Tom Lenard: Hello, and welcome back to TPI’s podcast, Two Think Minimum, it’s Wednesday, March 11th. I’m Tom Lenard, President Emeritus and Senior Fellow at the Technology Policy Institute, and I’m joined by Scott Wallsten, TPI’s President and Senior Fellow, and Senior Fellow Sarah Oh Lam.
Tom Lenard: Today, we’re delighted to have as our guest Michael McConnell. Michael is the Richard and Francis Mallory Professor and Director of the Constitutional Law Center at the Stanford Law School, and a Senior Fellow at the Hoover Institution.
Tom Lenard: From 2002 to 2009, he served as Circuit Judge on the United States Court of Appeals for the 10th Circuit, and Michael has previously held chaired professorships at the University of Chicago and the University of Utah, and visiting professorships at Harvard and NYU. He has published widely in the fields of constitutional law and theory, has argued 16 cases in the U.S. Supreme Court, and served as a law clerk to Supreme Court Justice William Brennan and D.C. Circuit Court Judge J. Skelly Wright. Welcome to the podcast, Michael.
Michael McConnell: Well, thank you, and Tom, you don’t mention that you and I were colleagues way back in the early 1980s.
Tom Lenard: Yes, I know that was a significant event in my life, but I don’t know that.
Michael McConnell: We both were there toward the beginning of the Reagan administration, working in regulatory reform.
Tom Lenard: We were both working on the Task Force for Regulatory Relief, and we particularly worked on agricultural marketing orders together, as I recall.
Michael McConnell: That’s a topic that I have been interested in ever since, including my more recent, two of my more recent Supreme Court arguments.
Tom Lenard: Well, I actually was involved later on and gave a deposition on the case, in California, in the Central Valley of California, but that was the extent of my subsequent involvement.
Michael McConnell: I think people think of farming as being the last bastion of, like, the competitive individual out there, you know, doing his job, but in fact, it’s one of the most inefficiently socialized industries in America.
Tom Lenard: Yes, yes, yes.
Tom Lenard: Well, Michael, this term the Supreme Court has dealt with two major cases about presidential power. You represented the challengers in the tariff case, where the Court struck down the President’s use of the International Emergency Economic Powers Act or IEEPA. And at the same time, the Court is poised to overturn Humphrey’s Executor, which would expand the President’s removal power over independent agencies. Scott, I know you wanted to start there.
Scott Wallsten: Yeah, so Michael, I want to start with something that seems like a tension in your positions. You’ve been generally sympathetic to overturning Humphrey’s Executor, which would give the president more control. But you just won a historic case arguing the president grabbed too much power on tariffs. How do you think about these two cases together?
Michael McConnell: No, actually, I think the two principles are entirely consistent, and that it’s just a conceptual mistake to refer to both of these areas as either giving power to or taking power from the president. They’re two entirely different sets of principles. One set of principles has to do with how much power the executive branch has, and that is, you know, the executive branch has some powers that stem directly from the Constitution, but not very many. Most executive powers come from delegations from Congress. And the extent of those is, should be in Congress’s hands and not conjured up by executive branch lawyers. The other kind of question has to do with who controls the powers that are within the executive branch, and it is my view and that of many other constitutional lawyers, and probably of the Supreme Court, that the executive branch is run by an elected president. That is, after all, what the first sentence of Article 2 says. It says that the executive power is vested in a president of the United States. It doesn’t say part of the executive power, it says the executive power. And just as a matter of democratic principle, it doesn’t make a lot of sense to say that there are people running around in agencies that are independent of some sort of democratic accountability. In a democracy, everyone exercising power needs to be accountable, ultimately, to someone who’s been elected, whether that’s Congress or whether that’s the president. But the idea of an independent agency exercising governmental power is just a little bit weird. Why should, whether you voted for Donald Trump or not, you know, some people did, and when he took office, they expected him to take policies that are quite different from those of his predecessor. And to say that people who were put into power by his predecessor should continue to exercise power is just to say that elections don’t matter in the United States.
