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Big Business believes in taxpayer subsidies, not "free markets"

by Linda Beale

Big Business believes in taxpayer subsidies, not “free markets”

David Cay Johnston, former NY Times reporter and now Syracuse professor, writes about the thing that most journalists don’t bother to (or are told not to) write about–the way that Big Business successfully lobbies legislators and regulatory agencies to write the rules to favor Big Business, at the expense of ordinary Americans, all under the false claim that they are pushing de-regulation for the good of competition and ordinary consumers.  Johnston, Missing the Story, American Journalism Review (March 2013).

Johnston describes a number of ways that state legislatures, Congress and state and federal regulatory agencies have made life easy-street for Big Business at the cost of ordinary consumers.  He notes it is often discussed as “deregulation” but that “is a misnomer because, literally, no such thing exists in commerce….Everything in business is regulated in some fashion, and has been since long before the first nearly full set of laws we have….  [Thus, d]eregulation typically means reregulation under new rules that favor business interests.”  Id.

Businesses claim that the ‘deregulation’ they seek is just another step towards their ideal of “free markets” to help competitiveness.  Not so, Johnston replies.  The regulatory climate that results is almost always one that creates “moats” making competition much harder for small businesses and allowing duopolies or monopolies to arise that can set prices as high as they wish. And often the captured regulatory agencies allow the most absurd subsidies imaginable.

The Bush Treasury did that in spades.  One example is the changes the pro-business Treasury under Paulsen made in the regulations under section 368 governing corporate reorganizations, in which the Bush Treasury (many officials of whom are still part of the Obama Treasury) promulgated rules that provide, for the first time, the possibility of a loss recognition by shareholders in the nonrecognition reorg exchange.  Settled law at the time said no such loss could be recognized.  And the Bush Treasury also did it in setting up (through regulations) yet  another tax subsidy of Big Oil (as an add-on to an already ridiculous subsidy enacted by Congress when it allowed Big Oil to operate as limited partnerships).

Here’s how Johnston describes this.

The simple story is that Congress in 1986 exempted monopoly pipelines from the corporate income tax if they organized themselves as Master Limited partnerships. The George W. Bush administration then let these pipelines include the nonexistent tax in the rates they charge.

The cost of this fake tax is both tiny and huge.

The pipelines raise prices to cover the cost of the tax, which in turn means they have to raise prices even more to cover the taxes on the extra earnings, known as “grossing up.” A 42 percent tax on profits, grossed up, means a pipeline gets to earn its profit plus 75 percent for taxes. These higher costs are then built into prices people pay for gasoline and natural gas to heat homes. Paying this fake tax costs each American less than three cents per day, about $10 per year, I calculate. That is the tiny part. The huge part is that collecting just a penny a day from everyone in America adds up to $1.1 billion in a yearor $3.3 billion at three cents per day per American. Id.

 (emphasis added).

Note, folks.  That’s an unnecessary $3.3 billion subsidy provided to already-profitable businesses that comes entirely at the cost of ordinary Americans.  It is a subsidy put into law entirely through Big-Busienss-friendly tax administrators in ways that most Americans do not see it–or, if they see it, they believe it is a “real” tax cost of the businesses rather than just another theft subsidy.

This is another aspect of the problem of the way the media treats any discussion of “free markets.” The fundamentalist approach to free markets (that I have sometimes labeled “free marketarianism” or “friedmania”) claims to believe that deregulation helps people by increasing competition and opening up markets.  In fact, it is usually the opposite.  Deregulation helps Big Business by decreasing competition and allowing the development of powerful oligarchs and powerful monopolies or near-monopolies.  Brute capitalism, that is, allows those who hold capital to hold power, and those who hold power act against the interests of ordinary people in order to consolidate their power.  Another blog addressed this well:

A free market requires that everybody plays nice and follows the rules. Guess what. There’s always someone who will do whatever evil they think is required to make money. Once you realize that, you know there can be no such thing as the free market.


That’s one of the primary reasons that uncontrolled capitalism has been such a gross failure since the Reagan/Thatcher “revolution”, leaving us with record inequality and damaged democracy, and bringing the world economy to the brink of total collapse that simply evaporated trillions of dollars. Random Notes from the Exasperation File, Class War In America.

