Since my Capitalism, Past & Present post seemed to be generally well received, I thought I might do another in-depth thought piece. This time I want to talk about power, and the structure of the U.S. Government.
Like greed, the desire for power has existed since the dawn of time. Power can be used for either good or evil, but as Lord Acton famously observed, “power tends to corrupt and absolute power corrupts absolutely.” However, you can't simply do away with power in your zeal to do away with corruption. Power abhors a vacuum.
Most political thinking prior to the Constitution had focused on trying to make sure that those who held power were virtuous and not corrupt. Generally, that effort was a dismal failure.
The Genius of the Founding Fathers
The real genius of the Founding Fathers, most notably James Madison, the architect of the Constitution and along with Alexander Hamilton and John Jay, the most prominent voice arguing for the plan (collectively their writings are known as the Federalist Papers, a good thing to put on your reading list), was to set up things so that there were multiple power centers, and each would be competing with each other.
Thus, some powers were granted to the States, and some to the Central Government. Some powers were explicitly left to individual citizens, and not to either the State or the Federal Government.
However, the prohibition on states taking those rights from individuals really came later, after the Civil War with the passage of the 14th Amendment, which more or less made sure that the protections of the bill of rights extended to State, as well as Federal, law. However, if there is a direct conflict between a State law and a Federal Law, the Federal law will generally trump the State law.
The Civil War dramatically increased the power of the Federal government relative to the power of the states. Prior to the Civil War, people used to say, “the United States are, after the Civil War people would say the United States is." However there is still quite a bit of power that resides in the individual states. The predecessor to the Constitution, the Articles of Confederation, put almost no power in the Central Government, and all power in the hands of the States, and was not very successful.
Within the Federal government (and generally mirrored at the State level), power was further divided, between the Executive, Legislative and Judicial branches. The power of the Legislative branch was further divided between the House and the Senate. Note that this is in direct contrast with Parliamentary systems where the Executive and the Legislative branches are combined.
The germ of the idea of setting up competing power centers does, however, begin with the Magna Carta, that essentially set up Parliament as a check on the power of the King. In modern times, though, the King (or in the case of the U.K., the Queen) has been reduced to a figurehead, one that is not even allowed to express her views (as the Beatles put it, “Our Majesty's a pretty nice girl, but she doesn't have a lot to say”).
The constitution was based on the premise that legitimate power only derives from the will of the people. Thus, hereditary blood lines are a pretty poor basis for having any power at all, but my point is that the sense of having competing power centers has been lost in parliamentary systems over the years.
Our Powers Need Conflict
The powers of the different branches of government were deliberately set up to overlap, and to create conflict. One example is that the President: as head of the Executive Branch, he is the Commander in Chief of the armed forces, but only Congress can declare war (although since WWII, that power has largely evaporated; the last declaration of war was against Hitler's Germany). Also, fighting a war takes money, and only Congress can authorize any money to be spent.
In other words, it's not just a case of we will give power to do things, say, in the economy to one branch and power in foreign policy to another branch, but that both power centers have a say in each area. One key is that the conflict between power centers, such as between Congress and the President would just be political conflict, never armed conflict.
This is the reason why one would not want to extend the idea of competing power centers being a good idea to the international arena. Conflict between different power centers tends to lead to actual armed conflict. WWI would be a good example of this.
Thus, since power abhors a vacuum, we can only hope that the Great Powers will act responsibly. "Great" in this sense does not mean very, very good, but rather huge and strong. As a Great Power, sometimes countries have to do things that are not really all that good. The U.S. has probably been the “most good” great power in history, but that does not mean we have always been good, even while being the “Greatest Country on Earth.”
Sometimes the “not good” things that we are “forced” to do in our role as a Great Power come back to bite us decades later (such as overthrowing a democratically elected government in Iran in the early 50's). More often, the “not good” things we have done have prevented even worse things from happening.
It is relatively easy being very, very good as a small country, but that will not make you a Great Country. Denmark is an example of a very, very good country, in many ways a “more good” country than the U.S., but it will never be as Great a country as the U.S. The probability of the other potential Great Powers in the world, such as Russia and China, being “more good” than the U.S. seems very remote to me.
