The Bush Administration, especially in the person of Vice President Cheney, had an expansive view of presidential authority. It was articulated as an interpretation of the Constitution, in particular Article II, which is about the presidency. Truman similarly took an expansive view of presidential authority when he seized the steel industry during the Korean War, but the seizure was overturned by the Supreme Court. (The Bush Administration had a mixed record in the Supreme Court in defending its expansive view of presidential authority, which centered on antiterrorist policy.) Clinton used administrative regulation to try to get around the Republican Congress with which he had to deal after the 1994 election. Other Presidents, notably Lincoln, were prepared in emergency circumstances to violate the Constitution, as when Lincoln suspended habeas corpus at the outset of the Civil War; it is reasonably clear that the Constitution authorizes only Congress to suspend habeas corpus.
There is a third type of questionable exercise of presidential power, which consists of publicly demanding that a private firm or industry or other entity conform to the President’s desire, without pretending that the President has the legal authority to require such conformity. (This overlaps with but is distinct from the concept of the presidential “bully pulpit”—the President’s power to appeal directly to the people for support of his policies.) In April 1962, for example, President Kennedy publicly denounced U.S. Steel and the other major steel companies for announcing a stiff price increase to offset the cost of a collective bargaining agreement that it had signed with the United Steelworkers union. He backed up his denunciation by threatening an antitrust investigation and made the threat credible, or at least frightening, by having his brother (the Attorney General) dispatch FBI agents to “interview” the top steel executives. The Administration had encouraged the collective bargaining agreement and was incensed at U.S. Steel’s attempt to offload the cost of it on consumers. A price increase is a normal response to higher labor costs, but the President considered it a slap in the face—his face. His public denunciation of the steel industry worked; the industry backed down and the antitrust investigation was called off.
President Obama has used this device of extra-legal presidential intimidation more frequently, probably, than any President. In the spring of last year he told General Motors to fire its chief executive officer, Rick Waggoner. He had no authority to do that, and didn’t pretend that he did. Waggoner went. Last month the President ordered British Petroleum to put billions of dollars into an escrow account for payment of claims for losses caused by the BP oil leak in the Gulf of Mexico. He did not pretend to have any legal authority to order this, but BP quickly complied—as it did with the President’s insistence that it cut its dividend in order to be sure of having enough money to pay all the claims that might be made against it and the fines that might be imposed on it. And the President’s criticisms of Wall Street bonuses may have been decisive in the decision of Goldman Sachs to scale down the bonuses it was intending to award for the firm’s highly profitable 2009.
Should a President use the prestige (one might even call it the “moral authority”) of the office, and his ability to command public attention, to obtain compliance with demands made by him on the business community that are not backed by law? I think not, apart from any distaste one may have for bullying. It makes business subject to two regulatory regimes. One is a legal regime, created by Congress and by the regulatory agencies to which Congress delegates a portion of its own constitutional regulatory power. The other is a kind of “people’s democracy” regime, in which government stirs up public anger to force businesses to comply with extra-legal government demands. This second regulatory regime operates without rules, and so subjects business to potentially debilitating uncertainty in the sense of a risk that cannot be quantified. We know from Keynes and other students of uncertainty that a common and often the sensible response to uncertainty is to freeze, in the hope that the uncertainty will dissipate over time, or to take active steps to reduce the uncertainty. Both are options for business faced with the threat of presidential wrath. A business can hire less, invest less, and build up its cash balances as a hedge against adversity. It can also redouble its lobbying and other influence activities in an effort to neutralize or deflect threats of extra-legal regulation. Neither is a healthy response; the first is downright pernicious, especially in a depression or recession, or the early stages of economic recovery. Both are responses that the threat of presidential bullying encourages.
Many of the President’s legislative initiatives, in particular the health reform law, the just-enacted financial regulatory reform law, and the credit card law of last year, have increased the uncertainty of the economic environment for business. These laws really haven’t settled anything; it will take years of regulatory implementation before their full impact can be determined. But in addition business has to deal with the unpredictable exercise by the President of an uncanalized extra-legal authority to bend business to his wishes.
