lead to the best outcome or a race to the bottom? How will events such as the recent recession and healthcare reform impact the marketplace of state regulation? 


Panelists:
Jonathan Adler, Case Western Reserve University School of Law
Clayton Gillette, New York University School of Law
John McGinnis, Northwestern University School of Law
Louis Michael Seidman, Georgetown University Law Center


Moderator: 
Gregory G. Katsas, Jones Day


Professor Jonathon Adler


Professor Adler argued that interstate competition through federalism not only promotes markets, but also promotes better policy generally. 


Our constitution, he argued, assumes a federalist system. Most issues were left in the hands of state governments with plenary police power. The constitution authorized federal intervention only in limited circumstances. 


But federalism is not simply a constitutional issue; it is also good policy. The burden should be on those who want federal intervention to show its relative benefits. The benefits of decentralization are quite large:

• Possibility of exit disciplines states from taxing too much, or from regulating too little.
• Allows jurisdictions to respond to local differences; even if the harms of ozone pollution remain constant across cities, the proper way to resolve ozone pollution might vary.
• Helps to solve the knowledge problem. The knowledge problem, Professor Adler argues, is the greatest problem with federal intervention. 

Professor Adler suggests that decentralization allows the states to function as laboratories, which creates information about the costs and benefits of different approaches, and also limits the downside exposure for teh country as a whole. 

While he believes that decentralized government ought to be the default, Professor Adler suggests that it is a rebuttable presumption. In some areas, such as interstate pollution, there might be an argument for federal intervention. But in those cases, we ought to consider what the federal intervention will actually look like.

Professor Adler notes that states compete across multiple areas; we should not ask whether a state should promote industry or the environment, but how to promote both. The problem of "race to the bottom" has not been empirically shown, instead the evidence suggests that state competition often selects an optimal rule.

In closing, Professor Adler argues that we need to consider the actual effects of a federal intervention, rather than how we want the federal intervention to go. 

Professor Clayton Gillette

Professor Gillette began by noting the familiar suggested benefits of interjurisdictional competition: allows states to compete for residents, both individuals and firms with different bundles of goods, services, and costs, and reduces the size and inefficiency of government.

Professor Gillette then argued that these benefits rely on highly stylized conditions, for example, perfect sorting requires lots of mobility, information, and freedom of choice. 

But even with imperfect satisfaction of these conditions, there is moderate empirical support that federalism creates many of its supposed benefits. 

Professor Gillette then argued that the recent fiscal crisis reveals the possibility that the state government could exploit the financial position of the federal government and that the latter might actually need protection from the former. 

Subnational governments provide the supposed benefits of federalism only to the extent that their expenditures match their costs. Superficially, this would appear to be required: state governments typically must have balanced budgets, and they cannot print their own currency. Professor Gillette argues that states often externalize costs both temporally and geographically. Temporally, but promising benefits to citizens and workers now that must not be paid for until much later (when the politicians are out of office), and geographically, but taking subsidies from the federal government. The federal government, for example, subsidizes the issuance of local debt by exempting it from federal tax.

The tenuous financial position of state and local governments has been widely reported. Professor Gillette suggests that to the extent that investors observe that these institutions, like Citibank, are "too big to fail," they may assume an implicit federal government bailout of any state that cannot meet its obligations.Given the external effects of a financial meltdown in California, New York, or Illinois, they might be right. At any rate, the state governments can use this implicit financial backing to continue to externalize their costs, and the supposed benefits of federalism might not appear.

Which leads to Professor Gillette's suggestion: If cost internalization is essential to well-functioning federalism, and states violate that principle, and if the federal government cannot commit not to bail them out, then maybe the federal government should take more authority over the financial position of the states. 

While Professor Gillette did not make this point explicitly, and while it may not help to say it now, I don't think that the problem of financial externalization necessarily follows from federalism. I would at least like to hear his thoughts on whether the federalist system was predestined to consolidation for some structural reason - for example, a national economy has made it impossible to control cost externalization, or rather the cost externalization was a result of positive policies by the federal government - for example, tax-exempt status of state debt and federal subsidies.

