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

Due Process: Holder vs Colbert. Art or Reality. Choose.

Re-posted from last year is Dan Becker’s post:

Due Process: Holder vs Colbert. Art or Reality. Choose.
This is the object:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;

It’s all one sentence. Any questions?

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid

Did you ever have that feeling in your life

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Due Process: Holder vs Colbert. Art or Reality. Choose.

This is the object: 

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;
It’s all one sentence. Any questions?

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid
Did you ever have that feeling in your life
That someone was watching you?
You don’t have no reason that’s right
But still he’s there watching you
Someone is waiting just outside the door
To take you away
Everybody knows just what he’s there for
To take you away
vs the lyrics of Red Rider’s Lunatic Fringe 
Lunatic Fringe – in the twilight’s last gleaming
This is open season, but you won’t get too far
‘Cause you got to blame someone for your own confusion
We’re all on guard this time against the Final Solution
all on guard this time

This is the reality. 44% of our wealth is due to rule of law.

World Bank study on wealth in 2005 stated:
Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.” “Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.”
Rule of law equates to trust.

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Not So Dumb as Economists, Part 1

I was going to point out that finance people are not so dumb as economists,* but Echidne’s takedown of Gary Becker is so divine it deserves your attention more:

This argument was initially made by Gary Becker, an economist, a very long time ago.** It is not an uncommon argument from conservatives (or from certain types of anti-feminist sites.) That does not mean that it shouldn’t be discussed. So let’s do that by looking at what is unrealistic about the specific conclusions….

In [Becker’s] first model only owner/managers have a dislike towards workers from a particular group. That, my friends, is the model from which the above conclusion comes, though even then it would only work to eradicate discrimination from the whole industry if the industry was essentially a competitive one. If the industry is not sufficiently competitive, the bigoted owner/managers can hang on and practice discrimination.

Becker argues that if the only problem we have consists of some bigoted owner/managers, while everyone else is just so sweet, sufficiently well-lubricated markets can get rid of those nasty bigots, always assuming that everybody knows everything relevant about everyone else.

There are no misconceptions in the model. Even the bigoted owner/managers of a pizza parlor, say, know that Joe and Jane are equally good pizza-bakers. They just hate Jane and are willing to hire her only if they can get her for less money.

This cannot last if we can find at least [one] non-bigoted nice owner/manager.

That’s the background of the old chestnut. Becker, having become immersed in the imaginary world of his simple model, concluded that competitive industries would never exhibit any long-run sex or race discrimination. Only oligopolies or monopolies could survive with at least some bigoted owner/managers. [emphases mine; hers varied]

It is a rare and delightful moment when someone looks seriously at an economic model. Strangely, when you examine the social premises of the mathematics—returning economics to its beleaguered claim to being a social science, as it were—it starts to be clearly why people believe economists are the problem, not the solution. It’s progress to see a blogger destroy an economist this thoroughly.***

*And I may still, using this post by Mish as the springboard, but I think the post leads to that as an inevitable conclusion, so for now I’ll just refer people there.

**1971, apparently, though, iirc, several of the papers are from 1965-1966.

***Yes, I know The Snake Woman is, in real life, a qualified economist. But she’s not being asked to play one on television, like Larry Kudlow, whose degree from WooWoo is patently not in economics, or Megan McArdle, who has an Ivy League degree in English Literature and an MBA.

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Systemic Discrimination is Legal as long as you are Large

Welcome to the New United States.

Trust that Jared Bernstein (if this one shows up, instead of this one) will have more on how much future damage can be done to the economy.

UPDATE: Scott Lemieux weighs in, correctly seeing it as worse than any reasonable examination of the facts would have permitted*:

Systematic discrimination at a large corporation such as Wal-Mart simply cannot be addressed piecemeal. I could have lived with a ruling that focused on the unique facts of this case. But in their broad ruling, the Court’s five most conservative justices have made it much more difficult for civil rights laws to be meaningfully enforced in practice. It will be part of the classic conservertarian bait-and-switch: individuals filing lawsuits will not have enough evidence to prove discrimination, and class action suits that develop systematic evidence will be thrown out for not having enough in common.

