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

John Roberts Unwittingly Paves the Way for Eventual Wholesale Liberal Judicial Repeal of Statutes, Too

Chief Justice Roberts’ attempt to portray his decision in McCutcheon v. FEC as minimalist actually shows just how far from minimalist it is. According to the Chief Justice, no one should worry about the consequences of the Court’s decision because “there are multiple alternatives available” that would accomplish the Government’s asserted interest without, in the majority’s view, unnecessarily abridging First Amendment rights.  It would be a comforting thought if there were any truth to it.  But as Rick has pointed out, there is no chance that these alternatives will come to pass: Congress is not going to pass any new campaign finance laws (this Congress barely passes any laws at all, as the Chief surely knows), and the FEC is not going to strengthen its enforcement of existing laws (Republican commissioners on the FEC are no more in favor of campaign finance regulation than Republican members of Congress).

But what today’s Congress would do tells us little, if anything, about what the Congress that enacted the aggregate contribution limit would have done had it known that the Supreme Court would conclude that aggregate contribution limits are unconstitutional.  Would it have adopted one or more of the Chief’s proposed alternatives?  Quite possibly.  And that fact illustrates one of the most problematic, but also overlooked, aspects of judicial review—that it can produce disruptions to democratic preferences that are not constitutionally required.

— The False Minimalism of John Roberts, Brianne Gorod, Election Law Blog, Apr. 8

John Roberts’ Apr. 2 opinion in McCutcheon v. FEC is the opinion that keeps on giving, to liberal legal geeks, anyway. The opinion contains so many controversial (and, in my opinion, downright weird) statements–redefinitions of common English-language words and phrases, sophistic purported analogies, tautologies, and jaw-droppingly overt hypocrisy–that law professors, legal journalists, and hobbyist bloggers (like me!) no sooner finish writing about one statement in the opinion than we think of another aspect of the opinion that we want to write about.

I myself am pretty much McCutcheoned out by now, but before I take a break from it, I want to make two suggestions to progressives.  One is that they look ahead to when the current ideological majority no longer holds the majority–Ginsburg and Breyer are not the only justices who are aging, Ginsburg is not the only one who has health problems–and start selecting various statutes they dislike, and plan to challenge them as unconstitutional. As Gorod writes:

Judicial review is generally (and rightly) justified as an integral part of our constitutional system; it ensures that laws and regulations are consistent with our nation’s highest law.  In McCutcheon, the Court’s majority claims that the aggregate contribution limits cannot stand because they violate the First Amendment.  Whether one agrees with that conclusion or not (and as I and others have written, there are many reasons to disagree with it), most would find unobjectionable the general principle that laws that are inconsistent with the Constitution should not stand.  But as I have written elsewhere, judicial review often produces disruptions to democratic preferences that are not constitutionally required, and that is a much more significant problem.

Gorod, and others, detail a hallmark of Roberts’ strategy: Striking down as unconstitutional some key portion of an ideologically charged statute, and recommend possible substitute statutes and pronounce the ruling therefore minimalist although the substitutes could not be enacted in the current political climate and under current Citizens United-effectuated funding realities.  Roberts is fabricating constitutional grounds upon which to effectively repeal statutes enacted by earlier congresses. But by removing the institutional barriers to judicial repeal of statutes via semantics and gimmickry, he’s establishing precedent for progressives to do the same down the road.

There are a number of federal statutes I can think of that are excellent candidates for eventual liberal judicial repeal, now that the standard for judicial repeal has been so starkly and plainly lowered.  But one easy one is the Federal Arbitration Act, which, as written, is not unconstitutional, but which, as effectively rewritten by the 5-4 crowd, arguably is.  But there’s no longer any need for progressive justices, once they gain a majority, to limit themselves to striking down statutes that are, or are being interpreted in ways that make them, objectively or even arguably unconstitutional.  All that’s necessary going forward is a redefinition of a common word or phrase, and a transparently false analogy or two, and … voila!  What Roberts thinks is clever manipulation, I view as playing with fire.

Including backfire.

In another post, I’ll suggest that Congress or the SEC can prohibit publicly-traded corporations from making political expenditures (or, eventually, because that soon will become necessary, direct corporate campaign contributions) unless the corporation first gets approval from a majority of its shareholders.

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Cross-posted at The Law of the Jungle.

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Three Expensive Milliseconds

Paul Krugman references a paper by NYU Stern School of Business Associate Professor Thomas Philippon that “puts it at several hundred billion dollars per year.”

