A Libertarian Perspective on Economic and Social Policy Lecture 21 A Libertarian Perspective on the U.S. Constitution ©2007 Jeffrey A. Miron.

A Libertarian Perspective on Economic and Social Policy

Lecture 21A Libertarian Perspective on the U.S. Constitution©2007 Jeffrey A. Miron

Introduction

• The Libertarian perspective on policy, at least as described in this course, does not make much reference to the Constitution:– There have been a few exceptions, such as some

limited discussion of the 2d amendment and gun control, and a bit more in the discussion of abortion policy.

– Overall, however, the theme has been, “Let’s figure out what would be the best policy, whether it not that is dictated / allowed by the Constitution.

Introduction, continued

• There are two reasons for this approach:• First, there is no guarantee the Framers got everything

right, so rational people who want to have the best possible public policies should not take any constraints in the Constitution as absolute.

• Second, the evidence does not suggest that “rules” or “constitutional constraints” or “institutions” do a very good job of constraining policy.– This is different from saying institutions do not matter; in many

contexts they do.– But there is little reason to think that simply starting out with the

right “rules” guarantees that society to end up with “good” outcomes.

– Instead, societies change or subvert the rules whenever they think it is advantageous to so do.


• So, the discussion of the Constitution here is not meant to claim something like:– We should always interpret the Constitution in the way the

framers meant it, and if we did, then everything would be great.

• This position would be unpersuasive, for two reasons:– In many instances we cannot know what the framers meant or

how they would interpret current situations.– And even if we knew, that does not make this the best policy.

• Moreover, different framers differed radically on key issues:– The ultimate document was a compromise, so different framers

had different intents in a great many cases.


• The motivation instead is simply that it is interesting to see how libertarian the constitution is (or used to be).– Interesting as intellectual history, rather than

because its settles any debates.– Also interesting because the discussion helps

expose the hypocrisy of both modern liberal and modern conservative views of the Constitution, and of policy more generally.


• So, this lecture examines the claim that the Constitution is consistent with, or supportive of, libertarian policy views.

• This examination is for the original Constitution plus the Bill of Rights (first 10 amendments).

• The accuracy of the claim is less clear with respect to later amendments like the 14th.– Discuss this briefly, time permitting.

Outline

• Overview of the Constitution• Article I, Section 8: The Commerce

Clause.• Article I, Section 10: Obligation of

Contract.• The 5th Amendment and the Takings

Clause• The 9th and 10th Amendments• The 14th Amendment

The Constitution: An Overview

• The Constitution does the following:– It sets out a basic framework for the federal

government (Congress, President, Courts)

• It specifies the things each of these institutions can and cannot do;

• It specifies things State governments can and cannot do.

• It specifies rights of the people.

Overview, continued

• One key point is that the Constitution is usually said to have both “positive” and “negative” rights:– It specifies things various institutions or governments

can do;– And by specifying these, it implies that everything else

is something those institutions or governments cannot do.

• That is, by saying that Congress has the power to do X, it is also saying Congress does not have the power to do things other than X.

Overview, continued

• A second point is that the main goal of the document is to indicate which branch or level of government has specific rights or powers and how these interact.– The rights and powers of Congress versus the

President versus the Courts:– The rights and powers of State versus Federal

governments;– The rights of the people.

• Thus, the document leaves a lot unspecified:– It is not about saying what is good or bad;– Instead, it is about the limits of power.

Limitations On Federal Power:The Commerce Clause

• In recent times, no one challenges the idea that, under the Constitution, the federal government has the authority to intervene broadly, whether regarding economic regulation or in criminal matters.

• It was not always this way, however;– The federal government’s power was long thought to

be highly limited.

• The first part of the Constitution that is relevant to this issue is known as the Commerce Clause.

The Commerce Clause, continued

• Article I, Section 8, of the Constitution states in part:– The Congress shall have Power To regulate

Commerce with foreign Nations, and among the several States, and with the Indian tribes.

• What exactly does this mean?– What is “commerce”?– What is “among the several States”?– What is “regulate”?

Commerce Clause, continued

• A narrow interpretation would as follows:– Commerce means trade between parties in different places;– Among the several States means across state lines;– And regulate means imposing rules, but not prohibitions.

• A broad interpretation would be as follows:– Commerce means anything that interacts in any way with some

aspect of business.– Among the several States includes both all activities that cross

states lines and all activities strictly within a state– And regulate means any policy the federal government wants to

adopt.

• The scope of permissible federal action depends on which interpretation ones adopts.


