Relevant and even prescient commentary on news, politics and the economy.

The OTHER big ACA case being argued today (albeit not at the Supreme Court) concerns the statute’s alleged Disestablishment Clause

Obamacare faces two separate court challenges on Tuesday, but only one could deliver a major knockout blow to the law.

The case getting the most attention is tomorrow’s Supreme Court challenge to the health care law’s requirement for employers to provide birth control to their workers. At the same time Tuesday morning, the District of Columbia’s Circuit Court of Appeals will consider whether Obamacare allows premium subsidies to flow through federal-run health insurance exchanges. That case has been called “the greatest existential threat” to the survival of the health care law by one of Obamacare’s staunchest supporters.

The contraception case is big, but another challenge could really hurt Obamacare, Jason Millman, Wonkblog, Washington Post, yesterday

Ah. And to think that so many people think the big Obamacare cases to be argued in a federal court today are the contraceptive-mandate ones.  But not regular AB readers! That’s because y’all read this post of mine and then this one.  And you remember those posts!

But to refresh your memories about the details, I’ll quote Millman further:

The law’s opponents argue that Congress never authorized subsidies in federal-run exchanges, and they claim this was done on purpose. They say Congress wanted to incentivize states to run their own exchanges, an option that only 14 states and the District of Columbia chose in 2014.

The law’s supporters argue that the law doesn’t differentiate between federal-run and state-run exchanges, so people should be able to receive subsidies no matter who’s administering the insurance marketplaces. Further, they say the broad purpose of the law is to expand access to affordable insurance regardless of who runs the exchange.

There are four pending cases in federal court challenging the subsidies. In Tuesday’s case, Halbig v. Sebelius, a lower federal court in January upheld the IRS rule allowing subsidies in federal-run exchanges.

“The Court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges,” District Court Judge Paul Friedman wrote in his decision.

Well, of course, Judge Friedman found that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges. Sure, he’s a Reagan appointee, but I published the first of my two posts deconstructing The Antidisestablishmentarianism Theory of Obamacare Illegality seven weeks before he issued his opinion agreeing that the ACA does not in fact have a disestablishment clause.  And since he’s undoubtedly an avid AB reader, he didn’t even have to read the government’s brief deconstructing the disestablishment-clause theory.  Well, maybe he did anyway, but he already knew that that clause in the ACA did not really disestablish the statute’s federal tax credits in 36 states.

So he wrote:

Looking only at the language of 26 U.S.C. § 36B(b)-(c), isolated from the cross-referenced text of 42 U.S.C. § 18031, 42 U.S.C. § 18041, and 42 U.S.C. § 300gg-91(d)(21), the plaintiffs’ argument may seem the more intuitive one. Why would Congress have inserted the phrase “established by the State under [42 U.S.C. § 18031]” if it intended to refer to Exchanges created by a state or by HHS? But defendants provide a plausible and persuasive answer: Because the ACA takes a state-established Exchange as a given and directs the Secretary of HHS to establish such Exchange and bring it into operation if the state does not do so. See 42 U.S.C. §§ 18031(b)-(d), 18041(c). In other words, even where a state does not actually establish an Exchange, the federal government can create “an Exchange established by the State under [42 U.S.C. § 18031]” on behalf of that state.  [Italics in original.]

Friedman’s opinion, which gets into the “Chevron deference” doctrine–don’t ask; I might tell you–illustrates just how hypocritical it would be for the Supreme Court’s conservative majority to buy these plaintiffs’ argument once this case (or one of the other three being litigated in other regional federal courts) arrives there.

Which is not to say that that is necessarily a determining impediment to their doing so; we all know better by now than to think that it.  But I do think there is a point at which this type of thing becomes so clear that it penetrates the awareness of enough people to be of fairly widespread concern.  And although the justices themselves as yet seem unconcerned, there may come a time, fairly soon, when they conclude that that unconcern is untenable as a matter of social acceptance.  Then again, I’m not sure they will care.


