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Charles Evans, Normalization of the Policy Rates & the 2011 Eurozone Recession

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In a speech this week, the President of the Federal Reserve Bank of Chicago, Charles Evans, made a case for keeping the effective Fed rate low well into the foreseeable future. He concluded…

“To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy’s momentum is sustainable in the presence of less accommodative financial conditions.”

He bases his view of normalizing the Fed rate upon first having sufficient and sustainable momentum. He uses the 2011 recession in the Eurozone as an example implying that the recession was caused by prematurely raising nominal rates when Europe did not have sufficient momentum.

“The recent European experience in 2011 is yet another example of premature tightening. Despite the headwinds from continuing debt-overhang and recent financial distress, European authorities in 2011 judged that the Eurozone economy was emerging from recession and headline inflation was at risk to rise persistently above target. The European Central Bank (ECB) responded by raising policy rates in 2011. They soon had to backtrack as output in the Eurozone fell again and inflation began to march down below target.”

“These lessons from monetary history strongly suggest that there are great risks to premature liftoff from the zero lower bound or near-ZLB conditions. Unless economic conditions are fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that monetary authorities will need to retreat right back into the ZLB.”

He implies that the rise in the ECB’s policy rates triggered the recession. The ECB policy rate was raised from 1.0% to 1.5% for 6 months. Was that enough to cause a recession? Well, there were adjustments taking place in the periphery countries, like Spain and Greece, where the recession was most intense. Those countries were lowering wages and enacting policies of austerity. Before the ECB raised the policy rate, unemployment was still rising in Spain while it was falling in Germany. So the rise in the ECB policy rate looks to be a cautionary step for Germany at the great expense of some periphery countries. In fact, during the 2011 Eurozone recession, unemployment kept rising in Spain, while it continued to fall in Germany… Hmmmm….

Simon Wren-Lewis wrote yesterday that a large cause of the 2011 Eurozone recession was the widespread fiscal contraction.

“The idea that a large fiscal contraction shortly after a huge financial crisis would lead to a second recession is not the wild imagining of a group of ‘anglo-saxon’ economists, or a particular macroeconomic ‘school of thought’. It is just mainstream macroeconomics. And we must never forget that this is not the unfortunate cost of having to get debt down in a few periphery countries: as the chart above shows, this fiscal contraction occurred everywhere in the Eurozone. As the simulations described in this link (pdf) show, using the Belgian NIME model, these costs could have been largely avoided if the fiscal consolidation had been delayed until monetary policy was in a position to offset them. It is not just a predictable recession; it is a recession made by policymakers without good cause and therefore an entirely avoidable recession”

Is Simon Wren-Lewis implying that the Euro recession would have happened without a rise in policy rates? Not really. He states that monetary policy should have been in a position to offset the fiscal contraction, which implies that the policy rates needed to be higher in order to decline to offset fiscal contractions. He is implying that fiscal contraction should only take place once the policy rates are normalized to higher rates. So, raising the policy rate, instead of dropping the rate, aggravated the economic consequence of the fiscal contraction.

But was the fiscal contraction by itself strong enough to cause a recession? Yes. So the rise in the ECB policy rate just made the recession worse for some countries more than for Germany. The recession was not symmetric throughout the Eurozone. It is obvious that Germany had preferential status in ECB monetary policy in 2011.

The key element in this story and in Charles Evans’ speech is the normalization of policy rates. It is very important to normalize policy rates. As Charles Evans says…

“And the costs of being mired in the zero lower bound are simply very large. I have already talked about how the ZLB prevents using our very best policy tools to address negative shocks. The constraint also means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment. This, of course, significantly impedes capital formation, future economic growth, and further employment expansion. Furthermore, the ZLB often comes hand in hand with undesirably low inflation or even a falling price level, carrying with it the associated costs of debt deflation on the real economy.”

Normalizing policy rates will not be easy, probably almost impossible at this point. How high can the stock market go, while real wages must rise cutting into profits? How quickly can firms hire new workers to maintain profit rates as real wages rise with productivity stalled? Capital investment will have to subside to maintain profit rates.

We will see the economy grind forward looking vulnerable at every moment. This grinding will not motivate the Fed to normalize the policy rate quickly. Consequently, the Fed rate itself will grind upward very slowly. The economy will be increasingly vulnerable to rate hikes.