• One possible view of this debate is that it is purely semantic, since in practice absolutely everything is involved in interstate commerce, even under the narrow interpretation.

• Consider a family farm that grows vegetables and sells them locally.

• The narrow interpretation might suggest this is not interstate commerce.

• But this farm probably uses fertilizer, or tools, or seeds, or gasoline, that was produced in another state and transferred into the state in question.

• And the vegetables produced by this farm have a (tiny) effect on the overall supply, lowering the price in all parts of the country.


• Thus, one can claim that essentially every business is in interstate commerce.

• In economics terms, everything interacts with everything in general equilibrium, so the interstate distinction is meaningless.

• But, leave this view aside. Assume we can in some way differentiate between commerce that is “substantially” interstate versus commerce that is not.

Implication of the Narrow Interpretation

• The narrow interpretation precludes much existing federal intervention:– Federal minimum wage laws.– Federal environmental regulation.– Federal health and safety regulation.– Federal housing programs.– Social Security, Medicare, Medicaid, TANF.

• And so on. – There would be vastly less federal intervention under

the narrow interpretation of the Commerce Clause.

Illustration of Commerce Clause Controversy: Lopez (1995)

• In 1990 Congress passed the Gun-Free School Zones Act, which forbade carrying a gun in a school zone.

• A 12th grade student, Antonio Lopez, later carried a concealed weapon to school and was found guilty of violating this law.

• Lopez was sentenced to six months in prison.

Lopez, continued

• Lopez appealed on the grounds that the Act exceeded the power of Congress to regulate under the Commerce Clause.

• Lopez won:– The Court ruled that possession of a gun in a school

zone has nothing to do with commerce.

• Rhenquist, O’Connor, Scalia, Kennedy, and Thomas voted in the majority.

• Stevens, Souter, Ginsburg, and Breyer dissented.

IIlustration of Commerce Clause Controversy: Raich (2005)

• This is a case about medical marijuana and the Commerce Clause.

• Under federal law, marijuana is a Schedule I drug, which means it is assumed to have no valid medical use and high potential for abuse. – Thus, under federal law there are no legal

prescriptions for marijuana (or LSD, heroin).– This differs from other “illegal drugs” such as cocaine

or morphine, which while tightly controlled can be prescribed under certain circumstances (Schedule II).

Raich, continued

• Until recently, all states also had laws prohibiting marijuana whether for recreational or medical use.

• In 1996, however, California (and subsequently other states) passed laws allowing doctors to “recommend” use of marijuana for medical purposes.

• The federal authorities hate these laws because they believe (correctly) that they de facto gut the federal prohibition against marijuana.– The line between medical and non-medical use is too blurry.

• So, federal authorities have attempted to shut down groups supplying medical marijuana in California.– The Feds believe they have the authority to do this because of

their interest in applying the federal marijuana prohibition.

Raich, continued

• The advocates of medical marijuana brought a test case of federal authority in this area:– A medical marijuana patient, Raich, who was growing

her own marijuana and using it only for her own medical needs, challenged federal authority to criminalize or interfere with her activities, arguing that federal law in this area exceeded Congress’s authority under the Commerce Clause.

– The argument was that Raich’s actions did not involve any commerce, let alone interstate commerce, so under the Commerce Clause the federal government had no authority to intervene.

Raich, continued

• The federal district court ruled against Raich, but the Ninth Circuit Court of Appeals reversed and ruled the CSA unconstitutional as applied to intrastate medical use of marijuana.

• The implications of the ruling would have been huge if the Supreme Court had upheld:– Marijuana can be plausibly recommended for a huge

range of conditions.– Anyone can grow marijuana.– Thus, if marijuana became legal for intrastate medical

purposes, it would for all practical purposes be legal, gutting the federal prohibition.

Raich, continued

• The Supreme Court, however, reversed the Appeals court and ruled that Congress does have the power to prohibit intrastate medical marijuana under the Commerce Clause.– The majority opinion argued that this case differed

from Lopez (and Morrison) in being commerce.– And the opinion noted the general equilibrium issue:

enough local cultivation affects the national market.

• Stevens, Kennedy, Souter, Ginsburg, and Breyer voted to uphold federal authority.

• Rhenquist, Thomas, and O’Connor dissented.

The Commerce Clause: Discussion

• If one takes the Court’s view in Raich, then at least as applied to anything that is in some way “commerce,” the Commerce Clause is meaningless.

• It seems unlikely this is what the framers meant; if they felt that way, why did they bother to insert the clause at all?

