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The Constitution and The Economic System

Prepared for Constitution Day, 2005 at the University of Minnesota
Professor Mark D. Rosen, University of Minnesota Law School
612-624-7527

1. Intro to "The Constitution and the Economic System"
   1. The economic system is probably not the first thing that comes to mind when one today thinks about the U.S. Constitution. The constitutional doctrines that figure most prominently in the public's mind are primarily linked to things like free speech, abortion rights, gay rights, and affirmative action. In fact, there are three reasons why it is particularly fitting to begun our Constitution Day learning with a study of this "sleeper" context of constitutional doctrine.
      1. It is not axiomatic that constitutional doctrine largely leaves the economic system alone. At other times in American history, in fact, constitutional doctrines concerning the economic system were at the forefront of constitutional law. See, e.g., Lochner v. New York, 198 U.S. 45 (1905); Robert Hale, The Supreme Court and the Contract Clause, 57 Harv. L. Rev. 512 (1943) and 57 Harv. L. Rev. 852 (1944) (describing the Contract Clause's important role in constitutional law in the 19th century) LUnderstanding this introduces a very difficult question: how is it determined which among the Constitution's many principles will receive significant doctrinal development, and which will be left undeveloped and marginalized? - a crucial question that, unfortunately, I'll not be able to address today.
      2. Relatively recently, arguments were made to the Court that, if accepted, would have led constitutional law to have an immense role on the economic system. See San Antonio Indep. School District v. Rodriguez, 411 U.S. 1 (1973) (rejecting argument that facially neutral laws that have disparate impact on the basis of citizens' wealth should be subject to heightened scrutiny).
      3. A growing body of conservative legal scholars, which already has some members on federal and state benches, advocates reinvigoration of constitutional principles that protect economic rights.
   2. In fact, under current doctrine, as even can be seen by some cases decided this past Term, constitutional law has important effects on the economic system.
2. Trade Wars, and the allocation of regulatory authority: Granholm v. Heald, 125 S. Ct. 1885 (2005)
   1. One of the most important constitutional effects on the economic system escapes our notice because it's so deeply entrenched: the virtual elimination of trade wars among the states. A vivid illustration of the phenomenon of trade wars is provided by studying a case decided this past Term - Granholm v. Heald - that addressed what is best understood as an inter-state trade war that has continued in a limited field where, until the Granholm case, constitutional doctrine appeared not to intervene to eliminate it.
   2. Wine regulations in place until May 2005: States significantly regulated the distribution of wine, generally distinguishing between production, distribution, and sale. Many states - including NY and Michigan, whose laws were challenged in this case - required out-of-state wine producers to sell their wine to in-state wine distributors, but permitted in-state wine producers to sell their wine directly to individuals. Clearly, these laws disadvantaged out-of-state wine producers. (Much of the supply of wine comes from very small wineries that primarily rely on direct sales to consumers; the middleman's mark-ups eat too deeply into their profits).
   3. Legal Analysis: In a 5-4 decision, the Court struck down these state laws that differentiate between in-state and out-of-state wineries as PROTECTIONIST laws that violate the so-called "dormant commerce clause."
      1. There's no provision in the US Constitution called the dormant commerce clause. The Constitution does have a commerce clause (the "CC"), which empowers Congress to regulate interstate commerce. If Congress has regulated under the CC, then the states are foreclosed from regulating; under the Supremacy Clause, which makes federal law supreme, state law is said to be "preempted." If Congress has not regulated, states may regulate, even matters that affect interstate commerce. But only up to a point. The dormant commerce clause is Court-made doctrine that ousts states of regulatory authority over matters relating to interstate commerce even in circumstances where Congress has not acted (ie, where Congress has remained "dormant").
      2. The paradigm circumstance for dormant commerce clause is where states enact PROTECTIONIST laws. Tough to define with precision, but generally refers to legislation that seeks to aid in-staters at the expense of out-of-staters. The Supreme Court, in the Granholm decision, decided that state laws that allow in-state wineries but not out-of-state wineries to sell directly to consumers are protectionist and hence run afoul of the dormant commerce clause.