Between this and Andrew Samwick’s recent declaration that the rule of law should not apply in the United States, it’s a good week for the youngsters among our readers to check out this site.

*Although, as is becoming far too usual, on par with my cynicism being optimistic.

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Senators Who Committed a Crime Demands Rule of Law

David Vitter (R-DiaperPuta) stands firm:

Sen. David Vitter (R., La.) will block two nominees to the Securities and Exchange Commission…

Daniel Gallagher Jr., a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP who was nominated to join the SEC, and agency commissioner Luis Aguilar, who was nominated for a second term….both require Senate confirmation, haven’t encountered any substantive opposition partly because they were paired together as a Republican and a Democrat in order to reduce incentives for partisans to blow up their nominations.

But senators often use the confirmation process to pressure federal agencies to meet various demands. By placing a “hold” on the nominees, Mr. Vitter is delaying a confirmation vote by the Senate.

BarryO was strangely silent during Vitter’s re-election campaign, not once declaring that having committed an actual crime would be a reason to resign.

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I Hate It When My Cynicism is the OPTIMISTIC Version

I wisecracked yesterday chez DeLong that, given the current political climate, I wouldn’t invest in a company without political connections using his money, let alone my own.

What I didn’t realize at the time was that the Supreme Court already had decided earlier yesterday that investing in mutual funds should be a hazardous activity:

Janus Capital Group Inc (JNS.N) and a subsidiary cannot be held liable in a lawsuit by shareholders over allegedly false statements in prospectuses for several Janus mutual funds, the U.S. Supreme Court ruled on Monday….

Janus, in appealing to the Supreme Court, argued that the funds were separate legal entities and that neither the parent company nor its subsidiary was responsible for the prospectuses and could not be held liable.

Janus, being the two-faced G-d of Theatre, would approve of his namesake’s claim: “Well, we own the company, we paid for the prospectus, we marketed the prospectus, we made assurances to investors based on our Due Diligence about the prospectus—why would you blame us if something goes wrong?”

Or, for the positive spin,

Mark Perry, the attorney who represented Janus, said he was delighted the Supreme Court agreed with the company’s position that only the party ultimately responsible for a statement can be sued for fraud in such private investor lawsuits.

“The court’s clarification of the scope of primary liability under the securities laws is important not just for the parties to this case, but for all participants in the securities markets, including bankers, lawyers, accountants, and investment advisers,” he said.

We knew nothing. We always Know Nothing. You are paying us for our “expertise,” but We Know Nothing.

Gresham’s Law will follow:

William Birdthistle, an associate professor at the Chicago-Kent College of Law who had written an amicus brief on behalf of First Derivative Traders…said the ruling’s most dramatic impact could be to encourage other industries to adopt the split management structure of the mutual funds sector as a way to avoid liability.

“What this ruling says is that as long as there are separate legal entities, even if management totally dominates all aspects, there’s no liability,” Birdthistle said. “This is going to open the eyes of those not in the funds industry who are going to say: ‘Wow, those guys are bulletproof’,” he said.

“Bulletproof” is not something you want in someone who is supposedly representing your interest.

Anyone stupid enough to invest in the U.S. mutual fund industry after this ruling must be someone who believes they’re “managing my 401(k) to take control of my future,” even though the company only offers three options, one of which is Company Stock.

The next time someone tells you about the evils of Moral Hazard, assure them that the Supreme Court doesn’t believe in it.

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Pay no attention to the man behind the curtain.

As the title indicates, this will be a more than usually confused post.
The stimulus was the now famous grief over elementary fairness which errupted when “[Judge] Scott Fairgrieve of Nassau County District Court, wrote that ‘swearing to false statements reflects poorly on the profession [of law] as a whole” and fined lawyer Steven J Baum $20,000 for false statements in support of a foreclosure. Baum also suffered a Schack attack when Judge Arthur M. Schack referred to one filing as “incredible, outrageous, ludicrous and disingenuous.”