 

Three Expensive Milliseconds
Paul Kriugman
New York Times Op-Ed
April 13, 2014 (April 14th, 2014 Edition)

…Mr. Philippon starts with the familiar observation that finance has grown much faster than the economy as a whole. Specifically, the share of G.D.P. accruing to bankers, traders, and so on has nearly doubled since 1980, when we started dismantling the system of financial regulation created as a response to the Great Depression.

What are we getting in return for all that money? Not much, as far as anyone can tell. Mr. Philippon shows that the financial industry has grown much faster than either the flow of savings it channels or the assets it manages. Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages…

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ALEC: Destroying the American Economy, One State at a Time

The American Legislative Exchange Council — which authors ultra-conservative legislation and promulgates it to state legislatures nationwide — has a little index measure of states’ “competitiveness,” which supposedly results in greater prosperity for those states that rank highly.

Does it? Let’s let the numbers speak for themselves:

Screen shot 2014-04-14 at 8.14.01 AM Screen shot 2014-04-14 at 8.14.11 AM Screen shot 2014-04-14 at 8.14.31 AM Screen shot 2014-04-14 at 8.14.47 AM Screen shot 2014-04-14 at 8.14.58 AM Screen shot 2014-04-14 at 8.15.25 AM

Source (PDF).

Cross-posted at Asymptosis.

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2014 IPCC WG3 summary for policymakers

Reader Jan sends notice on the approval of the IPCC WGAR5 summary for policymakers pdf. (link fixed)

Lifted from his e-mail, he muses:

As for all IPCC reports, this one is a little thick, but can be parsed by the economically inclined.

It is, on the one hand, lousy if unsurprising news. On the other hand, it spells out options, and makes the first coherent, global attempt to price what various options might cost.  That’s a very positive step.

It is probably most heartening that the signatory governments of the world, members of the IPCC, had to review this language before it could be released, and might have vetoed statements they did not approve of.  This included all the major petro-nations of the world.

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The Narrative & Mechanisms of Economics… Oscar Landerretche

 chile protest

At the current INET conference, there was a forum presented for new ideas for teaching economics. One person who spoke was Oscar Landerretche. (begins speaking at 10:40 in video) He is the director of the School of Economics at the University of Chile in Santiago, Chile. I want  to talk about his idea of having a narrative when teaching economics, but first some background…

During his talk he showed a slide of 4 students who among others mobilized protests for a better education. These 4 students graduated and are all now in the Chilean Congress. So political progress was made. Yet progress is tough because the rich own the public school system and hold on to their self-interests.

I taught in Chile for 5 years at 2 universities, grade schools and high schools. I saw a lot of the Chilean educational system. While I was teaching at the Universidad de Concepcion, there were many many protests over the years. All the professors would have to leave the campus before the scheduled time of the protests as clashes of violence were common. In my classes, I would have the students explain the reasons for the protests and the demands being made. Mr. Landerretche talks about his experience of those protests, which can be tense.

Mr. Landerretche then focuses on how students were dissatisfied with the curriculum of economics. The students wanted more classes in ethics, social responsibility, sociology and psychology. The students were very dissatisfied with the way income distribution was being presented. Basically the students will not accept economic models that justify inequality.

He therefore recognized the need for a narrative in teaching the mechanisms of economics (21:45 point in video). The narrative is the social and emotional context within which the mechanisms of economics function. And in Chile, the social narrative is powerful and all-encompassing. Therefore it must be respected and included.

I should pause and explain the difference between the mechanisms of economics and the narrative of economics. The mechanisms are the models and equations that explain economic dynamics. The social narrative is the human experience of the economy. In Chile, the students were being taught the standard models and mechanisms of economic theories. Yet, their social experience (social narrative) made them severely question the models.

Here at Angry Bear blog we present the mechanisms of economics, which include models, equations and data analysis. Yet surrounding the mechanisms is a social context of politics, demographics, social consciousness and environmental concerns. In order to fully grasp economics, we blend social narrative with economic mechanisms.

Recently, I wrote 3 posts here at Angry Bear, which presented a narrative about inequality. I wrote about the hope of a recession to solve inequality (1), the social risk that Volcker took in forcing a recession to battle inflation (2) and a Taoist understanding of recessions as a natural and useful part of the business cycle (3).