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What to look for in tomorrow’s Supreme Court arguments in the Hobby Lobby/Conestoga Wood ACA-contraception-coverage cases

[The] conception of corporate personhood has profound and beneficial economic consequences. It means that the obligations the law imposes on the corporation, such as liability for harms caused by the firm’s operations, are not generally extended to the shareholders. Limited liability protects the owners’ personal assets, which ordinarily can’t be taken to pay the debts of the corporation. This creates incentives for investment, promotes entrepreneurial activity, and encourages corporate managers to take the risks necessary for growth and innovation. That’s why the Supreme Court, in business cases, has held that “incorporation’s basic purpose is to create a legally distinct entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs.”

In recent constitutional law cases, however, the justices seem to have forgotten this basic principle of corporate law. In Citizens United, the court effectively held that corporations enjoyed the same free speech rights as ordinary individuals. Contrary to popular belief, however, the court did not base that holding on the idea that corporations are people. Instead, the justices said that corporations are “associations of citizens”—and those citizens who make up the corporation have constitutional rights.

Yes, Corporations Are People. And that’s why Hobby Lobby should lose at the Supreme Court., Adam Winkler, Slate, Mar. 17

Among the inundation of articles about Sebelius v. Hobby Lobby Stores, Inc.  and Conestoga Wood Specialties Corp. v. Sebelius in the months since the Supreme Court agreed to hear these cases–one, Hobby Lobby, in which the corporation won in the lower appellate court, the other, Conestoga Wood, in which the corporation lost–there are very among the ones I’ve read that make what I think is the critical point about these cases: the critical interplay between the Citizens United opinion and these two cases, and the reason why. It’s a point I made (or tried to) in a post on AB last fall, but Winkler is a constitutional law prof. at UCLA and, according to his mini-bio at the end of his slate article, he’s writing a book about the constitutional rights of corporations, so I was happy to read the paragraphs I quote above in an article published on a mainstream-media website.

For all the jokes about corporations attending church or being bar mitzvahed–yes, I plead guilty, but writing that post was so much fun!–the fact is that the corporations in those cases claim not that they are people but instead that they derive their First Amendment right to the free exercise of religion not from the state’s grant of corporate status but rather from the constitutional rights of its shareholders.  This argument–that corporations’ constitutional rights are derivative of their shareholders’ constitutional rights and therefore are not limited to, say, protecting the property that the corporation itself owns or to the ability to enter into business contracts on behalf of itself–comes courtesy of Citizens United, pure and simple.  Hobby Lobby and Conestoga Wood, unlike Citizens United, are for-profit corporations.  They both also are closely held, rather than publicly traded, corporations, and in both cases, the shareholders (members of a single family, in each case) are parties to the lawsuit along with the corporations themselves.

Mitt Romney’s ill-fated pronouncement that corporations are people, my friend, was funny, but it actually was an inarticulate adoption of Citizens United’s actual declaration: that corporations are “associations of citizens” whose members, as human individuals, have the familiar panoply of constitutional rights. One obvious problem with this derivative-constitutional-rights thing, though–albeit a problem that the Citizens United majority didn’t acknowledge–is that the individual shareholders of at least publicly-traded corporations don’t all hold the same political views.  Some shareholders are shareholders by virtue of participation in  large mutual funds, and others by dint of ownership in pension funds.  Some of them even in public-union pension funds!

