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One question for Ben Bernanke

by Mike Kimel

The other day Ben Bernanke gave a speech in which he asked and answered five questions about the Fed:

1. What are the Fed’s objectives, and how is it trying to meet them?
2. What’s the relationship between the Fed’s monetary policy and the
fiscal decisions of the Administration and the Congress?
3. What is the risk that the Fed’s accommodative monetary policy will
lead to inflation?
4. How does the Fed’s monetary policy affect savers and investors?
5. How is the Federal Reserve held accountable in our democratic
society?

I’d have asked only one question, similar to his first, albeit with a bit of prefacing. This is what I’d love to ask Bernanke.

The Fed has a very close relationship with the financial sector. Simple examples of this include:

a. Of the three advisory committees that advise the Board of Governors of the Federal Reserve directly, even in theory only one, the Consumer Advisory Council, has a non-zero number of members who don’t directly work for the financial sector. Regional Federal Reserve Banks are also, ahem, advised by similar committees made up entirely or almost entirely by financial institutions and/or their representatives.
b. By design, every one of the Fed’s methods for raising and lowering the money supply require direct interactions between the Fed and financial institutions. None of these methods even allow for any direct interactions between the Fed and members of the public. (Note that raising and lowering the money supply does not in any way constitute “regulating the banks.”)
c. Federally chartered banks and some state chartered banks are designated “members” of the Federal Reserve system – no similar appellation or roles apply to the public at large.
d. Federal Reserve banks serve as repository institutions for member banks, but none of the services performed by the Fed for banks are
available to the public at large.
e. And of course, there is something of a revolving door between the Fed and the financial sector.

Given all of this, what would the Fed’s objectives be, and how would it be trying to meet those objectives, if the interests of the public were given equal weight to the interests of the financial sector?

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AUTO SALES, PRODUCTION AND EMPLOYMENT

 Auto and light truck sales for September was just reported at a rather strong 14.96 million units. This puts sales back above the strong trend line for this recovery.

But it might be more interesting to look at production that has also been very strong. 
Since production bottomed during the cash for clunkers program industrial production of autos and light trucks has risen more that 150% .  Remember, the original rational for the cash for clunkers program was to reduce excess inventories so that the auto firms would expand production.

But an even more interesting comparison is to compare total vehicle output — including light and heavy trucks as well as parts —  to employment in the production of motor vehicles.  Total output is now at new all time record highs, surpassing the early 2000s peak.  But employment in the motor vehicle  industry is now 780,700 as compared to 1,330,000 in February, 2000 and 651,100 at the recession bottom.  So since the recession bottom employment in the industry is up 21% while production is up over 150%.

 


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Justice Scalia’s Super Body (And, no, it has nothing to do with the Constitution’s Free Exercise Clause. Really.)*

First, Justice Anthony Kennedy wants to know what possible connection there is between Esther Kiobel, the wrongs she says unfolded in Nigeria, and the United States. The answer the plaintiffs’ lawyer, Paul Hoffman, gives is that his clients live here because the U.S. government gave them asylum. Also, Royal Dutch Petroleum does plenty of business here. 

Kennedy doesn’t like the sound of that. “Your position is that a U.S. company that allegedly commits a human rights violation could be sued in any court in the world?” he asks. Note the switch—now it’s our homegrown corporation, not a company called Royal Dutch, that’s the pirate.

Justice Antonin Scalia backs up Kennedy, asking whether it will be “some super body that decides what constitutes a violation” of human rights. This is not a superhero kind of super body. It’s the kind that usurps U.S. sovereignty. Hoffman tries to erase the image: The courts of nations around the world have long determined human rights norms, he says. But Scalia is with Kennedy: unhappy about a world in which U.S. corporations can be held liable for human rights abuses in foreign courts. Justice Samuel Alito doesn’t like Hoffman’s notion either, and Chief Justice John Roberts seems skeptical, too. 