I have often noted that the media treat the daily ups and downs of the stock market as though it is an accurate reflection of the entire economy.  It is not.  When the stock market is up, it is likely that one or another segment of Big Business is doing well or exceptionally well.  That means the affluent–those in the top 30% who own most of the financial assets of this country, including Big Business’s CEOs and board members, are doing well.  So as the stock market has resurged after the 2007 financial crisis brought on by the excess of Big Financial Businesses, the wealthy who run and own those Big Businesses are doing mighty well indeed.

This is corporatism at its worst–the takeover of the economy and all of its institutions by a corporate mindset that favors the wealthy and the managers/owners of Big Business over ordinary people, leaving ordinary people’s views unheard.  It often is associated with class warfare, wherein the rich ensure that their money buys laws and regulations written by, for, and of the rich.  Corporations pay less in taxes and ordinary workers pay more–either in direct taxes or in the indirect tax of wage and benefit loss that is a tax subsidy for the wealthy.

Those at the bottom of the economic distribution are of course the ones most hurt by the decline and by the class warfare policies of the rich.  They are most likely still doing poorly or just barely getting by, mostly because those big profits at Big Business are taken at their expense–through constantly rising prices not reflected in increased quality or costs of production, or through increasingly unfair worker wages and benefits that have been cut in order to increase the rents to the owners/managers.  And usually with the assistance of legislators and regulators.

Take a friend of mine, who was laid off from an auto parts manufacturer for almost three years and has been struggling to make a full-time living at it since he was reinstated–at a much lower salary then before the crash (conveniently for the company but not so good for the workers).  He bought a new truck about a year before the financial crash.  The payments were supposed to be around 250 a month.  In the first months of the layoff he couldn’t find any substitute work, and he fell behind in payments on the truck (his family depends on him as the sole breadwinner; his family has almost no assets and no liquid assets; he depends on the truck to allow him to take odd jobs when his job at the factory is on hiatus–often landscaping, mowing, etc.).  The interest rate on the loan went up to 32% almost immediately.   That would once have been treated as illegal usury.

Not now, since “deregulation” has allowed financial firms to rip off their customers coming and going for their own profits.   Now his payments are around $400 a month and he owes as much on the truck as he did several years ago in spite of all the payments he has worked hard to make since then.  This Thursday he missed the payment again, after keeping up for most of the year.  He missed it because his company began selectively laying off workers for a week or 3 days at a time during the winter, and he didn’t work for about ten days of the month before the payment was due.  On Wednesday he talked to his adviser at the financial firm that gave him the loan.  It was a new “adviser”. They replaced a more understanding one with one who was considerably harsher.  The adviser told him on Wednesday that he would give him til Friday to make the next payment.  On Thursday, however, he sent a repo man who took the truck.  Friday my friend got a paycheck and could have made the payment (as he’d told the adviser on Wednesday).  Instead, when he went to make the payment thinking he could get the truck back that day, the financial firm advised him that he now had to pay off the truck in full–as well as a bunch of additional charges due to the repossession.

What would that be, he asked?  He assumed he owed about $3500, in his calculations the amount still due on the original loan.  Oh, no, the finance guy told him.  You will have to pay $4975 on Monday, and that amount will increase by $25 a day for every day you do not pay.  It’s that much because of all the late fees we added on the bill.  Oh, and we are charging you $400 for repo-ing the vehicle on Thursday (even though we had promised we would not do so)…..
Again, deregulation of financial institutions has made these rent-seeking add-on charges customary for anyone in the lower part of the income distribution.  Big Business sells it as competitive services for the underprivileged but it is really deregulated excess profits for the financial firms for acting like modern equivalents of plantation owners with a captive workforce unable to ever build up financial assets and always dependent on the firms’ calculations as to what they owe or are owed.