Then again, at a recent oral argument at the Court in a case that, although it’s not an ACA  or religion case, I believe has implications for these two cases, Samuel Alito suggested that public unions are unconstitutional as a violation of … something. (Of his political views, I think.) If he prevails on this when that case, Harris v. Quinn, is decided, that would eliminate the problem of Democrats who are contributors to public union pension funds having Republican CEOs of mega-corporations serve as proxies to derivatively exercise the pension-fund contributor’s First Amendment speech rights. But the fact will remain that Democrats–who, contrary to Fox News reports, are people, my friend–have been known to own stock in large corporations, directly or through mutual funds or pension funds or some such.*

A seminal part of Citizens United, in other words, is its conflation of the CEO’s constitutional rights with those of the corporation’s–er, association’s–other citizens. The corporation itself may not be a person, my friend, but it derives its First Amendment rights from one (only one) of its citizen members.  Or, at least, only that one member serves as proxy on the derivative rights. (If the CEO is not a citizen, he or she can still serve as proxy for human members who are.) But what the plaintiffs are arguing in Hobby Lobby and Conestoga Wood is that these corporations derive their constitutional rights from all of these associations’ members: the family members who comprise the entire membership of this association of people.

The title of the Winkler article says that corporations are people.  By which he means, they are indeed associations of citizens.  Associations of citizens (and, probably, non-citizens) that, for purposes of healthcare insurance coverage, include the corporation’s employees. What Citizens United means in saying that corporations are associations of citizens is that the shareholders comprise an association of citizens whose proxy, for constitutional-rights purposes, is (apparently) its CEO.  But Citizens United did not address whether this association of citizens is necessarily limited to shareholders.  If corporations have constitutional rights derived from its individual members because they are associations of citizens, and if the association of citizens includes, by definition, employees as well as shareholders (no green-card holders or foreign shareholders allowed!)–and under Citizens United, there is no reason why it shouldn’t–then the act of incorporation itself confers derivatively to the corporation the constitutional rights of its employees.  Who have the constitutional right to have the same benefits of the ACA as similarly situated employees of other corporations.

Okay, my eve-of-oral-argument hunch is that the court will back away somewhat from its Citizens United claim that corporate CEOs can, in the name of the corporation, access the constitutional rights of citizen-association members.  The Court will find some way to segregate speech rights from other constitutional rights, and will rule against the plaintiffs in these two cases.  That’s because, well, apparently a slew of other associations of citizens–e.g., the business community at large–are making it known, including in amicus briefs to the court, that they’re downright scared to death of this end-to-the-corporate-veil/corporations-are-groups-of-citizens (who can be held individually responsible for their for-profit association’s liabilities) thing.

Or maybe they’re just scared to death at the thought of ExxonMobil or Amazon marauding through their towns bearing AK-47s in exercise of their derivative Second Amendment rights. It could be time for some for-profit associations of citizens to pray.


*Paragraph edited after publication to correct a cut-and-paste error and to add the name of the referenced Supreme Court case, Harris v. Quinn.

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Down with r!… Up with the Fed rate!… yells a protestor

Thomas Piketty’s Capital in the 21st Century shows us where society is going. Paul Krugman summarizes this future using Piketty’s term, Patrimonial Capitalism, where inherited wealth gains economic power and where hard work returns less money than inheritance.

The basic equation underlying patrimonial capitalism is… r – g.

r is the investment return to capital. g is economic growth. As David Cay Johnston points out…

“When investment returns exceed economic growth, the rich get richer, increasing inequality.”

“When an economy grows at 1 percent annually but investment returns are 5 percent, the already wealthy need to reinvest only a fifth of their gains for their fortunes to grow at the same rate as the overall economy. The rest can be spent on a sumptuous lifestyle.”

So any protestor from the middle and lower incomes should be yelling… Down with r!

As a society we should be fighting against this push into patrimonial capitalism by the rich. We should be calling for policy to reduce the returns to capital investment. We should be raising taxes on the wealthy. And we should be raising the cost of capital funds, which would mean a higher Fed funds rate.

Yet the Fed plans to keep the Fed rate low for a long time. Even when the Fed rate should be 4% at full employment, it seems as though the Fed projects a 2% Fed rate. Thus the Fed will keep the cost of capital funding artificially low for God knows how long. The middle and lower incomes in the US, Europe and elsewhere are doomed.

