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

Crony Capitalism And Its Variety Of Flavors

I can’t help but think that Romney’s newly invigorated crony-capital (e.g., Solyndra) schtick is very much a double-edged sword for him.  I mean, isn’t he the candidate who, notwithstanding his claimed concern about the federal deficit, refuses to support the proposed elimination of the federal government’s subsidies to the oil and gas industry, and who (as per a speech he gave last winter in, I think, Utah) wants the federal government to sell most of the national forest and park land to the logging industry because, well, the public doesn’t need those forests and parks?

Or am I mistaken in thinking that the Koch brothers have vast oil, gas and logging interests—and that the brothers contribute heavily to Romney, his super PACs and other Republican fundraising groups?

Or that Romney’s proposal to tie the level of his proposed increases in Defense spending to the level of annual GDP output, rather than, y’know, this country’s national defense needs—might have something to do with crony capitalism?

Not even to mention a stunningly perverse pinstriped-patronage version of Keynsian economics.  Okay, I’ll mention it:

Romney’s plan calls for linking the Pentagon’s base budget to Gross Domestic Product, and allowing the military to spend at least $4 dollars out of every $100 the American economy produces.”

Been wondering when this interesting little policy proposal, and its obvious purpose, would start to get some national media attention.  There’s no time like the present.  Not that our blog is a national media outlet.  But we can pretend.

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Ernst and Young, Make-Up Artist*

A key but seriously underemphasized factor in the near-collapse of the financial system and economy in 2008 was the role that the two largest securities-ratings firms, Moody’s and Standard and Poors, played: The two agencies routinely and deliberately overrated the value of mortgage-backed securities. 

So I was momentarily (and naively) stunned to read this morning the specifics of the highly-publicized Ernst and Young report released yesterday claiming that Obama’s main tax proposal could cause the loss of 710,00 jobs. A Yahoo! News article summarizes:

On the official White House blog, senior Obama economic policy aide Jason Furman ripped the new study. Among his complaints:

–       The report, funded by pro-business groups generally hostile to Obama’s agenda, assumes that none of the revenue generated by raising taxes on the richest Americans goes to deficit reduction. Instead, it assumes the money would go to expanding government spending. But the president has called for the money to go to reducing the federal deficit and national debt.

–       The report omits Obama’s push for new tax cuts to spur private-sector hiring and investment. By ignoring the predicted impact on jobs growth, Furman argued, the study distorts the impact of the president’s agenda.

The article goes on to say that “Furman, whose title is Principal Deputy Director of the National Economic Council, also charged that the study’s conclusions are ‘dramatically out-of-line with estimates by other analysts’ like the Congressional Budget Office (CBO), the non-partisan standard for judging the economic impact of federal legislation.”  Furman also noted that the proposal would restore tax rates to their Clinton-era level, a time of significant jobs creation.

Good grace.  Ernst and Young is not an ideological think tank.  Not openly, anyway.  It is instead one of the very largest and most prestigious accounting firms in the world, and, like Moody’s and Standard and Poors, is relied upon by securities investors and merger-and-acquisition folks for honest evaluation of corporate value and the like in SEC filings and private deal-making. 

It also is generally considered a proverbial gold-standard firm in preparing tax documents for corporations and (wealthy) individuals.

Which brings me to the subject of the IRS.  Needless to say, the IRS’s investigatory powers cannot be used for political purposes.  For the most basic and obvious reasons, that would be illegal; it would undermine democracy itself.  (See, e.g., Richard Nixon; Watergate.)  But if this firm is simply altering or removing relevant facts from its computations in order to meet a client’s pre-calculation demand—which apparently is what happened in this instance—its very credibility is so undermined that the firm’s identification on IRS, or for that matter securities, documents, as having played a role in the preparation of the document, should begin to raise red flags for the relevant government agencies.  And for anyone reading a securities prospectus or considering the purchase of, or investment in, a particular business.

There’s simply a limit to the extent to which relevant facts can be manipulated or discounted and still have the financial representations not amount to fraud.  In the case of this Ernst and Young report, it’s fraud, but not illegal fraud.  But that’s only because the report itself was not part of a securities or IRS filing or some other financial transaction.  