Professor John McGinnis

Professor McGinnis argued that jurisdictional competition is an effective to discover a good set of rights. 

Good societies, he argues, want to protect both liberty and other conditions for human flourishing. State governments compete also to provide rights, without turning into "license." The line between license and liberty, he concedes, is pretty hard to draw. 

Some rights are better protected at the federal level - and we have a process for that. The large consensus required gives us the confidence that the monopoly is justified. 

Unlike the monopoly of the federal government, states are in a competition. Federal law protects the freedom of movement, and citizens can leave states if the balance between liberty and license goes awry. 

Professor McGinnis then drew a distinction between voting and "foot-voting." Citizens are rationally ignorant when it comes to voting. The probability that any one vote will decide the contest is very small. On the other hand, a citizen has better incentive to gather information when it comes to leaving one state for another, because the citizen looks to gain the entire benefit of the move (rather than having it widely dispersed). 

Today, the opportunities for feedback on the experiments are greater than ever, and therefore the benefits to information from federalism are greater than ever. 

Professor McGinnis then applied his theory to a comparison with the Supreme Court's protection of rights under substantive due process. 

Some rights, he noted, have very high benefits an relatively few costs. He cites the cases of Griswold and Lawrence as examples. But he argued that the actual decisions themselves had small benefit, because they invalidated laws that were dead letters anyway. The norms that supported them were out of favor. Professor McGinnis chalks these results up to federalism, not to the cases that recognized them. Before Griswold and Lawrence, those who disagreed with the substantive rules of a state merely went elsewhere.

In contrast, some of the decisions that were not subject to wide consensus have had large effects whose value is open to question. Roe, he argued, made it impossible to experiment with different abortion regimes. Moreover, a universal rule is always difficult to reverse. Substantive due process deprives the nation of sober second thoughts that the competitive process permits. 

Professor McGinnis noted a number of parallels between markets and federalism. The most important, and least recognized, is that federalism encourages humility and experimentation. Anyone in business recognizes that not matter how great he thinks his idea is, to be successful it will have to impress others as well. Federalism creates a focus on concrete facts as well; it cultivates a "spirit of liberty that is not too sure it is right."

Professor Louis Michael Seidman

Professor Seidman disputed the focus on federalism per se, and argued that any discussion of federalism should rather focus on the ideas of substantive justice sought to be vindicated. Instead of talking about the constitution or political economy, we should rather be talking about the appropriate role of markets, whether and how much to redistribute, and what the extent of individual freedom ought to be.

In different times and different places, federalism has different relationships with ideas of substantive justice. 

Professor Seidman noted that discussions of federalism often retreat from talking about underlying policies, focusing instead on either the constitution or political economy. 

We ought not care particularly what the founders thought or wrote (even in the text of the constitution) because those ideas reflect ideas of substantive justice that have no application today.

We ought not talk about political economy either, because like constitutional law, it can't deliver on its promise to give us a disinterested and technocratic view of federalism without regard to substantive justice ideas.

Professor Seidman then took issue with specific arguments for federalism. He noted that the argument that interjurisdictional competition protects freedom does not suggest a stopping point. What is the appropriate level of government? The state? Why not the city or the block or the individual? The argument pushes toward radical libertarianism.

Instead, he suggested a counternarrative: the prisoner's dillema. In his example, both Virginia and Maryland want to enact a minimum wage, but each knows that if it does, all of the businesses will move to the other. Professor Seidman suggests that overall welfare would increase if the federal government (or interstate compacts) allowed the states to act in concert. And to counter arguments that this narrative applies only to collective democratic decision making, Professor Seidman adopted it to an example where each wants to deregulate heroin use, but doesn't want to go alone because it doesn't want to attract all the heroin users.

But the more fundamental question is whether freedom ought to be conceptualized as collective or individual action. We can't decide whether federalism creates a race to the top or bottom until we know what the top or bottom mean. And what kind of freedom we ought to have should be the question under debate, not whether federalism is appropriate or not.