Psychologically, the Fed does not want the blame of causing the next recession. So they will always put the Fed rate on the low side. A recession can happen in spite of a very low Fed rate. It’s a profit rate thing based on demand and the utilization of labor and capital.

The Fed’s biggest concern is the increasing probability of the Fed rate falling back onto the ZLB prematurely before normalizing.  As Charles Evans says…

“We should keep our focus on our policy goals and should be highly attuned to both the likelihood and the costs of missing those goals. To me, the risks imposed on an economy forced to operate at the zero lower bound on policy rates are paramount.”

The Fed fell into a trap of keeping the Fed rate at the ZLB due to unrealistic expectations of high potential. They fell behind the curve as potential was revised down unexpectedly. Now the Fed rate would have to rise too fast in response to the unexpected drop in potential . The economy is simply too vulnerable to fast policy rate hikes. The Fed does not want to tighten and cause a recession like in the past. So the Fed is in a trap of slow and cautious rate hikes behind the curve.  The probability is increasing fast that the Fed rate will fall back to the ZLB prematurely.

The future of monetary policy will have lots of drama and soul-searching.

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Iceland: Bankers convicted, unemployment down

Remember Iceland? During the high-flying early 2000s, its three main banks went berserk, paying high interest rates to international investors that accumulated deposits equal to more than 100% of the country’s gross domestic product (GDP) and making loans equal to 980% of GDP. When the collapse came, Iceland took a route not taken by Ireland, Spain, and other EU countries: Rather than bail out the banks, the government simply let them go bankrupt. The value of the krona fell by about half, the country was embroiled in disputes with the Netherlands and the United Kingdom over paying off Dutch and British depositors, and it had to take an International Monetary Fund (IMF) loan just to stay afloat.

When we last checked in, there were indictments and criminal investigations of the officers of all three banks, and Icelandic banks were forced to forgive all mortgage debt in excess of 110% of a home’s value. Iceland’s 2012 unemployment rate was 6.0% compared to Ireland’s 14.7%. But that was two years ago; what’s happening now?

In December 2013, four top officials of the country’s formerly largest bank, Kaupthing, were sentenced to jail terms ranging from five and a half years for its chief executive to three years for one of the majority owners. While their cases are currently under appeal, they were indicted this July for further fraud charges. Various bank and government officials have had final convictions as determined by the Supreme Court of Iceland; Wikipedia has a handy rundown on where numerous cases stand, all based on Icelandic-language sources so I cannot read them myself.

Homeowners are still in difficulty in Iceland, however. This is because mortgages in Iceland are usually indexed to the inflation rate; that is, the amount of principal is increased by the rate of inflation. Iceland’s inflation rate was 5.2% in 2012 and 3.9% in 2013, while Ireland’s inflation was 1.7% in 2012 and a near-deflation 0.5% in 2013. That is a pretty hefty load for Icelandic homeowners. The current conservative government has instituted a new round of mortgage relief, but there are a lot of devils in the details. Almost half of the “relief” comes in the form of people being allowed to use their retirement savings  (which are tax-advantaged like U.S. individual retirement accounts) to pay down their debt. Yeah, it’s great to pay your mortgage with pre-tax dollars, but it’s still your own money you’re paying, which will no longer be available for retirement. The IMF has raised doubts about the plan’s overall effect on government finances, too.

As I mentioned in my last post, unemployment in Iceland stood at 4.4% in July, versus 11.5% in Ireland (navigate to Labour Force Statistics, then Short-term Statistics, Short-term Labour Market Statistics, then Harmonised Unemployment Rates). And, as I also mentioned in the post, Ireland’s unemployment rate has been artificially lowered due to net emigration from the country.

While Iceland suffered a great deal from the crisis and is by no means out of the woods, it looks like the country made the right call by not bailing out the banks. The economy is growing and unemployment is down to less than half of its peak crisis level. As Paul Krugman has emphasized, having your own currency to devalue helps as well, although it substantially raised inflation and mortgage balances. Iceland was dealt a bad hand by its bankers, but it’s making at least some of them pay for that, which is more than we can say in the United States.

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The One Reason Apple Hasn’t Solved TV’s Cables and Remotes Problem

How many remote controls do you have for your TV? Do you care to describe the tangle of cables and wires connecting your various components?

If you’re like almost everyone I know, the answers are “at least three, probably five” and “No!”

Have you had a housesitter recently? How long did it take for you to explain which remotes to use, in what order, to  watch TV or switch to a DVD or Netflix? Change the channel? Adjust the volume? Did they take notes?