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*Oookay.  Blogger is not letting me use the ampersand, saying it’s a character that’s not allowed. Thus, my use of “and” rather than the forbidden character in the corporate names.

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Yglesias Misses the Point. Again. [with correction]

Rules requiring firms to restrict employment to their country of origin would be hideously inefficient if applied on a global basis, and they would be every bit as devastating to American employees of foreign firms as offshoring by American firms is to workers who lose their jobs here. (One might also ask where the borders of corporate patriotism ought to be. If it’s wrong for a Michigan-based car company to have a supply chain that extends to Mexico, why is Ohio OK? After all, it hardly makes a difference to a laid-off worker where exactly his job went—the bad news is that he lost his job.)

Over the long run, we’re all going to be more prosperous if we live in a world where firms are allowed to locate work where it’s most efficient to locate it. This is exactly why, despite some tough ads, the Obama administration has not proposed any policies to restrict firms’ freedom to shift work across state or national boundaries.

Romney’s unwillingness to make the case for outsourcing reflects, in part, political timidity. But more broadly, it underscores that although he’s been an eager participant in contemporary capitalism, he’s not willing to mount a policy response to its vicissitudes.

Offshoring Is Fine. Why won’t Mitt Romney defend Bain’s record?Matthew Yglesias, Slate, yesterday afternoon.

It’s surely true that rules requiring firms to restrict employment to their country of origin would be hideously inefficient if applied on a global basis, and they would be every bit as devastating to American employees of foreign firms as offshoring by American firms is to workers who lose their jobs here.

But, to my knowledge, the only one who’s equated the absence of* government policy (of necessity on this issue, statutes) that would restrict corporate employment to the country of the corporation’s origin, and a private equity firm’s investment in companies that specialize in assisting American corporations with offshoring employment, is Yglesias.  Even Romney apparently recognizes the distinction. Not sure why Yglesias doesn’t.

It’s one thing to argue that utterly unfettered globalization of employment by corporations worldwide ultimately has a positive effect on the American economy—as Yglesias does. But it’s another thing entirely to actually convince a majority of the public that this is so even in light of current trends and actual facts. 

And it’s one thing to argue that laws that forbid companies from relocating jobs from the company’s home country to another one would have a negative side to it because of possible retaliatory laws in other countries, and another thing to equate that with decisions by corporations themselves about whether to offshore or not. (And, setting aside the obvious constitutional bar to prohibiting a corporation’s relocation of jobs from one state to another, it’s a lot easier for families to relocate from Michigan to Ohio than from Michigan to Mexico.)

The thing that Yglesias doesn’t get is that Romney’s claiming that his private-sector career demonstrates his ability to create not just wealth for investors but jobs en masse for the public. There’s really no way for him to make that claim persuasively, because it plainly isn’t true. He can defend offshoring as a corporate strategy, but corporate strategy is a different matter than economic strategy.

Unless, of course, Romney wants to argue that encouraging offshoring by American corporations is good government policy. Hope he does.  But then, I’m a Democrat.

*Sentence corrected to insert the words “the absence of”.

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Matthew Yglesias, Slate’s Boy With a Little Curl

Lost in the shuffle here is the question of what it is Romney is denying he’s responsible for. Stipulate that Romney somehow had nothing to do with running a company of which he was the CEO and sole shareholder. Does he think, in retrospect, that his subordinates did something wrong by offshoring jobs? Clearly he didn’t, which highlights the absurdity of his claims not to have been responsible. It’s true that he wasn’t running the country [sic] on a day-to-day basis, but he really was titular CEO and had Bain been doing something he deemed outrageous he could and should have stepped in to stop them. But he doesn’t believe that. And what’s more, all indications are that Barack Obama also doesn’t think Bain was doing anything wrong. [Emphasis in original.] As president he’s made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who’ve done just that to varying extents. And we all remember what happened to Obama’s promise to renegotiate NAFTA after taking office, right?

