Even in times of
difficulty or crisis, the constitutional design for legislation
requires careful, bicameral deliberation and presentment to the
President. For sound policy and constitutional reasons, Congress
should not recess until it acts on a solution to the credit crisis,
but it should also be mindful of the virtues of calm deliberation
and the dangers to liberty of a crisis mentality. The mounting
resistance to the Administration's proposal presents an opportunity
for careful deliberation. The constitutional and policy concerns
expressed by many Members of Congress and thoughtful scholars this
past week must be thoroughly considered.
No one doubts the
importance of Treasury Secretary Henry Paulson's call for immediate
legislative action to calm the financial markets, which have the
potential to wreak long-term damage to the world economy, but the
initial deadline with which he urged Congress to act on a dramatic
bailout plan raises risks that Congress must avoid: either acting
imprudently (and with serious constitutional consequences) or not
acting at all before it recesses.
Members of
Congress had planned to depart Washington on Friday to spend the
month campaigning for votes, but they should stay in session around
the clock if that is necessary to complete action before the end of
the month. The exigencies of electoral politics should not be
allowed to keep Congress from its constitutional duties. That
result-Members of Congress abandoning Washington in a time of
crisis to campaign for their own reelections-would be
irresponsible. It is also, in all likelihood, unnecessary: What
statesman would believe that his constituents would exact
punishment for staying a few extra days to do the people's work? In
the minds of true statesmen, this contest between constitutional
values and politicking should not present a conflict.
Constitutional and
Policy Concerns Converge
As many have come
to realize this week, there are some fundamental constitutional
values at stake in the present debate. The Paulson proposal, and
the several congressional proposals based upon it, raise
substantial constitutional questions regarding: (1) Congress's
enumerated power-or lack thereof-to intervene with private markets
in the manner contemplated, (2) the lack of meaningful standards to
guide the extremely broad grant of discretion to the Treasury
secretary (the "legislative delegation" problem), (3) limitations
on judicial review over the exercise of that almost limitless
discretion, and (4) related separation of powers concerns.
From a
constitutional standpoint, the current versions of the legislation
are different in scope, and especially in kind, from almost any
federal legislation that has come before. In short, many analogies
to past emergency economic powers, such as those exercised in
response to the thrift failures of the 1980s, are not on point with
regard to these central constitutional concerns. Rather than rely
on these precedents, Congress must take the time to work through
these constitutional concerns.
And these
concerns are serious, regardless of how the courts might resolve
them. Some would treat the Constitution as a legalistic document
and employ narrow legalistic arguments to circumvent its strictures
and protections. The substance of this debate, however, should not
turn on what provisions might or might not pass muster with the
courts under a pinched conception of our fundamental law. Rather,
it is the principles the Constitution embodies, which have served
us well through so many crises, that should be the focus of debate.
In short, Americans should take little comfort that legislation
might barely pass muster in the courts if the legislation does
serious damage to the underlying constitutional principles that
were designed to protect our individual rights against governmental
usurpations.
In particular,
legal scholars across the ideological spectrum recognize that, with
regard to sweeping and seemingly standardless delegations of
discretion to the executive branch, the courts have not been
assertive in policing this aspect of the constitutional separation
of powers. Yet even under the courts' permissive, modern approach
to such delegations, the delegation of authority in the legislation
that some recommend for swift passage is questionable. This
counsels caution.
Moreover,
fidelity to our constitutional principles also coincides with prudent
policy prescriptions. Those who argue that we need to suspend
the fundamental charter in order to save it (or the economy) have
it backward. Our fundamental charter has always been a bulwark for
the free market. The recommendations below to address
constitutional concerns should not only improve the short-term
value of any emergency legislation; it should also support the
long-term viability of free markets and, ultimately, free
people.
Needed
Constitutional Changes
To satisfy the
substantial constitutional and policy concerns-if not the
Constitution itself-the draft legislation must cabin the scope and
character of the Treasury secretary's discretion, connect the
exercise of that discretion to legitimate government purposes, and
allow Americans adversely affected to seek meaningful judicial
review. If the bailout is to pass constitutional muster, lawmakers
must concern themselves with at least the following specifics,
while keeping in mind the broader outlines of its constitutional
authority:
Type and Scope
of Indebtedness. The type of financial instruments or
debt that the secretary can purchase, as well as the industries
that may seek relief, should be defined by statute carefully so as
to limit the secretary's discretion. There are various ways to do
this that would preserve the discretion necessary for the secretary
to achieve the goals of the legislation and provide the limits
necessary to protect the taxpayers. For instance, the legislation
could expressly cover defined mortgage-related, non-equity
securities of the type normally held by financial institutions. In
addition, Congress and the administration could work together to
identify other relevant, non-debt securities and set forth the
circumstances under which the secretary could acquire them.
