I confess I start every year with a song of hope—even for the three-ring circus in Washington, DC. And I end every year with a song of despair.

For the most recent fiscal year, the federal government spent about a quarter of US GDP. American businesses spent almost $2 trillion (or roughly another 10% of GDP) complying with federal regulations. The national debt stands at almost 130% of GDP. 

In an era of lingering poverty, with about a fifth of Americans participating in some sort of welfare program and the labor force participation rate at a historic low of 61%, an estimated 30% of the American workforce is subject to occupational licensing (up from 5% in the 1950s). On top of state police powers, federal tentacles touch every aspect of American economic life. 

In 1776, Thomas Jefferson elegantly explained the purpose of government, and also summed up his grievances against the English Crown in an elegant document that amounts to around 1,300 words. Compare that to the current federal regulations on the sale of cabbage (7,800 words) or the Code of Federal Regulations, which contains more than 180,000 pages. 

Limited and Enumerated Powers?

The size and scope of the federal government are particularly jarring if we juxtapose reality with the constitutional text. Indeed, Article I of the Constitution specifically enumerates for Congress no more than two dozen powers. Article II enumerates even fewer presidential powers. The Tenth Amendment mops up any uncertainty. 

The interesting question is not so much why the federal government grew—something that is easily explained through Public Choice theory—but how it was allowed to happen. If ambition failed to check ambition in the separation of powers, the Courts were supposed to enforce constitutionality.

Recall the words of John Marshall (in Marbury v. Madison [1803]) regarding the role of the judicial branch:

It is emphatically the province and duty of the Judicial Department to say what the law is. …

[I]f a law be in opposition to the Constitution, if both the law and the Constitution apply to a particular case, so that the Court must either decide that case conformably to the law, disregarding the Constitution, or conformably to the Constitution, disregarding the law, the Court must determine which of these conflicting rules governs the case. This is of the very essence of judicial duty. If, then, the Courts are to regard the Constitution, and the Constitution is superior to any ordinary act of the Legislature, the Constitution, and not such ordinary act, must govern the case to which they both apply.

Those, then, who controvert the principle that the Constitution is to be considered in court as a paramount law are reduced to the necessity of maintaining that courts must close their eyes on the Constitution, and see only the law.

This doctrine would subvert the very foundation of all written constitutions.

Alas, that is exactly what the courts have done. Here are some egregious examples from SCOTUS, drawn from Robert Levy and Chip Mellor’s The Dirty Dozen:

• Home Building and Loan Association v. Blaisdell (1934): States exercising their police power may restrain private contracts to further the public interest (despite Article I, section 10 of the Constitution).

• Helvering v. Davis (1937): the Social Security Act is constitutional because Congress may define its own limits under the general welfare clause (despite Article I, section 8, and the 10th Amendment).

• Wickard v. Filburn (1942): Congress may regulate any commerce (including intrastate) that might affect interstate commerce (despite the Commerce Clause in Article I, section 8).

• Penn Central Transport Co. v. New York City (1978): to advance the public interest, a state may impede a private party’s improvement of its property, without compensation (despite the 5th Amendment’s Takings Clause).

• Kelo v. City of New London (2005): a city’s exercise of eminent domain to favor private economic development is constitutional under an expansive interpretation of the phrase “public use,” (despite the Takings Clause of the 5th Amendment).

In each of these cases, the Court failed to exercise its legitimate review function. 

Part of the problem is, of course, the sheer volume of the regulatory and legislative machinery. The Court hears only 100 to 150 of the 7,000 cases brought before it each year. Still, the numbers are telling: from 1954 to 2002, the Court struck down a mere 0.67% of federal laws, 0.5% of federal administrative regulations, and 0.05% of state laws—and this within the 5% of cases to which the Court grants certiorari. 

This rate of constitutional invalidation is not a coincidence, but the result of a clear jurisprudence. Indeed, for the past century, the Court has explicitly weakened constitutional protection of economic rights: political rights are considered to be fundamental, while economic rights are non-fundamental (and subject to the public interest, as defined by legislatures and executives).

Gutting Economic Rights

The bifurcation of rights comes from the infamous Footnote Four in US v. Carolene Products Co. (1938). In this case, the court drew a distinction between political rights (assembly, voting, free speech, etc.) and economic rights (private property and the free use thereof, the right to contract, the right to open a business, etc.). The Court ruled that political rights were fundamental, and thus subject to “strict scrutiny” of government action. By contrast, economic rights were non-fundamental, as they were secondary to the public’s right to regulatory protections; economic rights would henceforth be subject to a “rational basis test” (as proposed in the earlier Nebbia v. New York [1934]).

Majority rule alone cannot provide a sufficient safeguard to individual rights; democracy can excel at aggregating preferences but cannot be its own safeguard and thus requires rule of law and constitutional constraints. 

When a law or regulation involves political rights, it faces a “strict scrutiny” standard of review. Courts adjudicating its constitutionality require the state to show a compelling government interest for curtailing individual rights for the public good; they must also demonstrate that the law was narrowly tailored to achieve its end.

Under the lower standard of the “rational basis test” used for economic rights, government actions are presumptively constitutional: the burden of proof is on the party challenging the law to demonstrate that there is no rational basis for it. But the test goes further! The test enables judges actively to help the government find a compelling justification underlying the law, including the invocation of theoretical and hypothetical scenarios in which the law conceivably advances the public interest. Clark Neily explains (emphasis added):

A statute is presumed constitutional and “the burden is on the one attacking the legislative arrangement to negate every conceivable basis which might support it,” whether or not the basis has a foundation in the record. Finally, courts are compelled under rational-basis review to accept a legislature’s generalizations even when there is an imperfect fit between means and ends. 