The basis of those 3 posts was a social narrative of being upset with inequality to the point that I would welcome a recession if it meant a reduction in inequality. Now globally there are many people mad about inequality. Many are willing to fight it and suffer like the Chilean students. However, my narrative was attacked by economists on the right. They concluded that I wanted to bring pain to the people through a recession. They disregarded the social narrative that people are mad about inequality, because they don’t think inequality has any relevant mechanics. I recommend they try to teach in Chile. The new generation of students would reject them outright.

Undoubtedly, the most powerful current social narrative is inequality. Yet, to prove the adverse effects of inequality, we also develop models, equations and mechanisms. I contribute my model of effective demand. I refer to the work of Bruce Kaufman on minimum wage. Piketty has his analysis of capital share and “r – g”, about which Brad Delong gave a great extended model over the weekend. Deborah Boucoyannis explores the mechanisms of inequality in the writings of Adam Smith. And the list goes on and on…

Returning to Oscar Landerretche in Chile, his country has severe problems with inequality. I lived them and studied them. Their central bank studied the mechanics and wrote years ago that they needed to increase domestic demand. And they have been raising the minimum wage. The minimum wage in Chile went from 127,000 pesos per month in 2005 to 210,000 pesos currently. (3.5% average inflation over that time period.) 210,000 pesos per month still breaks down to roughly $2.20/hour in US dollars.

However, inequality is entrenched there. Over the long history of Chile, the rich have come to possess almost everything. Oh, the stories I could tell if I had the space. In Chile, people constantly say that they have to pay for everything. And the rich collect the rents. One of the main reasons that I am against easy monetary policy in the US at the moment is because the rich are rapidly increasing their ownership of capital and infrastructure. Inequality is becoming more entrenched and harder to reverse. The rich will drive markets to satisfy their own desired standard of living at the expense of society. This scenario explains generations of Chileans.

To wrap up…

As Mr. Landerretche says, a social narrative must be included with the mechanisms of economics. Yet, that idea is going to the next level, which is… the power of the current social narrative is demanding new mechanisms to explain and solve the prevalent socioeconomic injustices of inequality.

Here is a sample from his blog. You will see a blend of narrative and mechanisms.

“But competition is not compatible with inequality and Chile is the most unequal country in the OECD.”

“Chile is, in the end, the only OECD country whose taxes do not improve the distribution of income and where mechanisms predominate that favor large companies and the multinational conglomerates over innovators, new entrepreneurs and grassroots entrepreneurs (such as FUT and DL600).”

“The task is not to eliminate incentives for investment, but replace these with other mechanisms that generate equal access to liquidity, and that are less susceptible to methods of circumvention like tax-evasion and cheating. We all know who pays for the design of these mechanisms.”

The last sentence is certainly narrative.

For those who do not understand Spanish, you can place the URL of Mr. Landerretche’s blog into a web page of translation. (link to blog) (link to page for translation)

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Wage Inflation and Expected Price Inflation

Yesterday, I noted that an expectations un-augmented Phillips curve fits data from the past two decades rather well. Here is an even simpler illustration of the point that lagged price inflation has not correlated with wage inflation for the past two decades.

winlivingston

The figure is a scatter of lgwinfl — the percent annual rate of increase of
Business Sector: Compensation Per Hour (HCOMPBS), Index 2009=100, Semiannual, Seasonally Adjusted from FRED on pcecinf the lagged annual percent rate of JCXFE “Personal Consumption Expenditures: Chain-type Price Index Less Food and Energy (JCXFE), Index 2009=100, Semiannual, Seasonally Adjusted.”

Note that the data are of semiannual frequency, so each raw data point from FRED affects two overlapping intervals and therefore two dots on the graph. I look at data for intervals starting from the second half of 1992 through the second half of 2012 (the most recent available). The labels refer to the start of the intervals.

There is no sign of an effect of lagged price inflation on wage inflation. As noted by Nick Rowe in comments, this is what one might expect if the Fed were successfully targeting inflation. In that case the best estimate of future price inflation would be the target no matter what inflation had recently been. (Actually now that I think about it, current new Keynesian models still suggest a correalation as sticky wages catch up with other than expected price growth. But that’s not the point of this post.)

This is what central bankers and other people mean when they say that inflation expectations are anchored — they mean changes in price inflation don’t persist, because they don’t feed over into wages. However, anchored expectations can also be a statement about expectations. A lack of feedback to wages might be due to something else — Krugman argues that it can occur if there is downward nominal wage rigidity.