In my view both Obama and Romney are quite right about this. I’ll say more on this during the workweek, but one quick test is do you think there’s something immoral about the fact that Toyota and BMW have manufacturing facilities located in the United States? Should the Japanese and German governments be stopping Japan- and Germany-based firms from locating production offshore?

I posted a comment to it, saying:

Well, when Obama starts claiming that one of his key qualifications for reelection is that he’s helped create jobs in China—or when Romney starts saying that Bain invested in companies that specialized in moving jobs overseas in exchange for promises by German and Japanese companies to open, or keep, factories in this country—Yglesias’s equivalency argument might be less ridiculous. 

One of Obama’s spot-on arguments against Romney’s claim that his Bain experience was a successful jobs-creation experience rather than merely a successful wealth-creation-for-investors experience is that there’s a huge difference between experience in creating wealth for private investors, by any means available and at whatever expense to others, and creating good for the country’s overall economy and general welfare.  This offshoring issue is a classic case in point. Setting aside whether the federal government has the legal authority to prohibit private companies from offshoring—and I don’t think the government has any such legal authority, except in certain limited national security or foreign policy circumstances—there’s an obvious critical difference between not trying to stop this country’s companies from offshoring, for fear of retribution by other countries’ companies, similar to trying to avoid a tariff war, and aggressively aiding offshoring by American companies irrespective of any up-side for the general American economy. 

Add to that that, as several other commenters have pointed out, the German and Japanese companies that offshore in this country do so mainly in manufacturing products or parts for products that will be sold in North America, mostly in this country.  GM, Ford, Chrysler and some U.S. auto-components manufacturing companies have factories in Europe, but the products and components made there are sold in Europe.  Like the German and Japanese auto companies that Yglesias equates with Bain’s offshoring-specialist companies, the American auto-industry companies continue to make the parts and cars sold in their home country in factories in their home country. 

Which, of course, would not be the case any longer had the Bush and Obama administrations taken Romney’s advice and let Detroit fail.

That said—and for the same reasons—Yglesias is wrong in saying that unless Romney thinks there’s something wrong with offshoring, it’s absurd for him to deny responsibility for Bain’s investments in offshoring-specialist companies during the three-year period beginning in early 1999.  If in fact Romney was no longer associated with Bain during that period, he would have every right to correct the record, whether or not he thinks there was anything wrong with what Bain did during that time.  But the question of whether Bain did anything wrong in investing in offshoring-specialist companies—during the period between 1993 and 1999, when (at least as I understand it) it apparently was doing so at Romney’s clear behest, or during the following three years—depends on what is meant by “wrong.” 

It was not illegal.  But many voters think that, while it clearly was helpful to Bain’s investors and to Romney (who has continued since then to receive large payments from Bain), it was not helpful to the larger American economy and to the middle class.  It did not create jobs in this country; instead, it eliminated them.  And Romney is running for president virtually entirely on his claimed credential of being a jobs creator and of knowing how to create jobs—in America.

I’m hesitant to be too critical of Yglesias for his rather obvious conflations here.  He was, after all, not just the first pundit but also one of the very few even yet to point out a stunning, absolutely jaw-droppingproposition of law stated by four of the nine Supreme Court justices in their joint dissent late last month in the Affordable Care Act case, the part of the dissent concerning the issue of the severability of the part of the Medicaid provision in the Act that the Court’s majority struck down, in which the dissenters, while claiming that the majority was rewriting the Medicaid provision in order to save much of it, wanted to rewrite, rather dramatically, the Constitution’s separation of powers between Congress and the Court. Only four hours after the release of the opinion, when almost no one except the journalists covering the Court had yet read the dissent, Yglesias wrote:

As I’ve noticed previously, there’s lots of other stuff in the Affordable Care Act besides the new regulation of insurance companies, including a move to deregulate dental services. So I was curious to see why the dissenters in the Supreme Court thought that not only was the individual mandate and the provisions related to the individual mandate unconstitutional, but also all this other stuff.