Hoffman next addresses all the ways his clients could still get kicked out of court, even if they make it past today’s tangle with the Alien Tort Statute. They could be told to file suit in Nigeria, or the Netherlands or the United Kingdom, where Royal Dutch Petroleum is based. Hoffman concedes that it’s not clear from the record whether they’ve done so yet. (This is the doctrine called exhaustion, which is how it feels to be told to go back and start over somewhere else.) Kiobel and the other plaintiffs could also be told that another forum, outside the United States, is simply better. (This is the doctrine called forum non conveniens, the rare Latin phrase that makes sense without translation.)

Pardon me.  But it sure sounds like Scalia’s complaint is really with—Can this be?—the Founders, who, by enacting a statute that gives federal courts jurisdiction to hear claims by aliens for torts “in violation of the law of nations,” provided that it will be some super body that decides what constitutes a violation of human rights.  And (assuming that Scalia thinks there should be an “exhaustion” requirement, even though, clearly, there is not one in the language of the statute) who—those lame Founders!—failed to include an “exhaustion” requirement in the statute.

Ditto for Kennedy, who’s angry because he thinks that the very first Congress’s position was that a U.S. company that allegedly commits a human rights violation could be sued in any court in the world, even though the statute actually only provides for lawsuits in U.S. federal courts, not for lawsuits in other countries’ courts.  Or at least, he later explains, he’s angry, and worried, that if the United States Congress can pass a law that allows aliens to sue foreign corporations in United States courts for torts “committed in violation of the law of nations or a treaty of the United States, that might encourage other countries to retaliate and enact a similar, mirror statute.  And then, woe is Exxon Mobil. 

Repeatedly during yesterday’s argument, Kennedy raised issues with such a policy.

Why didn’t President Washington veto that law, for Chrissake!? Instead, the jerk, and that Congress, left it to a future generation of justices to rewrite the statute to limit it to lawsuits against U.S. companies and foreign companies that commit torts against a U.S. alien in violation of the law of nations or a treaty of the United States. (A generation of justices that includes four who, only three months ago, railed against their five colleagues for what the four railers said was an unconstitutional rewriting of a statute, no less. A very high-profilestatute.)

Oh, but wait. That original Congress actually did write the Alien Tort Statute to say that. Verbatim. Even though the statute could encourage other countries to retaliate and enact a statute of their own that allows a U.S. company that allegedly commits a human rights violation to be sued in a court in that other country for violations of the law of nations, as defined by some super body.

Other countries haven’t done that yet. But they could. Whether or not the Supreme Court rewrites the Alien Tort Statute to discourage them from doing so, they could. Too bad that didn’t bother President Washington enough for him to veto the statute.

Also repeatedly yesterday, Samuel Alito reiterated his own demand at the earlierargument to know what, pray tell, connection the events at issue in the case have with this country.  But a better question is, why is that any of the Supreme Court’s business?  As the Court’s conservatives—led obsessively in recent years by Kennedy and Thomas—repeatedly remind at the robotic urging of state attorneys general, the Constitution grants Congress, not the courts, the authority to determine what types of cases the lower federal courts have “subject-matter jurisdiction,” i.e., the legal authority, to hear.  
This congressional power is subject to the constraints of other parts of the Constitution—for example, the Fourteenth Amendment and the Supremacy Clause, which Kennedy, et al., forget (or pretend to forget) apply to limit state courts’ free rein lest those insignificant parts of the Constitution infringe upon the sovereign dignity (their words, not mine) of states, by which they mean the sovereign dignity of state courts.  But the Fourteenth Amendment was added to the Constitution by a new set of framers, not the vaunted ones of the late 1700s, so that part of the Constitution doesn’t matter very much to the state-courts’-rights-to-violate-the-constitutional-rights-of-individuals crowd.  Unless of course some state legislature has, say, infringed upon the equal protection rights of an upscale high school student in Texas who graduated just below the top 10% of her high school class.  Or some other state legislature has limited the rights of corporate people to buy state politicians. 
The defendant oil company in Kiobel v. Royal Dutch Petroleum doesn’t claim that the ATS would violate the Constitution if it is interpreted to allow lawsuits against them, by aliens, in federal court.  They just argue that the statute shouldn’t allow this, because, well, the events at issue have no connection with the United States and no other country has a similar law.  This appears to be good strategy, since, at least when state-court criminal defendants raise constitutional challenges in separate habeas corpus proceedings in federal court, the defendants almost always lose because the Supreme Court has interpreted a 1996 “jurisdictional” statute as effectively delegating to state courts the authority to violate the Constitution’s many guarantees in criminal cases.  This requires the federal courts to ignore not only the Fourteenth Amendment and the Supremacy Clause but also the provision in the Constitution’s provision that bars the suspension of the right of habeas corpus.