How is my friend (who happens to be an African American) supposed to ever advance beyond the near-serfdom in which he currently exists?   Lucky for him, we are willing to offer him a personal loan at market-rate interest so that he can finally pay off his overseer and begin to dig himself out of the hole that our deregulated, GOP-ideology-driven state puts most Detroit low-income residents in.   Mass transit hardly operating and not permitted to expand as it should to permit low-income residents to commute easily to work in the region.  White suburbs that cannot be annexed into the city, so continue their oblivious lives exploiting Detroit’s assets while pitying the poor black residents that just can’t seem to do anything right.  Businesses that charge white folks in the suburbs less than black folks in the city.  Insurance companies that rip off their Detroit clients.  And on and on.

This is all happening in a world where white folks with money set all the rules and now, in Michigan, have made it very hard for any union to form and exert some worker-power on behalf of the employees. Michigan’s new, so-called “right-to-work” law that the religiously right-wing Republican party of Michigan passed with no input at all from the people and with misinformation galore–all of the newspaper coverage talked about workers being “forced” to join a union unless you have “right-to-work” and how “right-to-work” would free them not to have to pay for the union and encourage more economic growth and more jobs.  None of the newspaper articles or the legislators reported the fact that right-to-work states tend to have lower wages for their workers, less good jobs, and poorer economies.  Of course, the information was wrong to start with–no one was forced to join a union without right-to-work laws–they were merely required to pay some amount (less than union dues) for the services that the union provides.  Now, they can demand the same services and pay nothing.  No Republican business would provide services on that basis, but Republican legislators serving their oligarchic base ensure that no true freedom exists for anybody without money.

Michigan, of course, has also just taken over the City of Detroit, with Gov. Snyder’s appointment of an emergency manager.  This is as undemocratic as it gets, given the state vote rejecting the last EM law and the fact that the EM will have dictatorial power to ignore the Mayor, the City Council and all other elected officials.  Snyder is a right-wing tool, in office backed by a majority-GOP legislature that reflects the racism of most of the “upstate” part of Michigan and blames Detroit’s problems on its predominately black residents.  The legislature passed right-to-work to retaliate against unions for trying to get protection for workers’ rights in the constitution.  Apparently, the GOP thinks the constitution should only protect the wealthy, as it does by prescribing a flat tax, ensuring that the wealthy in Michigan get to choose what they support but are hardly taxed at all by the State. The rabid right in this state forget that what condemned Detroit was the “white flight” to the suburbs and Michigan’s foolish state constitution which does not allow Detroit to take the suburbs into the city.  So Royal Oak’s mayor a few years ago could refuse to fund metropolitan buses because he didn’t want Detroit’s black population able to cross the border into Royal Oak and pollute the city by taking jobs there.  And the wealthy residents of the 90% white suburbs of 80% black Detroit come into the city for its amenities–opera, plays, sports, museums–and its work, but take their pay out of the city to maintain their schools and shops and amenities while complaining about how awful Detroit is.  We Detroit residents are very worried that the GOP’s takeover of the Democratically elected city government will result in the rape of the city’s assets–Belle Isle is a jewel in Detroit’s crown that the state covets; Detroit’s water system is another asset that the state–and the white suburbs–covet and want to control.  The EM will be pressured by Snyder and the rest of the upstate Detroit haters to take over those assets and make Detroit pay for being a center of unionism and Democratic voters.

The Michigan passage of the so-called “right-to-work” law and the renewal of the emergency manager law AFTER it was defeated by the people in November are perfect illustrations of the contempt that the current Republican party shows for ordinary people when it is in power in a state.  And it also illustrates well the capture of legislators and agencies by oligarchs, monopolies and duopolies.  This is, as Johnston notes, a sad state of affairs that will only get worse unless the press reinvigorates itself to inform rather than kiss Big Business’s ass.

cross posted with ataxingmatter

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The Freedom to Diminish Other Peoples’ Freedom

by Mike Kimel

The Freedom to Diminish Other Peoples’ Freedom

You’ve probably heard about this study by the Mercatus Institute looking at Freedom in the 50 States.

