Monday, May 31, 2010
A History of Political Scandals in the U.S.
Another reason I love wikipedia. Worth a look as the we see whether the Sestak controversy has legs.
Suing Rapists
In 2301, when we cover federalism, we touch on U.S. v. Morrison which -- along with U.S. v. Lopez, seemed to mark the end of the indiscriminate use of the commerce clause to justify endless expansions of federal power. But while the case stated that the federal government lacked the constitutional power to allow women access to its courts for lawsuits against their attackers, the state courts could, and perhaps should.
That availability of these courts has been limited however, as the following story illustrates.
That availability of these courts has been limited however, as the following story illustrates.
Responsibility Without Control
After reading the Bystander in Chief, it occurred to me that the national government's response to the gulf oil spill, and the increasing criticism aimed at Obama, coupled with the reality that only BP has the technology to adequately address the spill, raises questions about the limits of presidential power in our constitutional system and its consequences.
We've grown used to thinking that the president can solve all problems, and presidential candidates do promise that they can, but can they? Is it realistic to think that the chief executive can adequately handle all possible problems? Remember that the constitution is structured to limit power, and despite the additional powers granted to the executive over the past century, limits still exist. Nevertheless, the presidency has grown in the public's collective mind where we expect the office to possess a magic wand and rid us of our problems. Maybe we should blame FDR and those fireside chats.
Of course since the country has swung against the idea of power in general, and regulatory power specifically, its worth considering whether the ability of the national government to handle emergencies in general (or prevent them) has been hamstrung by the political process. As with many problems we face nationally, I have a habit of blaming the popular sovereign. In this case we want to limit power, except when we want immediate forceful action, then we want pervasive power. Has the political process turned the office of the presidency into a position with responsibility but no control?
We've grown used to thinking that the president can solve all problems, and presidential candidates do promise that they can, but can they? Is it realistic to think that the chief executive can adequately handle all possible problems? Remember that the constitution is structured to limit power, and despite the additional powers granted to the executive over the past century, limits still exist. Nevertheless, the presidency has grown in the public's collective mind where we expect the office to possess a magic wand and rid us of our problems. Maybe we should blame FDR and those fireside chats.
Of course since the country has swung against the idea of power in general, and regulatory power specifically, its worth considering whether the ability of the national government to handle emergencies in general (or prevent them) has been hamstrung by the political process. As with many problems we face nationally, I have a habit of blaming the popular sovereign. In this case we want to limit power, except when we want immediate forceful action, then we want pervasive power. Has the political process turned the office of the presidency into a position with responsibility but no control?
Saturday, May 29, 2010
Jay Bybee and the Takings Clause
Slate has a critical piece on 9th Curcuit Judge Jay Bybee's decision in Guggenheim v. City of Goleta which argues that he's engaged in conservative judicial activism by injecting his own view of the Constitution's Takings Clause and ignoring precedent. The decision concerns whether any level of government can, constitutionally, impose rent controls on property, or whether doing so amounts to a "takings."
There appears to be a healthy debate in legal circles about just what the Constitution's authors meant when they wrote that private property could not be taken for public use without just compensation.
Here's an interview on the subject with Richard Epstein.
One of the issues involved is whether a "regulatory taking" is effectively the same thing as an actual seizure of property.
Some background:
- A Brief History of the Takings Clause.
- The Takings of Private Property.
- The Takings Clause, From the Heritage Foundation.
- Eminent Domain, From Findlaw.
There appears to be a healthy debate in legal circles about just what the Constitution's authors meant when they wrote that private property could not be taken for public use without just compensation.
Here's an interview on the subject with Richard Epstein.
One of the issues involved is whether a "regulatory taking" is effectively the same thing as an actual seizure of property.
Some background:
- A Brief History of the Takings Clause.
- The Takings of Private Property.
- The Takings Clause, From the Heritage Foundation.
- Eminent Domain, From Findlaw.