      3. Understanding how these state laws operated - they are clearly protectionist - the really tough question is why were there four dissenting Justices in the case. The answer is that a statute had been passed that appeared to permit protectionist state legislation; if Congress indeed had acted, this would not have been an instance where Congress had been "dormant" such that the dormant commerce clause was applicable.
         1. Unusual: Congress does not ordinarily have the power to "flip" Supreme Court decisions, right? No, only with regard to CONSTITUTIONAL decisions. Dormant commerce clause is not a constitutional determination.
         2. Also, why should Congress have the power to permit protectionist state legislation? - representation-reinforcement theory.
      4. So, deciding this case involved two questions of statutory interpretation:
         1. Did Congress have the power to enact the statute at issue that purported to define state regulatory power? Here, dissenters argued that Congress had power under the commere clause and section 2 of the 21st Amendment, which repealed prohibition, to give states the power to discriminate against out-of-state producers. 21st Amendment: "The transportation or importation into any State . . . for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." The majority said the 21st Amendment granted states no such power.
         2. b. Did the statute in fact grant states the power to discriminate in this way? The Webb-Kenyon Act "prohibit[s]" any "shipment or transportation" of alcoholic beverages "into any State" when those beverages are "intended, by any person interested therein, to be received, possessed, sold or in any manner used . . . in violation of any law of such State." 27 USC §122.
            1. More general observation about constitutional doctrine: much of the time it serves the role of allocating political decisionmaking authority. Here, there was a 2-way struggle for what governmental entities have the power to regulate: Federal or State? Courts or legislature?
3. The Security of Private Property, and the Role of Nonjudicial actors in Interpreting the Constitution: Kelo v. City of New London, 73 U.S.L.W. 4552 (2005)
   1. Let's say you own a house. Does the government have the power to take your property from you even if you want to keep it?
      1. Undoubtedly yes under the Fifth Amendment's taking clause - a necessary component of state power if things such as roads, airports and trains were to be built. The Constitution explicitly CONDITIONS governmental power to take private party in 2 respects: "Nor shall private property be taken for public use, without just compensation." U.S. Const., Amend. 5. This means two things: the Government must PAY for it, and can take it only for a "public use."
   2. What's at issue in Kelo 1. Definition of "public use." In past, primarily used to obtain land for the construction of public spaces, such as roads. Here, land owned by individuals was to be transferred to OTHER private owners, and public was NOT going to have free access. So where's the "public use"? Court held that economic improvement - putting land to better economic use, such that jobs are generated and tax revenue generated - satisfies the "public use" requirement. The Kelo decision has potentially wide-ranging ramifications for every landowner.
   3.  Future implications ramifications regarding the security of private property
      1. The Court here noted the presence of many factors (part of comprehensive development plan), but will subsequent caselaw deem them to be indispensable requirements? Remains to be seen.
      2. Important point about deference to other governmental actors and the responsibility of nonjudicial actors in determining what the Constitution requires: Said the Court in Kelo, "The disposition of this case therefore turns on the question whether the City's development serves a 'public purpose.' Without exception, our cases have defined that concept broadly, reflecting our longstanding policy of deference to legislative judgments in this field." At 4555.
         1. The Court explicitly defers to municipality's judgment that economic redevelopment constitutes a "public use," but why? This is generally true of the Court's judicial review of governmental action: almost always, the Court substantially defers to the initial judgments made by other branches of government as to their constitutional powers. Such deferential standards reflect another respect in which constitutional law allocates political decisionmaking authority: here, though, constitutional doctrine grants nonjudicial entities considerable power to make constitutional determinations, which the Court will reject only if those judgments are not worthy of deference.
         2. Critique: the cases relied on by the Court to illustrate deference to legislative judgments all involved CONGRESS or the STATES. Should constitutional doctrine be less deferential to the judgment of LOCAL GOVERNMENTS, particularly here where the local government delegated considerable authority to a private nonprofit entity whose decisions arguably were but rubber-stamped?
      3. Role for STATE constitutional law. As the Court correctly noted, "nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power." At 4557. LImportant lesson: federal constitutional is not the only doctrinal guarantee of "justice"!
