A New Birth of Economic Freedom

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Last week's Supreme Court hearings on Obamacare mark a big turning point in American politics--and the economy.

It is not just that the questions from the conservative justices indicate that there might be a majority to overturn Obamacare in toto. After all, that decision is far from certain. I've gotten notes from several of my readers who are practicing lawyers, including one who has argued a case before the Supreme Court, and they all reminded me that oral arguments can be very deceiving. The fact that you get hard and probing questions from the court might indicate that they are inclined to reject your argument--or it might indicate that they accept it and just wanted to see how strong it really is.

I don't think anyone has concluded that Solicitor General Donald Verrilli's arguments in favor of Obamacare were all that compelling. Indeed, the left is currently setting him up as the fall guy to take the blame if Obamacare is struck down. But the point remains that we still don't know how the justices will rule.

Yet the implications of last week's hearings are wider than the outcome of this case. A kind of euphoria has set in on the right, and a corresponding despair on the left, as if some sort of battle has already been won. And so it has.

The victory last week was not that the case against Obamacare prevailed, which we won't know for certain until June. The victory was that it got a hearing at all, that it was taken seriously. When asked about the constitutionality of Obamacare, Nancy Pelosi famously could only reply, "Are you serious?" She spoke for the political and legal establishment, which dismisses all constitutional impediments to government control of the economy and assumed that the Supreme Court would easily do so as well. Their complacency turned out to be foolish, but they had reasons for it. For the past seventy years, the court has refused to offer any significant constitutional protection for economic freedom.

That's what makes last week's hearing such an important turning point. No matter how the justices rule, it is clear that they were serious in considering the constitutional challenge to Obamacare, and that puts economic liberty back on the table as an issue of constitutional significance.

A century ago, this would not have been radical at all. The Supreme Court frequently protected economic freedom from government interference. In its 1905 decision in Lochner v. New York, for example, the court held that the due process clause of the 14th Amendment provided a constitutional protection for "liberty of contract," so the court struck down a state-level law that set maximum working hours. The fact that such a ruling is unimaginable today--and the laws that could be struck down under such a principle are legion--we owe to the famous dissenting opinion written by Oliver Wendell Holmes. Justice Holmes defended "the right of a majority to embody their opinions in law" and concluded that "the word liberty" should not "prevent the natural outcome of a dominant opinion." So much for individual rights, then.

Holmes may have been on the losing side of Lochner, but his argument would eventually win out--though the left does not like to dwell too much on the exact means by which it prevailed.

The Lochner decision set the Supreme Court on a collision course with the rising "Progressive" movement, which was pushing for sweeping government regulations on all aspects of the economy. This came to a head in the New Deal era, when FDR proposed what was essentially a government takeover of the entire economy--and the Supreme Court slapped him down.

FDR's National Industrial Recovery Act, inspired by Mussolini's fascist corporatism, attempted to herd all businesses into government-organized cartels that would fix prices and wages and regulate the products and services that could be offered. In the 1935 case Schechter Poultry Corp. v. United States, the court struck down this plan, and its reasoning was radical by today's standards.

The decision held that the regulatory power granted to President Roosevelt under the NIRA was an unconstitutional delegation of legislative power to the executive. In effect, the NIRA allowed the president to make his own laws, violating the separation of powers. How many of today's regulatory agencies, from the EPA to the new Consumer Financial Protection Bureau, would survive under this precedent?

The court also found that the government's constitutional power to "regulate commerce with foreign nations, and among the several states" did not apply to a butcher shop that only bought and sold chickens locally. So how did we end up even debating, in the Obamacare hearings, whether Congress has the power to regulate the non-purchase of health insurance, which is not commerce at all, much less interstate commerce?