Tom Lenard: So let’s take those two principles in turn. Starting with the tariff case, where the Court struck down the President’s ability to implement tariffs by declaring an emergency under IEEPA. There were a number of issues in this case, you represented a group of plaintiffs, and you won 6-3. Where did the Court come down?
Michael McConnell: Well, yes, as you say, there are quite a few issues. Some of them were in the weeds of the statute, that is the International Economic Emergency Powers Act of 1977, and some of them involve some of the biggest, broadest questions in constitutional law, such as, you know, what is the relationship of the powers of the president to the powers of Congress? And, the court began where I thought they should begin. I really liked Chief Justice Roberts’ opinion for the Court, and it began with the undeniable fact that the framers of the Constitution assigned the taxing powers, including explicitly the tariff power to Congress. Tariffs are discussed, they’re mentioned. They use the word imposts, which is the 18th century term for tariffs, but it’s right there in Article 1, Section 8. Section 8 is the section that gives, lists Congress’s powers, and it’s the very first one. It’s taxes, duties, imposts, and excises, and it’s vested in Congress. It’s not vested in the president, and it’s really no surprise that this would be number one, because, in a sense, this is what the American Revolution was fought over, and for, you know, centuries, the right of the people not to be taxed except by vote of their elected representatives have been at the centerpiece of the demands for what they would have called Republican, and we might recall Democratic government. So that’s where the court began. So the next thing that the court addressed was a broad question of, so when Congress does pass a law, but the law does not seem to address, doesn’t really give the president power, at least not explicitly, but some broad language in the power, some ambiguous or vague language in the statute, can be read broadly to include a power. How do we read that? And the Court embraced what has recently been called the Major Questions Doctrine, but it’s really an idea that goes back all the way to the beginning of the Republic under different names. And this holds that when power is being granted from one constitutional body to another, that if it is a significant power, one would expect that it to be somewhat more explicit. You wouldn’t expect it to be done in whispers, through vague language. You’d expect it to be right there, you’d expect it to be discussed and debated, and where, as in IEEPA, the International Economic Emergency Powers Act, which doesn’t mention tariffs or taxing or any other direct regulation of Americans within the United States, would we read that statute, the word regulation in that statute, to include the power of taxation?
Tom Lenard: Why do they need anything more than the fact that the Constitution gives the power to tax to Congress?
Michael McConnell: Well, Congress can delegate the power. What Congress does, generally, is it passes laws which the president then executes. The argument of the Trump administration was that IEEPA gave the president the power to impose taxes, unlimited taxes, on anyone through the word regulation of importation. They say, well, taxes are an ordinary way of regulating importation, so why not? And the problem with that is that it actually doesn’t, it’s backwards, that it is true that taxation can be used for regulation, but it is not true that regulation, that word, includes the power of taxation. The word regulation is used, as the court says, hundreds of times in the statutes of the United States. I mean, the executive branch regulates telecommunications, it regulates agriculture, it regulates drugs, it regulates all kinds of things. But not once can the government identify even one example where the word regulate is interpreted to include the power to impose taxation on the regulated item. And so, the major questions doctrine reinforces this by just saying that the power over taxation is one of such considerable economic and constitutional importance, that it wouldn’t just be snuck in through the back door of a vague term like regulation. You’d expect something explicit. And where Congress had never used the word regulation that way, it just didn’t count. It was also important for the court that this is a novel interpretation. IEEPA has been on the books since 1977. And no president had ever imagined that it included the power of taxation until this president.
Tom Lenard: If it’s such a slam dunk, why did three justices vote on the other side?
Michael McConnell: So, the three justices who dissented took a different view of the word regulation. First of all, they agreed with the government that because taxation can be a means of regulation, that meant the term could be used that way. But more importantly, they saw this case as falling into the realm of foreign affairs. And they were inclined, first of all, not to apply the major questions doctrine in the realm of foreign affairs, saying that it’s actually not surprising, they said, for Congress to delegate power even in fairly vague and general terms to the executive in the field of foreign affairs. And that, for that reason, the term should be read broadly. And in addition to that, Justice Kavanaugh made some specific arguments having to do with the history of the statute, which were a little bit more technical in nature. I think they were really probably embarrassed to now apply the Major Questions Doctrine when it was Mr. Trump, and so they said it wasn’t necessary. They didn’t reject the major questions doctrine, they just said we didn’t need to get there because it was so obvious that IEEPA did not impart the tariff power. The three conservative dissenters who joined in the major questions decisions in the Biden administration all explained that it had something to do with the foreign affairs nature of this case, which is why they didn’t apply it. So they are not hesitant about the Major Questions Doctrine as a general constitutional matter, just not in a foreign affairs-related case.
