Thanks very much, Larry, for your kind introduction. It’s always a pleasure for me to speak to Hillsdale folks. Your mission here at the Kirby Center is a great example of what Hillsdale College is all about – that is, in the words of James Madison, “liberty and learning, each leaning on the other for their mutual and surest support.”
In addition to those of you who’ve joined us today, I’m told that these remarks are being webcast live for the benefit of Hillsdale students back in Michigan, where it is currently what most college students refer to as the crack of dawn. Your scholarly passion for human freedom must be powerful indeed.
This Saturday, we celebrate the 224th birthday of the Constitution written by the Framers in Philadelphia. In paying tribute to this inspired document, I want to talk about how we should think about the Constitution, and why that matters.
Usually, our defense of the Constitution is presented as a defense of America’s founding principles and values, and rightfully so. But our constitutional system is not just a collection of principles; it embodies an approach to government with profound practical implications for both our freedom and our prosperity. When that system is threatened, both freedom and prosperity suffer.
Freedom is lost by degrees, and the deepest erosions usually take place during times of economic hardship, when those who favor expanding the sphere of government, abuse a crisis to persuade free citizens that they should trade in a little of their liberty for empty promises of greater economic security.
We all remember what Benjamin Franklin said about that trade – that those who would make it deserve neither liberty nor security. But in such cases, when liberty is lost, it is ourfault as champions of the Constitution, for failing to mount a sufficiently persuasive and effective defense. And I believe our defense falls short when we fail to connect our timeless principles and values to the urgent economic issues facing the factory worker in Janesville, Wisconsin who is suddenly unable to provide for his family, or, in your case, the recent college graduate who finds herself in one of the worst job markets in recent history.
We can strengthen our defense of liberty if we remember to keep in mind those who are struggling to make ends meet. What makes our Constitution such an extraordinary document is that, in making the United States the freest civilization in history, the Founders guaranteed that it would become the most prosperous as well. The American system of limited government, low taxes, sound money and the rule of law has done more to help the poor than any other economic system ever designed.
I want to talk today in particular about the last of those – the rule of law, which is absolutely essential to all the other benefits of our system, to the prosperity and freedom of our country, and to the well being of all Americans, especially the most vulnerable.
What is the rule of law? When the Declaration of Independence cited as justification “the laws of nature and of nature’s God,” the Founders were channeling Aristotle, who wrote that the rule of law in principle means that, quote, “God and intellect alone rule.” Aristotle defined the law as “intellect without appetite,” by which he meant justice untainted by the self-interest of those in power.
The great difficulty we encounter in striving to meet Aristotle’s ideal was best summed up by James Madison: “if men were angels, no government would be necessary. And if angels were to govern men, neither external nor internal controls on government would be necessary.”
But, as Madison reminded us, men are no angels, and government is “administered by men over men.” Grounded in a proper understanding of human nature, our Founders tackled this challenge head-on with a brilliant Constitution and a healthy separation of powers, binding all men to the same set of laws and preventing any one man or group of men from gaining enough power to declare themselves above the law.
The Constitution secures other rights long understood to be essential to the rule of law, such as the right to due process, meaning that the laws of the land must be transparent, consistent, and equally applied to all men, so that no man may be arbitrarily deprived of life, liberty or property.
This constitutional cornerstone of our free society is also a critical precondition for a free and dynamic economy. Without the rule of law to safeguard the ownership of property and the enforcement of contracts, it makes little sense for an investor to put his capital at risk helping an entrepreneur to pursue a dream, to advance an idea, and ultimately to grow a business that creates good-paying jobs for Americans.
For decades, the U.S. economy has been a magnet for investors, entrepreneurs, and workers, because we enjoy some of the strongest and most transparent legal protections in the world. These protections provide a stable environment for business investment – stability that is undermined when the discretionary power of bureaucrats is enhanced.
Many countries around the world remain mired in grinding poverty for lack of the institutions necessary to guard property and contracts from the appetites of local despots and their cronies. Their economies are highly unstable, and the fate of business investment is often subject to the whims of a single person, or a small group of bureaucrats.
The good news is that the United States still enjoys an enormous edge over most of the world when it comes to the strength of our institutions and our reputation for respecting the rule of law. But we are moving in the wrong direction, and we would be fools to believe that job creators haven’t noticed.
Let me give you just a few examples of how the rule of law in this country has been degraded over the past several years, and replaced by the rule of man.
The first is in the area of monetary policy. I’m not suggesting the Federal Reserve has done anything illegal, treacherous, or even treasonous. But I do believe that Congress has delegated too much arbitrary authority to the Fed – and that, in recent years, the Fed has trended too far toward discretionary and away from rule-based monetary actions.
Small changes in monetary policy can have big economic consequences, and the central bank can serve as a major source of economic instability. In 1993, Stanford economist John Taylor developed a rule to improve the stability and predictability of U.S. monetary policy. An untold economic success story in the 1990s is the Fed’s adherence to price stability, thanks in large part to Taylor’s key insights.