Baum wrote “Pay no attention to the man behind the curtain.”

In Toto not a good time to be a sleazy lawyer in New York (when was the last time that was true?).

The part which stunned me was

Anne Reynolds Copps, the chairwoman of the real property law section of the New York State bar, said, “We had a lot of concerns, because it seemed to paint attorneys as being the problem.” Lawyers feared they would be responsible for a bank’s mistakes. “They are relying on a client, or the client’s employees, to provide the information on which they are basing the documents,” she said.

So her view is that lawyers do not have the responsibility to check the claims of fact they make to judges, to look at the evidence. So what exactly do they do? Is the claim that their job is to look good in a suit and speak proper English with a confident tone?

Lawyers have discovered that they can make a whole lot more money by not doing their jobs and claiming they have done their jobs. Big surprise. Now the idea that they might have to give up that income, because they don’t have time to do what they have been claiming they have been doing is shocking.

I think that this is a very general phenomenon.

I don’t know how much money Baum made, but it is clear that one lawyer with a huge income must have been mainly taking money for doing what he didn’t bother to do

“David J. Stern, a lawyer whose Florida firm has been part of an estimated 20 percent of the foreclosure actions in the state, has been accused of filing sloppy and even fraudulent mortgage paperwork.” One firm [working on] 20% of the foreclosures, how many partners? How many associates with law degrees? How many robo signers?

Bankers and lawyers used to earn good money for, among other things, due diligence, keeping records, keeping proof if the records were contested, and complying with burdensome laws and regulations.

Relatively recently, they have earned immense incomes claiming they had done those things without bothering to do them. I guess that the fee charged by the lawyers who didn’t glance at the evidence is the same as the fees charged by lawyers who check if something is true before telling it to a judge. Clearly, one can make a lot of money claiming to have done something difficult and time consuming without bothering to do it.

Banks charge fees for handling transactions, but clearly stopped bothering to, say, handle transfer of a mortgage in a way that the entity which paid them could foreclose when the time came.

Banks charge to exchange currencies. If they are trading pieces of paper for pieces of paper, then they have to hold money to do that and they have to keep people from stealing it. If I am taking money out of an ATM in a country with a different currency from my bank account, I am forcing some computer somewhere to multiply two numbers. Ouch. But they charge as if they were doing it with pen and paper (or maybe an abacus).

I’d guess that most of the huge profits of the financial services sector are based on separating gamblers from their money, but a large part come from charging for services not rendered and another large part come from charging a lot for services which cost very little to provide now that they have computers.

The terror at the idea that judges won’t accept “because I say so” as proof shows how much the system depends on no one checking what was actually done in exchange for the huge flow of fees.

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My Kids Have School Today: An Inequality Survey

The kids in the next town over don’t.  Indeed, the place where my Eldest Daughter’s swim team practices is closed because it’s a holiday, and their schools are.  But not here: the banks are closed, the government offices are closed, the local libraries are closed. (Heck, the New York Public Library is closed.)  But the schools are open.

For more than three years, the teachers worked without a contract.  While the Administration grew—and paid itself very well, taking an ever-increasing share of the budget—the teacher showed good faith.  They continued to negotiate, continued not to strike.  It wasn’t until the third year that they started cutting back on the extra effort they put in—things such as displaying children’s art projects in the hallways–.

Finally, two years ago, a contract agreement was reached.  One of the things no one bothered to specify—since the schools are public, and therefore a government institution—was that Federal and State holidays would not be school days.  The teachers might work some of them—teachers, as with most academics, do more work outside of the classroom (in preparation, in training, in research) than in it, so there might be a training day on some of the minor ones—but there would not be classes.  No Administration would be crazy enough to schedule classes on a Federal holiday, when many of the parents would have planned three-day weekends.