I always find these measures look at the wrong things, and that’s usually because they pick one side of an equation and ignore the rest. See, I support my neighbor’s right to play loud music at 3 in the morning, fire a gun in his front yard, and generate toxic waste and polluting to his heart’s content. However, I object to my neighbor violating my property rights by placing anything, anything at all on my property, be it music, high velocity projectiles, or any contaminants of the air, water, or soil. The problem is that in general, people who play loud music at 3 in the morning choose to do it in a way that leads to unwanted sounds being expressed on other peoples’ property. Those who choose to enjoy their rights to send toxic emissions up a smokestack on their own property usually aren’t doing it because they value the ability to send toxic emissions up a smokestack, but rather because they know that by doing so they will push those toxic emissions into the air over the property of their neighbors… and people tens or even hundreds of miles away. We know that precisely because there are ways to send toxic emissions up a smokestack without exporting those emissions onto other people, but despite the huge number of smokestacks, we never see those being done in practice.

This Mercatus study, like so much else that comes from that institution, seems to be promoting a specific kind of freedom, namely the freedom of some parties to diminish other people’s freedom and the ability of one group of people to make decisions about what goes onto someone else’s property. And this, to me, is not really a measure freedom, but rather a measure of the right to oppress. So as a result, I am going to exercise one of my remaining freedoms (and I hope you do the same) to treat this latest Mercatus study the way way I think of almost everything else coming from Mercatus, namely as an assorted collection of random buffoonery. If they ever extend their concept of freedom and liberty to considering the rights of people not to have sights or sounds or bullets or pollutants placed on their property without their say-so, I might reconsider.

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Can you imagine Pakistan as…?

Just listen to this and while you do, knowing this was recorded in a studio in Pakistan, by Pakistani’s try to jive that with “they hate us because…” and all that comment suggests.    Dave Brubeck’s Take Five

Here is the video about the orchestra. They actually work with Abbey Road Studio. 1500 concerts, 17 albums from the Pakistan studio.  They talk about the great jazz artist traveling the world “to physically promote American culture”.  

Being that jazz, the true American art form,  is part of their culture, are we not bombing a part of our self?  Is such a performance not a testament to the benefit of cultural exchange via the arts to ours and the worlds economy?   Now, think of Bush and Cheney and try to jive the image with this performance.  Even jazz couldn’t do it.

I put this one in my favorites folder at youtube.  Hat tip on this performance to Real Economics.

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Let’s put a sales tax on Wall Street

I learned of a petition at the presidents site, that one where anyone can start a petition and have it addressed if you reach 100,000 signatures. We the People it’s called. The petition is sponsored by United Front Against Austerity which also goes by the name Against  I know nothing about this organization, though I have looked. Thus, I’m remaining without opinion. But, I do like this one idea of theirs and the idea needs push.
The petition is to have a sales tax placed on Wall Street’s transactions. I think this is a grand idea. After all, Wall Street and the banks have always referred to their stuff as “products”. Finance accounts for over 8% of our GDP, over 30% of corporate profits. But, mostly financial transactions are so numerous that the total dollar value makes our GDP look puny. Our GDP represents 1.9% of the total of the financial sales.  Of course, not all items would be taxable. It’ like food. We don’t tax that.
Many would call this a transaction tax but, this is the wrong terminology. Wall Street has made it’s self into a producer within our economy. To paraphrase the infamous words of Larry the Liquidator, they “make you money”. Odd as it is, money is what they sell to the consumer. They’re a regular “retail” establishment. At least that’s how they view themselves. So, we should welcome them to such a status by making them collect and submit biweekly sales tax.  
Sales tax is one of the major methods by which we raise revenue. Everyone knows about sales taxes. It’s the tax that is not mentioned when the conservative bitches about those people who don’t pay taxes. Well, here’s an entire group who truly does not pay the tax every other person pays when they buy something. 
President Obama should love this tax.  He and (too many) other Democrates seem to want a balanced approach with his deficit reduction plan.  A 2 to 1 tax to revenue is often mentioned.  Well, considering sales taxes take up 5 to 7% of the lowest 60% of our population’s income (the bottom 20% pay 7%) and the top 1% pays about 0.5%, it seems to me the concept of balancing needs to look here. 
The total sales are estimated to be $5 qaudrillion per year. That’s some gross revenue there. That means some major coin in sales tax. 