Unfortunately, the Federal Reserve abandoned the so-called Taylor Rule roughly a decade ago after the tech bubble collapsed, and a growing body of evidence supports the idea that the Fed kept interest rates too low for too long throughout the past decade, helping to fuel the enormous housing bubble that caused the financial crisis of 2008.
The central bank continues to pursue a misguided policy of arbitrary decision-making that is contributing to economic uncertainty and, in my opinion, causing more harm than good.
Next, energy and environmental policy: I think the Obama Administration’s actions here offer a perfect example of what happens when you concentrate too much discretionary power into the hands of unaccountable bureaucrats.
In 2007, a wrongheaded Supreme Court decision cleared the way for the Environmental Protection Agency to unilaterally regulate greenhouse gases if the agency found that such gases “may reasonably be anticipated to endanger public health or welfare.” As soon as Obama’s EPA chief took office, “reasonably” was unreasonably defined, and the agency issued finding after finding that would produce real economic harm in exchange for distant – and dubious – environmental ends.
With Nancy Pelosi and Harry Reid running Congress, the Administration first pushed for legislation resembling the European Union’s cap-and-trade system. Because of the EPA’s power grab, affected industries faced the “good cop, bad cop” routine: It was either play ball with Pelosi, or else the EPA could be counted on to come up with something worse. Given the options, it’s no surprise that a “Who’s Who” of big corporations lined up to support the bill once their priorities were met, even though most Americans remained strongly opposed.
This bill passed the House, but it was unable to overcome bipartisan concerns in the Senate. Cap-and-trade legislation was deemed costly, economically harmful, and ineffective in its means and goals. But instead of accepting this verdict on its preferred policy, the Administration decided to let the EPA carry on with its harmful plan to impose unilateral emissions restrictions on American businesses, raising the question: Why does the Constitution establish a lawmaking body at all?
While the EPA is busy punishing commercially competitive sources of energy, the Department of Energy under President Obama has been acting like the world’s worst venture capital fund – picking winners and losers, but mostly losers, by spending recklessly on uncompetitive alternatives. For evidence, look no further than Solyndra, a solar-panel company that received $500 million in stimulus-funded loan guarantees. Last month, Solyndra filed for bankruptcy and laid off its employees, and the story gets worse by the day.
The federal government’s job is to make and enforce sensible rules of the road, so that markets are fair, transparent and competitive. When bureaucracy is empowered to reward politically well-connected firms at the expense of economically competitive ones, this weakens the rule of law, wastes taxpayer dollars, and makes sustainable job creation that much harder.
Another example: We have seen a lot of damaging economic adventurism in the area of financial services lately. TARP was supposed to be confined to a narrow emergency and used to avoid precisely the kind of situation I described at the beginning of this speech – an economic calamity in which politicians promising security in return for a loss of freedom would do enormous damage to the cause of liberty.
Needless to say, it was disappointing when the Bush Administration approved the use of TARP funds for the bailouts of General Motors and Chrysler. This entrenched the idea that TARP could be used as a slush fund for just about any kind of economic intervention, regardless of the fact that the original bill charged the program to, quote, “purchase… troubled assets from any financial institution.”
That was bad, but the greater damage came later, when the Obama Administration used that bailout to trample the rights of Chrysler’s secured bondholders – including state pension funds – in order to give politically favored groups a better deal than they were entitled to receive under the bankruptcy law, making it less likely that institutions tasked with safeguarding people’s life savings will invest that money in ways that create jobs in the United States.
The Dodd-Frank financial-services overhaul only made matters worse. Dodd-Frank involves radical changes to financial regulation – changes that will affect every feature of our financial-services industry, increase the power of current financial regulatory agencies, and create new ones.
For example, the FDIC may now take control of any financial institution if a panel of regulators under the Treasury Secretary sees a danger of “systemic risk,” which is up to regulators to define. Moreover, smaller institutions do not receive the protections given to big firms under this law, resulting in unequal treatment as well as higher borrowing costs compared to their larger competitors.
Dodd-Frank promotes the rule of bureaucrats to our economic detriment, inviting political corruption while further degrading self-government.
The next case involves the troubling overreach we’ve seen lately from this Administration’s appointees to the National Labor Relations Board. The most notorious case involves Boeing, which the NLRB is suing over its decision to locate a new factory in South Carolina instead of union-friendly Washington State. The Board’s actions are threatening hundreds of jobs.
But this isn’t the only example of the Board’s overreach. Early in his Administration, the President promised labor leaders that he would work to pass a card-check bill to make union-organizing easier. But just like cap-and-trade, card-check failed in Congress – so the NLRB simply issued new union-election rules that would, in the words of one former Board member, “achieve the primary objectives of [card check] by administrative rule, without the need for tough congressional votes,” unquote. Again, with agencies like this, what do you need Congress for?