The answer is that they appear to have made up a new Christmas Tree Doctrine under which legitimate acts of Congress are held null and void if Antonin Scalia thinks they were part of some kind of unseemly horse-trading:

Some provisions, such as requiring chain restaurants to display nutritional content, appear likely to operate as Congress intended, but they fail the second test for severability. There is no reason to believe that Congress would have enacted them independently. The Court has not previously had occasion to consider severability in the context of an omnibus enactment like the ACA, which includes not only many provisions that are ancillary to its central provisions but also many that are entirely unrelated—hitched on because it was a quick way to get them passed despite opposition, or because their proponents could exact their enactment as the quid pro quo for their needed support. When we are confronted with such a so called “Christmas tree,” a law to which many nongermane ornaments have been attached, we think the proper rule must be that when the tree no longer exists the ornaments are superfluous. We have no reliable basis for knowing which pieces of the Act would have passed on their own. It is certain that many of them would not have, and it is not a proper function of this Court to guess which.

That all seems fine except I would have thought it was the prelude to the opposite ruling. It’s not the proper function of the court to guess why different provisions were enacted, just to rule on the constitutionality of laws. Since there’s plainly no constitutional problem with regulating interstate chain restaurants, the law is the law until Congress repeals the law. Instead, Justices Scalia, Alito, Kennedy, and Thomas have decided that rather than pick and choose it would be better to strike everything.

This is far, far more newsworthy than the teensy bit of attention it has received suggests.  Four Supreme Court justices think legislative logrolling is improper and that therefore the Court can strike down full pieces of legislation that a majority of justices don’t like whenever they decide that some provision, however small, in the full piece of legislation is unconstitutional.  After all, y’know, maybe the rest of the legislation would not have been enacted without the quid pro quo votes.  Presumably, this also would apply to state laws as well as to federal laws—but, of course, as with federal laws, only to laws that the conservatives don’t like.

I’d been meaning to write about this truly radical part of the dissent in the ACA case, but hadn’t gotten around to it.  Now I have.

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Was Romney’s Bain-Era IRA Tactic Really Legal In That Circumstance? [with UPDATE from Business Insider]

In a comment to my post yesterday titled “Romney’s VERY Private Equity,” which asked how Romney was able to metasticze his Bain-era IRA account to accumulate more than $100 million—Investment in Apple stock?  In precious-metals funds?  A quiet Louvre heist? I asked—reader Steve Hamlin wrote:

Beverly,

Re: Romney’s IRA contributions, there was a WSJ article in the past several days that talked about them – they were often a special share class of the PE deals that Bain invested in, where the majority of the value of the company was assigned to the other share class. There are examples of these “low-value class” shares making 600% in several years.

The tax strategy (made sense at the time, less so now) was to put these high(?)-risk, high-reward share classes in your IRA, and your mandatory allocation of the other (lower risk, lower reward) share class in to your taxable brokerage account.

The article quotes tax professionals who question the aggressiveness of the Bain share class valuations.

Source: http://professional.wsj.com/article/SB10001424052970204062704577223682180407266.html?mg=reno-wsj

I wrote up a reply to Steve’s comment, but the Comments function won’t let me post it there because the comment is too long.  So, here it is:

Thanks, Steve.  When I read your comment, I remembered reading something about this in the Vanity Fair article (which I read only once, on Jul. 3), and just went back and reread that part of it.  Here’s what it says:

The Romneys won’t say, but Mark Maremont, writing in The Wall Street Journal, uncovered a likely explanation. When Bain Capital bought companies, it would create two classes of shares, named A and L. The A shares were risky common shares, to which they would assign a very low value. The L shares were preferred shares, paying a high dividend but with the payoff frozen, and most of the value was assigned to them. Bain employees would then put the exciting A shares in their I.R.A. accounts, where they grew tax-free. With all the risk of the deal, the A shares stood to gain a lot or collapse. But if the deal succeeded, the springing value could be stunning: Bain employees saw their A shares from one particularly fruitful deal grow 583-fold, 16 times faster than the underlying stock.