Except ours, to punish the teachers for having the temerity to negotiate for a contract, would do exactly that.  And it has for the past few years.

While taking my usual walk from Penn Station to Times Square, I saw more than the usual amount of tourists: a marginal effect of the holiday, as economists would note.  And that marginal effect is marginally reduced by the families whose children had to go to school today, even though their parents have the day off.  By the Law of Large Numbers, economists won’t even notice the difference—though individual stores and businesses might.

Columbus Day may be a minor Federal holiday. An NCIS “Undercover Marathon” on the USA network does not a unique celebration make.  And explaining why it is a holiday may become problematic. (“Well, white men with guns came here because like most men they were really lousy at asking for directions. And unlike the previous white men, they stayed, more or less.” is so much less doggerel or open to misinterpretation than “In 1493, Columbus sailed the Deep Blue Sea.”)  But explaining that the kids have to go to school, not the beach, because the superintendent wants to punish the teachers and the kids are collateral damage, well, that’s an economics lesson that will abide.

Especially when you tell them the punch line: Despite more than containing teacher expenses, the school budget has exploded for the past several years as more and more Administrators have been paid more and more money. And the result of this is that the Superintendent who is responsible for that got a five-year contract extension, bloating the budget even more, with even less of it allocated to children’s education (since the Superintendent is a Fixed Cost).

From there, explaining the growth of income inequality is at worst a lay-up.

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Clinton Global Initiative, Day 2 – Empowering Girls and Women (Plenary)

Moderator is Katie Couric, News Anchor and Managing Editor at CBS News. Panelists are

  • Her Majesty Queen Rania Al Abdullah , Hashemite Kingdom of Jordan
  • Ellen Johnson Sirleaf, President of the Republic of Liberia
  • Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company

Mr. Kent’s favorite book is Thomas Friedman’s The World is Flat.

Queen Rania notes that the women are working very hard, but their time is not sufficient for everything that needs to be done. Part of this is the mindset (marriage > human capital development), but a significant portion is lack of available infrastructure.

Ellen Johnson Sirleaf: We started by focusing on women in the “informal sector,” providing educational opportunities and the like.  But this wasn’t enough in either respect: needed to provide more opportunity for work out of home and more protection on government level.

Mr. Kent notes that 70% of his customers are women.  Looked into future development and realized there was a significant mismatch in the company’s efforts, philosophy, and customer base.  “It’s a journey; it doesn’t happen overnight, but we are making good progress.”

Queen Rania notes that “no country can make any progress in spite of its women…They need to be injected into the supply chain.” Have contributed more to GDP than technology gains over past 20 years.  The greatest issue is the amount of time it takes to get an initiative in place and to see positive results from it.

Katie Couric asks how important a role is it to educate boys.  Queen Rania notes that the social attitudes harm boys as much as it does girls.  Girls get married instead of getting a job—but boys are forced to drop out of school to provide for their family.  So both lose in that situation.

Mr. Kent speaks of “microdistribution,” which actually originated at last year’s CGI, when Mr. Kent committed to 1,500 more projects, and that half of those would be women.  Not only passed that target, but they now employ an additional 18,000 people—total of 20,000 employed through 1,500 micro projects.  Barriers that had to be overcome—access to finance and land, especially—resulted in development of Best Practices that is now being spread as the model to South America and other locations.  Next goal: empowerment for 5,000,000 additional women between now and 2020.  Will involve both the distribution and retailing sides of Coca-Cola’s business.  Have mobile support for teaching “the basics of retailing” (e.g., stock rotation).

Some of the symbiotic relationships that enable that: In India, for example, carry water miles to their village.  We provide Clean Water which frees up the women’s time and leads to them to start their entrepreneurial work. Most “become leading citizens in their communities,” which leads to opportunities for expansion. (Gives example of a woman who started with one location and is now franchising and employing sixteen [16] people.)