Debate Highlights

Professor Adler noted that just as Adam Smith wrote that the biggest threat to markets are the competitors themselves, the biggest threat to federalism are the states. States don't like to compete, so they will seek federal polices that allow them to externalize costs, garner subsidies, and cartelize. The real lesson is that we ought to take is that it is important to keep them from getting wound together in the first place, because they're very difficult to unwind. 


Professor Adler took issue with Professor Seidman's prisoner dilemma story because it assumes a static world. The world we live in, by contrast, presents jurisdictions with the ability to maximize on multiple variables - it's not a binary choice between industry and the environment, but how best to maximize both. 


Professor Gillette noted that there is no reason to believe that national officials will have purer motives than the perverse motives of state officials.


Professor McGinnis argued that we might be able to constitutionally commit the federal government not to bailout the states. 


He also took issue with Professor Seidman's remarks, arguing that we live in a world where individuals are quite ignorant of the consequences of their institutions. It's hard for those citizens to make progress without the required facts, and federalism does a better job of acquiring and presenting those facts than a top-down organization scheme. Federalism also allows citizens to operate without relying on their vote to get them the principle of substantive justice they want. 

Professor Seidman suggested that proponents of federalism need a more concrete idea of what is and is not an externality, before using externalities to decide when federal government action is justified. He suggested that even though he lives in DC, the fact of mountaintop removal in West Virginia and banned gay marriage in Mississippi might be considered externalities to the extent they make him sad. The broader the definition of externality, he argued, the greater justification for federal control. 


Professor Seidman also argued that before we talk about how to operationalize any theory, we have to talk about what we want. Different ideas of substantive justice require different methods of operationalizing. Discussions of federalism, he argued, distract from the debate. He suggested that no person agreed with the substance of the healthcare law, but also wanted to see it rejected because it was unconstitutional.


I might suggest to Professor Seidman that the reason for this is not that people who dislike the bill are using the constitution as an excuse to get rid of it, but that those who like the bill are for the same or other reasons not terribly interested in constitutional constraints. Professor Seidman himself argued that it is bizarre to suppose that the blueprint for running the country today should be based on the views or text of a document written by people then who had a different idea of substantive justice. I wonder how far he would be willing to go down that road, but I imagine that not many would follow him. 


Professor McGinnis argued that the debate about whether or not we should follow a constitution is a debate for another panel, but suggested that the alternatives to constitutions (judges and legislatures) suffer from an institutional lack of information.  

Economic Theory, Civic Virtue and the Meaning of the Constitution

This evening's panel addressed Justice Holmes' claim in his dissent to Lochner that  “a constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the State or of laissez faire.”

Professor G. Edward White 

Professor White suggested that the attitudes of the founders' generation were distinctive, including a number of negative assumptions. First, the founders assumed that humans are self-interested, inclined to pursue that interest, and willing to use positions of power to do so. Second, the founders assumed that states will be parochial, will fight each other, and will generally resist the federal government's requests to pursue the commonweal if they can. The founders took these assumptions into their draft of the new constitution.

Professor White noted a number of economic freedoms present in the constitution: protection for private rights, under the just compensation clause, the due process clause, and the contract clause; federalism protections designed to allow empower the federal government and withhold power from the states; and the most common economic protection in the constitution, the protections for private property rights in slaves. 

Professor White did not accept that the constitution dealt expressly with either virtue or any given economic theory. He seemed rather to argue that we start with the particular "generational attitudes." Was virtue a function of economic activity? Of office? Of society? Of something else? Was there a necessary relationship between economic values and virtue? Or a contradistinction?

Professor Renee Lerner

Professor Lerner believes that the principal framers did share a set of economic views, and that those views permeate the constitution rather than manifest only in odd clauses. Many structural features, she argued, are designed to further desirable economic ends. 

She argued that the framers were reacting to (and against) the mercantilism of the first half of the eighteenth century. The framers read Montesquieu and Adam Smith, praised free trade and attacked the guilds, monopolies, and patents of the earlier period. The founders at center stage - Hamilton and Madison - had studied the wealth of nations, and many Americans at the time had a passing familiarity with the book. The founders least enamored of Smith's work - Jefferson and Adams - were out of the country at the time - proof, Professor Lerner argues, that God was looking out for America. 