The Romneys won’t tell us how, or even if, they assigned super-low values to the A shares, but there are a couple of ways to do it. One is to use standard options models to price the shares—then feed inappropriate assumptions into those models. Romney could alternatively have used a model called liquidation valuation, which Kleinbard [Ed Kleinbard, a USC tax law professor whom the author contacted in researching the issue] says would have been “completely inappropriate.” Without seeing the assumptions used on Romney’s tax returns from the years when those lowball A shares were squirted into his I.R.A., we cannot know how he did it. Whatever methods he used, however, the valuations were, according to Andrew Smith, of Houlihan Capital in Chicago, “pushing the envelope.” (Andrea Saul retorts, “Why should successful investments be criticized?”)

I remembered that when I read those paragraphs last week, I said to myself in answer to Saul’s rhetorical question: “The relevant question here is not whether successful investments should be criticized, but instead whether illegalinvestments should be criticized.”  The investments themselves weren’t illegal, but the classification of the stock into two arbitrarily-divided classifications in order to give falsely low valuations on one class in order to create huge nontaxable profits, sure as hell sounds to me like it wasillegal.

Krugman says there possible legal ways that the IRA gains could have been so huge.  But the way described in the Vanity Fair article and in the WSJ article doesn’t appear to be legal in Romney’s instance, even though this tactic would be legal in other instances—i.e., when there is some actual tangible difference between the risk and value of the two classes of stocks, and when the stock placed in the IRA is given a legitimate, rather than fraudulently low, value.

The relevant paragraphs of the WSJ article read:

The tax-deferral opportunity stemmed from the way Bain often chose to structure the shares of companies after taking them over.

Even if the companies had only one share class, Bain frequently gave them two classes, usually called Class L and Class A, according to former employees, Bain internal documents and securities filings. Because Bain controlled the companies, it had flexibility in assigning values to the classes.

Class L shares, akin to preferred stock, were safer and had a higher initial value. They had priority if the company paid dividends, and holders of these shares were the first to receive proceeds from a sale or liquidation. The shares also accrued interest, often at 10% to 12%.

Bain assigned a much lower value to Class A shares, which were riskier but potentially more profitable.

If Bain sold or liquidated a company it had taken over for less than was owed to Class L shareholders, the Class A shares lost all of their value.

But once Class L shareholders got their money, Class A shareholders received the bulk of additional gains, often as much as 90% of them, according to the documents and former employees. In successful deals, the A shares could skyrocket.

Can it really be that all that was legally necessary was to simply separate objectively identically-valuable stocks from a single company into two classes of stocks whose only difference is the arbitrary value that the company assigns the stocks, rather than the actual tangible value of the stocks?

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UPDATE: To my utter knock-me-over-with-a-feather astonishment, Business Insider’s Henry Blodget posted an article early this morning based partly on, and linking to, um … um … my “Romney’s VERY Private Equity” post from yesterday.  The link to my post is in the sentence “This ‘structuring’ has also likely taken advantage of offshore accounts, the contribution of hard-to-value securities at low valuations to Romney’s IRA (whereupon they exploded in value), ….” 

Cool! Thanks, Mr. Blodget! 

Then this afternoon, he posted a follow-up titled “Wait—MaybeTHIS Is How Mitt Romney Got So Rich…,” in he explains (based on the surprising revelation in the Boston Globe article that during the period of 1999 to 2002Romney owned 100% of Bain stock), how Romney’s IRA account might actually have acquired so much money legally. 

Since Blodget may well have figured out how that IRA came to be worth so much, without even having to channel Sherlock Holmes, I thought I should let readers know.  Although I think he may be wrong and that Bain really did stage a quiet Louvre heist.  Has anyone noticed whether Mona Lisa looks slightly more like a Bain CEO than she used to?

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Romney’s VERY Private Equity (with UPDATE)

By now there’s been a lot of discussion in the media about the Vanity Fair and Associated Press exposés of Romney’s and his wife’s offshore bank accounts, to the limited extent that information about them is publicly available.  Romney is now likening overseas bank accounts and shell/money-laundering corporations to investing in real overseas companies—as if investments in overseas companies guarantee profit rather than loss in the same way that Bain and its executives usually were guaranteed profits, through financial-transaction fees and “consulting” fees they arranged for themselves irrespective of whether the acquisitioned company made money or instead collapsed under the weight of the debt Bain forced it to incur, in large part, in order to pay Bain those fees.  And as if personal profits from overseas investments aren’t taxable here in the United States unless those profits are stored in bank accounts elsewhere. 