• And, for a long time the Court interpreted the Commerce Clause as restricting federal intervention to only those activities that are clearly commerce and that clearly involve cross-state issues in a fundamental way.

• In particular, the Court ruled various New Deal government programs unconstitutional.

The Commerce Clause: Discussion, continued

• These decisions, which relied on the Commerce Clause and implied severe limits on federal authority, incurred the wrath of Roosevelt.– FDR tried to “pack the Court” by getting Congress to add six

more justices.• The packing failed, but later during the New Deal 1-2

justices switched sides, and the Court started upholding new Federal programs like Social Security, the NLRA, and more.

• And that has been the Court’s view ever since.• At this point, it seems unlikely the Court will ever return

to the earlier interpretation:– Because, if applied consistently, the old view would mean

eliminating most of the federal government.

Limitations on Federal Power:The Obligation of Contract

• So, one interpretation of the Commerce Clause implies substantial limitations on the power of the Federal government to impose economic regulation and other policies.

• A different question is whether the Federal government has the power under the Constitution to tell State governments what policies they may or may not adopt.

• For example, can a State government adopt a minimum wage law; or environmental regulation; or a welfare program; or gun control; and so on.

Constitutional Restrictions on State Government Policies

• There is no dispute that the Constitution places some restrictions on what States can do.

• Article I, Section 10, states in part:– No State shall enter into any Treaty, Alliance, or Confederation;

grants Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in payment of Debts; pass any Bill of Attainder; ex post facto law, … , or grant any title of Nobility.

– No State Shall, without the Consent of Congress, lay any Imposts or Duties on Imports or Exports …

– No State Shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with Another State, or with a foreign Power, or engage in War, …

Constitutional Restrictions on State Government Policies, continued

• These restrictions all seem pretty natural.• They fall into one of two categories:

– They are about activities that by their nature are national policies; for example, making treaties, conducting war, regulating trade with other countries.

– They prevent States from enacting laws deemed fundamentally inconsistent with a free society; for example, bills of attainder.

• So, this stuff does not seem controversial, but it does not seem to prevent states from engaging in standard economic regulation.

Constitutional Restrictions on State Governments, continued

• One clause of this same section, however, is perhaps more difficult to interpret. It states:– No State shall … pass any .. Law impairing the Obligation of

Contracts.• Some scholars, and some courts, have interpreted this

as saying that, under the Constitution, States cannot impose economic regulation.

• But this view seems a stretch; both the language and the context suggest a different interpretation:– States cannot interfere ex post with duly adopted contracts.

• Most regulation does not do that, so setting aside takings issues this regulation is permissible under the Constitution.


• This might seem like a deficiency of the U.S. constitution from the libertarian perspective:– Why should the Constitution allow states to

adopt “bad” policies?

• Other things equal, it is certainly right that good policies beat bad polices, at the state or federal level.


• The libertarian perspective, however, is that leaving things to the states is a reasonable approach overall, and it is important to be consistent.

• In particular, the view that the federal government can tell states what policies they cannot adopt opens the door for having the federal government tell states what policies they must adopt, and many of these are bad from the libertarian perspective:– Drug prohibition, NCLB, Minimum Drinking Ages, etc.

• Thus, libertarians should accept that federalism is not perfect; it is a compromise, but a sensible one.

• So, under this interpretation, States would be free to adopt most current policies.

The Takings Clause of the Fifth Amendment

• The Fifth amendment reads, in part:– Nor shall private property be taken for public use

without just compensation.• The original context for this amendment was a

situation like the following:– The government wants to build a lighthouse that will

improve nautical safety near a port;– There is a plausible case the private sector will not do

this;– The government needs certain private land to do this;– Under the takings clause, government can take the

land, but it must provide just compensation.

The Takings Clause, continued

• The idea that governments might on occasion have a legitimate need for specific private property is plausible.

• So, on its face the clause might seem reasonable, innocuous, and of limited relevance.

• But this is actually a critical clause for libertarian versus non-libertarian government:– How one interprets this has enormous implications.– To see why, we need to examine each of the pieces

in turn.

The Takings Clause:What is a Taking?

• In the example above, a taking consisted of acquiring physical possession of a tangible piece of property (land).

• A more general definition, however, is that a taking occurs whenever government actions reduce the value of private property or activities.

• Under this definition, takings are common.– Consider some examples.

Examples of Takings

• Minimum wages or rent controls.• OSHA and Environmental regulation.• Zoning laws• And so on:

– A huge fraction of government regulation.