If you’re like everyone I know, the answers are “at least five minutes” and “Hell yes they took notes.”

Nobody these days can walk into a friend’s house and watch TV without detailed instructions. If you’re like everyone I know, even you need to pull out various manuals and flail around at least once every year or two.

I’ve wondered for years: why hasn’t Apple solved this? Imagine a TV that includes everything including a quality sound amp, with one remote and an elegant user interface. The only things plugged in are cable (maybe), ethernet (maybe), and surround speakers (maybe).

Doesn’t that seem like the kind of thing Apple could do brilliantly?

They could be selling tens (hundreds?) of millions of 30-, 40-, 50-, 70-inch TVs at very high tickets. Yeah, the margins on TVs suck, but that was true of cell phones too, wasn’t it? Ditto desktop and laptop computers.

Apple knows how to add value to otherwise-commodity items, and charge serious money for it. People pay the premium, and Apple gets its unheard-of margins, because their elegant integration is worth it.

So why haven’t they done that for TVs?

My answer, in two (or three) words: set-top boxes. That box is the only thing maintaining cable companies’ ever-more-tenuous control over viewers’ content choices — in particular, controlling access to quality feeds of live sports.

The big breakthrough of ITunes wasn’t (just) the user interface. It was the deals that Steve Jobs cut with content providers, making any content from any of the providers simply and intuitively and instantly accessible.

It’s hard to imagine that the cable companies will cede that kind of control to Apple, at least until straits get as dire as they did for the music industry. Unless Tim Cook is a much more brilliant negotiator than I think he is (or than Steve Jobs was), we’re stuck with set-top boxes for the duration. So we’re stuck in component world, with multiple remotes and cables and multiple interacting user interfaces.

If Apple can’t integrate the set-top box and its UI, and the control over content that goes with it, into the TV, they can’t provide a seamless user interface. No seamless interface, no big margins. And the Apple business model is, in two brief words, “high margins.”

So if you’re reading some article among the endless stream of articles over the years about Apple selling TVs, ask yourself one question: what’s with the set-top box? Has Apple managed to cut a deal with the cable companies?

Cross-posted at Asymptosis.

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There’s a Palpable Fear Amongst Kansans, All Across That State, That the Farm Subsidy Levels They Love, and Cherish, and Honor, Will Be Reduced or that the Program Will Be Eliminated. (Or, in light of their senior senator’s comments earlier this week, there should be.)

Post has been cut-and-paste-typo-corrected. 9/28 at 11:43 a.m.

—-

There’s a palpable fear amongst Kansans, all across this state, that the America that we love, and cherish, and honor, will not be the same America for our kids and grand kids. And that’s wrong. That’s very wrong.

As a result, unfortunately, people are losing faith in their government. And turn it around: Government is losing faith in our people. That is a bad situation to be in.

And I will tell you that one of the reasons—I’m not [edit: my initial transcript did not include ‘not’ because I misheard Roberts, which makes this even funnier] going to get partisan here—but one of the reasons I’m running is to change that. To change that. There’s an easy way to do it. I’ll let you figure it out. But, at any rate, we have to change course, because our country is headed for national socialism. That’s not right. Changing the culture, changing what we’re all about.

— Kansas Sen. Pat Roberts, Sept. 23

Some political reporters and pundits kinda wondered whether this 78-year-old man, who unlike, say, most thirtysomethings, surely knows that “national socialism” has a very particular meaning—and knows what that particular meaning is—actually meant to invoke that particular meaning.  The Washington Post’s Philip Rucker, however, figured that Roberts really meant to call Obama a socialist rather than a Nazi.  So Rucker asked him yesterday whether he actually thinks Obama is a socialist.  To which Roberts responded, um, yes.*

Or, precisely:

I believe that the direction he is heading the country is more like a European socialistic state, yes. You can’t tell me anything that he has not tried to nationalize.

Actually, you can tell him that there are a few things that Obama has not tried to nationalize.  Farming, however, is not amongst them, since that was nationalized around the same time as low-level retirement benefits were nationalized: The mid-1930s.

Get your government hands off my farm subsidies!

Yes, there probably is a palpable fear amongst Kansas, all across that state, that the America we love, cherish, and honor, will not be the same America for their kids and grandkids.

