Writing a Debt Ceiling into the Constitution is Pointless

Recent proposals from the French and German governments on dealing with the Euro debt crisis are interesting. But writing debt ceilings into national constitutions is a bad idea. Countries that have constitutions generally use them to specify the relationships between the state institutions, details of how the democracy works, the rights of individuals, and the limits of state’s power. Very few constitutions anywhere go into specific details about state finances. Constitutions set out basic principles and ideals. The grubby business of politics is left to fill in the details. How money is raised and spent is a policy issue and is largely left to the governments that the people elected. It is not a constitutional issue. The Constitution of Ireland goes into great detail to specify how laws are passed and the role of both the lower and upper houses in passing these laws. However it treats finances differently. There’s a section of the Constitution called “Money Bills” containing Articles 21 & 22.

One of the key functions of a constitution is to protect the people from the state. Constitutions are rarely designed to protect the people from themselves. The basic principle of most democracies is that politicians put forward policy options and the people vote for the policies they prefer. In many countries the people have voted to spend more money than the state earns and to run up huge debts to make up the shortfall. This is of course a stupid thing to do. But it is doubtful that a constitutional amendment ever should, or ever could, stop people from being stupid.

Allowing politicians to do whatever they want can cause problems. Electorates, for the most part, believe that the state is awash with cash and that it should spend that cash on them and their families. This is especially true in Ireland where the electoral system rewards clientelism. Politicians who refuse to engage with the client centric model, or those who propose fiscal responsibility do not generally get elected. The question is, however, should the Constitution be modified so that the state cannot borrow too much money. And if it should be done, would it actually work?

Debt ceilings might limit states so that their governments could not be stupid even if they wanted to be. But that might be a bad idea in itself. States may, from time to time, need to borrow lots of money (for example during a flu pandemic or war). Long term projects might also require money. If debt ceiling limits were in place in 1990, the unification of Germany might not have been possible. It is not certain that laws can stop governments from being stupid. There is very often wiggle room.

The main problem with constitutionally mandated debt ceilings is that they require states to super-dooper double-swear cross-my-heart-and-hope-to-die promise to be good. But a constitutional amendment is still a mechanism internal to a state. A society that wants to borrow and spend will find ways to do so if it really wants to. It’s still only a form of self-regulation. Only external forces can cause a society to change its ways. That happened in Ireland when the markets started demanding very high rates of interest on Irish debt.

The amendment of the Constitution of Ireland poses some interesting problems. The President of Ireland has very few powers. She can, when the Taoiseach (prime minister) requests a disillusion of the Dail (parliament) refuse to do so, and she refer any bill to the supreme court for adjudication if she believes it to be unconstitutional. Interestingly the President is specifically precluded from referring any “Money Bill” to the Supreme Court. (Article 26) Despite the central role of the President in the Constitution, when it comes to money the President is expected to zip it. So clearly writing a debt ceiling into the Constitution of Ireland will keep some constitutional lawyers busy for some time.

Even after the many changes were approved by the Irish people, no one could be sure that Irish governments would behave more responsibly as a result. It is too late for Ireland. Someone else is already calling the shots. Constitutional shenanigans at this stage will make little difference. In fact, if the IMF demanded that we suspend the constitution and round up all the ginger people and put them in jail, we would probably have to do it just to keep the lights on.

A more useful question is whether or not such an amendment would have prevented Ireland from getting into trouble in the first place had it been in place. Imagine the Irish people had modified the constitution to include a debt ceiling before the collapse. How would that have played out? During the last election before the state went bankrupt, the incumbent political party said that the good times could continue forever, and that house prices would rise forever, and that the banks were all in good shape. [No change there]. The electorate bought into this and voted for them again. [No change there]. The government proposed a somewhat flawed finance bill to the Dáil [no change there] but as a result of the changes to the Constitution the President now had the power to refer this bill to the Supreme Court.

So now what? What would have been different?

On a very good day a President of Ireland my be a civil rights activist, or a trained lawyer. On a bad day a President may be a career politician, a sports star, or a christian chat show host. Nobel prize winners in Economics only become Presidents on TV. It is not very likely that a president would have the competence or the confidence to tell the government and the people that elected it that it is wrong. Where would a president find an expert who hasn’t been drinking the same cool-aid as everyone else? How could the President be able argue that government policy was wrong, and still act within the constraints of the office.

Even if a President was able to determine that government was wrong, why would a President go to the political expense of triggering a supreme court review of such a bill? If the electorate didn’t want fiscal responsibility, it wouldn’t appreciate a President insisting it had to have it. Fortunately the President’s term is 7 years, so a first-term president might have time to be proved right, and a second term President can’t run again anyway. So half the time a President might have nothing to lose by doing the right thing.

Suppose the President sent the bill to the Supreme Court. Supreme Court judges are all trained lawyers. They typically know no more about economics than a chat show host President does. All they can do is listen to the arguments and make a call based on the evidence presented to them. What Supreme Court could argue with the State’s economists, numbers, and projections? In the run-up to Ireland's crash, the few economists and commentators who asked tough questions that no one wanted to hear, were dismissed as crackpots.

Only external regulation can requires that governments behave. But what state would willingly surrender its rights to do as it chooses, and if giving up those rights required a constitutional amendment who would vote for it?


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