Even the U.K., which shares the same general value system and culture as the U.S., did a lot more messed up things when they were a great power than the U.S. has. Queen Victoria was the very first drug kingpin (see the Opium War). If the U.S. does not fill the role of Great Power in the world, some other country will; again, power abhors a vacuum, just as nature does.
Domestically, the upside of having all these different centers of power is that no one individual or group can gain absolute power and thus become absolutely corrupted. The downside is that it is often very difficult to get anything done. One power center can block the moves of another. Most of the time, that has proved to be a good trade-off, but can make things tough in a crisis.
An Historical Perspective
When the Constitution was written, the economy was still overwhelmingly agricultural. Markets for agricultural products, such as corn or wheat, are about as close to examples of perfect competition as you will find. If one farmer decides to hold his production off the market, he is not going to be able to drive up the price of corn. Thus, political power was the only real power that people had to worry about.
The structure of the economy changed over the course of the 19th Century with the rise of industrialization. No longer was agriculture the driving force of the economy, but rather manufacturing. As I noted in my last essay, businessmen in any given industry will always try to form a monopoly -- or at least oligopoly -- if left to their own devices. This happened rather explicitly in the last quarter of the 19th century, and into the early years of the 20th Century.
When J.P. Morgan bought out Andrew Carnegie, the explicit idea was to combine his steel assets with other steel assets and thus create a near monopoly in the Steel Industry. When it was formed, the U.S. Steel Corporation (X) had something like 85% of the entire U.S. Steel market. The Standard Oil Company of J.D. Rockefeller had 90% of the oil market before it was broken up.
The economic power of these big corporations (which also in the late 19th Century were granted “citizenship” through a footnote in the Supreme Court's Santa Ana Railroad decision) soon eclipsed that of the government. That was particularly true on the smaller scale. The owner of the factory in a “company town” was FAR more powerful than that town's mayor.
The political response was the rise of the progressive movement and the passage of things like the Clayton and Sherman anti-trust laws. Only an empowered government could make sure that there were also competing sources of power in each industry. The government had to be the countervailing power center versus the corporations.
The other countervailing force against companies really did not gain any real power until the 1930's: unions. Since the 1980's the power of unions, especially in the private sector, has been in a sharp decline. The decline in union power has coincided with a huge rise in income inequality in this country. The definition of adjusted gross income changed after the Tax reform of 1986. In 1987, the top 1% collected a total of 12.38% of the total adjusted gross income in the U.S., buy 2007, that had climbed to 22.83%. The share going to the bottom 50% of tax filers fell from 15.63% in 1987 to just 12.26% 20 years later.
IRS data on the share of the top 0.1% of filers only started in 2001, but has risen from 8.10% in 2001 to 11.93% in 2007. It is not the only reason for the rise of inequality to levels last seen before the rise of unions as a real force in the economy, but it seems unlikely to me that it is just a coincidence.
Two Adults in Mutual Agreement...
Generally in this country, there is a prevailing assumption that if two adults mutually agree to something, the government should stay out of the way. However, also starting in the early 20th Century was the realization that sometimes a decision between two parties can have effects on third parties. These are what economists call "externalities."
For example, if I have a plot of land in the middle of a nice residential neighborhood, and I agree to sell it to someone that wants to put up an oil refinery, the agreement could be equally beneficial to me and the person who wants to build the refinery, but very detrimental to my next door neighbor who had no say in the negotiations. The neighbor would clearly be adversely affected by having an oil refinery next door. The transaction imposes costs on to others, or society as a whole.
Also, not all adults have equal access to information, or have equal power in negotiations. A good example of a law that focuses on the asymmetric information is the prohibition on insider trading. It is assumed that the CEO or director of a company has more information about the future earnings of a company than does the person on the other side of the trade, and so he is not allowed to profit from that information.
It strikes me that there is a legitimate role for government to step in and regulate agreements when these situations occur. However, most of the time, it is not really a binary situation, but a matter of degree. There will always be some difference in power between two parties, and there will always be some difference in how much information the two parties have. At what point the differentials become big enough so as to require third party intervention is a matter of legitimate debate and generally has to be handled on a case-by-case basis.
(Editor's note: This article has been broken up into two parts. The second will be entitled, "On Power and the Constitution, Part 2.")