Some of them may fear a permanent return to the Dust Bowl days–although the ones now enjoying that socialized pension program and the socialized healthcare program for the post-65 crowd enacted when they were in their 20s and 30s may not cherish and honor the Dust Bowl era all that much.

Some of them may fear collapsing infrastructure, and a failure to construct needed additions to existing infrastructure.

Some of them should have feared the repeal of the Depression-era banking-regulation laws, such as the Glass-Steagall act, when it might have mattered, but now would like to see those laws reenacted as a step toward returning America to the one they love, cherish, and honor.

Which, not coincidentally, also was the America that funded its national government through far more progressive taxation than the one that Roberts claims is the America that Kansas love, cherish, and honor.

It also was the America that funded its local governments through means other than outlandishly disproportionate fines and fees, and that had not yet privatized–a comically accurate description, if ever there was one–government functions and services.

And it was the America–not at all coincidentally–whose income and wealth inequality had not yet spiraled completely out of control.

It was, in  fact, a pre-Reagan Revolution America.  An America whose political system was not yet thoroughly in the chokehold of the likes of the Koch brothers—who are Kansans who do have palpable fears, but not necessarily the ones that a majority of Kansans all across that state have. Or even across the Wichita metropolitan area, where the Kochs live.

Maybe sometime before the election, some reporter will ask Roberts whether there should be a palpable fear amongst Kansans, all across that state, that the farm-subsidy levels they love, and cherish, and honor will be reduced or that the program will be eliminated.  And then ask a similar question about Social Security and Medicare.

And then they should ask–clearly, specifically, outright–what exactly it is that Republican politicians promise a return to. And what it is that Americans who want to return to the old days really want America to return to.

There’s a palpable fear amongst progressives that no reporter will ask these questions, though.

—-

*Paragraph cut-and-paste-typo-corrected (finally). Aaaarrrgghh. 9/28 at 11:43 a.m.

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Solving Robert Solow’s Puzzle of Labor Share on Two islands

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These two islands are actually one.

Brad DeLong has a video discussing Piketty’s book. In the video, the subject of labor share comes up, which has dropped to new lower levels in advanced countries. Robert Solow tries to make an analogy for labor share being an irrelevant factor. So he describes two islands. (36 to 38 minutes in video) and asks which island you would rather live in.

  • Island #1… Labor share is rising because real wages are rising but still faster than productivity.
  • Island #2… Labor share is falling because real wages are rising but still slower than productivity.

Which island would you rather live in?…  He wants you to think that labor share is irrelevant. But, it’s an unfair analogy, because there really aren’t two separate islands here. The two islands are actually the same island. I start my explanation using the following equation for profit rate.

Profit rate = (productivity – real wages) * Total labor hours/Capital

Let’s put some real numbers in the equation and compare the two islands. Labor share starts out at 75% (75 real wage/100 productivity). Also we hold capital steady throughout the analysis.

Profit rate starts at 10% = (100 – 75) * 1000/250,000

The Islands

Let’s look at island #1 first… Let’s raise real wages by 3% and productivity by 1%. Labor share rises to 76.5%. 

Profit rate of island #1 falls to 9.5% = (101 – 77.25) * 1000/250,000

In order to raise the profit rate back up to 10%, labor hours would have to rise by 5.3% holding capital stock steady. (Note: Sometimes there is a fast decline in the unemployment rate (like in 2014) in order to support vulnerable profit rates.)

Now island #2… let’s raise real wages by 3% and productivity by 4%. Labor share drops to 74.3%.

Profit rate of island #2 rises to 10.7% = (104 – 77.25) * 1000/250,000

In order to lower the profit rate back down to 10%, labor hours would have to be reduced by 6.5% holding capital steady.

Discussion

In island #1, business owners are not happy. They are losing profits. So they increase hiring while holding capital stock steady. However, increased hiring has its diminishing returns. So eventually rising real wages would decrease the profit rate, and labor hours would start being reduced to cut losses.

In island #2, business owners are happy. Profit rates are increasing. So they are not forced to change labor hours in relation to capital stock. They could still reduce labor hours by less than 6.5% and still have a higher profit rate. But they will probably increase labor hours in order to increase the profit rate even more, especially since island #2 tends to have more unemployed workers because there is less pressure to raise real wages.

Analysis

So which island is better? Well, neither is better. They are actually the same island! Each one describes a different phase of a business cycle. So one becomes the other through a business cycle.