Scott Wallsten: So, how do you view the pivot to 122, as a tool to impose tariffs? I think you had written previously that that might be defensible.
Michael McConnell: So, Section 122, was part of the Trade Act of 1974, which was passed at the time, or just a couple of years after and during the transition from the old gold standard, to the modern, freely, a system of basically freely floating exchange rates. It used to be, until President Nixon took us off the gold standard in 1971, it used to be that the United States was under an obligation to redeem dollars in gold, so that if the dollar declined in value, we had to sell gold, and this was, like, at that time, we were, for the first time since World War II, experiencing trade deficits. And that meant that gold was flying out of Fort Knox. We were in serious trouble. We were going to lose all of our currency reserves. And Nixon put an emergency end to that, but then Congress dealt with the problem by adding Section 122 to the Trade Act of 1974, and Section 122 applies when there are, “large and serious balance of payments deficits.” Now, the problem with that today is that the concept of balance of payments deficits is a bit archaic. Balance of payments used to mean something. It used to mean that we had to redeem the deficits in gold, and we didn’t have enough. But now, if the dollar declines, it just declines, and that means that our exports become a little cheaper, our imports become a little bit more expensive, and it’s a naturally calibrating, self-regulating system. And so there are actually quite a few plaintiffs, a number of states and individual companies, that just in the last few days have filed suit against the new tariffs under Section 122, saying that this Section 122 just simply does not apply under modern economic circumstances. In any event, Section 122 doesn’t allow President Trump to do what he did before. It’s capped at 15%, and the tariffs can only last for 150 days. So, a 150-day tariff is not going to provide President Trump what he is looking for. It’s just a stopgap. Even if he has the power, it’s just a stopgap.
Scott Wallsten: Do you think that this is as much, for there to be practical effects, that Congress needs to step in, that this is as much presidential overreach as it is congressional abdication, and the President will continue to find ways of imposing tariffs as long as Congress refuses to exercise the power that it has.
Michael McConnell: Well, I think, I mean, what you say makes a lot of practical political sense, but I have to say that our constitutional order is not based upon allowing the president to do whatever he wants unless Congress comes in after the fact. Much of our constitutional order is based on the idea that the President cannot act unless he has first been given the power by Congress. And so, you know, the problem with waiting for reaction from Congress is that the President can veto anything Congress does. Even if the men and women in our current House of Representatives and Senate could bring themselves to vote against something that President Trump does, he would simply veto it. It’s not a practical solution to the problem, but it’s also not what the framers of our Constitution contemplated. When they gave powers to Congress, what they meant by that is that the President can’t do them unless Congress actually delegates the power. That’s why I think the major questions doctrine is so important.
Scott Wallsten: But in practical terms, we’re still now in a situation where it seems like people still do things. He’ll find ways to do it anyway, and then we have to wait for the court to react. And is there a solution to this?
Michael McConnell: Well, the court is the solution to this. Of course, we don’t know what the Court of International Trade and the higher courts will do about the Section 122 tariffs, which President Trump imposed the day of, or the day after the Learning Resources decision. But assuming that that is either not allowed, or the, or that maybe the 150-day limit passes, one of those two things is going to happen. When you look at the other trade statutes that delegate authority to the president, none of them allow sweeping worldwide tariffs. Each of them involve product-by-product tariffs. Some of these can be really important. We have steel and aluminum tariffs under Section 232 that were upheld during the first Trump administration, and that’s on national security grounds. But you’re not going to have a tariff that affects every country in the world, including our allies, and including allies with whom we have trade surpluses. So, yes, there are going to be important tariff powers that the president is able to use, but they’re not going to be the same kind of tool that he purported to find in IEEPA.