The more the Fed rate stays artificially low, the more patrimonial capitalism will grow. We are doomed.

And the worst thing is that economists like Paul Krugman are pushing to keep the Fed rate low. It is the greatest twist of economic logic into economic illogic. Progressive economists lack a vision of what their proposed policies are actually doing to the economy and society. They are not understanding the intricacies of their medicine. And things are getting worse.

The traditional doctors of Tibet said that every substance is either a poison or a medicine. Treating disease with any substance depends on how the substance is used and how much is used. In a narrow-minded perception, the low Fed rate should be a medicine for an economy with high unemployment and great spare capacity. But when that spare capacity is already limited by weak effective demand, the costs of the medicine will outweigh its already limited benefits. The medicine becomes not just ineffective, but poisonous in the midst of other policies that increase r (investment returns to capital). The imbalance of inequality grows. Labor’s economic power shrinks. Labor share falls. Patrimonial capitalism increases.

Just as Mr. Johnston points out above, capital need invest less of its returns to grow the economy, while they enjoy higher rents and higher rates of return. Let’s take a moment to remember that aggregate profit rates are very high by historical standards. Effective demand becomes weaker as labor share falls.

When will progressive economists wake up and realize that they are mis-prescribing a medicine when they call for long-term loose monetary policy? The medicine is a poison for society considering the new dynamics of the current economic disease.

Capital has less incentive to value labor. Hard work does not pay. The transmission mechanisms of Fed policy to labor have broken down. As Mr Johnston wrote…

“Balzac, who famously wrote that “behind every fortune lies a great crime,” lived in a world the vast majority of us would not want to see recur, a world in which merit and hard work mattered little.

“Piketty argues that we are headed back in that direction, however, through misguided government policies that encourage dynastic wealth and favor returns to capital over income from labor. His dark vision is one in which even the strivers will have a tougher time, and more modest fortunes, than those whose primary basis for their riches is ancestry.”

Down with r!… and Up with the Fed rate!

Let’s get tough on these patrimonial capitalists.

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Tapering and the Emerging Markets

by Joseph Joyce

Tapering and the Emerging Markets

The response of the exchange rates of emerging markets and their equity markets to the Federal Reserve’s “taper,” i.e., reduction in asset purchases, continues to draw comment (see, for example, here). Most analysts agree that these economies are in better shape to deal with capital outflows than they were in the past, and that the risk of another Asian-type crisis is relatively low. But that does not mean that their economies will react the way we expect.

Gavyn Davies of Fulcrum Asset Management, who has a blog at the Financial Times, has posted the transcript of a “debate” he organized with Maurice Obstfled of UC-Berkeley, Alan M. Taylor of UC-Davis and Dominic Wilson, chief economist and co-head of Global Economics Research at Goldman Sachs, on the financial turbulence in the emerging markets. “Debate” is not the best word to describe the discussion, as there are many areas of agreement among the participants. Obstfeld points out that there are far fewer fixed exchange rate regimes in today’s emerging markets, and many of their monetary policymakers have adopted policy regimes of inflation targeting. Moreover, the accumulation of foreign exchange by the central banks leaves them in a much stronger position than they were in the 1990s. Taylor adds fiscal prudence and less public debt to the factors that make emerging markets much less risky.

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Krugman Vs Silver

I grab a rare opportunity to criticize Paul Krugman. He is, again, discussing the roll out of Nate Silver’s new with concern bordering on dismay. Krugman’s concern is that he fears that Silver thinks that data are enough just by themselves without any theory (even the humble kind that calls itself a model). I actually share his concerns, but think the post is no good.

data never tell a story on their own. They need to be viewed through the lens of some kind of model, and it’s very important to do your best to get a good model. And that usually means turning to experts in whatever field you’re addressing.