Island #1 describes the end phase of a business cycle where productivity is against the effective demand limit with pressures to raise real wages from low unemployment. Eventually a recession occurs as businesses cut losses by reducing labor hours.

Island #2 describes the beginning phase of a business cycle coming out of a recession where productivity is rising and there are little pressures to raise real wages since unemployment is comparably high. Eventually island #2 becomes island #1 as unemployment declines, diminishing returns of labor hours sets in, productivity slows down and pressure increases for higher real wages.

Here is a graph of productivity plotted with real wages as year-over-year percent changes. (link)

P and RW

You can see island #2 described after a recession where the red line (productivity) tends to be higher than the blue line (real wages).  Then island #1 is described before the next recession where the blue line tends to rise above the red line.

Conclusion

Robert Solow asks which island is better. Yet they are actually the same island in different stages of a business cycle. His puzzle shows that he still views labor share as an oscillating constant from one business cycle to another. But labor share has truly fallen to a new range of oscillation since the turn of the century. His puzzle gives no useful insight into the significance of this new fall in labor share. Some might say that he is simply not updating his priors.

A Note on the Current Business Cycle

We see island #2 so far in the current business cycle by a continually falling labor share and rising aggregate profit rates until 2012. Productivity rose more than real wages. Since 2012 labor share has been steady. Profit rates have been supported by increasing labor hours; Unemployment declined faster than expected in 2014, which is a sign of vulnerable profit rates.

Now the expectation is that we will see island #1 come into view where labor share starts rising; Real wages (blue line) are expected to rise faster than productivity (red line). It hasn’t happened yet. Corporations are still enjoying their nice profit rates.

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Indiana Toll Road

PGL at Angry Bear wrote several posts on the privitizing of the Indiana Toll Road in 2006 as a commenter reminds me at hearing of the news the firm that bought it went bankrupt: Via Daily Kos

In 2006, Mitch Daniels, then the Republican Governor of Indiana, signed into law a “major moves” bill that, among other things, privatized the Indiana Toll Road, which carries Interstates 80 and 90 across the northern part of the state.

Eight years later, ITR Commission Co., the arm of a joint venture between a Spanish company and an Australian company that owns the Indiana Toll Road lease, has filed for Chapter 11 bankruptcy in federal court:

“The company that operates the Indiana Toll Road filed for bankruptcy on Sunday, though Indiana Gov. Mike Pence said in a statement Monday drivers of the route through northern Indiana can expect “business as usual.”Debt-ridden ITR Commission Co., a spawn of the Spanish-Australian company Cintra-Macquarie, filed for chapter 11 bankruptcy in U.S. Bankruptcy Court in Chicago in a prepackaged plan to restructure its approximate $6 billion debt.

The company in 2006 paid $3.8 billion for a 75-year lease of the road that runs between the Illinois and Ohio state lines, but the toll revenue failed to meet company expectations.”

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Government Rightwing Propagandizing to a Captive Audience, and Calling It … ‘History Class’

The school board proposal that triggered the [student and teacher] walkouts in Jefferson County calls for instructional materials that present positive aspects of the nation and its heritage. It would establish a committee to regularly review texts and course plans, starting with Advanced Placement history, to make sure materials “promote citizenship, patriotism, essentials and benefits of the free-market system, respect for authority and respect for individual rights” and don’t “encourage or condone civil disorder, social strife or disregard of the law.”

— Denver area students walk out of school in protest, Colleen Slevin and P. Solomon Banda, Associated Press, today

Yup.  Straight out of the German Nazi, Stalinist and current Chinese government playbooks.  Via Joe McCarthy.  Definitely an instructive history lesson.

On that respect-for-authority thing, I’d love to know how this History curriculum will present the Revolutionary War.  Presumably, the school board majority that is proposing this, and that will enforce it, will ask for input from King George III.  But not from, say, George Washington, who’s spinning in his grave and really, really wants to be consulted but won’t be.

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Think Debt-Funded Stock-Buybacks are Pernicious? Here’s Why You’re Right

I’ve ranted about this phenomenon for a long time:

 Do Businesses Borrow to Invest in Productive Assets?

Quoting JW Mason: “the marginal dollar borrowed by a nonfinancial business in this period was simply handed on to shareholders, without funding any productive expenditure at all.”

We Need to Spur Business Investment. Yeah, Right.