While the bifurcation of rights emerged during the New Deal, judicial deference to legislatures fits within a much older trend. In Ogden v. Saunders (1827), the Court opined, “It is but a decent respect to the wisdom, integrity, and patriotism of the legislative body, by which any law is passed to presume in favor of its validity, until its violation of the Constitution is proved beyond a reasonable doubt.” 

Judicial deference empowers judges with wide interpretive latitude to legitimize constitutionally questionable legislation. By contrast, textualism and originalism restrain judges, forcing them to ascertain to the extent possible the common meaning of words at the time of their issuance, and holding judges to the text of the Constitution—rather than to layers of precedent containing erroneous decisions. The Court’s willingness to presume that alleged violations of “secondary” economic rights are constitutional until proven otherwise not only protects poor statutes from invalidation, but also emboldens legislatures and regulators to push the boundaries of the rational basis test, encroaching further on economic rights. 

An Economic Challenge 

Economic analysis sheds light on the problems with bifurcation and deference. 

In any realistic analysis of public policy, we must take into account both the Austrian “knowledge problem” and the Public Choice “incentive problem.” The Austrians teach us that policymakers cannot simply be assumed to have sufficient knowledge to engineer social outcomes without unintended consequences; we need look only at the boom-and-bust cycle from Central Bank tinkering with interest rates. Public Choice theory teaches us that policymakers cannot be assumed to advance the best interests of their constituents, but must be assumed to advance their own interests where they can; we need only look at special interests, or elite collusion, in the form of logrolling and rotating coalitions. 

The Founders rightly feared tyranny of the majority as much as tyranny of the minority. In Federalist #48, Madison cautioned that “an elective despotism was not the government we fought for.” As proto-Public Choice theorists, the Founders left everyday decisions to majority rule but important decisions (like constitutional amendments or overriding a presidential veto) to a super-majority. When they defer to the political branches, courts may empower majorities in the political process at the expense of minorities. Majority rule alone cannot provide a sufficient safeguard to individual rights; democracy can excel at aggregating preferences but cannot be its own safeguard and thus requires rule of law and constitutional constraints. 

Thus, the Founders explicitly removed individual rights from the political process by enshrining their protection in the Bill of Rights. In the words of Justice Robert Jackson in West Virginia Board of Education v. Barnette (1943):

The very purpose of a Bill of Rights was to withdraw certain subjects from the vicissitudes of political controversy, to place them beyond the reach of majorities and officials and to establish them as legal principles to be applied by the courts. One’s right to life, liberty and property, to free speech, a free press, freedom of worship and assembly, and other fundamental rights may not be submitted to vote; they depend on the outcome of no elections.

Judicial deference to the political branches goes against the lessons of Public Choice theory by presupposing that the legislature acts for the “common good.” It goes against the teachings of Austrian economics, as it simply assumes that elected officials and unelected bureaucrats have better knowledge than consumers and entrepreneurs. It also violates the Constitution’s safeguards against government overreach, and the role of the Courts within the constitutional system. 

Redistribution and the rise of the regulatory state impede growth and hurt the poorest members of society who need growth the most. On a microeconomic level, the lack of respect for economic rights is regressive. On a constitutional level, it has opened the floodgates of runaway government.

Without economic liberty, most political liberties are irrelevant. Freedom of expression is irrelevant if the state owns the radios, the newspapers, the paper, the printing presses, the ink, and the delivery trucks—or the computers. If the state significantly thwarts economic rights and the opportunity to trade one’s labor for a wage, political autonomy is non-existent. We need only look at the Chinese social credit system, the Canadian government’s freezing of bank accounts for insolent protesters, and the recent trend of de-banking.

Economic rights are instrumental to the enjoyment of political rights. But they are also crucial to living a life of human flourishing and dignity. Without the right to property, the right to earn an honest living, the right to exchange, or the right to keep the fruits of our labor, we cannot be independent or free. As the great economist and publicist Frédéric Bastiat explained: 

In the full sense of the word, man [sic] is born a proprietor, because he is born with wants whose satisfaction is necessary to life, and with organs and faculties whose exercise is indispensable to the satisfaction of these wants. Faculties are only an extension of the person; and property is nothing but an extension of the faculties. To separate a man from his faculties is to cause him to die; to separate a man from the product of his faculties is likewise to cause him to die.

Progressive philosophy—and the jurisprudence on economic rights that emanated from it—rightly understood the importance of political rights to human flourishing, in a constitutionally limited democracy. In their zeal to fix perceived market failures, the Progressives failed to understand that economic rights are inextricably intertwined with political rights. The abrogation of economic rights not only limits the exercise of political rights; it also goes against human dignity, as stunted humans become wards of the state.

The Court has abdicated its role as a guardian, and the legislature and executive have ignored their constitutional purview. Much work remains to be done in turning our constitutional system around, from education to welfare reform, and from fiscal overhaul to electoral reform. As a start, the Court could ditch the Carolene bifurcation, treat economic rights with the same deference as political rights, and apply strict scrutiny to all government actions rather than deferring to majorities, legislators, unelected regulators, and an imperial presidency. Doing so would be a crucial first step towards returning to a presumption of liberty and constitutionally limited government.