Kennedy’s incessant refrain in these cases is that, well, this is what Congress intended, and under the Constitution it is Congress that has the authority to enact federal-court-jurisdiction statutes.  But, setting aside whether the Supreme Court’s interpretation of that 1996 statute is even conceivably an accurate reflection of the intent of that Congress in enacting it, and the expectation of President Clinton in signing it—It was an election year, but still … really?—Kennedy & Co. never appear concerned with the many, many, many policy problems caused by, say, thedramatic difference between the right of a federal-court criminal defendant or prisoner, and the right of a state-court criminal defendant or prisoner to effectively assert constitutional rights.  That is, by the fact that the Supreme Court has interpreted that statute as effectively eliminating that right by state-court defendants or prisoners.   

Or, say, by the utterly unexplained privileging of state judicial branches, which now are virtually free to violate individuals’ constitutional rights, at least if those individuals are criminal defendants, and the other two branches of state governments: the legislative and the executive branches.  Professional courtesy is, well, courteous, but there really legitimate reason to make it a constitutional principle?

Tomorrow, the Court will hear a case in which that very issue will be addressed.  Seven years ago, almost to the day, in a unanimous opinion issued in a case called Dye v. Hofbauer, without full briefing and oral argument, the Court interpreted that 1996 statute, known as the Antiterrorism and Effective Death Penalty Act (AEDPA), as requiring the state appellate courts to actually acknowledge the existence of a federal constitutional issue raised by the criminal defendant in the appeal, and then to actually analyze and rule on that federal constitutional issue, if the state courts were to be entitled to the “deference” that AEDPA requires the federal courts to accord the state courts when the state court ruling is challenged in federal court as unconstitutional.  A “deference” that in recent years has morphed into abdication—into a blatant flipping of the Constitution’s Supremacy Clause.  The case to be heard tomorrow is Johnson v. Williams, and in it, the Court will decide whether to overrule Dye—explicitly or, more likely, in effect without saying that that’s what it is doing.

All in the name of the Constitution, y’know.  The very same Constitution that is about to allow the justices to rewrite a jurisdictional statute written by the Founders, so that it complies with the policy preferences of the current Supreme Court majority.

When I read the transcript of tomorrow’s argument in Johnson, I’ll be looking for inquiries by Kennedy and Alito about the many policy problems with AEDPA, especially as the flip-the-Supremacy-Clause interpretation of it has metastasized over the years.  I won’t be holding my breath waiting to read that in the transcript, though, because I don’t want to turn blue.

Dye, by the way, was the first opinion issued by the Court, in the early fall of 2005, after John Roberts was sworn in.  But that was then, and Kennedy hadn’t yet fully gained his sovereign-dignity-of-state-courts sea legs.  Nor had he yet managed to convince the sycophantic so-called liberals to quietly join him in this juggernaut.  All the better for them to go along to get along when it’s a case that—bet on it—will get no mainstream-media attention.  

It’s not like Johnson is a noisy culture-wars case, after all.  Not at all like it is. 

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UPDATED: Scotusblog’s Lyle Denniston posted an excellent pre-argument rundown on Johnson v. Williams this afternoon.

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The Devil’s Greatest Trick is Convincing You He Doesn’t Exist

 

Felix Salmon (26 Sep 2012):

[Secretary of the Treasury and former leaders of the FRB of New York Timmeh] Geithner just isn’t that Machiavellian: his biggest weakness is that he isn’t political enough, rather than that he’s some kind of master puppeteer.