According to UFAA: 
The Wall Street sales tax is very much in the mainstream. HR-6411, introduced by Congressman Keith Ellison (MN), is gaining support in the US Congress and Vermont Senator Bernie Sanders has pledged to introduce such a bill in the US Senate.
Dean Baker wrote about a sales tax in February.
So, please go over to the presidents site and sign the petition. It’s only good until April 10th. The petition needs another 90,000 signatures. Let’s make Obama address this. Spread the word.

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Bank equity but no cash?

Ellen Brown from Web of Debt imagines a scenario close at hand. How accurate is it?

Can They Do That?

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.”  The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.”  It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

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Sunday afternoon reading…blast from the past

I saw this as a proposal for cutting gasoline consumption:

One of the easiest and most benign ways to cut energy waste and reduce the nation’s emissions of greenhouse gases is very simple, relatively painless and would actually save consumers money immediately, with no upfront costs – restore a lower national freeway speed limit of 55 mph. It requires no technological innovation, merely a societal acceptance of the imperative to start reducing greenhouse gas emissions.

(I just noticed this posted today and is over the rss feed, so will leave it up).

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The IMF and the Return of Structural Conditionality in Europe

The IMF has increased in importance over the last few years, especially in Europe.  Prof. Joyce writes on the background of its evolution.

by Joseph P. Joyce  is a Professor of Economics at Wellesley College and the Faculty Director of the Madeleine Korbel Albright Institute for Global Affairs.

The IMF and the Return of Structural Conditionality in Europe
(March 2012)

In 2002, the IMF promised to reduce the use of structural policies in the policy conditions attached to its lending programs. Recently, however, the IMF has incorporated structural measures into the programs for some of its European borrowers. The shift in emphasis is based on the IMF’s judgment of the need to promote growth in these economies. The IMF’s evaluation of the appropriate policies reveals a split with the other members of the governing “troika,” the European Commission (EC) and the European Central Bank (ECB), which have emphasized short-term fiscal austerity. The difference in views over what needs to be done to achieve sustainable debt positions may hinder the recovery of these countries.

Structural conditions were introduced in the 1980s to improve the allocation of resources through the use of market mechanisms in order to raise economic growth rates. Among the measures included in the IMF’s lending programs were the deregulation of private markets, the privatization of state-owned enterprises, and the reform of the civil service and labor markets. The IMF reported in 2001 that by the mid-1990s, nearly all of its lending arrangements contained some structural conditions, and that the number of such conditions per program had risen.

The use of structural conditionality, however, was sharply criticized, and was viewed as particularly inappropriate for countries that faced financial crises that reflected the “sudden stop” of short-term capital flows. The experiences of China and other Asian countries were cited as evidence that there were alternative paths to growth. After the pledged to rely on the principle of parsimony by focusing on the core areas of its expertise, i.e., monetary, fiscal and exchange rate policies and issues related to the financial sector, and reducing the number of conditions. 

The IMF conducted a review of its compliance with the new guidelines in 2005. Its report found that the scope of structural conditionality had been narrowed, but there had been no reduction in the number of conditions. Similarly, the IMF’s own Independent Evaluation Office (IEO) undertook a review of structural conditionality in 2007. This report also observed that the Fund had limited the focus of its conditionality, but that there had been little change in the number of conditions. In 2009 the IMF eliminated structural performance criteria as a tool of assessing compliance with a program’s conditions, although structural reforms can be included in an overall review of program performance.
The IMF recently concluded its latest evaluation of its conditionality (IMF 2012a, IMF 2012b). The Fund’s review claims that its use of conditionality became more parsimonious during the period under review, 2002 through September 2011. The number of conditions attached to the Fund’s program fell, while the focus was confined to the core areas of the IMF’s responsibility. But the report also acknowledged that the number of conditions rose in programs undertaken at the end of the period, including the programs in Europe.

A close examination of the IMF’s programs for Greece and Portugal demonstrates how structural measures have been incorporated into their programs. Greece received a three-year Stand-By Arrangement for SDR 26.4 billion (about €30 billion or $40 billion) in 2010, but that program was replaced in 2012 by a four-year Extended Fund Facility Arrangement for SDR 23.8 billion (€28 billion or $36.7 billion) after many of the original plan’s targets were missed. At the end of last year there was an IMF review of the progress to date under the new Greek program.