Romney’s refusal to disclose enough specifics about these foreign bank accounts, where the money actually came from and under what circumstances, and how it has been invested gives new meaning to the term “private equity,” at least in Romney’s case.  And this refusal, too, has been and will continue to be widely discussed.

But there’s one aspect of the investigative reports that I think has not been given enough attention and analysis: that Romney’s IRA account from his 15 years as CEO of Bain Capital—a period of time when annual IRA investments could be no more than $2,000—now has assets of more than $100 million.  The Vanity Fair article quotes an expert that the author consulted as saying he believes that they only way that this could have happened would be if Romney significantly undervalued the actual value of the assets he was placing into that account.  Paul Krugman in his New York Times column on Monday discussed the IRA and said there were conceivable legal ways to accomplish this but, because of the secrecy, no way for the public to know whether these wealth was accumulated legally or not. 

Krugman didn’t discuss how this could have happened legally, so I’m wondering: what kinds of investments would there have to have been for this money to have so wildly metastasized?  Apple stock?  If so, how much Apple stock?  Precious-metal funds?  A quiet Louvre heist? 

But there’s another issue concerning Romney’s and Bain’s peculiar brand of investment—this one involving the realdefinition of private equity, not the pun one I used in the title of this post—that also hasn’t received enough media attention: the difference between Bain-style private equity and Silicon Valley-style venture capital.  That difference being the one I alluded to above regarding the investor’s forcing the invested-in company to borrow large sums from banks and use some of the borrowed money or some of its profits to pay huge fees to the investor.  Or, in Bain’s case, apparently, not to all the investors, just to the investment company itself and to its executives—thus eliminating, for them, the usual risk inherent in capitalist investment.  You know; the risk so vaunted by uber-capitalist-advocates like Romney.  Not to mention Romney himself. 
Slate writer Will Oremus has an article there today in which he argues that the real difference between the federal government as an angel investor in startups such as Solyndra and private venture capitalists is that the former can only recoup its investment, while the latter can make substantial—sometimes huge—profits.

But venture capitalists, unlike Bain and its executives, also can lose all or some of their investment, just as the government can.  ((Does Andreesson Horwitz load up the startups it invests in with huge bank debt and use some of the loan money to pay the venture capitalist firm huge financial-transaction and consulting fees?)*  Just as there’s a difference between Silicon Valley-type venture capitalism and Bain-style private equity—something that Obama should point out—there’s a difference between making off like a bandit and being one.

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UPDATE: Well, as implied in my reply to a comment below, I was unaware that Romney was the sole owner of Bain; I thought Bain was a closely-held corporation in which Romney was the main, but not the sole, shareholder.  But a jaw-dropping Boston Globe investigative report today, titled “Mitt Romney stayed at Bain 3 years longer than he stated,” makes clear—among, um, other things—that Romney was the sole owner of Bain.

ALSO: On the subject of what types of investments Romney would have to have placed in his Bain-years IRA in order for it to have gained so much wealth, I just emailed Paul Krugman at his Princeton email address, told him about my post and about the speculation in the comments by Mike and Kaleberg, and asked whether he could write on his blog or even in his column about the various possibilities.  So … we’ll see ….

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*Parenthetical added on 7/12 at 11:15 a.m.  Should have included it in the original yesterday.  Couldn’t resist adding it now.