Quoting Floyd Norris: “From the fourth quarter of 2004 through the third quarter of 2008, the companies in the S.& P. 500 — generally the largest companies in the country — reported net earnings of $2.4 trillion. They paid $900 billion in dividends, but they also repurchased $1.7 trillion in shares. As a group, shareholders were paid about $200 billion more than their companies earned.”

It just seems wrong. But I haven’t been able to enunciate, in economic terms, exactly why it’s wrong

I find that William Lazonick has done so for me:

Profits Without Prosperity – Harvard Business Review

Brief summary, in my words:

The “safe-harbor” stock-buyback provisions of Rule 10b-18 of the Securities Exchange Act, passed in 1982, gave C-suite executives carte blanche to extract rents for their own benefit via stock-price manipulation.

This of course gave them the incentive to do so. And they have done so. The rule turned real business managers who “think like owners” into financial prestidigitators who manage their businesses for their own extractive enrichment, not for the good of the business.

Read the whole thing.

One thing that Lazonick doesn’t discuss (but Mason and Norris do) that seems huge to me: interest payments are tax-deductible for corporations. Dividend payments aren’t. This gives them yet another huge incentive to fund their activities through debt rather than equity issuance — and to borrow money for stock buybacks.

Economists almost universally bemoan the mortgage-interest deduction on efficiency grounds (and equality grounds). I really wonder why they don’t vilify all interest deductions, (especially) including the corporate interest deduction. Given the destructive effect on prosperity of the debt-fueled stock-buyback dynamic, it’s arguably even more pernicious.

We should make Rule 10b-18 much more restrictive or repeal it entirely, and we should remove all interest deductions from the tax code.

Cross-posted at Asymptosis.

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Enumerating the Silliness of the Wingers’ ‘Enumerated Powers’ Schtik

Reader Tony Wikrent posted the following comment this morning to my Sept. 20 post titled “Freedom!  Liberty!  And Being For the Little Guy.  As Brought to You By the Conservative Movement.”:

Actually, it turns out that if you are against big government, you ARE against all government. I’m surprised that conservatives who spout the “enumerated powers” argument have not been forced to respond to the historical facts that 1) President George Washington rejected their argument, and lined up with his Treasury Secretary Alexander Hamilton, in supporting Hamilton’s argument for implied powers; 2) first Chief Justice John Marshall, decided in favor of Hamilton’s arguments and rejected the argument used by today’s conservatives and libertarians; 3) Associate Justice Joseph Story, in his Commentaries on the Constitution, argues Hamilton is correct; 4) the Supreme Court has decided a number of times in lesser cases that Hamilton is correct.

But. our immediate concern is the argument that to be against big government is to be against all government. In the landmark case McCulloch v. Maryland: lawyer, William Pinkney, argued before the Supreme Court,

“It was impossible for the framers of the constitution to specify prospectively all these means, both because it would have involved an immense variety of details, and because it would have been impossible for them to foresee the infinite variety of circumstances in such an unexampled state of political society as ours, forever changing and forever improving. How unwise would it have been to legislate immutably for exigencies which had not then occurred, and which must have been forseen but dimly and imperfectly. The security against abuse is to be found in the constitution and nature of the government, in its popular character and structure. The statute book of the United States is filled with powers derived from implication.”

The decision in the case was unanimous, and it was written by Chief Justice Marshall:

“A Constitution, to contain an accurate detail of all the subdivisions of which its great powers will admit, and of all the means by which they may be carried into execution, would partake of the prolixity of a legal code, and could scarcely be embraced by the human mind.”

Marshall was not content to merely render the decision. He felt it necessary to directly discuss and dismiss the arguments in favor of the enumerated powers interpretation, noting “the baneful influence of this narrow construction” which would render “the Government incompetent to its great objects…” In other words, the case indeed, Marshall holds, is that if the national government were encumbered by the enumerated powers argument, it would effectively be powerless to govern, which is, so far as I can see, pretty much the state of things when you have no government at all.

It just amazes me that conservatives and libertarians are allowed to get away with their completely false interpretation of U.S. history in this matter.

The wingers memorize these mantras, cult-like—“The enumerated powers!”; the Tenth Amendment!”; Flat Earth Federalist Paper No. 846!” James Madison! Ichabod Crane!—with no actual understanding of, or detailed background about, what they’re mouthing.  What they’re mouthing is nonsense. Pure and (mindlessly) simple.  These people really do wing it.

So, so much of the Conservative Legal Movement is an outright fraud amounting to a quiet coup.

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