This review noted that Greece’s fiscal and external imbalances are improving, but its substantial economic contraction has continued. The IMF found that the structural transformation of economy is proceeding at a slow place outside of the labor market, “…and this is making Greece’s adjustment more costly.” There was agreement with the Greek authorities that “…structural reforms to date had been uneven at best, and that a reinvigoration of the reform agenda would be critical to boost potential growth.”

The review cited a lack of movement in deregulating product markets by removing barriers to entry. The privatization of state-owned assets was another area of major concern, since the targets that had been set “…have been missed by a wide margin”, in part because of political resistance. The IMF acknowledged that the reform of Greek labor markets had been initiated, but called for further measures, such as the implementation of a new minimum wage system. The liberalization of entry to regulated professions also needed to be advanced.

Structural policies are also a part of the lending program extended to Portugal, which borrowed SDR 23.74 (€26 billion or $39 billion) through a three-year Extended Fund Facility in May 2011. A recent IMF review of Portugal’s record in the program found that structural reforms have been advanced, and gave these efforts some of the credit for the decline in Portuguese government bond yields. The government has moved to tackle excessive regulatory procedures, and adapt wage bargaining to allow differences in wages across sectors. A number of judicial reforms are also underway. But the IMF’s staff worried that “…it remains unclear whether reforms to date are sufficient to address the large external competitiveness gap or will engender an adequately strong supply response to avoid a prolonged demand-driven slump.”

Greece and Portugal are not the only European countries to have borrowed from the IMF in recent years. In 2008-09, the IMF lent to Hungary, Latvia, Romania and Serbia. These loans were extended to mitigate the impact of the global financial shock that had begun in the U.S. The borrowers did not require extensive conditionality, although there were measures to strengthen their financial sectors, particularly in the case of Iceland. Ireland accepted SDR 19.5 billion (€22.5 billion or $30.1 billion) from the IMF in the form of a three-year Extended Fund Facility in 2010. Its need for assistance was attributed to the excessive bank lending that took place preceding the global crisis rather than any structural economic shortcomings. Cyprus will also require extensive financial restructuring.

The IMF’s programs to Greece and Portugal are part of larger programs that included loans from the other European governments, which are monitored by the EC. In the past, the IMF focused on macroeconomic policies while the EC dealt with structural reforms. But, the IMF admits in its overview of conditionality,

“Over time, both the Fund and the EC have increasingly ventured into areas of structural reforms initially devoted to the other institution. EC-supported measures have been more and more focused on fiscal issues, while the Fund introduced “competitiveness” conditionality in the Portugal and Greece programs.”

The IMF has taken a different perspective of what steps need to be taken in Europe than have the EC and the ECB, a divergence that began during the global financial crisis.  In the cases of Greece and Portugal, the IMF supports fiscal adjustment while seeking to reverse their economic contractions with structural measures. But the EC has insisted on short-term austerity that could actually worsen their debt positions. 

The different time frames and policy assessments of the IMF and the Europeans are exacerbating the situation of these countries. Political opposition to the fiscal cutbacks slows adoption of structural measures and hinders the growth that the IMF seeks to promote. Moreover, the split between the members of the “troika” does not bode well for future joint programs, even as the case of Cyprus demonstrates that there will be continued need for institutional collaboration.

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EU proposes tighter rules on investment incentives

The European Commission’s Directorate-General for Competition is the EU equivalent of the U.S. Department of Justice Anti-trust Division plus units for controlling domestic subsidies to industry. According to a new policy briefing from the European Policies Research Centre at the University of Strathclyde, DG-Competition has released a draft of new regulations on “regional aid” (subsidies to firms in poorer regions of the EU) that, among other things, includes tighter rules on investment incentives.

EU rules on subsidies to business have long fascinated me because they present a stark contrast to the totally unregulated bidding wars for investment we see here in the United States. As I have shown, EU Member States have been able to obtain investments with far lower subsidies than U.S. states have, even for the same company! A big part of this is due to the rules on regional aid, which specify the maximum subsidy each region can give to a business, and reduce that maximum for investments over € 50 million. The proposed rules for 2014-2020 go further than ever before.