Brad DeLong (24 Nov 2009):

Geithner is where he is because for thirty years everyone who has dealt with Tim…has found that when Tim is on your side, you tend to win.

If Niccolò himself had been as good at “the business of government” as Timmeh is, The Prince would never have been written.

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Unemployment Rates Across the Euro Area – Tough Times in Key Markets

by Rebecca Wilder

Unemployment Rates Across the Euro Area – Tough Times in Key Markets

Today Eurostat released its unemployment rate figures for the month of August. The Euro area unemployment rate held firm at 11.4% for the third consecutive month. Spain still has the highest unemployment rate in the euro area, 25.1%, and Greece is catching up quickly, 24.4% (in June, which is the latest data point).
The chart below illustrates the level of the unemployment rate and its month-month change for the euro area 12 countries.

The periphery are under performing the average, with Spain, Greece, Portugal, and Ireland leading the way. Internal devaluation, or driving up the unemployment rate to reduce relative prices with demand, is really taking its toll. Respectively, the unemployment rates in Spain, Greece, Portugal, and Ireland are 178.9 ppt, 234.2 ppt, 93.9 ppt, and 212.5 ppt above their pre-crisis minimums (loosely defined since January 2008) – a simple average of 179.9 ppt above the joint minimum for these four countries. The average euro area 17 unemployment rate is just 56.2 ppt above its 7.3% pre-crisis minimum. Hard days in the periphery, to be sure. Against this backdrop, weekend protests in Paris, Madrid, Lisbon, and Rome are not a surprise.
I further point out the troubling trend in the French labor market, as the new government presents its fresh austerity budget for 2013.

This budget is highly dependent on tax revenue and positive growth momentum, which is likely to disappoint amid such deterioration in domestic demand. See Ambrose Evans-Pritchard on the expected budget impact.

cross posted with The Wilder View…Economonitors

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Conservative roots of Obamacare

by Kenneth Thomas
 
Conservative roots of Obamacare

The pile-on continues. As I discussed in February, Stuart Butler of the Heritage Foundation wrote a breath-taking op-ed in USA Today (via Don Taylor) denying that he fathered the individual mandate. In fact, his revised 140-page research paper was published January 2, 1989, before President George HW Bush came into office, let alone President Clinton, whose proposals Butler says his research was directed against. Two conservatives, Avik Roy of Forbes and James Taranto of the Wall Street Journal, played strong roles in locking down the point that Butler was the first to propose the mandate.
 
Today, J.D. Kleinke of the American Enterprise Institute goes straight to that 1989 report in a New York Times opinion piece to once again lay the mandate at the feet of Heritage. And why not? According to him, the Affordable Care Act is a conservative’s dream.

The rationalization and extension of the current market is financed by the other linchpin of the law: the mandate that we all carry health insurance, an idea forged not by liberal social engineers at the Brookings Institution but by conservative economists at the Heritage Foundation. The individual mandate recognizes that millions of Americans who could buy health insurance choose not to, because it requires trading away today’s wants for tomorrow’s needs. The mandate is about personal responsibility — a hallmark of conservative thought.

Kleinke argues that Romney’s incoherence on health care stems precisely from rejecting his accomplishment in Massachusetts. Romney can’t offer anything better than the ACA because it is the only conservative way to overcome the problems of the health care market while remaining based on the market and individual responsibility. With no single payer and no public option, it is not surprising that, as he puts it, “the health insurance industry has been quietly supporting the plan all along.”
 
Aside from his odd notion that single payer represents a “government takeover of health care” (Canada’s Medicare is not the United Kingdom’s National Health Service), Kleinke’s column is on the money: historically, the mandate was developed by Heritage economists, the ACA more broadly relies on conservative rather than liberal principles, and many liberals have been unenthusiastic for just that reason.

Heck, I’m unenthusiastic (single payer!). But it’s a big improvement over the status quo that is already providing benefits to millions of people, whether for young adults, the millions of consumers getting rebates due to the medical loss ratio rule, or for seniors getting rid of the donut hole and gaining free preventive care.

crossposted with Middle Class Political Economist

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