Lyndon Furst's
A Different Perspective
"What is Happening in America?"
POSTED 8/22/08
What is Happening in America?
Strange things are happening in America these days. The federal government, led by President Barack Obama, is dabbling in all kinds of things in addition to leading the country. The Feds seem to be running the American automobile industry, ordering changes in corporate structure, setting executive compensation, and even hiring and firing management. Nowhere in the Constitution is authority given for such action by the executive branch of the government. Or any other branch for that matter. Why has Obama stretched the limits of executive authority to such an extent when he, as a constitutional lawyer, knows that is clearly outside the intention of the founders of our great Republic?
When did all this start anyway? Is Obama the first president to dabble in business operations? The framers of the Constitution did indeed have support of business in mind, although they never anticipated the rise of the multinational corporation. There are several provisions in that wondrous document which relate to business. However, none of them say the government ought to run an individual business. It did provide that one business, delivering the mail, should be run entirely by the government.
In the middle of the 19th century the government set aside vast tracts of land for development by business. It encouraged westward expansion by giving land to the railroads. However, government took a more or less hands-off approach to business operations until Theodore Roosevelt engaged in his antitrust crusade. Eventually, the federal government intervened in labor/management issues by allowing labor unions to bargain collectively for workers, which greatly leveled the playing field in such matters. Bit by bit government, both federal and state, has intruded itself into the operation of business. Banks, as well as stock trading institutions, are heavily regulated by the government. A host of other regulations have come into play during the 200 year history of our country. Many of those regulations were necessary for the continued operation of large businesses. One president famously said, "the business of America is business."
The current mess in American financial institutions began. . . . I’m not really sure when! Some like to date it to the late 20th century when Congress passed a law requiring mortgage companies to provide mortgages to working people at the lower end of the economic scale. This was a plan designed to fail. Poor people cannot be expected to make big mortgage payments. However, it was not poor people who got the banks involved in designing mortgage backed securities and other complex financial instruments. Nor did they suggest that executives of financial institutions be paid exorbitant salaries and bonuses so they could live an opulent lifestyle.
When the collapse of the banking system seemed to be upon us, President Bush wisely decided that it was in the national interest to save these financial institutions. Thus, he initiated federal intervention on an unprecedented scale. What gave him (and Congress) the legal right to do so? Article 1, section 8 does empower Congress to provide for the general welfare. In our age a sound banking system is certainly necessary for the continued good life of all citizens.
Unfortunately the banking mess was just the beginning as both Bush and Obama discovered to their chagrin. Wall street investment banks as well as the automobile companies also needed a massive amount of money to bail them out. But people asked, "why should the government use our tax money to reward companies (and their top management) for their poor business judgement?" The answer, of course, is that it shouldn’t. With the government money will come government regulation. The result has been massive intrusion into the business world by the federal government.
From my perspective, there are two major factors at play in the current situation. First, it seems that accountability systems in major corporations are very limited. CEO"s who lead their companies to the brink of bankruptcy should not be given multi-million dollar bonuses. Second, the owners of the business are no longer in charge. Stock holders and individual investors have little to say about how their money is used by corporate management. If these two things can get fixed, the government should be able to get out of the business of running business.
Obama has promised to do just that - stop running the auto companies and other businesses as soon as possible. I hope he delivers on that promise. As a capitalist, I firmly believe that free enterprise with limited government regulation will result in the best outcome for both business and the government. Now the onus is on business to develop the accountability systems that will assure the public that they can be trusted with such freedom. Their track record in the past has not been too good. Hopefully, given another chance, America’s business leaders will do better.