The big change is that large firms would only be eligible for regional aid in areas with gross domestic product per capita below 75% of the EU average, that is, only in the poorest areas of the European Union (plus so-called “outermost regions” like French Guyana). Currently, countries are allowed to give subsidies in regions that are only poor relative to national standards, and every Member State has areas that qualify to give investment incentives to large firms.

This would be a gigantic change, as many whole countries would no longer be able to give investment incentives to large firms. These countries are:

France (except for outermost regions)

 These countries would still be able to give regionally based investment subsidies to small and medium sized enterprises, which are defined as companies with fewer than 250 employees and either sales of less than or equal to € 50 million annually or a balance sheet of less than or equal to € 43 million.

If we did this in the United States, it would be the equivalent of saying that every part of the country with at least 75% of average per capita income would be barred from giving investment incentives, which of course would mean the poorest areas could give less than they do currently. This is obviously a political non-starter; we have to focus now on transparency and ending subsidized job piracy. But it’s interesting to look ahead sometimes and see what kind of controls on subsidies are technically feasible.

Thanks to Fiona Wishlade, director of the European Policies Research Centre,  for sending this report to me.

Cross-posted from Middle Class Political Economist.

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Heightened Scrutiny of John Roberts: He Says He Will Vote to Uphold the University of Texas Affirmative Action Admissions Policy Because White Applicants Have Political Power. Seriously.

WASHINGTON — As the justices of the Supreme Court struggled with the question of same-sex marriage this week, politicians in Congress kept handing down their own verdict. One after another, a series of lawmakers in recent days endorsed allowing gay men and lesbians to wed.

But momentum in the political world for gay rights could actually limit momentum in the legal world. While the court may throw out a federal law defining marriage as the union of a man and a woman, the justices signaled over two days of arguments that they might not feel compelled to intervene further, since the democratic process seems to be playing out on its own, state by state, elected official by elected official.

The prospect that gay rights advocates may become a victim of their own political success was underscored during arguments on Wednesday over the constitutionality of the Defense of Marriage Act. Opponents of the law were left to make the paradoxical argument that the nation has come to accept that gay men and lesbians deserve the same right to marriage as heterosexuals while maintaining that they are a politically oppressed class deserving the protection of the courts.

Chief Justice John G. Roberts Jr. pressed that point with the lawyer for the plaintiff, a New York woman suing to recover federal estate taxes she would not have had to pay had her spouse been a man.

“You don’t doubt that the lobby supporting the enactment of same-sex marriage laws in different states is politically powerful, do you?” he asked the lawyer.

For purposes of the law, said the lawyer, Roberta Kaplan, “I would, your honor.”

“Really?” the chief justice asked skeptically. “As far as I can tell, political figures are falling over themselves to endorse your side of the case.”

Success on Political Front Can Be Setback in Gay Rights, Peter Baker, New York Times, yesterday

The movement-conservative legal crowd that began to gain a stranglehold on the federal court system the early 1980s, and that is now represented by four, and in deeply important respects five, Supreme Court justices, has thoroughly transformed the law and court system.  It has done so mostly under the public’s radar screen and so has had a nearly unfettered free ride.  But now, little by little–albeit by too little–the free ride is becoming slightly less unfettered, as the Supreme Court, if not the lower federal courts, is garnering meaningful and detailed attention in some important respects.  

Call it heightened scrutiny.  Or maybe even strict scrutiny.  In any event, at least with respect to culture-wars cases at the Supreme Court, it no longer is rational-basis scrutiny.  All of these are terms that, although unfamiliar to non-lawyers, are quite familiar to John Roberts. And they explain, as I will below, the purpose of that above-quoted colloquy.  

There is now some cost in public opinion, not only to the overt jaw-dropping statements made by Antonin Scalia but also to the slightly more subtle (yet equally stunning to those who know the code) declarations by our Supreme Court’s chief justice during oral arguments.  Statements jolting enough to garner publicity and therefore to provide public insight into the true, hell-bent goals of this movement.  

