TARP and ADD

It is futile, but not pointless, to note that the federal government's blizzard of bail-outs is unconstitutional. At least that would be the correct judgment were the policy brought before the Supreme Court to be judged with reference to the doctrine of "nondelegation."

That doctrine, a necessary concomitant of the Constitution's separation of powers, usually concerns improper delegation of legislative powers to the executive branch. Robert Levy, chairman of Washington's libertarian Cato Institute, notes that although the court has condoned some forms of delegation, it has stipulated that Congress "shall lay down ... an intelligible principle to which the person or body authorized ... is directed to conform." Can anyone discern the principle implicit—it certainly is not explicit—in the Troubled Asset Relief Program (TARP) that authorizes disbursement of perhaps $1 trillion in bailouts? The original purpose of the exercise, to move "toxic" mortgage assets from the books of financial institutions, is no longer controlling.

Improper delegation is inherent in unlimited government, under which hyperkinetic legislators, for whom Attention-Deficit Disorder is an occupational hazard, are jacks of all trades and masters of none. Their expertise is inadequate to their pretensions of omnicompetence. Their desire to intrude government into every nook and cranny of life requires that their attentions be spread thin. So the "laws" they pass are often little more than endorsements of vague aspirations. If a law is a substantive rule that regulates private conduct or directs the operations of government, many laws are effectively written by the executive branch, exercising vast discretion in administration and rulemaking.

In 1989, the Supreme Court said: "Congress simply cannot do its job absent an ability to delegate power under broad general directives." Leaving aside whether that means Congress's understanding of "its job" is radically inflated, how broad is TARP's "general directive"? Is it simply to "make everything nice again"?

John Locke's "Second Treatise of Civil Government" (1690), which deeply influenced America's Founders, says: "The legislative cannot transfer the power of making laws to any other hands: for it being but a delegated power from the people, they who have it cannot pass it over to others." And: "The power of the legislative ... being only to make laws, and not to make legislators, the legislative can have no power to transfer their authority of making laws, and place it in other hands."

But that is essentially what TARP has done. It has made Treasury Department bureaucrats into legislators; or perhaps it has made Secretary Hank Paulson the fourth branch of government. Under TARP, policy derives not from John Maynard Keynes but from the song "Dry Bones":

Detroit is connected to the auto-parts suppliers, those suppliers are connected to the truckers who haul the parts, and the truckers are connected to Ralph and Madge's Bar and Grill out by the interstate, and oh mercy! if one goes, they all will go. Maybe. No one knows. It is true but inadequate to say that the government has not known what it has been doing since March, when it said that the contagion afflicting Bear Stearns required federal intervention lest the entire financial system be infected. Actually, the government cannot know what it is doing, for two reasons.

First, the government is operating in an environment without rules, or—what is much the same—in an environment of constantly changing rules. Second, constant, fog-shrouded improvisation is one consequence of operating without reliable prices. Prices are information; markets are information-generating mechanisms. Government has plunged into allocating wealth and opportunity even though proper prices for important assets cannot be known because markets are not functioning. When prices are arbitrary, which they must be when not set by markets, you have the essence of socialism. The results must be irrationality and, eventually, corruption. Socialism is not merely susceptible to corruption; it is corruption—the allocation of wealth and opportunity by political favoritism. Under democratic socialism, such favoritism is then rewarded by financial support, by those favored, of the dispensers of favors.

Because a Republican administration began the bailouts, many Republicans have endorsed them—grudgingly, queasily and with uneasy consciences. It is, however, probable that some Democrats relish this eruption of government into finance and industry. It serves the left's agenda of expanding the scope of politics by multiplying the forms of dependency on government. Hence liberalism's enthusiasm for enriching the menu of entitlements; hence liberalism's promotion of equality by making more groups and entities equally dependent on government.

A Republican revival requires both Democratic blunders and Republican talent to refute them. The occurrence of the former is certain because of the enthusiasm for bailouts; the appearance of the latter is less so, but will be encouraged by the former.