When The Constitution Failed Economic Freedom

One of the unique features of the American republic is its constitution. Written more than two centuries ago, this amazing document still serves as the foundation for the United States, and it is as vibrant and present in our lives as it has ever been. Unlike tired, old European nation states, the Constitution of the United States plays an active role in the everyday lives of the American people.

But as brilliant a document as it is, it was still the work of men, and men are – unlike God – always imperfect. The product of imperfect men can never be perfect. It is therefore entirely understandable that the constitution has flaws and loopholes. We have corrected some of them with amendments and by giving the Supreme Court the role as final arbiter of the document.

Nevertheless, our constitution has its limits. One such limit is its inability to protect our economic freedom. This was made very clear in the Supreme Court ruling on the Affordable Care Act. The economic meaning of the Court’s decision is that the individual mandate in the Affordable Care Act is not a regulation, but a tax, and that the federal government now is free to tax-and-spend as much of our economy as Congress will allow.

Always sharp-eyed Michael Tanner observes this in a column in the New York Post:

Opponents of big government can take a small comfort from the fact that the court rejected the idea that the mandate was permissible under the Constitution’s Commerce Clause. It agreed with ObamaCare opponents that choosing not to buy a product is not an action that “substantially affects interstate commerce.” This avoids a precedent that could’ve justified a wide range of government intervention in our lives. (The common shorthand for this was “a mandate that every American eat broccoli.”) The court thus seemed to acknowledge that there are some limits to federal power. True, this may be a distinction without a difference: Congress can now apparently achieve many of the same things via its taxing power. But taxes are far more politically problematic than regulatory actions. We’ll have to see how it plays out.

Regardless of how painful it might be, it is time to recognize that the sole focus on fighting Obamacare constitutionally has been a mistake. It is, however, “the American way”: most Americans, including conservatives and libertarians, have not yet realized the true nature of the welfare state that liberals and other statists (think compassionate conservatives) are importing piece by piece from Europe. That welfare state enters the economy through taxation, not regulation.

Chief Justice Roberts pointed to this difference between regulations and taxation when he and the Court ruled the purchase mandate unconstitutional but the funding mechanism constitutional. In other words: while there is now a limit on the regulatory powers of the federal government, there is still no limit on its tax-and-spend powers. The sad part of the story is that liberals and other statists have known this for a long time, which is why they have expanded the welfare state primarily through taxation, not regulation.

The good part of the story is that we now have a golden opportunity to redesign the fight for economic freedom in this country. But in order to do so we will have to make a fundamental change in our approach: we have to realize that the constitution does not provide adequate protection of our economic freedom.

Constitutional scholars and political pundits with a penchant for the constitutional battle have tried to make the case that the constitution does indeed protect our right to be economic agents without government inhibition. But from an economic viewpoint a tax is at least as much an incursion into our economic freedom as a regulation. In fact, the cost to the economy from taxes is far higher than the cost of all our regulations, especially when we consider the distortions to resource allocation that both types of incursions cause. On top of that, we have to consider the negative effects on economic freedom when government spends the taxes it takes in.

Furthermore, once a spending program is established based on the presence of a tax to pay for it, government has a tendency to borrow money to supplement its tax revenues and thereby maintain fiscally unsustainable levels of spending.

In other words, it is about time to start fighting the welfare state by targeting its tax-and-spend powers. To further emphasize how important this is, consider the fact that in theory – based on the Obamacare ruling – it would be constitutional for the federal government to tax away 100 percent of our earnings and then give the money back to us in the form of welfare checks, food stamps, housing allowance, coupons for health care, etc.

In fact, I dare anyone to define, within an error margin of ten percentage points, the maximum size of federal government as share of Gross Domestic Product that the constitution actually defines. Is it 30 percent? 40? 70?

Again: by declaring that the federal government has the right to use taxation power to force us to buy health insurance, the federal government can now use taxation power to force us to buy everything from broccoli to child care and general income security. Not only does this ruling bring us closer to a single-payer health care system (which is what the left has been trying to create all along) but it also opens a can of welfare-state worms that will bring the remaining parts of the European welfare state to America.

Unless, of course, we the friends of liberty learn how to deal with big government in a new, and more effective way.

There are a number of things we can, and should, do to protect our economic freedom against the expanding welfare state. I will return to other parts of our economic-freedom to-do list in later articles; for now, let me suggest that we recognize and address the limits of the constitution when it comes to economic freedom.

To understand the need for this, let us distinguish between the purpose of fighting Obamacare and the process of fighting Obamacare. The process was one long haul through the court system and a long wait for the constitution to save America. That did not happen. The constitution proved inadequate in protecting America from big government. Therefore, it is now time for America to save the constitution.

The purpose behind fighting Obamacare was to fight the expansion of economic redistribution – and consequently a fight to protect economic freedom. Most people who participated in this fight put their faith in the constitutional process, evidently hoping that the individual mandate in the Affordable Care Act would be declared unconstitutional. Technically, the mandate per se apparently was declared unconstitutional, but it was resurrected in the form of a tax. This did not serve the purpose of the fight.

Regardless of whether we think it was worth the while – even necessary – to take the Affordable Care Act to the Supreme Court, it is now clear that the constitution did not protect us from yet another incursion into our economic freedom.

I am not going to speculate at length on why economic freedom was not given higher priority by the Founders and Framers. It is reasonable to assume, though, that the times in which the constitution was drafted were so far, economically, from where we are today that it was impossible for the men who wrote and signed our founding document to conceptualize the kind of big, redistributive government we have today. The welfare state as a policy institution was not invented until the 1870s, and then only as the Bismarckian “socially conservative” welfare state. The first elements of the economic theory behind redistributive government were sketched in the early 1800s but did not gain traction until after Karl Marx had published his behemoth Das Kapital. The modern socialist welfare state – a more aggressive kind than the Bismarckian version – did not emerge until the European socialist movement had split in the 1890s into a revolutionary faction and a reformist faction; the latter sometimes being referred to as the Bernstein movement or the Social Democrats.

In other words, it would take at least a century before it would make sense for American legislators and other political leaders to consider legislative or constitutional action to protect economic freedom against the welfare state.

Today, we can safely say that we are in bad need of a constitutional update to protect economic freedom on a broad scale. It is time to ask whether or not we need an amendment that specifically prohibits the federal government from engaging in economic redistribution between private citizens.

Such an amendment could be the first step in the right direction. We will need to take more steps, though. I will return to them in coming articles. Stay tuned.