Why, then, so few explicit references to Smith in the constitution? Professor Lerner suggested that many of these free trade protections would be difficult to enact directly (although she mentions the contract and takings clauses, she also notes the protections for patents). She argues that the economic theory manifests instead indirectly, through the Interstate and Foreign Commerce Clauses, which give Congress express power to stop states from restricting trade, and the Interstate and Alien Diversity Clauses, which allow federal courts to hear cases where state courts might act with bias.

Professor James Ely*

Professor Ely suggested that perhaps Holmes overstated his claim in the dissent to Lochner. The movement to establish a new government was fueled by the desire for a central authority to protect congracts. Delegates at the Philadelphia Convention used Lockean language to talk about individual freedom and rights to property. Many of the provisions, he argues, relate to economic interests. Major part of the members of the convention are on record as pointing out the role of property rights in the constitution. 

In summary, while Holmes may have been correct that the constitution does not embody a particular economic theory, that does not stop the constitution from anticipating a particular system: a substantially free market, resting on private property. Holmes lost sight of that.

*In fairness to Professor Ely, the sound system buzzed so loudly that I had difficulty hearing his opening statement. I apologize for not giving a more thorough summary.

Professor Nelson Lund

Professor Lund argued that economic theory can apply to many things besides the marketplace - particularly the government itself. He noted that in Federalist No. 51, Madison announced an essentially economic theory of government: ambition must be made to counteract ambition. All branches save one depend on the others to act; that one branch, of course, is the judiciary. 

Hamilton argued that the judiciary must remain independent because someone has to have the last word on what the constitution means. The judiciary, he argued, would be the least dangerous branch. Professor Ely noted two reasons that the branch would be the least dangerous.

First, the judiciary was structurally impaired from causing great mischief. It controlled neither the sword nor the purse, and its members could be impeached. (Although, as Professor Ely notes, the impeachment power does little to stop the judiciary from unconstitutionally extending Congress's power.) As we have learned, the structural restraints on the judiciary leave a great deal of room for judges to "make up whatever constitution they like."

Second, Hamilton supposed that judges would be more virtuous. Long and laborious study of legal precedents, devotion to law, integrity, and age-induced lack of ambition would serve to control the judges. English common law created a culture of modesty and self-restraint in the judiciary, and the founding generation believed that these modest and restrained judges could be found and trusted.

Professor Ely admits that these ideals exist today, largely in the Senate Chamber during confirmation. All nominees, he notes, are but humble servants of the law. But after confirmation, he describes them as "bigshots" and "gods of the legal profession." They consider adherence to their own former statements to be more important than adherence to the former statements of the court. They use extravagant language to end up in popular press and casebooks, with the aim of becoming "influential."

Professor Ely suggests a number of changes that might improve judges incentives at the margins (at least in the Supreme Court). First, Congress ought to mandate that the Court issue all opinions anonymously. Second, Congress should limit the discretionary nature of the docket, forcing the Court to take half it's cases on certification from lower courts (although the cases would be less interesting than "flag burning, nude dancing, and abortion"). Professor Ely would take alway the elbow law clerks, and centralize them to a general legal research department. Lastly, Justices ought to be required to return to riding circuit (preferably, noted Professor White, on horseback). 

Debate Highlights

Professor Lerner noted that while the founders were well versed in Smith, Madison himself was not opposed to all restrictions on trade, at least in the short term. He wanted to "arrest development at the commercial stage of the Enlightenment." He had a long term goal of freer trade, but short term restrictions were permissible. 

Judge Wilkinson: Give me an example of a law that we would be justified in striking down in the name of economic freedom.

• Professor Lerner suggested reducing restrictions on the diversity jurisdiction. 
• Professor Ely suggested that some barriers to entry might be removed. He seemed willing to accept venerable licensing (perhaps for lawyers and doctors) while arguing that floral arrangement licensing serves only to restrict entry (floral arranging not requiring laborious study of mind-numbing precedent).
• Professor Lund: Obamacare. 