Here is the ugly part. The Schechter decision threw FDR into a rage against the "nine old men" who had thwarted his power grab. So he struck back in 1937 with the Judicial Procedures Reform Bill, which would have authorized the president to appoint one new justice for every Supreme Court justice over the age of 70 years and 6 months (that's where the "old" part comes in), potentially expanding the court from nine to 15 justices. The motive was obvious: to allow Roosevelt to pack the court with his own nominees and gain a compliant majority. An editorial cartoon at the time depicted FDR addressing a court populated with black-robed copies of himself.

Congress blocked the bill, but in a ruling later that year, West Coast Hotel Co. v. Parrish, the court inverted the Lochner ruling, upholding a state minimum wage law and explicitly dropping the freedom of contract as an obstacle to economic regulations. There is some controversy over whether this ruling was a reaction to the court-packing scheme--the "switch in time that saved nine," as it was called at the time. What is not controversial is that the Supreme Court progressively abandoned all protections for economic freedom.

The 1942 ruling in Wickard v. Filburn is a key precedent in the left's case for Obamacare. In upholding another New Deal measure, the Agricultural Adjustment Act of 1938, the Supreme Court held that the power to regulate "interstate commerce" included the power to dispose of wheat grown by a farmer purely for his own consumption. If wheat that is never traded can be regulated as "interstate commerce," what cannot be regulated?

The Supreme Court made it all official in a 1955 ruling in Williamson v. Lee Optical of Oklahoma, when the court declared, "The day is gone when this court uses the Due Process Clause of the Fourteenth Amendment"--the provision cited in Lochner--"to strike down state laws, regulatory of business and industrial conditions."

So you can see why commentators on the left were so confident that Obamacare's individual mandate would be upheld. One observer, Slate's Jamal Greene, echoed Justice Holmes's majoritarianism when he argued that the Supreme Court should simply say: "By requiring that Americans purchase health insurance, two coequal branches of government-Congress and the president-have determined that the Constitution permits such a requirement. Because that determination is reasonable, we need not reach an independent judgment on the question. Our inquiry is therefore at an end."

You can also see why this week's arguments were so alarming to the left, because the court's conservative majority showed no inclination to take this attitude. They seriously weighed the protection of the individual's economic liberty as a barrier--however small and limited it may be in this case--to the regulatory power of the state. One left-leaning commentator cites the Wickard v. Filburn precedent and warns that if the court implicitly reverses Wickard, "Every piece of legislation for about the last 70 years that rested on the Commerce Clause will suddenly be up for grabs."

Hence the left's panic, dismay, and confusion. The ground has fundamentally shifted beneath them.

There is a precedent for this kind of shift in the recent history of the court: the 2008 decision in District of Columbia v. Heller, in which the very same conservative majority ruled that the Second Amendment protects an individual's right to keep and bear arms. This, too, was a constitutional protection that had been abandoned by the Supreme Court for decades. Behind the Heller victory was a huge effort over many years by legal scholars who laid out an overwhelmingly persuasive argument, historically and legally, for gun ownership as an individual right.

At the time of the Heller ruling, I wrote that we needed a similar effort to revive constitutional protections for economic liberty. Without anyone really planning on it, Obamacare has become the rallying point for just such an effort. But the Obamacare ruling, no matter which way it goes, is not the end but only the beginning. It has emboldened the advocates of economic freedom by giving us a taste of what is possible. This is a new birth of economic freedom.

It is not just a matter of citing this case as a precedent, but rather taking inspiration from the same effort of scholarship and making the constitutional case against other government intrusions on our economic freedom. Is Social Security constitutional? How about the vast regulatory power of the EPA, the FDA, the SEC? A whole civilization unto itself has sprung up in the space left open by the Supreme Court's abandonment of economic freedom. Now that whole edifice will be called into question.

This has the potential to fundamentally change the poltiical-economic climate, creating an impediment and deterrent to harmful new regulations. From now on, every new scheme of government intervention crafted by lawmakers or regulators will be overshadowed by a tough new question: is it constitutional? Will the courts strike it down?

To former Speaker Pelosi's chagrin, they will have to take such questions seriously.


Robert Tracinski is senior writer for The Federalist and editor of The Tracinski Letter.

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