Power to the People: Economic Nullification

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The bailout of General Motors and Chrysler – appalling in its own right – is a sure sign that whatever feeble constitutional and political constraints that had kept the government in check are gradually disappearing. We know our rights as citizens are being trampled when the government can take resources from the productive sector of our economy and provide them to unproductive, money losing companies, organizations and individuals.

Such an extraordinary situation calls for extraordinary action by all who care about and are willing to act in defense of our liberty. That action, inspired by the right of a jury to nullify a law it finds unjust, is a commitment by you and me and millions of our countrymen and women to nullify the acts of government by abstaining in every way from doing business with the recipients of governmental largess.

When a jury nullifies a law, the men and women of the jury assert their power to judge the law as well as the actions of the defendant relative to the law. Although they may find that the defendant broke the law, they may refuse to convict, and thereby “nullify” the law. Nullification is rare, and historical examples usually apply to specific situations. Though controversial and potentially a source of abuse, nullification allows the people, in the form of a jury, to be the final arbiter of justice and acts as a check on the power of government.

In a similar fashion, economic nullification recognizes that we the people have the authority and the duty to render a final judgment on whether or not the government’s transfer of money to a company is just, or is an unjust taking from the American people. For example, if through special pleadings and influence, a company persuades the President and Congress to use the power of government to take money from millions of Americans and give it to them, the refusal of the American people to do business with such an entity would more than offset any supposed benefit of the taking and potentially reduce that company’s future political power as well.

Consider the case of GM and Chrysler. Faced with a shortage of cash accentuated by the economic downturn, the managements of these two companies realized that they would not for long be able to meet all of their commitments, including the contracts with their dealers, bondholders, banks, and the union representing their workers. Under the law, they, and any other company or individual in a similar situation, can enter into the supervision of a judge to sort out their financial affairs by declaring bankruptcy.

However, the managements of GM and Chrysler, with the support of the United Auto Workers, chose instead to use their political influence to get a special $13.4 billion “bridge loan” from the federal government with the possibility of another $4 billion in February, all designed to give these two automakers until the end of March time to figure out a plan that would assure their “viability.” To put this gambit in perspective, GM and Chrysler this year will sell about 4.5 million cars in the U.S. A $17.4 billion loan therefore amounts to more than $10,000 per car that we, the American people, are being forced to lend these two companies to keep them afloat for less than 4 months.

In other words, GM and Chrysler used their political power to accomplish what they apparently could not achieve through voluntary means. Instead of filing for bankruptcy, they were able to compel the American people to lend them this money through the force of government. The government loans to GM and Chrysler represent an involuntary transfer of resources from the American people for the private use of the shareholders and employees of these two companies. As such, these loans constitute an unjust taking.

The appropriate response, therefore, is economic nullification. If enough of us refuse to buy, lease or rent a GM or Chrysler product until they have repaid the loans, then the consequent fall-off in sales and market share will thwart the current strategy of seeking private benefit at the expense of the American people. If, as a consequence, these companies go bankrupt and are unable to repay the loans, so be it. The principle of liberty rises above the dollars at stake. In addition, they may have failed anyway – but after billions more were taken from the American people. Finally, economic nullification in this case would act as a deterrent to all future would be perpetrators of the unjust use of political power.

GM and Chrysler are the poster children for this essay. But, the possibilities for economic nullification are growing as fast as the list of companies seeking a bailout. For example, if a financial institution receives a capital infusion because it was “too big to fail,” then economic nullification would cause it to shrink to a point that it could be allowed to fail. At that point, this institution once again would be subject to the discipline of the market.

In some cases, engaging in economic nullification will be easy; in others, inconvenient. In still others, it may be more expensive. In the most difficult cases – especially for those entrusted with the success of a business -- it may require a special effort and take time to find a new supplier or customer. But if companies know that the cost of being a recipient of government largess is a dramatic loss of business, they will be far less likely to gain through the exercise of political power what they were unable to achieve in the market. Over time, that will lead to less government intrusion in markets, less government spending, and more opportunity for those in the private sector to prosper.

The practice of economic nullification will transfer significant power from politicians to the private sector. The exercise of our power as consumers to effectively overturn the unjust taking of resources from the American people for benefit of those with special access and political influence can help restore the role of government to the protector, rather than the abrogator, of our liberty. And, the beautiful thing is this: all economic nullification requires is for individual Americans to say “enough,” and act accordingly.

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