Judge Wilkinson: Would expanding diversity infringe on state law? Doesn't that create tension between an expansion of diversity and the 10th amendment?

• Professor Lund: It's not clear to me what the problem is. Either things are constitutional, or they aren't. 
• Professor Lerner: Federal courts exist to correct the problem of bias. That's why Madison had to make the arguments he did. 
• Professor Lund argued that Hamilton says the diversity provisions are some of the most important in the constitution, because without them, the Privileges and Immunities Clause of Article IV would not be enforceable, and that is what holds the Union together. 

Judge Wilkinson: Ted, what do you think of Nelson's ideas to make Justices more virtuous?

• Professor White described them as "premodern." He argued that it would be restoring a practice that predated even the Marshall Court, which dispensed with seriatim and per curiam opinions. He seemed to suggest that returning to those practices might not necessarily be an improvement.

Judge Wilkinson: Won't hiding who wrote the opinion make Justices less accountable? We would all love to hand a bad paper into a professor per curiam. 

• Professor Lund: I won't accept pre-modern; I prefer reactionary. 
• Professor Lund then noted two different problems with his proposal, with respect to anonymous publishing. 
• First, that it will make the Court less accountable. He responded that you can't make the Court less accountable than it already is.
• Second, anonymous opinions might make them lazy, sloppy, and more irresponsible. He suggested that this might be an empirical question, and not a necessity. He argued that signed opinions on the lower courts, which hear many more and many more boring cases, are very important to control the effort the judges put in. On the other hand, the Supreme Court's docket, which is largely discretionary and therefore more interesting, might be enough to prevent the Justices from writing sloppy opinions or generally being lazy.
• Professor White noted a letter that Jefferson wrote to Justice Johnson, arguing that anonymous opinions were for the lazy, modest, and incompentent. "I'm less sanguine," he said.

Economic Theory, Civic Virtue and the Meaning of the Constitution (about to begin)

Economic Theory, Civic Virtue and the Meaning of the Constitution
Justice Holmes’ dissent in Lochner v. New York is well-known for the statement, “[A] constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the State or of laissez faire.” But is this belief consistent with the original Constitution? To what extent did the ideas of thinkers such as Adam Smith shape the founders’ understanding of human nature and public virtue? In what ways do their economic and philosophical commitments continue to shape our constitutional government today? Are capitalism and a commitment to civic virtue complementary or antagonistic? Does the Constitution promote a virtuous citizenry or is it simply a set of political structures that can accommodate a pluralistic society? At a time when the virtues of capitalism are often called into question, it will be useful to examine the precise place of this theory in the foundational structures of our government. 

Panelists:
James Ely, Vanderbilt University Law School
Renee Lettow Lerner, George Washington University Law School
Nelson Lund, George Mason University School of Law
G. Edward White, University of Virginia School of Law

Moderator: 
Judge J. Harvie Wilkinson III, 4th U.S. Circuit Court of Appeals

Debate: Economic Freedoms and the Constitution (initial arguments)

In a debate that far-surpassed the already lofty expectations, Professor Randy Barnett of Georgetown Law and Professor Jeffrey Rosen of George Washington Law took competing positions on whether economic liberty is protected by the Constitution.

Professor Barnett began first and advocated for the position that the Constitution protects economic liberty, or the right to acquire, use, and possess private property. First, Professor Barnett looked to the Ninth Amendment and the text that reads enumerated rights "shall not be construed to deny or disparage the others retained by the People." Through historical evidence, Profess Barnett attempted to show that most States and American citizens at the time of the Founding understood the Ninth Amendment to embody natural rights, including life, liberty, property, pursuit of happiness, safety, among others. Next, Professor Barnett looked to the Reconstruction period and the 13th Amendment. The prohibition of slavery and involuntary servitude implied an economic liberty. The Amendment meant to protect the freedom of not only movement and self, but the right to buy, sell, and own property. However, the Supreme Court's narrow reading of this Amendment in the Slaughter-House cases and other subsequent cases wrongly ignored the economic liberty it hoped to protect. Finally, Professor Barnett looked at the history and development of the Fourteenth Amendment and the Supreme Court's "gutting" of the Privilege and Immunities Clause from the Amendment. In the Slaughter-House cases, the majority of the Court relegated the P&I Clause to a future of functional irrelevancy. Here, in this clause, Professor Barnett sees the natural rights that Congress and the Amendment meant to protect. In the end, Professor Barnett argues the natural right of economic liberty has been ignored and disparaged, but not yet repealed. It can still be found in the text and history of the Constitution and thus is relevant to modern jurisprudence.