If the nature of
the economic problems changes, Congress may choose to expand the
scope of authority in specific ways rather than granting a blank
check at the outset. This and future Administrations should bear
the burden of defining and limiting the necessary financial
instruments or debt that they are seeking power to manage. Indeed,
Congress should exercise a healthy suspicion if the Administration
cannot define the scope of the authority it needs.
The revolving
nature of expenditures should also be capped. In the Administration
proposal, the only limitation was the total value of securities the
government could hold at any one time, which was $700 billion. The
House bill converted that figure into an overall cap. Congress
should impose some overall limit and stand ready to reconsider the
cap if additional expenditures prove necessary.
Standards to
Guide the Secretary's Discretion. It is questionable
whether the current bills satisfy the court-created test of
providing an "intelligible principle" to guide the secretary's
discretion (see, e.g., Whitman v. American Trucking
Association), but that minimum standard is woefully inadequate
for citizens and Members of Congress who care about the
constitutional order. Congress must undertake the hard work of
crafting legislative alternatives that achieve vital ends without
straining our constitutional structure. In order to do so, the
legislation itself must contain an objective set of criteria that
would guide the secretary's exercise of discretion in practice and
not just in theory. The criteria that the government has employed
in deciding when to act (e.g., Bear Stearns, AIG, etc.) and when
not to act (e.g., Lehman Brothers) suggest that some guiding
principle is necessary, and the Administration should be made to
articulate it expressly and expose it to the process of democratic
consideration.
In contrast, the
existing drafts provide almost no meaningful standards to cabin the
secretary's discretion on what debt he may buy, for what purposes,
to whom he may sell it, and on what terms. The definition of
"troubled" assets is also unreasonably open-ended and not subject
to judicial review. The two sweeping, subjective findings the
secretary must make in the Administration proposal (three in the
House bill) do not seriously limit his subsequent actions. Coupled
with the existing limitation on judicial review, his discretion to
manage "troubled" markets, "provide stability," or "prevent
disruption" is almost limitless. Equally important, that a
particular market is "troubled" or that there is a risk of
"disruption" is still a questionable ground for action if there is
no legitimate government interest involved. The statute should set
forth some objective criteria that connect the particular market
problem with a traditional government purpose-e.g., currency
stabilization. That connection should not be fictionalized or
unreasonably tenuous, or it will simply serve as a bad precedent
for other questionable delegations. With regard to all of these
factors, the objective criteria must actually operate to guide and
sometimes limit the secretary's exercise of discretion and not
merely serve as a hortatory preamble for congressional action.
Meaningful
Judicial Review. It might be reasonable to subject
particular factual determinations made by the secretary to a
deferential standard of review and to limit certain types of
judicial remedies (e.g., injunctions and other equitable relief).
But citizens adversely affected by the government's actions must be
able to seek a redress in the courts for fundamental constitutional
violations or damages at law.
Sunset of All
Regulatory Authority. Congress can codify or expand regulatory
authority within two years if it proves necessary and prudent.
However, there is no sound reason to sunset some of the authorities
under the proposed legislation but allow unlimited discretion to
issue market regulations that will never sunset, as the current
proposals provide. All regulations promulgated under the authority
of the emergency legislation should sunset with the rest of the
statute absent subsequent congressional action.
This combination
of changes will go far to addressing the substantial constitutional
questions about the existing proposals. If the scope of the
authority is carefully defined, the standards for proper action are
set forth in the statute, and those two limits are subject to
meaningful court review, then citizens can at least know whom to
hold accountable and where to go for redress of grievances. The
ensuing changes will also move the proposals in the right policy
direction as well.
Bicameral for a
Reason
As Alexis De
Tocqueville observed: "To divide legislative strength, thus to slow
the movement of political assemblies … are the sole
advantages" of our system of legislative bicameralism. Congress
needs to act swiftly to address the financial crisis, but it also
needs to deliberate.
Todd Gaziano is the
Director of, and Andrew Grossman is Senior >Legal Policy Analyst in,
the Center for Legal and Judicial Studies. They wish to thank
Heritage colleagues James Gattuso and David John for their
contributions.