Household Finance Versus Sovereign Finance, Everyday Meaning Versus Legal Meaning, And Other Confusions
This semester I have been teaching a new seminar that focuses on the relation between the US Constitution and the economy, broadly defined. In addition to studying particular provisions (e.g., Takings Clause) and doctrines (e.g., dormant Commerce Clause), my students and I have also been looking at broader issues, including questions of political economy (with a lively session on the excellent book by Joey Fishkin and Willy Forbath, The Anti-Oligarchy Constitution) and interpretation (e.g., the relation between law and economics, on one hand, and originalism and textualism, on the other--as discussed in this article by Prof Buchanan and me). As with any such endeavor when it succeeds reasonably well, I have learned at least as much from the terrific students in the seminar as they have learned from me. Today's essay arises out of an interesting student observation during our most recent meeting.
One of the readings I assigned for this week was the article by Prof Buchanan and me (yes, I assign a lot of my own work in my seminar), Don't End or Audit the Fed: Central Bank Independence in an Age of Austerity. Written when Federal Reserve independence was under attack from both the Occupy Wall Street left and the Tea Party right, the article sought to distinguish valid criticisms of particular Fed actions from what we regarded (and still regard) as misguided criticisms of insulating a central bank from direct political control. The article also tackled an issue that I believe has been given inadequate attention by lawmakers and Congress: criteria for deciding what sort of federal agencies need such independence.
In the course of articulating those criteria, Prof Buchanan and I took note of the fact that across a wide range of policy domains, politicians responsive to poorly informed public opinion make bad decisions. However, we argued that avoiding bad policy cannot by itself be a justification for insulating government officials from political inputs, because such a rationale would justify technocracy across the board, leaving no room for democracy. The article went on to identify acute self-dealing risk as a necessary condition for independence. Interested readers can go to the article if they're interested in seeing whether we made a persuasive case.
Here, however, I want to focus on one of the misconceptions held by the public that affects fiscal policy of the sort left to Congress rather than monetary policy that is the Fed's primary domain. The misconception--which is also held by and certainly encouraged by many politicians--is that national fiscal policy can and should be modeled on household finance. The observation I'm about to make is likely familiar to readers, so I ask that you bear with me. I make it in order to draw an analogy to a different sort of misconception.
Scolds often decry deficit spending by analogy to household finance. Some of these scolds sound a bit like Polonius with his bromide "neither a borrower nor a lender be." That's foolish advice (and Shakespeare knew as much, for Polonius is, after all, an old fool.) There are a great many circumstances when it is wise to borrow money--to finance an education or the purchase of a house or a car. Of course it is possible to borrow beyond one's means of repaying, but some forms of borrowing (such as student loans in many cases) are a form of investment; even borrowing for consumption can be sensible as a means of smoothing.
Less self-evidently-daft (but nonetheless daft) scolds decry government borrowing by analogizing to admittedly injudicious household borrowing. In personally hard economic times--following a layoff, say--prudent individuals and families tighten their belts and reduce their spending. The daft scold says the government should do the same, even though sound Keynesian economics says it should do the opposite. Although it is individually rational for people without work or in precarious employment circumstances to reduce their spending, the collective impact is a reduction in aggregate demand, which, in turn, exacerbates the overall economic downturn. Astute policy makers have understood since the Great Depression that the sensible response of government in such circumstances is to stimulate the economy by spending more, even if it needs to borrow money to do so.
The foregoing dynamic is, as I said, well-known, but the scold's analogy to household finance nonetheless has staying power. Why? In no small part because the Keynesian story is complicated, while the analogy to household finance is simple and, at least to someone who has not taken a class in or read about macroeconomics, feels as though it should be true: if you have less money, you should spend less money, the seemingly straightforward reasoning goes.
To my mind, a very similar phenomenon accounts for the staying power of old-time originalism--that is, the original-intent version, not the original-public-meaning version, and certainly not living Constitutionalism. As I have noted before, Justices on the Supreme Court who claim to be originalists often deploy a "two-step." I illustrated the idea in my essay last week on the oral argument in the Rahimi case:
self-styled originalists who don't want to be seen as rejecting Brown v. Board say that the Fourteenth Amendment bars de jure racial segregation because equal protection is abstracted beyond the concrete intentions and expectations of the Reconstruction Congress that was content to establish segregated schools in the District of Columbia, but then they also say that there is no constitutional right to abortion because of the specific history of abortion restrictions, not abstracted in any way beyond concrete intentions and expectations. Lather; rinse; repeat.
Supreme Court Justices who have been to numerous Federalist Society conventions at which conservative legal scholars talk about original public meaning have no excuse for slipping back and forth between original public meaning and original intent. But politicians, pundits, and the general public mostly have not paid attention to what, to them, would seem like lawyerly hairsplitting. Thus, in public debate, one commonly hears talk of original intent.
My hypothesis here is that original intent has staying power for roughly the same sort of reason that household finance serves as an attractive (though misleading) analogy for government finance: original intent seems to be a natural extension of how we use language in our everyday lives. In making sense of the words we hear spoken or see in print, we try to infer the intentions of their respective speakers and authors.
For example, suppose a house guest who knows I've gone to the grocery store texts me "please buy 4 of the best apples they have." I read the text but I'm not sure what apples my friend considers best. I text back but get no answer and I'm nearly ready to check out. I will try to give effect to my best guess of my friend's intentions. If I know my friend is planning on baking an apple pie, I might buy the four best looking Rome apples, because even though Rome apples are not the best for eating, they're excellent for baking. I am not looking for the public meaning of "best apples." I care about what my friend thinks about apples on this particular occasion.
That approach feels appropriate for law too. And indeed, there continue to be intentionalists with respect to law--especially with respect to statutory interpretation. But in response to various powerful critiques of original intent originalism, most scholars and sophisticated judges who call themselves originalists have shifted to public meaning. I believe that the less sophisticated politicians, pundits, and general population have not shifted because of the natural appeal of intentionalism in everyday life.
Are there other confusions of this sort? No doubt there are. I'll conclude by mentioning just one roughly analogous phenomenon. People sometimes say that the government (or non-profit institutions like universities) "ought to be run like a business." This sentiment is based on various misconceptions but has a superficial plausibility at least with respect to some aspects of what governments (and other institutions, including universities) do--especially customer service. During the Clinton Administration, VP Al Gore led a generally successful initiative called Reinventing Government that aimed to make the government more cost-effective and overall just better. It sensibly adapted some wisdom from the private sector.
However, much of what government does has no private-sector analogue. Nonetheless, many people say and even think that government should generally be run like a business. They also believe--often falsely--that government is not now being run as well as businesses even in the areas where government performs analogous functions to businesses. These beliefs in turn fuel two pernicious ideas: (1) that one can dramatically decrease government spending without undercutting performance by cracking down on waste, fraud, and abuse; and (2) that people who were successful in business (like Mike Bloomberg) or even people who pretend they were successful in business (like Donald Trump) are, for that reason, qualified to run the government.