The National Debt and the Constitution

As we wrestle with the national debt and as Congress debates over whether to raise the debt limit or risk default, we should consider what the Constitution says about the issue.  First, Congress does have the right to borrow money:

‘The Congress shall have power … To borrow money on the credit of the United States.’  Article I, Section 8

But read on to the 14th Amendment and you find this:

‘The validity of the public debt of the United States … shall not be questioned.’  14th Amendment, Section 4

The 14th Amendment deals with the wreckage of the Civil War, giving citizenship to former slaves by virtue of their having been born here (another controversial issue in the immigration debate, though clearly addressed in the Constitution) among other things.  Article 4 repudiated the debt of the Confederacy, but in doing so it affirmed that the United States will always honor its debts.

This was a brilliant addition, serving as the basis for the idea that U.S. bonds are backed by the “full faith and credit” of the United States of America, meaning they are a rock solid investment.  It isn’t just our full faith and credit that backs them but the Constitution itself.  It would be unconstitutional to default on our loans.

But, as some experts are saying now in the midst of the debt ceiling negotiations in Congress, the 14th Amendment would render all of that moot.  There is no need to raise the debt ceiling because the Constitution provides that all debt that we incur must be paid.  The money that our lawmakers are squabbling over has already been spent and has been authorized by statute.  According to the 14th Amendment, that debt has to be honored.

Debt can certainly be too high and need to be controlled.  But the 14th Amendment means that whatever we borrow must be paid back.   According to some attorneys, if the current negotiations to raise the debt ceiling break down, to prevent the country from going into default, the President simply needs to sign an executive order invoking the 14th Amendment and keep borrowing money to pay our obligations, despite what Congress does.

Do you see any flaws in this legal reasoning?


see U.S. Constitution Under Siege over Libya, Taxes, Health Care – TIME.

HT:  Jimmy Veith

The great comic book bubble

Jonathan V. Last offers a fascinating mashup of two of my favorite topics:  comic books and economics.   Not only that, he draws lessons that apply to the recent popping of the housing bubble:

In 1974 you could buy an average copy of Action Comics #1—the first appearance of Superman—for about $400. By 1984, that comic cost about $5,000. This was real money, and by the end of the decade, comics sales at auction houses such as Christie’s or Sotheby’s were so impressive that the New York Times would take note when, for instance, Detective Comics #27—the first appearance of Batman—sold for a record-breaking $55,000 in December 1991. The Times was there again a few months later, when a copy of Action Comics #1 shattered that record, selling for $82,500. Comic books were as hot as a market could be. At the investment level, high-value comics were appreciating at a fantastic rate. At the retail level, comic-book stores were popping up all across the country to meet a burgeoning demand. As a result, even comics of recent vintage saw giant price gains. A comic that sold initially for 60 cents could often fetch a 1,000 percent return on the investment just a few months later.

But 1992 was the height of the comic-book bubble. Within two years, the entire industry was in danger of going belly up. The business’s biggest player, Marvel, faced bankruptcy. Even the value of blue chips, like Action Comics #1 and Detective Comics #27, plunged. The resulting carnage devastated the lives of thousands of adolescadolescent boys. I know. As a 12-year-old I had a collection worth around $5,000. By the time I was ready to sell my comic books to buy a car—such are the long-term financial plans of teenagers—they were worthless.

The comic-book bubble was the result not of a single mania, but of a confluence of events. Speculation was part of the story. Price gains for the high-value comics throughout the 1980s attracted speculators, who pushed the prices up further. At the retail level, the possibility that each new issue might someday sell for thousands of dollars drove both the sale of new comics and the market for back-issue comics. It was not uncommon for a comic book to sell at its cover price (generally 60 cents or $1) the month it was released and then appreciate to $10 or $15 a few months later.

But the principal cause of the bubble was the industry’s distribution system.

via The Crash of 1993 | The Weekly Standard.

Mr. Last goes on to spell out how the distribution system both inflated the comic book market–not just collectibles but the whole industry–and then brought it crashing down.  Marvel Comics actually went bankrupt in 1996.

The market did recover somewhat. In 2009, thirteen years after bankruptcy, Marvel was bought out by Disney for $4 billion.  And Action Comics #1 now sells for $1.5 million.   But the money today comes not from selling magazines on woodpulp but from intellectual property:  the movies that get made from comic books–as well as the accompanying toys and merchandise–make them valuable.

I lived through what Mr. Last describes.  In my years of reading comic books as a kid, I accumulated some titles that actually became rather valuable.  In the early 1970s, as a college student perennially in need of money, I sold them.  Soon the money was gone and a few years later I was kicking myself at how those titles had skyrocketed in value.  Now I just wish I had them so that I could read them again and re-experience my childhood imagination.

HT: Tom Hering

How free is your state?

Check out this site from the Mercatus Center at George Mason University, which gives rankings and assessments of the level of “freedom” in each state in the union.   According to these findings, New Hampshire (“Live free or die!”) is the state with the most freedoms, while New York is the most oppressive.  See

Now what is interesting is the way the study factors in both “economic freedom”  (low taxes, minimal government regulations on business, limited government, etc.) and also “personal freedom.”  This category includes both things conservatives like, such as openness to homeschooling and minimal gun control, but it also puts a premium on gay marriage and lax drug law enforcement.   Nevada scores big (at #6) because of its legalized gambling and because it allows localities to legalize prostitution.

Freedom in the 50 States | Mercatus.

Today conservatives tend to want economic freedom but decry this version of “personal freedom.”   While liberals demand this version of “personal freedom” while decrying “economic freedom.”