It is no wonder that the economic recovery appears to be progressing so slowly.
Whatever the degree of carelessness by BP, they will be fined billions of dollars as various cases brought by injured parties make their way through the courts. Such tort-based liability is justified, but there was no good economic reason for President Obama to interfere by requiring BP to create a $20 billion escrow account, and to defer its dividend payments. These were simply politically motivated acts to offset the public impression (not obviously correct) that he was too slow to act once the spill was discovered. The British have been claiming that his acts reflect a protectionist attitude of the US that is anti-foreign business. In any case BP is strong enough to repay sizable damages without any presidential interference since its shares still have a market value of over $100 billion, even after a large decline in their value following the spill and the president’s threats."Power tends to corrupt, and absolute power corrupts absolutely”. This famous dictum of Lord Acton is as relevant today as it was when stated in 1887. It applies to the private sector, such as private monopolies, as well as the public sector, but this insight has become much more important in the public sector since he wrote because of the large expansion of governmental powers during the past 70 years.
I would only add to Acton’s dictum that discretionary power is even more corrupting than the power embodied in regulations. The most dangerous trend in presidential power has been the growth in presidential willingness to take many discretionary actions that not only have little basis in law, but also frequently cause great harm to the economy and the society at large. The harm consists of both the direct damages from the actions, and the often large but indirect cost from the increased uncertainty and fear about the political environment faced by business, unions, and other groups.
Consider two examples mentioned by Posner. In 1962 President Kennedy used various threats to pressure steel companies to rescind a price increase in response to a very generous wage settlement that the industry made with the United Steelworkers union. Even many economists then believed that steel prices and steel output had a huge effect on the economy because it was claimed that steel was an important raw material in automobile production and many other goods. Yet the value added by the steel industry-the most important measure of its importance-was less than a few percent of US GDP.
Moreover, forcing the steel industry to suppress the price increase slowed down the substitution of aluminum and plastics for steel in the production of cars and other products. Prices provide important signals to an economy of the relative costs of producing different goods, which lead businesses and consumers to respond by substituting away from inputs and goods rising in price relative to other inputs and goods. The replacement of steel by other materials would have been faster if President Kennedy had stayed out of the negotiations, so that the disciplining of the United Steelworkers union and the companies could have occurred earlier.
As it was, it took only another decade for the steel industry to be turning to Washington for help through higher tariffs on steel imports, and direct subsidies. If the steel workers union and steel companies had been allowed to bargain without government interference and help, the adjustment by the industry to growing competition from other materials and steel from other countries would have been faster and more efficient. Probably too, the survival of the industry without a government lifeline would have become easier.
A more recent example is the BP oil spill in the Gulf of Mexico that is still not fully contained.
It is still too early to evaluate the long-term harm from the president’s use of excessive authority against BP. However, the general anti-business tone of the current Congress and presidency that is reflected not only in various discretionary acts by the president, but also in proposed and actual legislation, such as the health care law, controls over executive pay, and the Dodd-Frank bill, are already slowing down the recovery from the financial crisis and recession. I have argued elsewhere (see, for example, the article by Steven Davis, Kevin Murphy, and myself in the January 4th issue of the Wall Street Journal) that the anti-business legislation, and the uncertainty about subsequent legislation, has contributed to the slowness of this recovery compared to recoveries from prior severe recessions. Unemployment has remained sluggishly high in part because both small and large companies have been reluctant to take on additional employees in an uncertain and threatening environment. Perhaps that is good politics, but the use of presidential and congressional powers against business is surely not good economics.
My mother and her mother are really big fans of J.F. Kennedy, but me i'm just on this website to learn about him for a school project. Me personally, i hate learning about social studies but i think it is a bitter crime that somebody would assassanate a president
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