Corporate & Securities Law

A proposed amendment to our Constitution

Ask any conservative what the problem with America is today, and the answer you will get is government spending. But ask that same conservative, or any conservative for that matter, what to do about it, and the shoulders will inevitably shrug. Politicians, including conservatives, simply cannot be trusted when they get control of the purse strings. The problem is a familiar one in law and elsewhere — it is called the pre-commitment problem. Political leaders can promise to cut spending, but can’t resist reneging on the promise when in power; governments can promise not to bail out banks, but know that they must when the manure hits the fan. (For instance, Fannie Mae bonds explicitly disclaimed  any government guarantee, but the bail out of Fannie Mae continues to cost us tens of billions of dollars.)

There are solutions. The most famous is when Odysseus lashed himself to the mast of his ship to resist the temptation to steer toward the Siren’s songs. What Odysseus did was raise the costs for any future action, therefore making it less likely. So how can we raise the cost for congressional profligacy?

We cannot just hold ourselves to the commitment to vote the bums out of office. This just moves the pre-commitment problem back one step and puts it squarely in our lap. Sitting here today, I might want to reduce the size of future government, but when the choice is to cut my benefits, it may be harder to vote that way. In addition, we might all collectively lament the growth in government (rising from less than 10 percent of GDP 100 years ago to over 40 percent today), but we might also all individually value the pork our representatives bring home to our district.

So what about a constitutional amendment setting a limit on the size of government? Our founders tried to do this, but instead of setting a dollar or percentage limit, they used enumerated powers. They thought telling the government what it could do (and what it implicitly could not do) would constrain the Leviathan. But this didn’t work. It worked for a time, but it was an imperfect pre-commitment device, as it has been eroded by hundreds of years of court rulings cutting the other way. Instead of telling the government what it can and cannot do, what about telling the government how big it can be.

I propose a new amendment to the Constitution:

“Spending by the federal government shall not exceed 25 percent of the Gross Domestic Product in that year, except in cases where Congress has declared war against another sovereign nation and such additional spending is essential to the defense of the Homeland.”

According to constitution expert Tom Ginsburg, this sort of constitutional provision would be unique in the world, which is odd since the growth of government is a universal problem. (Switzerland has a balanced-budget provision and a limit on tax rates that comes close.) But this wouldn’t be the first time that America has blazed a trail for solving an age-old problem.

Full post as published by Truth on the Market on March 24, 2010 (boomark / email).