A Republic—and an Economy—If You Can Keep It

Efforts to erode and eliminate the institutions of the republic threaten our markets, and our nation.

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Commentary

As we commemorate the founding of the United States of America on this Fourth of July, 2022, it’s important to remember that after the founders affixed their names to the Declaration of Independence in 1776, they would face war against King George until the surrender at Yorktown in the fall of 1781. Even then, there was but a precarious peace until the Treaty of Paris was agreed by the British in 1783. Just a generation later, from 1812 to 1814, British troops were again at war with our nascent republic, laying siege to the new American capital in Washington and setting the White House afire, among other things.

Since then, and until just recently, the United States has been mostly the globe’s oasis of stability. We have been threatened, surely, by wars, including our disastrous Civil War, civil strife, protests, riots, and throughout the Cold War.

But we have largely remained a “safe haven” for global capital, especially in the 20th century, largely because we are perceived as a stable island in a world of nations that are sometimes in chaos.

We inherited the role of the British pound sterling as the world’s reserve currency as World War II ended. The dollar became the world’s reserve currency because the United States is perceived as a powerful, invulnerable, stable, and rule-of-law society, largely because our government is viewed as a moderate, predictable, tolerant, constitutional republic by governments abroad.

Americans do not make radical changes and we do not embrace sudden policy shifts. We do not have armed coups. Rules adopted over centuries by the House and Senate ensure that law making, while not agreed by national consensus,  respect the rights and views of the minority and encourage moderating compromise, as opposed to the simple “majority rule” of a pure democracy that pushes the minority view aside.

But now, that “stable and moderate rule-of-law society” is under threat. And it cannot help but affect the markets.

Larry Summers, the prominent Democrat economist, rightfully condemned the Jan. 6, 2021, siege of the Capitol and those who dismissed it as insignificant. “I think the banana Republicans who are saying that what happened on Jan. 6 was nothing, or OK, are undermining the basic credibility of our country’s institutions —and that in turn feeds through for inflation,” Summers told CNN on June 12.

His comments are correct. But unlike the several hours where the Capitol building was under siege, we now face threats to the very institutions and practices that have maintained the republic since its earliest days.

On Thursday, the president of the United States of America, Joe Biden, while on foreign soil at a NATO summit, undermined the integrity of the United States Supreme Court, the ultimate judicial body of this government, and the president’s equal in our system of government.

Vigorously defending himself from a reporter’s assertion that America is “going backward” under his leadership, the president lashed out at the Supreme Court:

“The one thing that has been destabilizing is the outrageous behavior of the Supreme Court of the United States.”

He went on to say,

“I believe we have to codify Roe vs. Wade in the law and the way to make that is that Congress [gets?] to do that and if the filibuster gets in the way, then we provide an exception to this, to require an exception to the filibuster for this action, to deal with the Supreme Court decision.

The filibuster is a Senate rule to moderate legislation, encourage compromise, and respect the rights of the minority. It has been part of Senate procedure since 1806 when it was adopted to allow interminable debate on the “world’s greatest deliberative body.” While it has been abused, particularly in the Jim Crow era, it has, nevertheless, allowed for deliberative, thoughtful, debate and for the tempest of extremist politics to be ameliorated.

The filibuster works to support the very reason the Senate even exists: to restrain radical, reckless, change. It requires 60 votes to invoke cloture, or the end of debate. Writing in Federalist No. 62 of the Federalist Papers, Publius (a pseudonym for, most likely, Alexander Hamilton) warned of the “propensity of all single and numerous assemblies to yield to the impulse of sudden and violent passions, and to be seduced by factious leaders into intemperate and pernicious resolutions.”

It is to avoid exactly the kind of “intemperate and pernicious resolutions” that Biden supports—a federal law requiring every state to permit elective abortion for claims of “health” to the very moment of delivery—that the filibuster is intended to ameliorate.

The Supreme Court is under other threats, as well. Some members of Congress urge that the court be “packed” by adding more justices beyond the current nine to obtain decisions more favorable to their views. Other extremists in Congress want to impeach justices whose decisions are opposed to their own views.

Last year, now Senate Majority Leader Chuck Schumer spoke so recklessly about Justices Neil Gorsuch and Brett Kavanaugh that his comments drew a sharp rebuke from Chief Justice John Roberts.

Chief Justice Roberts said in a statement,

“Justices know that criticism comes with the territory, but threatening statements of this sort from the highest levels of government are not only inappropriate, they are dangerous. All Members of the Court will continue to do their job, without fear or favor, from whatever quarter.”

Schumer apologized thereafter. Nevertheless, an assassin attempted to murder Justice Kavanaugh early last month.

There are other threats to long-standing institutions that have maintained American stability. Democrats upset that recent presidential elections were won by electoral college victories, but not the popular vote, are calling for an end to the electoral college and for the president to be elected by the popular vote. But that would place the future of the executive branch of government in the hands of large, mostly coastal, urban centers, ignoring states like Wyoming and Alaska—and much of “flyover country”. But large, coastal, urban centers and states already control an enormous portion of the House of Representatives.

While it’s impossible to assert cause and effect, it’s notable that foreign direct investment in the United States is declining, as are foreign holders of U.S. debt. Other countries are diversifying away from the dollar. I would presume that some of this foreign doubt in the “full faith and credit” of the United States may have something to do with these efforts to disassemble our institutions.

The United States has been under enormous pressure, from the highest debt as a percentage of GDP we’ve ever had, to the CCP virus, to two elections in a row where widespread cheating—domestic and foreign—was alleged. We are now gripped by the highest inflation in 40 years and a prediction by the Atlanta Federal Reserve GDPNow that we are in recession.

Ernest Hemingway, writing in “The Sun Also Rises”, wrote about how one goes bankrupt: “Two ways: Gradually, then suddenly.” We are certainly not a nation new to crisis, but we are new to assaults on our constitutional institutions and practices by our elected leaders. It is troubling, and it assuredly troubles markets.  A downturn now, given the level of political division in the country, and lack of faith in our governing institutions, could affect our markets “gradually, then suddenly” to exacerbate a bear market into a full-blown market and political crisis.

Benjamin Franklin, leaving the Constitutional Convention of 1787, is said to have been asked by a woman about the type of government the founders had bestowed upon the people. “A republic, madam, if you can keep it.”

Our leaders and our citizenry should act in a fashion that will.

Happy Independence Day.