4. IV. Scope of State Regulation: Gonzalez v. Raich, 73 U.S.L.W. 4407 (2005)
1. Can California legalize home-grown marijuana for medicinal purposes? Ultimate answer: yes, but the federal government can prohibit home-grown marijuana. As a practical matter, this eviscerates the ability of states to function as laboratories for novel social policy experiments regarding medical marijuana.
2. Overview of legal question presented: The federal government is a government of limited powers, only (roughly speaking) those enumerated by the Constitution. The Constitution grants Congress the power to regulate interstate commerce: known as the commerce clause. Question in Raich was whether the federal government has the power to regulate home-grown marijuana.
3. The federal government has heavily regulated drugs, particularly through the Controlled Substances Act, which is part of the Comprehensive Drug Abuse Prevention and Control Act. If the federal government does not have the power to regulate home-grown marijuana, then the power to regulate home-grown marijuana - or to elect not to - would rest with the states.
   1. LSo, this case involved a struggle between the federal and state governments.
4. Role of the Supreme Court in constitutional interpretation: One might ask: given the language of the commerce clause, how could Raich have been a close question?
1. Commerce Clause: the Clause grants Congress the power to make laws that "regulate Commerce with foreign Nations, and among the several states." U.S. Const. Art. I, §8. Home-grown marijuana arguably is not "commerce" (because it is grown by the user, or obtained for free from another grower), and even it were commerce, it is not "interstate." So how can Congress regulate it?
2. More than 60 years ago, however, the Court ruled in the famous case of Wickard v. Fillburn that "[e]ven if appellee's activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress." 317 U.S. 111, 125 (1942).
1. At the very least, it is hard to deny that this is not the most obvious reading of the constitutional language. This underscores the practical significance of what governmental institution has the final say in interpreting the Constitution.
2. Note Scalia's suggestion, in his concurrence, that Wickard's holding is attributable to the necessary and proper clause. 73 U.S.L.W. at 4416-17.
5. Political background to contemporary Commerce Clause jurisprudence
1. The expansive interpretation given to the commerce clause in cases such as Wickard was the basis for much of the New Deal's legislation. The Court's approach to the Commerce Clause in the early 1930s, which viewed Congress' powers as far more limited, led the Court to strike down as unconstitutional many of the laws pushed by President Roosevelt and adopted by Congress. After President Roosevelt explained his plan to increase the number of Justices on the Supreme Court - what has since been known as his Court-packing plan - the Court adopted a new understanding of Congress' Commerce Clause powers, and proceeded to uphold the New Deal legislation. In short, there is a very rich POLITICAL history to the Court's changing commerce clause jurisprudence.
2. From the mid 1930s until 1995, the Court upheld EVERY piece of legislation that was challenged as an unconstitutional exercise of its Commerce Clause powers. In the 1995 case of United States v. Lopez, the Court for the first time in 60 years struck down a federal law as exceeding Congress' commerce clause powers. By ruling that Congress exceeded its powers under the Gun Free School Zones Act when it sought to prohibit the possession of firearms within a specified distance from schools, it was left to the States to decided whether to decide whether, and if so how, to regulate the possession of firearms proximate to schools. Lopez thus limited the power of the federal government, leaving room for state regulation. For this reason, it has been understood as part of the Court "new federalism" jurisprudence, which invigorates state power.
3. The Raich Court upheld congressional power in this instance - which seems to me to be an eminently sensible conclusion. In my view, Congress appropriately has the power to regulate home-grown marijuana because Congress reasonably could have concluded that leaving home-grown marijuana unregulated could undercut the efficacy of its comprehensive regulation of controlled substances, which it unquestionably has the power to regulate. In short, as Scalia argued in his concurrence, regulating home-grown marijuana is an "essential part of a larger regulation of economic activity in which the regulatory scheme could be undercut unless the intrastate activity were regulated."
4. The majority opinion, however, relied on a rationale that could unravel Lopez. It upheld the regulation of home-grown marijuana on the theory that Congress has the power to regulate the "possession or manufacture" of home-grown marijuana because it is "local economic activit[y] having substantial effects." 73 U.S.L.W. at 4414. Under this view, why shouldn't the intrastate possession of firearms under the Guns-Free School Zone Act have been upheld in Lopez? So, post-Raich, it is difficult to predict what will become of the Court's "new federalism" limits on Congress' commerce clause powers.