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John Roberts and Elena Kagan: Mirror Images of Each Other

The second biggest surprise of the day, after the survival of the Affordable Care Act, is that we’ve never really gotten over our collective crush on John Roberts. How else to explain today’s outpouring of praise, not merely for the decision but for the man himself, for his statesmanship and judicial modesty? All these years, it now appears, we’ve held it in our hearts; we’ve written it in our diaries, remembering every one of those sweet nothings he once whispered about “common ground” and “humility.” No, we never really gave up on Roberts. Not during that long judicial bender he took with the boys—Nino, Clarence, Tony, and Sam; not during the Citizens United argument, when he called the government “big brother”; not when he swept away a century’s worth of campaign finance regulations. So complete is our swoon, in the afterglow of the ACA ruling, that Bob Shrum has written that if Roberts had been Chief Justice in 2000, Bush v. Gore might have gone the other way.

To which I posted the following comment:

I write on legal and political issue issues for a left-of-center blog and have indicated there that I detest and really fear John Roberts because of his deeply diabolical nature and his checklist of ‘80s-era Federalist Society things-to-do.   Linda Greenhouse has written several columns, two or three of them within the last few months, highlighting those two quintessential John Roberts traits.  But Greenhouse, and I, predicted that Roberts would save the ACA because the case is so high-profile and the grounds for striking down the statute so utterly artificial that it would place more public scrutiny on the types of things he and his cadre normally get away with with virtually no public awareness.  I don’t think he did what he did out of a sense of statesmanship, nor in order to gut the Commerce Clause; I think the Commerce Clause ruling will have almost no practical effect, and he could have done the same thing with it simply by joining the other four conservatives in a 5-4 ruling striking down the ACA. 

I think he’s, in a way, the mirror image of Elena Kagan, who in high-profile cases usually votes liberal but who, best as I can tell, almost never goes out on a limb for the “nobody” “cert” petitioner and actually fights to get a “cert grant,” as Sotomayor does, and who I’d bet doesn’t even vote very often to hear such cases.  Her priorities seem to be her own public image and being buddies with the “in” crowd on the Court, whereas Roberts’ priority is making as many dramatic changes to the law as he can, but doing so as much under the public’s radar as possible.  (I also think Kagan is a bit naïve on some issues because of her unfamiliarity with them—see, e.g.: federal habeas review of state-court convictions—and fairly easily snowed.)

So I agree with Ken Houghton in his post below that John Roberts is not the friend of progressives.  I disagree with Ken, though, that Roberts has set up some trap through which he will later orchestrate the striking down of the ACA as a violation of equal protection because of the way in which the Medicaid expansion is administered (if I understand Ken correctly) is nil.  Roberts ended his opinion with a statement saying that the proper manner in which to determine the ultimate fate of the ACA is through the political process, not the judicial process—and I think he means it.  There are two parts of Roberts’ opinion—the part concerning Congress’s regulatory powers under the Commerce Clause and the part concerning Congress’s power to enact federal-state partnership legislation a la Medicaid—that raise serious concerns about the impact on otherlegislation.  I wrote separate posts yesterday about each of these, and I’ll be writing another one on Medicaid issue later today. 

But any lawsuits concerning some aspect of how the law is working in practice, once it gets underway, would result in the possible tweaking of an HHS regulation or in the manner in which a particular state is implementing the Act, but I just don’t foresee a successful attack on the constitutionality of some provision in the Act itself. 

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Thank you, Judge Posner

The chief justice, echoing Justice Scalia’s “broccoli” comment at the oral argument, rejected (as did the four dissenters, and so that is now the view of a majority of the justices) the Commerce Clause ground for the mandate, saying that to accept that ground would mean that “Congress could address the diet problem by ordering everyone to buy vegetables.” This argument, reassuring though it is to our obese population, confuses separate constitutional provisions. The Commerce Clause would empower Congress to order everyone to buy vegetables, because the market for most vegetables is interstate, but the “liberty” protected against the federal government by the Fifth Amendment would doubtless be interpreted to forbid such an imposition, just as it would be interpreted to forbid a federal law requiring everyone to be in bed with the lights out by 10 p.m. in order to economize on the use of electricity and, by doing so, reduce carbon emissions from electrical generating plants.

— Judge Richard A. Posner, on Slate, 5:38 p.m. today

Amen. 

Justices Ginsburg, Breyer, Sotomayor and Kagan also made that point, in their concurrence today.

I’m thrilled to be in such exalted company.

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