Inflation: The Role of a Mistaken Supreme Court |
The Constitution grants Congress a rather generous list of powers, but reserves all other powers to the states and the people. The Constitution is the supreme law of the land, and until the late 1930s and early 1940s, Congress, the President, and the courts usually respected the document’s limits on federal authority.
What changed in the late 1930s and early 1940s was that the Supreme Court, under strong political pressure, abdicated its duty to enforce most constitutional limits on Congress. Thus, in 1936, the justices decided United States v. Butler. Their opinion included dicta (comments extraneous to the actual decision) stating that Congress was not limited to spending within its constitutional responsibilities; instead, Congress could spend whatever promoted “the general welfare.” In 1937, the court confirmed the rule for the future.
These two decisions blew the lid off the federal budget. Congress became an auction house for special-interest spending. Since then, Congress rarely has balanced its budget. Indeed, for the past 25 years, there have been no balanced budgets at all.
Ever-growing deficits require the government to borrow ever-growing amounts of money. The Federal Reserve then pumps greenbacks into the economy to keep interest rates low, accommodate federal borrowing, and prevent federal borrowing from crowding out private access to capital.
Federal........