Unfortunately, Silver seems to have taken the wrong lesson from his election-forecasting success. In that case, he pitted his statistical approach against campaign-narrative pundits, who turned out to know approximately nothing. What he seems to have concluded is that there are no experts anywhere, that a smart data analyst can and should ignore all that.

This is a critique of a straw blogger. The sloppy unstable over hasty data freak whom I will call quick-Silver. Quick-Silver has no familiarity with alleged experts other than “campaign-narrative pundits,” believes that all one needs are data (and presumably some universally valid statistical methods), and thinks the only possible mistake is to be a hedgehog not a fox (I think I am being fair to Krugman and not criticizing the made up strawman Krudeman).

update 2: Here is the Silver post which I didn’t find before. It is a devastating critique of the efforts by academic political scientists to forecast presidential elections using data on fundamentals. Krugman is right that Silver shows little respect for the expertise of academic political scientists. My claim is that Silver has justified that view with rock solid meta analysis (which, in my humble opinion, should be published in the American Political Science Review, not that they listen to me).

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Obamacare plans bring hefty fees for certain drugs? Really? Well … it depends on what the meaning of “bring” is.

MIAMI (AP) — Breast cancer survivor Ginny Mason was thrilled to get health coverage under the Affordable Care Act despite her pre-existing condition. But when she realized her arthritis medication fell under a particularly costly tier of her plan, she was forced to switch to another brand.

Under the plan, her Celebrex would have cost $648 a month until she met her $1,500 prescription deductible, followed by an $85 monthly co-pay.

Thus begins a deeply (but apparently unintentionally) confusing, yet very important, Associated Press article titled “Obamacare plans bring hefty fees for certain drugs,” published yesterday.  (The title may be Yahoo News’s, rather than the AP’s; it’s not clear.)

“‘I was grateful for the Affordable Care Act because it didn’t turn me down but … it’s like where’s the affordable on this one,’ said Mason, a 61-year-old from West Lafayette, Indiana who currently pays an $800 monthly premium,” Kelli Kennedy, the AP writer, continues.

Where, indeed, is the affordable on this one?  The essence of the article is that many people who have chronic serious illnesses, including, as Kennedy says, cancer, multiple sclerosis and rheumatoid arthritis–and who, because of a preexisting condition,had had no access to any healthcare insurance or who, like Mason (as Mason explained to Kennedy), had insurance that did not cover treatment for preexisting conditions, are being hit by a specific of their ACA-compliant plan that they did not know about when they bought the plan: an apparently relatively new gimmick insurance companies are using, by which the company categorizes some high-cost drugs as “specialty-tier” drugs and by quietly including in their individual-market plans a 50%- “co-insurance” rate for “specialty-tier” drugs.

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Self-evident water delusions

by David Zetland (is a ‘water’ economist who blogs at Aguanomics) re-posted

Self-evident water delusions

BB sent this press release from California Congressman McClintock, to which I will give a few reactions…

Self-Evident Water Truths (February 27, 2013 to ACWA)

Water – particularly in California – has become such a complicated tangle of competing interests and ideological agendas that I think we have lost sight of some self-evident truths.

Self-Evident Truth #1: More water is better than less water. Can we agree on this first point? I know I’m stating the obvious – but I keep hearing, that, “no, conservation is the key to the future because conservation lessens demand.” That may be true, but ultimately conservation is the management of shortage and abundance is better.

(David) No, that’s not true for floods, it’s not true for endless rain, and it’s not even true for agriculture: agricultural yields can be maximized with the correct amount of water, not more or less. But, wait. Are you talking about MORE water out of the environment for humans? Bad idea. More water for Ag from cities? Bad idea. What do you mean?

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Feeding Piketty’s Capital Monster

con pic

Paul Krugman continues his illumination into the significance of a falling labor share, as he reads Thomas Piketty’s Capital in the 21st Century. Mr. Krugman rarely writes about labor share but that looks to be changing.