Tom Lenard: So let’s turn to the other side of your framework, who controls the powers within the executive branch. The Court heard Trump v. Slaughter in December, and most observers expect Humphrey’s Executor to be overturned. But the sticking point seems to be the Federal Reserve. You outlined a proposal in a Washington Post op-ed about how to protect the Fed’s independence. How would that work?
Michael McConnell: So by the way, the Fed presents both a historical and a practical conundrum. So, in general, the Constitution does not create independent agencies, it’s not in the Constitution. This was totally a creation of later generations, and when Humphrey’s Executor was decided, this was an action by the anti-Roosevelt, Four Horsemen court as a way to prevent Franklin Roosevelt from being able to exercise the powers of his office. And Humphrey’s Executor, now people treat it as if it’s some sort of sacrosanct decision. It was controversial from the beginning. And has been whittled away at during the ensuing years. But lots of observers, including especially economists, believe that the one agency that really does make sense, that really shouldn’t be subject to the immediate, rapidly changing will of the President is the Federal Reserve. And this is following on structural policy decisions that go back to the very first Congress. When the very first Congress created our first national bank, the Bank of the United States. It was the brainchild of Alexander Hamilton. And it was created as a private, for-profit corporation. Now, the United States was the largest single depositor in that corporation. But the corporation was run by directors that were elected by the owners of the bank, and Hamilton specifically wrote as to why the bank should not be run by the government. What he pointed out is that the federal government will perennially be a debtor, and that debtors have an interest in debauching the currency. That is, if they can repay their debts in cheaper currency, it’s to their benefit. And that means that the government has a terrible built-in incentive to create inflation. Hamilton didn’t know the word inflation, but he understood the concept of inflation, and for that reason, it was better to vest the authority over the money supply in an independent group. And that was what Congress decided in the first Congress. They then reenacted that, and then for reasons totally unrelated to that, President Andrew Jackson put an end to the bank. We then had a really chaotic century of, well, 80 years of monetary policy without a central bank, leading to one depression after another, and then finally, in the early 20th century, they created the Federal Reserve, which is the modern version of that. And even that, at the beginning, was more run by the private sector than it was the government. It had a mixture. The Board of Governors of the Federal Reserve was made up of a certain number of the presidents of the regional banks, and they were actually elected by their member banks. So they’re actually not presidential appointees; they come from the private sector. Then there were a certain number of presidential appointees as well. In the intervening years, two things have happened to the Fed to make it different. One is that Congress increasingly moved power from the privately chosen Fed governors, the president now names a majority of the governors, and also more power is vested both in the presidentially appointed head of the bank, and also in the president of the New York Fed, which is now directly chosen by the president. So now the president’s appointees dominate in a way they never did before. And then the second thing that has happened is that on top of its monetary function as a central bank, the Fed has been given a number of regulatory functions as a primary bank regulator. And it is my constitutional view that the central bank function, which is now conducted by the Open Market Committee, could be made independent of the President, but that the regulatory function cannot. That will require action by Congress, and there seems to be no, I mean, so far as I can tell, there’s no interest in Congress about this, but there should be. And I should also note that a number of very smart people who know more about banking regulation and banking economics than I do have told me that the project of separating out the monetary function from the regulatory function is far more complicated than my sort of simple-minded constitutional lawyer’s vision contemplated. So that should be noted. There may be serious practical difficulties in doing that. My guess is they won’t have to, because I think that the Supreme Court, even when it’s putting the final nails in the coffin of Humphrey’s Executor, will probably have a paragraph in the opinion distinguishing the Fed. And my guess is that what that paragraph will do is it will refer to the history, rather than a theory as to why it might be constitutionally different. I think that they will rest on the fact that it has been different since the very first days of the Republic, and they’ll call that a day.
Tom Lenard: So you’re saying the Court will carve out the Fed on historical grounds. But what about all the other independent agencies? What actually changes if Humphrey’s goes down? Is the era of independent agencies over?
