Financial Crises and Constitutional Compromise

Abstract

Constitutional constraints are often designed with crisis in mind: Framers wish to constrain the exercise of power precisely in those circumstances in which policymakers will be tempted to take actions that may violate underlying normative commitments. These constraints are only as strong as the willingness and ability of courts to enforce them though; and because judges care about both themselves and policy outcomes, they are sometimes less than willing to enforce constitutional constraints. Existing scholarship has explored this phenomenon, focusing primarily on the possibility that the weakness of courts may prevent them from effectively policing constitutional boundaries in the face of governments determined to deal with a crisis. We suggest that such strategic judicial retreat may also result from judicial strength. In times of crisis, courts that command significant authority, and are likely to garner compliance with their rulings, confront a quandary that weaker courts can escape: The enforcement of constitutional boundaries may prevent an effective governmental response to a crisis. If judges are sufficiently concerned about the practical consequences of hamstringing a government under these circumstances, they may engage in judicial self-censoring not because they are weak, but because they are strong.

Keywords: constitutional crises, financial crises, courts, gold clauses, OMT

JEL Classification: F33, H63, H12, K12