Todd Zywicki: the Commerce Clause is in the Constitution for a Reason

Lynne Kiesling

I am in violent agreement with my friend Todd Zywicki’s commentary in Wednesday’s Wall Street Journal on the Obama administration’s actions in the Chrysler bankruptcy. In particular,

By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation. In other words, Mr. Obama may have helped save the jobs of thousands of union workers whose dues, in part, engineered his election. But what about the untold number of job losses in the future caused by trampling the sanctity of contracts today?

The value of the rule of law is not merely a matter of economic efficiency. It also provides a bulwark against arbitrary governmental action taken at the behest of politically influential interests at the expense of the politically unpopular. The government’s threats and bare-knuckle tactics set an ominous precedent for the treatment of those considered insufficiently responsive to its desires. Certainly, holdout Chrysler creditors report that they felt little confidence that the White House would stop at informal strong-arming.

Note also, as David Henderson pointed out at EconLog, that Todd’s point here highlights the unseen consequences of the Obama administration’s expediency-driven actions. Frequently political actors point out the unseen consequences of not taking the expedient actions they favor, but they almost never point out the unseen consequences of the favor-driven expedient actions that they do take. Yet another situation that makes me want to wallpaper Washington with Bastiat’s essay on the topic. Sadly, these situations are arising daily.

Speaking of which, I remember hearing some online wag chattering a few weeks ago about how it’s an indication of the bankruptcy of our ideas that those of us who oppose such government activity keep referring to arcane 18th century writers. Obviously, that is a completely wrong-headed, naive, and anti-intellectual critique. Many of these ideas have stood the test of time — how many other ideas have had as much empirical resonance over the past 200 years as Bastiat’s analysis of the unintended consequences of expedient, lobbying-driven political action? Bastiat’s ideas inform and inspire the modern public choice and political economy literatures, and are far from obsolete.

Even the Washington Post is editorializing on these unintended, unseen consequences of “the government’s hardball tactics in the recent Chrysler bankruptcy.” (thanks to Arnold Kling for the link) And, as Todd points out, the implications here are not just a reduction in economic growth and economic efficiency due to the government’s failure to consider the economic activity that will not take place because of the higher risk of government confiscation. The institutional and moral implications are deep, because the Obama adminstration’s hardball tactics with Chrysler’s creditors take a sledgehammer to the crucial, foundational concept of governance by the rule of law, not by the arbitrary decisions of men and the special interests who favor them.

4 thoughts on “Todd Zywicki: the Commerce Clause is in the Constitution for a Reason

  1. Who, with the possible exception of NYT and WaPo, believes that these consequences are “unintended”?

    They may well remain “unseen” for some time; and, they may remain “unremarked upon” beyond that. However, as suggested above, they are fully anticipatable. I wonder if our elected “representatives” are actually obtuse enough not to anticipate them.

  2. Ed’s point above is well taken.

    Note also that the same strategies have been used (by BOTH administrations) in the attempted resolution of the crisis in financial institutions. TARP, TALF, and their ilk may have provided some temporary stability to the financial system, but they have done nothing to improve the transparency of these intuitions or to reduce their size to a point where their failure does not present a systemic risk.

    The interventions in the mortgage markets justified as “foreclosure prevention” are another slap at the importance of contracts and at the property rights of taxpayers, who are now financing the resolution of defaulted contracts between private parties. Who would be surprised if these disputes are resolved in ways that benefit all parties, except the taxpayer.

    Utilities and state regulators can breathe easy now, but the Smart Grid mandates may become their turn to have their own property rights devalued.

  3. Harry,

    Wait till the utilities and their regulators get a look at their share of the ~$700 billion per year which would have to be invested to actually reduce carbon emissions by 83% by 2050. Many other carbon emitters could avoid the issue by switching from direct fossil fueled to electric end use applications. The utilities have nowhere to go. They have a huge investment in coal and natural gas fueled generators, which they must operate to meet demand. There is no commercially available technology to capture and sequester their carbon emissions.

  4. Those who assert that channeling Bastiat’s ideas today is an indication of a lack of sound principles is akin to saying Mozart or Beethoven are now musically obsolete; or that champions of Copernicus should check themselves because he theorized in the 15th and 16th centuries. It seems the physical sciences and performance arts transfer their contributions to humanity with relatively little distortion, relative to economic axioms, throughout the centuries.

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