Michael McConnell: I actually think it’s been over for quite some time, and that the policy implications outside of the Federal Reserve, I think the policy implications are relatively minor, because commissioners don’t actually stay there very often. The average term has been relatively short. And the political science literature suggests that if you try to measure performance and actual practical consequences, that the difference between, let’s say, the EPA, which is under the President, and the FTC, which isn’t, that the difference is difficult to detect.
Sarah Oh Lam: Would you be sympathetic, then, to the FTC being wrapped up into DOJ and FCC wrapped up into Commerce? If those are some proposals, you know, if they’re more executive, what would that world look like? And I had a second question, too. Comparing our current government and scale and scope to the founders’ conceptions of three branches, does it scale up well, or are we seeing scale issues?
Michael McConnell: So as to the first question, I do think that reorganization is sometimes in order. I don’t have the number handy, but I think the number is that there are over 10 different agencies that engage in banking regulation. That’s probably not a very good way to do business. Antitrust policy is divided between the Department of Justice and the FTC, and there are many times when those two agencies are operating on different theories. There was actually a big case back when I was a law clerk, there was a case entitled United States, and United States means Department of Justice, by the way, United States v. FTC. What a strange case that was. This is an antitrust case where the two agencies were taking opposite positions, and somehow it ends up in court. Now, there might be arguments, I, you know, that having two competitive ideas of antitrust policy, maybe having two of them are good, I don’t know. My instinct is probably not, and I’m guessing that having more than 10 views of banking regulation is almost certainly not a good idea. On the other hand, we may be just rearranging deck chairs on, not on the Titanic, but rather on a perfectly functioning cruise ship. The Federal Energy Regulatory Commission used to be a so-called independent agency, and Congress folded it in, now it’s part of the Department of Energy, and subject to removal by the President. I don’t think there’s been any change in the way the FERC does its business. Maybe somebody who studies them more closely than I do could contradict that, but I don’t think it makes very much difference. There may be efficiencies and may not, but I think all of this is, I mean, Congress can decide it. Now, your second question is a huge question. Is the scope of our economy, has it outgrown the idea of executive, legislative, judicial? That’s a little over my pay grade. I do recommend a book written by my former teacher, Richard Epstein, entitled Simple Rules for a Complex World, in which he argues that the more complex the system is, the more important it is to have a relatively simple number of operating principles.
Tom Lenard: Let me push back a bit on the argument for overturning Humphrey’s. The argument on the other side is that Congress created these agencies, created their structure, said no more than a majority of commissioners should be from any one party. What’s the defect in that argument?
Michael McConnell: You know, I’m not saying that there isn’t a certain logic in creating commissions of that nature, but constitutionally, if Congress gets to decide that people other than appointees answerable to the president are able to conduct the executive powers of the United States, they could do it with anything, not just the FTC Commissioners with 5 people of balance. They can make the Secretary of State independent of the President. Congress did try that, by the way, right after the Civil War. They made the Secretary of War independent of President Andrew Johnson, and for very good reason, because Johnson was using those powers, basically, to undo Reconstruction. But the verdict of history has been that they had no right to take fundamental executive powers away from the President. All of this was debated back at the time of the First Congress when they were setting up the original cabinet agencies. Now, I don’t think you can say that the votes there absolutely prove that the First Congress believed that the removal power was vested in the President for all executive officers, but it certainly is suggestive, and some, and leading framers like James Madison flatly took that position. What Madison said in those debates, he said two things. He said, first of all, that the subordinate officers, like the people who run the FTC, are working for the president, they are his subordinates. And the very word executive power necessarily includes the power of removal. He also said that another clause of the Constitution, which requires the President to, quote, take care that the laws be faithfully executed, necessarily implies that the president has supervisory control over those who are doing the law execution. Note the odd passive voice of that law. The president is to take care that the laws be faithfully executed. Implies that there’s somebody else who’s actually doing the executing, and the President can’t take care that they be faithfully executed if he doesn’t have power over them. And the only power that he conceivably would have over them is the power of removal. Those are the arguments that