In Professor Barnett's view the Court should force Congress and legislatures to articulate its basis for enacting laws and regulations. The 14th Amendment, the Ninth Amendment, and the Constitution as a whole meant to empower the Court to enforce economic liberty and it is the Court's role to enforce the parameters of the Constitution. It would be arbitrary and irrational to allow legislatures to act under the guise of health and safety when that is not their true aim.

Professor Rosen responded with a call to resist Professor Barnett's libertarian interpretive approach and look to the traditional conservative model of judicial deference to the political process. This model of deference resists replacing the will of the political majority (or at least the legislature) with that of the ideological preferences of the judiciary. Since judges interpret the law, rather thank make it, the Court should avoid craving out unenumerated, made-up, amorphous rights that are not articulated in the Constitution. Professor Rosen proposed a framework of three divergent "conservative" approaches to constitutional interpretation:

(1) the traditional view of judicial restraint and deference - Justices Jackson, Frankfurter, Holmes, and Scalia were discussed as models of this approach. Judge J. Harvie Wilkinson III, the moderator of our second panel, was also discussed as a model of this interpretative philosophy. (I would recommend looking to Justice Felix Frankfurter's dissent in Baker v. Carr or Professor Alexander Bickel's The Least Dangerous Branch for a more detailed discussion of this approach and skepticism of judicial review generally. Also see the works of Professors Larry Karmer, Larry Sager, Cass Sunstein, or Mark Tushnet)

(2) the libertarian view (identified with Professor Barnett) - this view sees certain natural rights of personal autonomy, property, and contract that the governemnt cannot infringe upon. This often leads to the questioning of regulatory laws, hour and wage laws, the Federal Reserve, and environmental regulation among other laws. This view often protects both economic liberties and social liberties (potentially sexual freedoms, gay marriage, abortion). See also Professor Richard Epstein and the majority opinion in Lochner v. New York.

(3) the "tea party wing" - this view shares suspicion of broad governmental power and believes in enforcing the rights of property and economic liberty, but departs with libertarians on social issues. Professor Rosen identifies Justice Thomas with this approach.

Professor Rosen doubts Professor Barnett's reading of the Thirteenth and Fourteenth Amendments. In his opinion, the 14th Amendment meant for Congress to enforce and regulate economic rights. Furthermore, the Court is unable to easily identify or define the original author's meaning of these amendments. The natural right interpretation is dubious, but regardless the public no longer accepts that approach and it would be a bold, activist move for the Court to reinsert such a view. Professor Rosen referenced the healthcare law as a battle ground for this issue in the near future. In the end, Professor Rosen aligns himself with Judge Wilkinson, Justice Frankfurter, and this vision of judicial restraint despite claiming to hold a political policy preference for many of the libertarian positions. Professor Barnett questions this fidelity to the political process.

Overall, this was a stimulating argument that opened the Symposium up on a very strong note. The debate was marked by sharp critique and dissent, but avoided ad hominem attack and both speakers maintained a strong personal affection and respect. In the end, the debate touched on a historical debate that has tremendous impact on modern jurisprudence. The Justices of the Supreme Court may very well be forced to engage in this same debate in the potential challenge to Healthcare Reform.