UTD STATES STL (X): Free Stock Analysis Report
Zacks Investment Research
Market News and Data brought to you by Benzinga APIsLike greed, the desire for power has existed since the dawn of time. Power can be used for either good or evil, but as Lord Acton famously observed, “power tends to corrupt and absolute power corrupts absolutely.” However, you can't simply do away with power in your zeal to do away with corruption. Power abhors a vacuum.
Most political thinking prior to the Constitution had focused on trying to make sure that those who held power were virtuous and not corrupt. Generally, that effort was a dismal failure.
The Genius of the Founding Fathers
The real genius of the Founding Fathers, most notably James Madison, the architect of the Constitution and along with Alexander Hamilton and John Jay, the most prominent voice arguing for the plan (collectively their writings are known as the Federalist Papers, a good thing to put on your reading list), was to set up things so that there were multiple power centers, and each would be competing with each other.
Thus, some powers were granted to the States, and some to the Central Government. Some powers were explicitly left to individual citizens, and not to either the State or the Federal Government.
However, the prohibition on states taking those rights from individuals really came later, after the Civil War with the passage of the 14th Amendment, which more or less made sure that the protections of the bill of rights extended to State, as well as Federal, law. However, if there is a direct conflict between a State law and a Federal Law, the Federal law will generally trump the State law.
The Civil War dramatically increased the power of the Federal government relative to the power of the states. Prior to the Civil War, people used to say, “the United States are, after the Civil War people would say the United States is." However there is still quite a bit of power that resides in the individual states. The predecessor to the Constitution, the Articles of Confederation, put almost no power in the Central Government, and all power in the hands of the States, and was not very successful.
Within the Federal government (and generally mirrored at the State level), power was further divided, between the Executive, Legislative and Judicial branches. The power of the Legislative branch was further divided between the House and the Senate. Note that this is in direct contrast with Parliamentary systems where the Executive and the Legislative branches are combined.
The germ of the idea of setting up competing power centers does, however, begin with the Magna Carta, that essentially set up Parliament as a check on the power of the King. In modern times, though, the King (or in the case of the U.K., the Queen) has been reduced to a figurehead, one that is not even allowed to express her views (as the Beatles put it, “Our Majesty's a pretty nice girl, but she doesn't have a lot to say”).
The constitution was based on the premise that legitimate power only derives from the will of the people. Thus, hereditary blood lines are a pretty poor basis for having any power at all, but my point is that the sense of having competing power centers has been lost in parliamentary systems over the years.
Our Powers Need Conflict
The powers of the different branches of government were deliberately set up to overlap, and to create conflict. One example is that the President: as head of the Executive Branch, he is the Commander in Chief of the armed forces, but only Congress can declare war (although since WWII, that power has largely evaporated; the last declaration of war was against Hitler's Germany). Also, fighting a war takes money, and only Congress can authorize any money to be spent.
In other words, it's not just a case of we will give power to do things, say, in the economy to one branch and power in foreign policy to another branch, but that both power centers have a say in each area. One key is that the conflict between power centers, such as between Congress and the President would just be political conflict, never armed conflict.
This is the reason why one would not want to extend the idea of competing power centers being a good idea to the international arena. Conflict between different power centers tends to lead to actual armed conflict. WWI would be a good example of this.
Thus, since power abhors a vacuum, we can only hope that the Great Powers will act responsibly. "Great" in this sense does not mean very, very good, but rather huge and strong. As a Great Power, sometimes countries have to do things that are not really all that good. The U.S. has probably been the “most good” great power in history, but that does not mean we have always been good, even while being the “Greatest Country on Earth.”
Sometimes the “not good” things that we are “forced” to do in our role as a Great Power come back to bite us decades later (such as overthrowing a democratically elected government in Iran in the early 50's). More often, the “not good” things we have done have prevented even worse things from happening.
It is relatively easy being very, very good as a small country, but that will not make you a Great Country. Denmark is an example of a very, very good country, in many ways a “more good” country than the U.S., but it will never be as Great a country as the U.S. The probability of the other potential Great Powers in the world, such as Russia and China, being “more good” than the U.S. seems very remote to me.
Even the U.K., which shares the same general value system and culture as the U.S., did a lot more messed up things when they were a great power than the U.S. has. Queen Victoria was the very first drug kingpin (see the Opium War). If the U.S. does not fill the role of Great Power in the world, some other country will; again, power abhors a vacuum, just as nature does.