More generally speaking, we should not be surprised to find organized labor leading the charge for more bureaucratic discretion in federal rulemaking. An agency that is free to broadly interpret its statutory authority is one that can unilaterally broaden its size and scope – and in the process, it can increase the size and influence of the public-sector unions to which its employees belong.
Last case: The President’s health care law. This one is a doozy. Let me share with you a figure that serves as a devastating indictment of the new law: So far, over 1,400 businesses and organizations have been granted temporary waivers from the law’s onerous mandates. These waivers do not guarantee relief in the future, which is why I refer to them as “stays of execution.” Nor do they help those firms that lack the connections to lobby for waivers. The powerful discretion assumed by HHS to play judge in determining these stays of execution does tremendous damage to the rule of law.
The President’s health care overhaul undermines the rule of law in other ways as well. The new law empowers a panel of 15 unelected, unaccountable bureaucrats in Washington to cut Medicare in ways that will deny benefits for current seniors.
The new board’s recommendations would become law unless a supermajority voted affirmatively to replace these recommendations – a high hurdle that raises constitutional questions about whether Congress can legitimately grant this much lawmaking power to an unelected agency.
Look, I am not trying to question the intentions of those who have decided to make Medicare spending less accountable to the democratic process. I think they truly believe that it is better to let government-appointed experts make these kinds of decisions, free from the checks and balances that define our messy democratic process.
But in weakening the rule of law in the United States, their intentions are totally irrelevant. The damage they have done is real. And the relevant question we have to ask ourselves is whether, as Reagan put it, “we believe in our capacity for self-government, or whether we abandon the American Revolution and confess that a little intellectual elite in a far-distant capital can plan our lives for us better than we can plan them ourselves.”
If we succumb to this view that our problems are bigger than we are – if we surrender more control over our economy to the governing class – then life in America will become defined by a new kind of class warfare: A class of bureaucrats and connected crony capitalists trying to rise above the rest of us, call the shots, rig the rules, and preserve their place atop society. And their gains come at the expense of working Americans, entrepreneurs, and the small businesswoman who has the gall to take on the corporate chieftain.
The Constitution’s Framers knew that there is a human inclination to increase personal power at the expense of law, so they created Congress as a decentralized and internally divided institution, but they granted it ample authority to secure the rule of law in every case. Congress holds the power of the pen as well as the purse. It has the power necessary to address attacks on the rule of law in our executive bureaucracies and even in the courts. The Constitution provides us with the power to solve these problems; what we need, is the will to do it.
The solution, the defense of the rule of law, will have to involve alternative ways to address the public problems that too many on the Left want to solve by delegating power to bureaucrats.
For every government curtailment of our liberty through the discretion of bureaucrats, there are alternative reforms that could address the same problems within the framework of the rule of law, and indeed they could address those problems more effectively.
House Republicans have proposed a policy agenda to do just that: reclaiming America’s exceptional promise, charting a path not only to fiscal sustainability, but also to renewed prosperity.
Restoring the rule of law – reducing the influence of bureaucrats in the lives of Americans and empowering them to take more control over their own lives – is central to the budget we passed earlier this year. In fact, such reforms go hand in hand with our efforts to lift the crushing burden of debt, secure our social safety net, and spur job creation and sustained economic growth for all Americans.
In monetary policy, Congress must refocus the Federal Reserve on price stability within a clear, rule-based system, because businesses and families alike need sound money to invest, grow, and prosper.
In energy, Congress must limit the EPA’s discretionary power to impose a unilateral version of the job-destroying cap-and-trade program.
In financial services, Congress needs to establish a regulatory environment that is fair, predictable, and reasonable.
In labor policy, Congress needs to rein in an agency that is threatening job creation by overreaching its mandate, and to make sure we have a public sector that works for the people it serves – not the other way around.
And in health care, Congress must repeal the President’s disastrous new law, diminish the power of unelected bureaucrats over the system, and give that power to individuals and families by advancing reforms that harness the power of choice and competition in health care.
Rather than increasing the size and scope of central administration, let us champion an agenda guided by the American Idea of equal rights under law. Let’s begin to remove the hurdles that government has erected. Legislative reform should empower people, families, and communities, not bureaucrats and their cronies.
The American Idea unites liberty and law in a bond that must not be severed. America can win back the promise of individual liberty – a promise we have and continue to shed blood to defend. But the time has come to honor our Constitution’s limits on arbitrary bureaucracy and return the rule of law to the center of our government.
Looking out on the faces here today, I am hopeful that a new generation is coming to the study of politics with a real appreciation of the Constitution and its centrality to ensuring justice and security in our communities… to promoting the welfare and the prosperity of all the people… and to securing the blessings of liberty to ourselves and our children.
By respecting the rule of law, reclaiming the prominence of our Constitution, and reforming our government, I have no doubt that we the people, working together, can help ensure that the next generation of citizens inherits a stronger, freer, more prosperous America, and a more perfect union.