Debate: Economic Freedoms and the Constitution - Responses and Q&A

Responses:

Professor Barnett - In his response, Professor Barnett emphasized that judicial restraint is an admirable ideal to pursue, and what it means is that judges should follow the law. However, the Constitution is a key facet of the law. In his writing Professor Barnett makes reference to the "Lost Constitution," which he considers the portions that have been "redacted" by the Supreme Court, such as the Privileges and Immunities Clause and the 9th Amendment. The meaning of these clauses does not invite judicial restraint. The fact is that the Constitution is there to restrict the democratic process, and judges are charged with the responsibility of protecting the Constitution. It is true that section 5 of the 14th Amendment allowed Congress to enforce the rights guaranteed in the Amendment by appropriate legislation, but the point of section 1 of the 14th Amendment was to empower the courts to prevent a future Congress from undoing the very rights that the Amendment had guaranteed.

Professor Rosen - In response to Professor Barnett's comment that Professor Rosen's speech could have been made at a lecture for the American Constitution Society, Professor Rosen expressed his view that many individuals with more liberal viewpoints have

recently tended toward accepting judicial restraint, including President Obama and others, even when this means a conflict with their views on social issues. Professor Rosen believes that now is a moment of truth for the Federalist Society, at a time when the conservative view exemplified by Justice Scalia and Judge Wilkinson conflicts with the libertarian view of the Tea Party and others, and strongly advocated an embrace of the conservative approach and corresponding judicial restraint.

Professor Rosen acknowledged that the Privileges and Immunities clause included unenumerated rights, but the Framers of the 14th Amendment assumed that these rights would still leave sufficient room for regulations that were necessary to serve the public interest. They also believed that these rights would not be enforced across the entire spectrum of cases. Professor Rosen was strongly critical of Professor Barnett's apparent endorsement of "free-floating rights" that, at the end of the day, have more to do with libertarian philosophy than they do with the text of the Constitution.

Questions:

Professors Barnett and Rosen responded to several interesting and intricate questions, and each passionate response to one portion of a question sparked a correspondingly passionate response from the opposite professor. It seemed clear that the two would have been content to debate the issue all night, and perhaps had indeed done so in the past, and the audience might have been happy to indulge them.

However, regrettably, there was only time for a few questions. Judge Livingston began with a question about the Constitutional basis for Professor Barnett's presumption of liberty, to which Professor Barnett posed the interesting inquiry of whether the presumption of liberty or the presumption of constitutionality is more consistent with the text of the Constitution, since neither is explicitly present.

To a question comparing gay marriage and healthcare as social contracts, Professor Rosen returned to the libertarian perspective that so many issues hinge on autonomy. He posed the hypothetical world where all security camera feeds were centralized and available online, and hypothesized that libertarians may yearn to strike this practice down on a similar free-floating and abstract autonomy right to the one implicated in these cases.

To a question about to what extent his argument for judicial restraint was specific to economic liberty, rather than simply a general argument, Professor Rosen admitted that he is generally skeptical of judicial review, not only in economic contexts. The courts are at their most legitimate when they have a textual peg to support their decisions. Professor Barnett countered that there are clear textual bases for unenumerated rights in the 9th and 14th Amendments, that are at least as clear as those present in the 1st Amendment. The unfortunate reality is that as soon as you begin to protect the freedom of speech you find yourself in the realm of constitutional construction. Your unfortunate choice is either to ignore the Constitution, or to do your best to enforce it. As a further counter, Professor Rosen insisted he was not saying unenumerated rights should never be enforced, but posed the question of when exactly the Framers embraced such an active view for judges.

The final question was a perceptive inquiry about the relevance of the Contract clause of the Constitution to this inquiry. Both Professors agreed that the Contract clause was relevant here. Professor Barnett emphasized that, given the existence of the Contracts clause and other Constitutional provisions, there is no reason to believe that economic freedom is any less deserving of protections than personal liberties, and in fact the Founders may have preferred the former to the latter, if they had been forced to make the choice. Professor Rosen said the courts should enforce the Contracts clause like every other clause, but to abstract from that to denying power over broccoli and healthcare is penumbral reasoning, just as abstract and indefensible as that widely denounced in cases like Roe v. Wade. To close, Professor Barnett accused Professor Rosen of a mischaracterization of his arguments regarding the health care legislation, and insisted his arguments against the legislation are based on Constitutional doctrine, not ephemeral rights of personal autonomy.