My prediction:  The new political and cultural consensus will demand both, with libertarianism reigning supreme.   Right now, this kind of libertarianism is opposed by both the left and the right, but for different reasons.  But I suspect a realignment may be in the future.  It’s already happening among some in the Republican elite.

So if you are a “freedom loving American” opposing government intrusions into the economy, how can you also oppose “personal freedoms” such as the liberty to use drugs and go to prostitutes?

Conversely, if you are a liberal who believes that gays should have the freedom to marry and that women should have the freedom to get an abortion, on what grounds would you deny a business owner the freedom to make money without government interference?

Or are you willing to accept libertarianism if it would give you whichever kind of freedom you find most important, even at the cost of the kind that you do not approve of?

HT:  Jackie

Is ending a bad program a tax increase?

Senator Tom Coburn, who represents my natal state of Oklahoma, is probably the biggest deficit hawk in Congress.  He’s a deficit eagle, as fiscally responsible and economically conservative as they come.  But he’s taking flack from conservative activist Grover Norquist and others for violating the no new taxes pledge that most Republican lawmakers have taken.  Why?  Because Sen. Coburn is spearheading an effort to drop ethanol subsidies, which include a tax credit for that industry.

Most conservatives consider the ethanol subsidies to be a huge waste of money, an outdated concession to environmentalists, though farmers like that industry because it buys up so much of the corn crop, sending prices sky-high.  It sends the price for other commodities sky high too, since many farmers are cutting back the production of wheat and other crops in order to plant more corn, which cuts the supply of those other commodities.  But liberals also consider them a waste of money, a payoff to big corporations.  And there is a consensus that the subsidies cause actual harm to poor countries, since turning food into fuel and the consequent high food prices means more hunger for the poorest of the poor.  And even environmentalists now oppose the ethanol option, since it burns more fossil fuels to produce it–all of those tractors in cornfields–than it replaces.  And in this time of economic travail and crippling federal deficits, the subsidies are costing taxpayers $6 billion per year.

So why not kill the beast?  Because part of the subsidy is in the form of a tax credit, so repealing it would be a tax increase, and 95% of Republican lawmakers have promised not to vote for a tax increase.

See Coburn prompts Senate vote on ethanol subsidies – The Washington Post.

Once again, in politics as in religion,  we see the spirit of legalism, which violates the spirit of the law in order to keep the letter.

Can common sense be restored to our government?  Can this country even be governed in today’s political climate?

Tim Pawlenty’s economic plan

GOP presidential candidate Tim Pawlenty, the former governor of Minnesota, laid out an ambitious and unusually specific plan to get the economy going again:

“Growing at 5 percent a year rather than the current level of 1.8 percent would net us millions of new jobs, trillions of dollars in new wealth, put us on a path to saving our entitlement programs,” Pawlenty said in his first detailed speech on economic policy since he formally declared his White House ambitions a little over two weeks ago.

The economy averaged 4.9 percent growth between 1983 and 1987, and grew at a 4.7 percent rate between 1996 and 1999. A sustained annual growth of 5 percent for a decade would be unprecedented in modern times. . . .

Pawlenty said such growth eventually would translate to $3.8 trillion in new tax revenue that would reduce the deficit by 40 percent.

Pawlenty’s plan also would simplify individual tax rates to just three options and cut taxes on business by more than half. His cuts go further than House Republicans’ recent proposal, which the Tax Policy Center said would cost about $2.9 trillion over the next decade. . . .

In a speech heavy on specifics, Pawlenty proposed a three-tier income tax system:

• The estimated 45 percent of U.S. households that did not pay income taxes in 2010 would see no change in their tax rates.

• Individuals would pay 10 percent tax on the first $50,000 of income. Couples earning $100,000 would also pay that rate.

• “Everything above that would be taxed at 25 percent,” Pawlenty said.

He said he wants to cut business taxes from the current rate from 35 percent to 15 percent, and he called for dismantling vast pieces of the government.

“We can start by applying what I call the Google Test,” he said. “If you can find a service or a good on Google or the Internet then the federal government probably doesn’t need to be doing that good or service. The post office, the government printing office, Amtrak, Fannie Mae and Freddie Mac were all built for a different time in our country and a different chapter in our economy when the private sector did not adequately provide those services. That’s no longer the case.”

via Pawlenty’s economic plan aims for 5 pct. growth – Yahoo! News.

Democrats are savaging the plan, calling it “ridiculous.”  But what do you think?

30% of health plans to be dropped under Obamacare

Another reason the new national health care bill will have a hard time working:

Once provisions of the Affordable Care Act start to kick in during 2014, at least three of every 10 employers will probably stop offering health coverage, a survey released Monday shows.

While only 7% of employees will be forced to switch to subsidized-exchange programs, at least 30% of companies say they will “definitely or probably” stop offering employer-sponsored coverage, according to the study published in McKinsey Quarterly.

The survey of 1,300 employers says those who are keenly aware of the health-reform measure probably are more likely to consider an alternative to employer-sponsored plans, with 50% to 60% in this group expected to make a change. It also found that for some, it makes more sense to switch.

“At least 30% of employers would gain economically from dropping coverage, even if they completely compensated employees for the change through other benefit offerings or higher salaries,” the study says.

It goes on to add: “Contrary to what employers assume, more than 85% of employees would remain at their jobs even if their employers stopped offering [employer-sponsored insurance], although about 60% would expect increased compensation.”

via Firms to cut health plans as reform starts: survey – MarketWatch.

So if that happens, the Democrats will have no choice but to nationalize the whole thing, if they can.  Or would it be worth it to be paid more money and buy one’s own health insurance, especially if the government makes it cheap?