Asks President Johnson Sirleaf about the “ripple effect,” and what the critical first step is.  For us (Liberia), we started with the first step of education—not formal education so much as access to knowledge.  Schools, literacy training, and a have a program that came out of a program from the CGI a few years ago, in cooperation with the World Bank and Nike, to train adolescent girls to go into the particular job that are currently in demand.

Question from YouTube: access to seeds and market information?  Mr. Khan has a project in cooperation with the Gates Foundation to create entrepreneurship for 50,000 farmers to create juice concentrates needed by Coca-Cola.  Have been working with the farmers—and discovered that only 1% of the land ownership was by women.

Queen Rania notes that in twelve countries in the Middle East, have more girls in school than boys. Biggest challenge is how to get women into the labor market, which (as this paper notes) helps both, as it did in the past.

President Johnson Sirleaf notes that there is no legal restriction in Liberia against women owning land, but there may well be structural issues.  Most farmland development now is being driven by women, “the men rather just play drums.”  (Mr. Khan, in response to a question from Couric, notes that competition makes the entire sea go up—helps both.)

How do we end violence against women and girls?  President Johnson Sirleaf says “we are going to stay the course. Make the penalties more intense—and enforce them. (Her example is making the rape of a four-year-old girl equivalent to murder.)  Queen Rania notes that the Community and Religious leaders need to cooperate as well in this effort to facilitate change. She found that when she started working about the subject of child abuse in Jordan, the first problem was that people denied it existed.  Have to have people confront problems before can solve them.

60% of women and girls in developing countries will be married before they are 18, and will have four children before they are 20.  Why does the issue of child marriage continue to travel under the radar.  Leading cause of death for girls aged 15 to 19 in developing countries is complications from pregnancy.  Jordan just raised the minimum age for marriage to eighteen (18) in reaction to seeing teenaged girls who have four children and ten years of “work experience.”

Biggest issue in Liberia is the transition into and through secondary school.  Mr. Khan focuses on “golden triangle”: collaboration between government, businesses, and civil society to lead to greater belief in the future and expectations of a future.

Katie notes that she has two teenaged daughters.  Other than bringing international attention to it, what can we do?  Queen Rania recommends Girl Up (which needs a website developer), a project of the United Nations Foundation that supports school supplies, medical checkups, and clean water to facilitate opportunities for girls in other areas.

Mr. Khan reiterates the obvious: families have to believe in the future, that there will be a better future,to make any progress toward long-term development. With a coordinated effort through the “golden triangle,” we will see improvements and developments.

We can only hope he is correct, and that people will find other jobs than just being a Coca-Cola franchisee as the 21st century develops.

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UC-Berkeley Law School Degrades Itself Even More

No wonder Brad DeLong has had no luck persuading Christopher Edley to get rid of the malfeasant John Yoo. As Bob Somersby observes:

Christopher Edley thinks he’s one of your “betters.” It’s hard to believe, but that’s the exceptionally low-IQ framework this self-proclaimed member of the elite enunciated in Sunday’s piece. According to Edley, rubes like us should want our “betters” in important posts, like the post in which Kagan will serve:

EDLEY: The tension between elitism and populism is embedded in our national DNA because America rejected the model of a monarch ruling by divine right in favor of an iffy experiment in democratic self-governance. So now you are responsible for choosing your leader. Do you want someone like you or someone better than you?

What an astonishing framework! But so it goes when people like Edley spends decades inside institutions like Harvard, convincing themselves that they and their peers are “better” than all the rest of us rubes. [formatting in original]

Kagan, like Yoo, “has excelled in a meritocratic system, one that is selective yet far more open than in generations past.”

Bonus quote from Edley:

The gatekeeper power of such institutions is why it was so important to desegregate them (using affirmative action, among other tools) and why virtually all leaders of great universities talk about diversity and access.

Yep. Elena Kagan is All About Diversity.

At least Edley is consistent:

Dean Edley rolls embarrassingly off the tracks.

Read the whole thing.

Full disclosure: My wife’s cousin is working at Berkeley now. Fortunately, she’s not at the Law School, or I would worry for her reputation.

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