Law Students

Is The Bailout Unconstitutional?

By Casebook Sherpa

In light of our Con Law classes on the shocking breadth of Congress’ Commerce power, I found this column by (free reg. re’d) Robert Levy on the Legal Times website quite interesting In it he contends that the bailout was short-sighted and, most importantly, unconstitutional. Despite my serious misgivings about the bailout plan (my concerns about the free market are just a deeply felt as they were the day after the thing passed), I think the government needed to do something to soothe the nerves of foreign investors in particular. But I digress. Basically Levy contends:

It is not [constitutional]. The federal government has no constitutional authority to spend taxpayers? money to buy distressed assets, much less to take an ownership position in private financial institutions. And Con­gress has no constitutional authority to delegate nearly plenary legislative power to the Treasury secretary, an executive branch official.

Keeping in mind that Mr. Levy works at the Cato Institute, he continues in what is the most compelling argument to me that Congress may have overstepped its bounds with the bailout plan:

Indeed, the bailout quite clearly violates the Constitution?s separation-of-powers principle?in particular, what has become known as the nondelegation doctrine, which states that Congress may not delegate its legislative power to any other entity, including the Cabinet departments of the executive branch. Article I, section 1 of the Constitution states, ?All legislative Powers … shall be vested in a Congress.? A plain reading of that text shows that lawmaking is for the legislative branch, which does not include the Treasury Department. Yet when Congress authorized the bailout package, it gave Secretary Henry Paul­son Jr. unprecedented power to act as a super-legislature.

True enough, the Supreme Court, in a series of cases beginning in 1928, condoned some forms of delegation. Legis­la­tors may delegate their authority, said the Court in J.W. Hampton Jr. & Co. v. United States (1928), so long as Congress ?shall lay down … an intelligible principle to which the person or body authorized … is directed to conform.?

What, then, is the intelligible principle to which Henry Paulson must conform? No one knows?least of all the taxpayers, who will bear the cost. ?Make things better? is not an intelligible principle.

These days delegation has become a formula for irresponsibility. Congress gets to claim credit for the supposed benefits of the bailout, yet dodge culpability for the associated costs.

But Congress itself, not an executive official, must be accountable for the consequences of laws that Congress puts in place. That tenet has been a cornerstone of our Constitution for more than two centuries. John Locke got it right in his Second Treatise of Civil Government (1690): The separation-of-powers principle means that ?the legislative [branch] cannot transfer the power of making laws to any other hands.? The legislative power, wrote Locke, is ?to make laws, and not to make legislators.?

Full post as published by Fight The Hypo on October 21, 2008 (boomark / email).