Our government was set up in 1789 based on political theories that had been discussed in the hundred years leading to the American Revolution. They were concerned with the abuse of power but no one had any real democratic experience as the previous democracy fell to Macedon almost 2000 years earlier.
The founders realized this and put in the amendment process to fix issues as they arose. The first ten amendments passed almost immediately and also go by another name - The Bill of Rights. Since then we have used the Constitution to govern the country. No one can argue the world hasn't had massive changes since but we've only had additional 17 amendments and two of them offset (Prohibition). These amendments include some really fundamental changes especially around voting rights but I think the founders would be disappointed that their creation hasn't changed much.
That isn't to say the document has huge flaws. It is an amazing considering its age but the government has struggled since the beginning with banks and financing. More specifically I am talking about how we fund our government and how we control the people in power who control those funds.
We were lucky to have Alexander Hamilton as the first Treasury secretary. He pushed through the Bank of the United States and this set the country on sound financial footing that allowed our quick expansion. Jefferson and his allies had good reasons for hating the bank but even they realized the positives outweighed the negatives during the War of 1812. They extended it and it lasted until Andrew Jackson killed it during an anti-bank frenzy in the 1830s. American monetary policy had no central authority until 1862 when the Republicans realized they needed an easier way to finance government projects during the Civil War. They gave certain private banks national status but required higher standards than state banks and mandated these banks use a common currency. In turn these banks were required to use federal treasury bills to back their bank notes. This gave the government and the public access to money which helped fuel the economic boom after the war ended. This worked well during the next sixty years though financial panics were common and required the intervention of bankers like JP Morgan to keep the economy from crashing. When the US economy expanded rapidly at the start of the 20th century, the system was too complex for private bankers to control. That lead to the creation of the Federal Reserve System which is essentially 12 banks directly controlled by the federal government that lend money to all other banks in the country. This has worked reasonably well but as the world continues to get more complex, we are faced with crisis. Monetary policy is one of the best economic innovations in the last century but there are limits and the Fed has made mistakes. A prime cause of the Great Depression was due to bad Fed decisions made worse when it stopped the flow of money into the economy. The housing bubble of the early 2000s was driven by the Fed who kept interest rates too low for too long.
Back in 1789, monetary policy was simple. The rulers had the ability to tax and if they needed more they went to the banks/merchants to get a loan. If the banks didn't feel that loaning the money was wise investment they refused (This was the first real check to absolute rulers. Some early monarchs took the head of their obstinate subjects but soon learned it was better to work with the banks as threatening them only spooked the market and worsened conditions in their country).
The United States government has three branches of government and as every kid is taught in school it is based on the philosophy of checks and balances. The Congress passes laws, the president enforces laws, and the supreme court interprets laws to decide if Congress has overstepped their bounds.
The question over the last century is now that the government run Fed leads the banks, how does monetary policy fit into the three branches? This wasn't an issue for the the founders. The Bank of the United States wasn't perfect institution but today we intermix government debt with the banking industry in ways the founders would find unbelievable.
Where is the constitutional amendment that account for this massive change? The truth is it doesn't exist. The only amendment to the constitution that has any link to the financial markets is the 16th amendment passed in 1913 which allowed the government to tax the income of its citizens (ironically the same year the Federal Reserve Act passed).
From my previous paragraphs you might think I'm a conservative Republican but I recognize that our country is better in the last century because of the government's ability to reallocate money to fund things like food safety, the building of roads/bridges/etc, and supporting things like public TV and the arts. These started small at the start of the 1900s with Teddy Roosevelt but really got going during the Great Depression of the 1930s and the social strife of the 1960s. We created huge programs that could only be supported if our economy continued to boom. It was impossible to sustain and by the late 1970s the Democratic party had earned the reputation as the 'tax and spend' party. Ronald Reagan promised to end that but faced with a Democratic Congress he cut taxes but did little about spending as it continued to balloon out of control. Politicians from the suburbs, rural areas, and from conservative parts of the country realized they could get reelected by promising to fight for lower taxes. Politicians from the inner city, locations with older voters and liberal parts of the country realized they could get re-elected by talking about protecting government programs. Meanwhile the government debt continued to rise. The politicians only cared about the promises they made to get re-elected and the electorate got increasingly angry as gridlock overtook Washington.
So what needs to happen? I hinted about it in a previous chapter about checks and balances. Who controls spending? Congress. Who controls congress? No one. The Supreme Court only is a check to the constitutionality of the laws Congress creates. If you asked a founder whose responsibility it was to keep congressional spending in check they would say it was the responsibility of the good moral men we elected and if they didn't, the white landowners (who were the only ones that could vote) would vote the scoundrels out of office as they knew it would eventually affect the value of their property. Things have changed a lot since then.
This country desperately needs a fourth branch of government to control government spending. The appointments to this branch would be similar to the Supreme Court and its purpose would be to track government spending, set borrowing limits, and review budget proposals. The key is independence. My first thought was it should also include the Federal Reserve but realized that is probably too much power and it certainly would freak out people looking for Illuminati conspiracies.
How would the organization work? For starters, last summer's budget crisis would have been taken out of Congress' hand as this new office would have clearly stated long before what needed to happen and forced Congress to act much earlier. The debt level would be determined by these men and their mandate would be to find a debt number that ensured the longterm interests of the country. In times of war - borrow. In time of peace - pay back. In times of plenty - tighten. In times of trouble - loosen.
They would constantly be in meetings with Congress to let them know their annual targets so serious conversations would happen between parties. Every mature business in America has a conversations like this every year. Can we afford that? What do we need to cut? What can we do to raise revenues?
So how difficult would it be to create this organization? The truth is it already exists in part and is called the Congressional Budget Office. They create reports that few Americans know about unless they hear a snippet as they change channels. This organization would be given independence and senior 'partners' appointed. They would continue to create the reports they do today as they chart the financial future of government policies. Additionally, any political candidate that wants to attain an office in either the Congress or as President would submit a detailed plan of their ideas and how they plan to play for them. All plans would be reviewed by the office and they would then publish true cost/review estimates. Any bill that would go before Congress would need to have an economic study done. Anyone that wanted to run a political ad would need to get certification that their claims were valid or else the ad would not be certified. If it someone decided to run an ad that wasn't certified using 1st amendment protection, they would be required to purchase equal time following their ad for a budget office response.
This office would be non political and employees would be forbidden from making any public statement. The appointees would speak with one voice and after stating their official opinions it would be expected they would remain silent and let the political process run its course. Independence and accuracy would be the prime concern of the office. You might think it would be difficult to find people for this office but there are thousands of people who could fill this role tomorrow in the field of accounting, in the SEC, and already working for the CBO.
All American are frustrated. There is too much nonsense flying around in politics and voters have no idea what is true so they have stopped questioning. We need to change that.
There is been an abdication in Congress about taxes and spending. Everyone has different ideas about the perfect level of taxation but whatever it is, our spending needs to match it in the long run. The battles that happen when we do this will be difficult but we elected our Congressmen for this very purpose. You've put off giving us bad news for too long and Americans are tired of the cut taxes - spend more routine. We need to change that.
Congress has proven it is not accountable and it is time that we give them a baby sitter. We need to add another check and balance to the US Constitution and I propose the 28th Amendment - The United States Budget Office.
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