• There is not much dispute that the broader definition of takings is reasonable; – The controversy is over the other pieces of

the taking clause.

The Taking Clause:What is Public Use?

• The example provided above (lighthouses) might suggest a fairly narrow definition of public use:– For example, only activities that are indisputably

public goods in the economic sense, i.e., activities that are important but that can only be accomplished by government.

• What might qualify?– In Libertarian Land, not much.– Military bases, maybe roads, perhaps airports.

What is Public Use?, continued

• In practice, however, the meaning of the term public use has expanded enormously:– For example, in a crucial case recently decided,

public use was the desire of a city to provide developers with land on which to locate shopping centers, condos, and the like.

• So, a different definition is, “anything the government wants, since if the government does it, it is public.”

• It might seem that settling this issue is crucial, and hard. – Maybe not.

The Takings Clause:What is Just Compensation?

• One definition is, – The amount something thinks is “fair.”

• Another definition is, – The market value of the property in question.– This is not always trivial to determine, but overall

manageable in principle.• A third definition is:

– Reservation value: the price at which the owner is willing to sell.

• The critical issue is whether the second or third definition is the appropriate one to use in determining just compensation.

Just Compensation, continued

• The problem is that market value and reservation price can differ:– Classic example is an elderly homeowner who

refuses to sell.– Market value is something finite, but the

homeowner refuses to sell at any price.– The homeowner is in effect saying the

reservation value is infinite.

• If policy wants to do the efficient thing, which price is right?


• The answer is that the reservation value is the appropriate one to use.

• Say there is a benefit to the residents of a city from having the government build some project on a particular property. Say the city collectively is willing to pay B.

• Say the market price of the property is P, but the value the owner puts on not selling – that is, the minimum price at which the owner willingly sells – is V.

• The right rule is clearly that the project should go forward if but only if B > V.

• But if the city uses the market price, and if B > P, the city might go ahead even though V > B. This would be inefficient.


• The thing to note is that, using the reservation value not only produces the correct economic decision:– It also means the city never has to forcibly “take”

anything.

• If the government overestimates B, it might pursue inefficient projects. – But it never uses its eminent domain power to do so.– Thus, the takings clause protects property owners

when the government tries to underpays.

Just Compensation: Truthful Revelation

• A possible objection is that this approach is impractical since property owners might try to “hold up” the government by asking ridiculous prices that exceed true reservation values.

• It is true property owners could try to do this, but it is not in their interest to do so to an extent that blocks an efficient project:– If they do, they are throwing away surplus.

• So, there is an issue of distribution, but not efficiency (a la Coase).

The Takings Clause and Socially Valuable Interventions

• Note that insisting on just compensation does not mean government cannot do “good stuff.”

• Take an example.– Say that fishing for tuna tends to accidentally kill

dolphins, and everyone wants dolphins to survive. – Each person would be willing to pay an extra $10 per

year in taxes to eliminate the dolphin killings.– Say the total extra cost imposed on tuna fishing

amounts to less (in present value) than the total value society is willing to pay to avoid the dolphin killings (in present value).

• Then it makes sense to use the alternative fishing technique, but how can this happen?

Socially Valuable Interventions, continued

• One possibility is that the government outlaws the technique that causes the death. – This might accomplish the desired goal, but it

means tuna fisherman have to use a more time intensive or costly technique, so there has been a taking.

– And all of this has been imposed on the fisherman without any compensation.


• An alternative policy is the following:– The government raises taxes by the amount necessary to cover

the costs of the more expensive fishing technique;– The government offers cash payments to all fishermen who

agree to fish only in this way; the amount of the payment equals the extra cost, plus a small “bonus.”

• Under this plan, there has been no taking; – Every fisherman is perfectly willing to switch techniques.– The cost is borne by everyone.

• If the total benefit exceeds the total cost, this is a good thing.

• But this approach forces society to think about whether, or how much, it cares about the dolphins, rather than just asserting there’s a benefit and imposing costs on others.


• As a second example, consider rent control.• Say a town wants residents with a diverse range

of income levels.– The town could impose rent control, but this is a

taking.• Instead, the town could raise taxes and provide

housing vouchers to low income households. – This gets the efficient result without a taking.

• This approach means the costs are explicit and borne by everyone, not just landlords, so it might happen less. – But this is plausibly what efficiency requires.

Illustration of the Takings Clause Controversy: Kelo (2005)

• New London, CT, used its eminent domain power to seize private property and sell it to private developers.– The city claimed developing the land would create

jobs and increase tax revenues, and that this was therefore public use.