Domestically, the upside of having all these different centers of power is that no one individual or group can gain absolute power and thus become absolutely corrupted. The downside is that it is often very difficult to get anything done. One power center can block the moves of another. Most of the time, that has proved to be a good trade-off, but can make things tough in a crisis.
An Historical Perspective
When the Constitution was written, the economy was still overwhelmingly agricultural. Markets for agricultural products, such as corn or wheat, are about as close to examples of perfect competition as you will find. If one farmer decides to hold his production off the market, he is not going to be able to drive up the price of corn. Thus, political power was the only real power that people had to worry about.
The structure of the economy changed over the course of the 19th Century with the rise of industrialization. No longer was agriculture the driving force of the economy, but rather manufacturing. As I noted in my last essay, businessmen in any given industry will always try to form a monopoly -- or at least oligopoly -- if left to their own devices. This happened rather explicitly in the last quarter of the 19th century, and into the early years of the 20th Century.
When J.P. Morgan bought out Andrew Carnegie, the explicit idea was to combine his steel assets with other steel assets and thus create a near monopoly in the Steel Industry. When it was formed, the U.S. Steel Corporation (X) had something like 85% of the entire U.S. Steel market. The Standard Oil Company of J.D. Rockefeller had 90% of the oil market before it was broken up.
The economic power of these big corporations (which also in the late 19th Century were granted “citizenship” through a footnote in the Supreme Court's Santa Ana Railroad decision) soon eclipsed that of the government. That was particularly true on the smaller scale. The owner of the factory in a “company town” was FAR more powerful than that town's mayor.
The political response was the rise of the progressive movement and the passage of things like the Clayton and Sherman anti-trust laws. Only an empowered government could make sure that there were also competing sources of power in each industry. The government had to be the countervailing power center versus the corporations.
The other countervailing force against companies really did not gain any real power until the 1930's: unions. Since the 1980's the power of unions, especially in the private sector, has been in a sharp decline. The decline in union power has coincided with a huge rise in income inequality in this country. The definition of adjusted gross income changed after the Tax reform of 1986. In 1987, the top 1% collected a total of 12.38% of the total adjusted gross income in the U.S., buy 2007, that had climbed to 22.83%. The share going to the bottom 50% of tax filers fell from 15.63% in 1987 to just 12.26% 20 years later.
IRS data on the share of the top 0.1% of filers only started in 2001, but has risen from 8.10% in 2001 to 11.93% in 2007. It is not the only reason for the rise of inequality to levels last seen before the rise of unions as a real force in the economy, but it seems unlikely to me that it is just a coincidence.
Two Adults in Mutual Agreement...
Generally in this country, there is a prevailing assumption that if two adults mutually agree to something, the government should stay out of the way. However, also starting in the early 20th Century was the realization that sometimes a decision between two parties can have effects on third parties. These are what economists call "externalities."
For example, if I have a plot of land in the middle of a nice residential neighborhood, and I agree to sell it to someone that wants to put up an oil refinery, the agreement could be equally beneficial to me and the person who wants to build the refinery, but very detrimental to my next door neighbor who had no say in the negotiations. The neighbor would clearly be adversely affected by having an oil refinery next door. The transaction imposes costs on to others, or society as a whole.
Also, not all adults have equal access to information, or have equal power in negotiations. A good example of a law that focuses on the asymmetric information is the prohibition on insider trading. It is assumed that the CEO or director of a company has more information about the future earnings of a company than does the person on the other side of the trade, and so he is not allowed to profit from that information.
It strikes me that there is a legitimate role for government to step in and regulate agreements when these situations occur. However, most of the time, it is not really a binary situation, but a matter of degree. There will always be some difference in power between two parties, and there will always be some difference in how much information the two parties have. At what point the differentials become big enough so as to require third party intervention is a matter of legitimate debate and generally has to be handled on a case-by-case basis.
(Editor's note: This article has been broken up into two parts. The second will be entitled, "On Power and the Constitution, Part 2.")
UTD STATES STL (X): Free Stock Analysis Report
Zacks Investment Research
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Loading...
Benzinga simplifies the market for smarter investing
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
Join Now: Free!
Already a member?Sign in