Piketty describes the growing power of capital income as “patrimonial capitalism”, where an elite gain control through inheritance and gained favor. Beatriz Webb explained this process over a century ago, so it is not a completely new insight. Capital income has been a monster of sorts growing in its power and dominance of the global economy.

Mr. Krugman points to the GOP as the culprit who set policies towards patrimonial capitalism…

“In short, the GOP is more and more a party that consistently, indeed reflexively, supports the interests of capital over those of labor. But why?”

Mr. Krugman is realizing the danger of a falling labor share of national income…

“So what we’re seeing is that half the political spectrum now instinctively accords much more respect to capital than to labor, at a time when capital income is growing ever more concentrated in a few hands — and is surely on its way to being concentrated largely in the hands of people who inherited their wealth.

“Curious, isn’t it?”

What is really curious is why Mr. Krugman and many other progressive economists support a monetary policy that is feeding the patrimonial capital monster. They think that accommodative monetary policy is the proper medicine for the economy, and they even ask for more of it… even to push beyond full employment with it. What they must eventually realize is that accommodative monetary policy is not a medicine but a substantial part of the overall poison that is slowly killing the wonderful economy that once was… when labor was able to influence politics and economic growth.

The fall in labor share must be reversed in order to have an effective Fed policy, a healthy inflation, healthy employment, a healthy population, a healthy society… a healthy world.

I have been writing about the fall in labor share through the lens of Effective Demand for a year. I have equations, models and predictions all laid out. I see the fall in labor share as the true poison in the economy and the reason why monetary policy is ineffective.

Now Mark Thoma is mentioning weak effective demand as a cause for low inflation and ineffective monetary policy. (video of lecture… 53:00 to 55:30) At the 55:15 point of the video, he mentions effective demand. But from what I see, I am the only economist calculating an effective demand limit upon the economy. What equation would Mark Thoma use to calculate effective demand? How does he evaluate it? I periodically send an email to Mark about my work. I was a constant commentator on his blog for a couple years. I highly respect his contributions to the econoblogosphere. Maybe he is seeing something in what I say.

Some say that raising the Fed rate would kill the economy and cause a recession. Well, Volcker raised the Fed rate to kill the inflation monster which resulted in a recession… and most praise his courage now. Raising the Fed rate now would cause a contraction, but it would go a long way to debilitating the patrimonial capital monster growing in power as it preys upon “our” economy. As Mr. Piketty focuses upon r-g, raising the Fed rate would lower r. Think about it Mr. Krugman. … a step toward putting economic power back into the hands of labor.

As Volcker saw inflation as a greater monster than a temporary recession, so we now can see patrimonial capitalism as a greater monster than a temporary recession. The capital monster must be attacked and wounded. If it isn’t, it will grow stronger and stronger, until we have a neo-feudalistic economy fulfilling M. Friedman’s dream of a government ruled by a benevolent dictator solely focusing on the order of law and military protection, while the free market becomes a glorious …. “thing”… where maximizing shareholder profits is the guiding rule.

Just look at the graph at Mr. Krugman’s post to see how maximizing shareholder profits is stacking up… The economy is terribly sick and the medicine is feeding the sickness.

To wrap up… Yes, accommodative monetary policy should have created more inflation and more investment, but due to the political-economic environment which leads to patrimonial capitalism and low effective demand, it is actually a poison making the economy worse as time goes on.

I continue to observe Mr. Krugman’s illumination into labor share.

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World Water Day

Via the UN comes a day for us to note the role of potable water and sanitation throughout the world.  We in New England are blessed with an abundance of freshwater, but other parts of the US are beginning to face real shortages where competing interests are clashing. More posts to come on particulars.

At the world level comes this note…..768 million people lack access to improved water sources & 2.5 billion have no improved sanitation.


The picture  frames some of the problems parts of the world face, and what struck home was the use of an active voice for the picture….the picture is courtesy of the Barka Foundation serving in Burkina Faso in Africa.

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