• Kelo, one of the property owners, sued, claiming this was not a valid public use.

• The Court ruled 5-4 in favor of New London.

Kelo, continued

• This case enrages libertarians, as you might guess.

• To begin, there is no evidence that this kind of economic development project ever delivers the promised benefits:– Just a big handout to developers.– If it made sense, they would do it without a subsidy.

• And the case expands the definition of public use beyond reason, while also failing to pay just compensation.

The 9th and 10th Amendments

• After specifying the power delegated to Congress, the President, the Courts, and the States, and specifying certain specific rights of the people, the original Constitution / Bill of Rights closes with the following:

• Amendment IX:– The enumeration in the Constitution of certain rights shall not be

construed to deny or disparage others retained by the people.

• Amendment X:– The powers not delegated to the United States by the

Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The 9th and 10th Amendments, continued

• It is tempting (for a libertarian) to read these two amendments in the following way:– Except for the specific, narrow functions

explicitly authorized in the Constitution, the federal government has no authority to intervene, to require states to intervene, or to prevent states from intervening.

• If you accept this interpretation, most preferred libertarian policies follow.


• The problem is, the two amendments are not all that clear about what they are trying to say.

• The 9th, by itself, seems clear enough and consistent with Libertarian preferences.– For example, one could possibly read the 9th as

providing a right to privacy.

• But then the 10th muddies the waters by talking about rights being reserved to the States or the people, without clarifying priority.– One interpretation is that these are left to the States,

and if the State wishes, to the people.


• One interesting context in which to consider the 9th and 10th is abortion.

• The Griswold and Roe decisions cite the 9th amendment, and that is not ridiculous.

• But the 10th can easily be read as leaving all unspecified issues to the States, including the right to regulate abortion.– Indeed, in the 18th century, no one would have doubted a State’s

right to “regulate” murder, and abortion law has always been considered an aspect of laws about murder.

• So, appealing to the 9th amendment to justify a right to privacy / abortion is not convincing, even though libertarians oppose State prohibitions of abortion.

The 14th Amendment

• The key remaining issue in thinking about the Constitution from a libertarian perspective is the 14th Amendment, which reads in part:– No State shall make or enforce any law which shall

abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

• This amendment (along with the 13th, abolishing slavery, and the 15th, on the right to vote) was a response to the Civil War.

• All three aimed to end racist policies.

The 14th Amendment, continued

• One interpretation of the 14th is that it rules out State policies that are explicitly racist in intent:– For example, Jim Crow laws.

• Another interpretation is that the 14th requires States to provide “equal” treatment in areas like health, education, housing, lodging, and other activities;– For example, affirmative action.

• Still a third interpretation is that the 14th prohibits State actions that are inconsistent with the Bill of Rights.


• The difficulty is that the phrases “due process” and “equal protection” are open to a wide range of interpretation.

• As with other provisions, the Court’s interpretation was narrow for a while but then expanded enormously, especially in the last several decades.


• Libertarians should probably oppose this section of the 14th amendment :– Some of the things it outlaws are bad policy and

inconsistent with the libertarianism.– But using the 14th to expand federal power deviates

from the notion of letting states choose their own policies.

– And the libertarian claim is that federal control over States does far more harm than good even though in some instances State actions are bad.

Conclusions

• Under a reasonable reading of the original Constitution / Bill of Rights, virtually all federal interventions would be unconstitutional:– This follows from the Commerce Claus, the Takings

Clause, or both.

• At the same time, States would have substantial freedom to pursue whatever policies they wished.

• Some would make bad use of this freedom:– But overall this would produce far more reasonable

policies than exist now.

Conclusions, continued

• Existing Supreme Court interpretations of the Constitution are muddled and inconsistent.– And most of the individual justices are

inconsistent as well.

• There is not much hope for restoring original intent or consistency:– But understanding where the inconsistencies

lie might help nudge things in the right direction.

Conclusions, continued

• The history of U.S. constitutional law and policy provides a cautionary note for those who think having the right “rules” or “institutions” can fix various problems.– No doubt bad institutions can make things worse;– And maybe good institutions help a bit.

• But they are no panacea. Unless enough people agree on the right policy, bad policies can easily drive out the good even when institutions are “correct.”

A Libertarian Perspective on Economic and Social Policy Lecture 21 A Libertarian Perspective on the U.S. Constitution ©2007 Jeffrey A. Miron.

Documents

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original constitution

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th amendment slide

libertarian policy views

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