I have noted that lagged inflation is correlated with the breakeven inflation rates which would make the return on Treasury Inflation Protected Securities (TIPS) equal to the return on ordinary nominal Treasury Securities. This post looks at 5 year breakevens which should reflect expected inflation over the next five years. Bond traders’ expectations sure don’t seem to be anchored.

Surveys of people believed to be expert are another source of data. I have been playing with the Livingston Expectations urvey. This is a semi-annual survey of forecasts of many variables including the consumer price index. The base year index level is included in the publicly available data set, so it is possible to calculate forecasts for inflation over intervals. Again I look at 12 month intervals (so intervals overlap). The format of the Livinston Survey was changed for 2004. I use data only from the old version. My excuse is that I am keeping the new data (which are publicly available in files with a different format) for out of sample forecasting with no risk of data snooping. The real reason is that I am lazy.

Here is the scatter of the median Livinston CPI inflation forecast for CPI inflation over the following and PCECINF

wagelivingston2

Expectations sure don’t look anchored. Expected CPI inflation seems to increase about one for one with lagged core PCE deflator inflation.

Finally, I cut out the middleman. Here are hourly compensation growth and expected CPI inflation for the same intervals.

wagelivingston3

There is plenty of variation in the median Livinston Survey forecast of inflation, but there is no sign of correlation with wage inflation.

It remains possible that the expectations of people who set wages are anchored. Bond traders and Livingston survey participants don’t set most wages. Managers and other employees of the same firms bargain over wages somehow.

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SLAPP Happy Dog-Shooter

From Howard Bashman’s How Appealing blog today:

Florida’s Fifth District Court of Appeal yesterday issued a ruling in a case described as “SLAPP Happy Dog-Shooter“: The “Siouxsie Law” blog had this post about the case back in March 2010.

And in July 2011, “Siouxsie Law” had a related post titled “Court rules in favor of blogger — Comins v. VanVoorhis.”

Yesterday, an intermediate state appellate court located in Daytona Beach, Florida issued a decision affirming the entry of judgment in favor of the blogger. Thanks much to a reader who forwarded a copy of yesterday’s ruling in an email stating: “F.Y.I., Florida’s 5th DCA opined that a blog was a type of media defendant for the purposes of Florida’s defamation laws.”

Posted at 09:45 AM by Howard Bashman

Y’all really should read at least that first Siouxsie post, from 2010, to learn who (what) Comins is.

When you’re done, you might also want to read this editorial in today’s New York Times.  And, yes, I think they’re related.  I bet you will, too.

For all of you who are unfamiliar with the term “SLAPP suit,” Wikipedia explains:

A strategic lawsuit against public participation (SLAPP) is a lawsuit that is intended to censor, intimidate, and silence critics by burdening them with the cost of a legal defense until they abandon their criticism or opposition.

Ahhh, yes. SLAPP suits.  Courtesy of some of  the very same people who complain about frivolous lawsuits.

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What’s happening with the Phillips curve ?

Paul Krugman notes that it is standard practice to estimate an accelerationist Phillips curve in which the change in inflation is related to unemployment. He also notes that recent data seem to form the original Phillips curve, that is the scatter of inflation on unemployment forms a curve. He asked if someone might have rolling estimates of the Phillips curve using data from a window of fixed length (say 10 years) for different start dates. His bleg is my command.

To get to the punch line and cut to the chase, this little note concludes that Krugman is right. I admit that’s a dog bites man result, but that’s life.

a pdf of this post is here.

update: if you are interested in the topic, you really should read the comments by Mark A. Sadowski and Nick Rowe — too much to pull back, but worth reading.

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Recessions & a Taoist principle of healing

 gse_multipart17103

100 year old Taoist master. Photo taken in 1930’s.

I have written recently about how a recession could open the door to progressive policies to reduce inequality. Of course it is crazy to call for a recession. Yet the message is one of healing. So to understand this message… let’s explore a healing principle of Taoism.

“In order to heal, you must first learn to kill.”

When I was taught this principle at a Taoist school of traditional Chinese medicine, I thought it was crazy. Yet, the wisdom here is beyond the western mind. We in the west wouldn’t make killing a prerequisite for healing. Our stomachs turn and our eyes roll. We are taught to cherish life. We would rather say, “In order to heal, you must first learn to love.” Logically we cannot make sense of the principle. We end up saying that the Chinese are crazy.

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