James Madison made, and they prevailed in the first Congress, but I don’t want to say that, some people in the First Congress may simply have voted that way because they thought it was good policy to vest these powers in the President, but that is the way that the vote went. It wasn’t until over 100 years after the Constitution that the so-called independent agencies were created. Now, in the meantime, we had this episode with Andrew Johnson, but as I say, that did not end well for the anti-removal position. The big problem, I don’t think our biggest problem is that the economy is so much larger and more complex. Our biggest problem is a change, the fact that our partisanship has just become much more extreme. The founders did not imagine that we would have political parties of the sort that we do now. Our constitutional structure was designed for one where the people would just elect who they thought were the best people for office, and then they would conduct business. And for a very long time, our parties were not particularly ideologically sorted. Some of the most conservative members of Congress were actually Democrats, and some, I’m not sure that the most liberal, but certainly very liberal members of Congress were Republicans. There were a whole bunch of different factions. It was much more chaotic, but in the modern world, partly as a result of the Voting Rights Act, but also for other complicated cultural reasons, we now have two antagonistic parties. So instead of Congress standing up for the powers of Congress as an institution, the members of the Republican Party tend to support whatever a Republican president wants to do, and the Democrats support whatever a Democratic president wants to do. Instead of the separation of powers and the checks and balances, we now basically decide who’s gonna be running the show, one party or the other, and they take over. Historically, that is to say, pretty much since the time of Reagan, every, I believe this is true, that every single president is elected with a majority of Congress of his own party, and that in the first midterm elections, the other party wins. And so, during the first two years, you get no oversight or resistance, and then for the next 2 years, you get investigations and impeachments and lack of cooperation, and neither of those two things is ideal.
Tom Lenard: Well, that’s a sobering note to end on, but an accurate one. Michael McConnell, thank you for joining us. This has been a really illuminating conversation.
Michael McConnell: Thank you for having me, Tom.
Tom Lenard: And thanks to all of you for listening. Until next time, I’m Tom Lenard.
Michael W. McConnell is the Richard and Frances Mallery Professor and Faculty Director of the Constitutional Law Center at Stanford Law School, and a Senior Fellow at the Hoover Institution.
Thomas Lenard is Senior Fellow and President Emeritus at the Technology Policy Institute. Lenard is the author or coauthor of numerous books and articles on telecommunications, electricity, antitrust, privacy, e-commerce and other regulatory issues. His publications include Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated?; The Digital Economy Fact Book; Privacy and the Commercial Use of Personal Information; Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Marketplace; and Deregulating Electricity: The Federal Role.
Before joining the Technology Policy Institute, Lenard was acting president, senior vice president for research and senior fellow at The Progress & Freedom Foundation. He has served in senior economics positions at the Office of Management and Budget, the Federal Trade Commission and the Council on Wage and Price Stability, and was a member of the economics faculty at the University of California, Davis. He is a past president and chairman of the board of the National Economists Club.
Lenard is a graduate of the University of Wisconsin and holds a PhD in economics from Brown University. He can be reached at [email protected]
Scott Wallsten is President and Senior Fellow at the Technology Policy Institute and also a senior fellow at the Georgetown Center for Business and Public Policy. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. He was the economics director for the FCC's National Broadband Plan and has been a lecturer in Stanford University’s public policy program, director of communications policy studies and senior fellow at the Progress & Freedom Foundation, a senior fellow at the AEI – Brookings Joint Center for Regulatory Studies and a resident scholar at the American Enterprise Institute, an economist at The World Bank, a scholar at the Stanford Institute for Economic Policy Research, and a staff economist at the U.S. President’s Council of Economic Advisers. He holds a PhD in economics from Stanford University.
Sarah Oh Lam is a Senior Fellow at the Technology Policy Institute. Oh completed her PhD in Economics from George Mason University, and holds a JD from GMU and a BS in Management Science and Engineering from Stanford University. She was previously the Operations and Research Director for the Information Economy Project at George Mason School of Law. She has also presented research at the 39th Telecommunications Policy Research Conference and has co-authored work published in the Northwestern Journal of Technology & Intellectual Property among other research projects. Her research interests include law and economics, regulatory analysis, and technology policy.
