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TARP Heels

Can conservatives overturn the bailout in court?

The last few months have been a nightmare for American libertarians, with Congress and the president lining up to pass massive bailouts and stimulus packages--the Leviathan state of their darkest fantasies. But, having failed in the political arena, defenders of small government have begun to regroup and wage their insurgency in the courts. Last month, FreedomWorks, an organization chaired by former Republican House majority leader Dick Armey and founded in 1984 to promote "lower taxes, less government, and more freedom," declared that Congress has unconstitutionally delegated lawmaking power to the president. FreedomWorks plans to file a lawsuit alleging that the Troubled Assets Relief Program (TARP) violates the "non-delegation principle," recognized in cases before the New Deal, which holds that Congress can't delegate legislative authority to the executive branch without "intelligible principles" to guide its discretion.

The FreedomWorks lawsuit on the horizon is hardly the only potential libertarian challenge to TARP, the stimulus bill, and other government bailouts. According to Laurence Tribe of Harvard Law School, there are a number of possible avenues for constitutional challenges to the bailouts, even beyond the excessive delegation challenges that may multiply now that the original plan to buy troubled assets has morphed into a plan to treat auto companies as financial institutions. Tribe predicts that libertarians may claim that TARP violates the constitutional requirement that taxing measures must originate in the House rather than the Senate; question some of the appointment procedures for the Recovery Accountability and Transparency Board (the RAT Board), which is responsible for preventing fraud and abuse; argue that states can't be forced to change their unemployment laws as a condition of accepting bailout funds; and challenge home-foreclosure provisions of the stimulus bill as unconstitutional seizures of property without just compensation.

The libertarian lawsuits seem to vindicate the fears of liberals who have charged that libertarians are determined to resurrect the so-called "Constitution in Exile," invoking constitutional limits of federal power to regulate the economy that have been dormant since the New Deal. But they have also widened a serious rift in the conservative legal movement between two separate strands of conservatism. And the success or the failure of the constitutional lawsuits will make clear which strain is ascendant.

Over the last 30 years, the conservative legal movement has been marked by a significant fissure between, on the one hand, libertarian conservatives, represented by think tanks like the Cato Institute, the Institute for Justice, and FreedomWorks; and on the other, pro-business conservatives, represented by the Chamber of Commerce's National Chamber Litigation Center. Despite their shared commitment to free markets and deregulation, the libertarians and the pro-business conservatives have very different goals and strategies. Libertarian conservatives want to limit federal power to protect states' rights; pro-business conservatives are willing to extend federal power to promote the national uniformity that businesses prefer. Libertarian conservatives unapologetically embrace constitutional judicial activism; pro-business conservatives are more interested in using statutory arguments to check what they call "regulation by litigation."

When it comes to the bailout, the ideological distance between libertarians and pro-business conservatives couldn't be wider. Unlike the libertarians, the Chamber of Commerce isn't ideologically opposed to the economic bailout. In January, the Chamber wrote to Congress that it "strongly supported" the broad outlines of TARP and the stimulus bill, although it has expressed concern about some of the lobbying restrictions on TARP recipients. TARP relies on centralized regulatory bodies to promote economic well-being and corporate responsibility, rather than relying on regulation by litigation--both features that might well advance the Chamber's mission to promote "the unified interests of U.S. business."

Which strand of conservatism will prevail in court? The libertarian arguments are doomed--and the libertarians know it. "The legal precedent is not exactly favorable when it comes to delegation doctrines," says Robert Levy, chairman of the Cato Institute. Although some lower court judges might buy the libertarian arguments, Levy acknowledged, he can't count more than a single possible vote on the Supreme Court: Justice Clarence Thomas. Tribe, too, said the libertarian lawsuits are unlikely to succeed, because even courts that are concerned about the excessive delegation of regulatory authority may be reluctant to second-guess taxing and spending measures.

And it's not just TARP. Although the libertarians had some success in the 1990s, when states' rights conservatives like Sandra Day O'Connor and William Rehnquist waved the banner of federalism, they have only Thomas to represent them on the Roberts Court. This reflects lobbying by the Chamber of Commerce that ensured the appointment of two pro-business conservatives, John Roberts and Samuel Alito, rather than states' rights conservatives like Thomas. The libertarian rout has been apparent since 2005, when Justice Antonin Scalia, who has never been a consistent libertarian, joined a 6-3 Supreme Court decision upholding Congress's power under the Commerce clause to ban the use of marijuana, even when states have approved its use for medicinal purposes.

By contrast, for the past several years, the pro-business conservatives have been crowned with delirious success: All nine justices on the Roberts Court share, to varying degrees, a bipartisan suspicion of "regulation by litigation. " About 45 percent of the Court's docket is now made of business cases, and 79 percent of the cases are decided by margins of 7-2 or better. When you leave out environmental, labor, and employment cases, where the justices have more ideologically polarized views, the Chamber of Commerce wins most of these cases, from punitive damages and antitrust to securities suits and federal preemption of state tort suits against corporate defendants.

The failure of the libertarian laws means that Obama may have constitutional carte blanche to spend bailout money however he likes, without meaningful oversight by judges or Congress. And the fact that it's not unconstitutional doesn't mean it's a great idea. The military-spending scandals during World War II, exposed by the Truman Committee, showed the risks for corruption and fraud when the executive branch is given a free hand to spend vast amounts of money. During FDR's presidency, the greatest judicial spokesman for political accountability and transparency was Justice Louis Brandeis, who was so suspicious of "the curse of bigness" in all its forms--both corporate and governmental--that he questioned elements of the New Deal that sought to impose corporate discipline by centralizing power in the federal government. (He voted to strike down parts of FDR's National Recovery Administration, for example, because it delegated unchecked power to the president.) Fearing that government regulatory bureaucracies would grow as unwieldy as the corporations they were designed to regulate, Brandeis preferred to use the federal taxing power to prevent banks from engaging in many different forms of banking and using the powers of the states rather than the federal government to regulate corporations after they were broken up.

Brandeis may have exaggerated the "curse of bigness": In an age when some corporations are considered "too big to fail," it's now conventional wisdom that the lack of competition, rather than corporate size for its own sake, poses the greatest threat to a healthy democracy. But he was surely right about the dangers of unchecked regulatory power. The libertarians are wrong about desirability of judicial activism in times of economic crisis, but they're right to recognize, in Brandeis's words, that "the doctrine of separation of powers was adopted not to promote efficiency but to preclude the exercise of arbitrary power." Or, as Tribe puts it, "It's distressing that, when Congress enacts measures like the TARP or the stimulus bill, it is less focused than it should be on the constitutional dimensions of the blank check that it is handing over." Having spent the past eight years properly excoriating President Bush for asserting unilateral presidential authority in the war on terrorism, it would be foolish for liberals to encourage President Obama to assert similar unilateral authority during the economic crisis. In both areas, Congress may be eager to pass the buck, but the president should be reluctant to take it.

Jeffrey Rosen is The New Republic's legal affairs editor.