Abuse of Presidential Power? Posner

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.

Comments

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This is an important and timely post. I'm very dismayed by the tendency of the current administration to exercise unofficial executive power to "bully" others into conforming to its desires. This is inappropriate use of the executive branch, it is undemocratic and it is extra-legal. Fundamentally, it demonstrates the arrogance of power. This post lists a few of the instances in which executive power has been inappropriately used, but the list is by no means complete. The authors could have mentioned the administration running roughshod over bankruptcy rules in the auto industry takeover. It could also have mentioned the heavy handed treatment of Goldman Sachs that recently forced them to pay $550 million fine--they had no reasonable legal recourse. Winning a drawn out legal challenge would have been more expensive than settling. It could have mentioned the fact that the administration claimed the sanction for failing to purchase healthcare insurance is a "fine" during the debate over the health care bill (itself inappropriate coercion not only in substance but the manner used to enact that bill). They now argue that is is a "tax" when the matter is before the courts. Of course, there is the shameful shakedown of BP that circumvented the established legal process. The list goes on.

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preach! a great warning to watch against presidential usurping.

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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.

[M Hoffman]

This post leaves two conclusions: there is evidence of dementia at the U of C and this federal Judge has too little work in his supposedly full time position of employment for which he is lavishly paid by the taxpayers. Seems to have plenty of time to write ridiculous policital books, teach, post online, etc., etc. His facts are WRONG. First, BP was not ordered to contribute anything to any fund. It was accomplished voluntarily and with the motivation to avoid endless litigation. It was for the mutual benefit of BP and those harmed who could arguably obtain more expedient payment for their injuries and damage. Kudos to the President for this achievement apparently costing the government nothing. Second, Rick Waggoner was not removed by President Obama but by those who were responsible for directing the company after he indicated he wanted to continue the same reckless course for the company which he had established before its bankruptcy. In the exercise of responsibility, the stewards of the company removed him and the results have thus far been positive. Third, compared to the criminal conduct of George W Bush and his lies about WMD, torture, murder of civilians, and the continued support of our government for the criminal murderous religious enclave of Israel, the conduct about which Mr. Posner (a supposed neutral Judge committed to objectivity)complains pales in comparison. How could anyone trust this Judge when he continuously spouts off about his skewed views which appear to be unsupported by evidence or facts? Frankly, I am concerned that if these posts are typical of the level of intellect of the University of Chicago these days, we are headed for dark days. Mr. Posner must be listening to Fox News and Rush Limbaugh. Where was he when George W and his Jewish buddies in the White House were lying to the public about WMD in Iraq? Where was his moral outrage? How about the billions we are forced to contribute to Israel which defines itself by a religion? Is it not a violation of our Constitution Judge to force citizens to contribute to such a religious entity which openly discriminates against non-Jews? Don't give me that holocaust excuse for Israel's misconduct? That was before I was born and I am 62 years of age. Being a victim does not give a person a pass to steal and occupy the land of others, commit murder and destroy homes. What about it? Where is his moral outrage? Seems to be currently focused only on one person? Gee, I wonder why. Does he not fit within the parameters of Mr. Posner's prejudiced and skewed political views? Now, if he was Jewish......

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We can construct a similar story with respect to the government and BP, whose liabilities to the government grow with each gallon of oil spewed.

Is it really bullying to demand a change in corporate behavior if you're a de facto creditor?

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Given the scale of legal claims against BP, for example, it hardly seems excessive to demand that they create an escrow account of $20 billion and cut their dividend as a sign of good faith. The ultimate cost to them will almost certainly be higher.

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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.

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