Scalia and Roberts are the Paul Ryan of the federal judicial branch.  They and their compadres have a roadmap, and Roberts has now joined Scalia in openly revealing its intended final destination.  Except that this duo is remarkably careless in presuming that they can control that final destination.  They can’t.

Here’s what Roberts was getting at: Under the Supreme Court’s longstanding equal protection jurisprudence, there are three levels of equal-protection “scrutiny” that courts must accord laws, government policies or government officials’ actions that discriminate against particular groups or individuals, or that favor one or another group.  The highest level of scrutiny is–or, more accurately, originally was–reserved for “invidious” groups, such as racial, ethnic, or religious minorities, that suffered broad societal discrimination. Laws or government policies or actions that discriminated against these groups would be subject to “strict” constitutional scrutiny, which means that they would pass constitutional muster only if there was a “compelling governmental interest” that the law or policy furthered.  That standard is almost impossible to meet, so most such laws or policies were stricken as unconstitutionally discriminatory.  

Strict scrutiny also is the level of constitutional scrutiny applied to laws that infringe upon what are considered “fundamental” rights–rights that are stated expressly and specifically in the Constitution, and rights that the Supreme Court has recognized under a doctrine derived from the Fifth and Fourteenth amendments, called “substantive due process.”

An intermediate level of scrutiny–”heightened” scrutiny–applies to government discrimination (denials of equal protection of the laws) for less invidious groups that nonetheless do suffer societal discrimination.  Age discrimination, for example.  And gender discrimination.

Government discrimination that does not fall into one of those two categories is accorded, and permitted, very little scrutiny.  Specifically, any stated “rational basis” for the law or policy will suffice as sufficiently constitutional.  

An early justification by the Supreme Court for categorizing a group as protected from discriminatory laws or government policies or actions under strict, or even heightened, constitutional scrutiny was that –you guessed it–the group lacked political power and therefore could not fend off discriminatory legislation or policies through the political system.  Thus, the Roberts comments above.

But, mainly thanks to the efforts of the movement-conservative legal crowd of which John Roberts has always been a charter member, the importance of a group’s political power–or lack thereof–is most certainly no longer a consideration in applying strict or heightened scrutiny to discriminatory government actions.  Unless, of course, white high school seniors or white government-contractor applicants have no political power because, well, they’re white.  Or unless Christian evangelicals and Catholics have no political power because they are Christian evangelical or Catholic.  Or because they are religious.

And, yes, a favorite genre of the current movement-conservative law folks during the last three decades has been the novel use of equal protection law as a means to circumvent the First Amendment’s Establishment clause–the clause in the Constitution that bars the government from favoring one religion over others, or from favoring religion in general.  The First Amendment’s Free Exercise clause wasn’t sufficient, because, well, there really isn’t a First Amendment right to commandeer the government in the service of your own practice of religion.  But if the government is going to allow non-religious groups to do something in particular, it must allow religious groups to do the same, as long as doing the same doesn’t force others to participate in, or be present at, your religious exercise, courtesy of the government.  Even if the government has a rational basis for not allowing it.  

So John Roberts wants to reinstate the lack-of-political-clout requirement for any level of equal protection scrutiny other than the rubber-stamp rational-basis level of equal protection scrutiny.  But only for the purpose of denying same-sex couples federal spousal benefits such as estate tax exemptions and Social Security survivors’ benefits.  And for the purpose of allowing states to prohibit same-sex marriage.  But rest assured that Abigail Fisher, the unsuccessful University of Texas applicant who is white and hails from an upscale Houston suburb, and who probably was not asked to show a birth certificate when she registered to vote at the age of 18, will not lose her case because political figures are falling over themselves to endorse her side of the case, and have been, for decades longer than political figures have been falling over themselves to endorse the same-sex-marriage plaintiffs’ side of their case.  That is, for decades before, say, a month or two ago.

It’s John Roberts’ bad luck that the affirmative action case will be decided within weeks, or perhaps just days, of the same-sex-marriage cases.  I do think there’s another name, though, for Roberts’ luck, if not for Roberts himself: poetic justice.

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