Wiki-constitutionalism
Here's useful commentary on the problems that ensue when a country's constitution changes too frequently.
How to Analyze the Future Direction of the Supreme Court
This article by Tom Goldstein not only provides a terrific overview of what a Stevens less Supreme Court would look like, but more importantly for us, uses a precise methodology for dissecting how the Supreme Court approaches constitutional questions.
It breaks the future down into sections involving:
1 - The articles of the Constitution
2 - Cases involving the Bill of Rights
3 - Non-Constitutional Cases
Each is further divided into those issues that are most topical today. I'll try incorporating this into future lectures, but this is the best thing I've read in some time that details the specific constitutional conflicts at issue today, and how they are likely to shift -- or not -- in the near future.
It breaks the future down into sections involving:
1 - The articles of the Constitution
2 - Cases involving the Bill of Rights
3 - Non-Constitutional Cases
Each is further divided into those issues that are most topical today. I'll try incorporating this into future lectures, but this is the best thing I've read in some time that details the specific constitutional conflicts at issue today, and how they are likely to shift -- or not -- in the near future.
Can Memories be Manufactured?
Apparently they can. Scary stuff considering how much of our legal system depends on eyewitness testimony and the degree that public opinion is formulated on individual perceptions of what is true and what isn't.
More on the Sestak Controversy
Republicans and conservatives think they have a legitimate controversy on their hands (complete with talk of special prosecutors and impeachment) but there are still questions about whether the job offer was illegal, and how this is clearly stated.
It is argued that three sections of the Pendleton Civil Service Act of 1883, which outlawed the spoils system, are relevant. But since they have (apparently) never been used to prosecute anyone for making a job offer for not running for office. These offers are somewhat common it seems and Democrats are using this argument to claim this is purely a political, not a legal, matter.
Some links:
- Slate.
- Huffington Post.
- Washington Post.
Applying this to class material:
1 - The Progressives are back in the news, at least indirectly. The Pendleton Act was intended to prevent political parties from treating jobs and contracts as goodies they controlled by holding office. Remember that the president not only holds an executive office, but is the unofficial leader of his party. There is almost certainly a great deal of tension in these two roles. In order to successfully be party leader one may well be tempted to do things that inhibit the ability of the executive branch to fully do its job. I wonder if the controversies involving the Mineral Management Service, where appointments were apparently made to political supporters, is similar legally to the Sestak allegations.
2 - Political leaders do all they can, complete with carrots sticks and all number of other things, to influence who runs for office. They do not like it when challengers take on seemingly safe (or safer) incumbents, or the establishment's preferred candidate. Think about this if you ever decide to run for office. Politics is brutal.
3 - And speaking of brutal, has the threat, or reality, of impeachment become just another aspect of the political process? Republicans pushed for the impeachment of Clinton as soon as he was elected. It just took sometime for him to give them ammo. Fringe Democrats were anxious to impeach both Bush and Cheney for war crimes, among other things, while they were in office. The authors of the Constitution were troubled by the idea that impeachments would be used for political purposes, but perhaps it was inevitable that ambitious politicians would do so.
4 - While the conservative media is trumpeting this story, the rest have seemingly determined that this is a non-story and have pushed it behind others. We will see whether they're successful in making independents and others see their way on this issue. Since the press is closely tied into public opinion, we'll be able to track changes accordingly.
It is argued that three sections of the Pendleton Civil Service Act of 1883, which outlawed the spoils system, are relevant. But since they have (apparently) never been used to prosecute anyone for making a job offer for not running for office. These offers are somewhat common it seems and Democrats are using this argument to claim this is purely a political, not a legal, matter.
Some links:
- Slate.
- Huffington Post.
- Washington Post.
Applying this to class material:
1 - The Progressives are back in the news, at least indirectly. The Pendleton Act was intended to prevent political parties from treating jobs and contracts as goodies they controlled by holding office. Remember that the president not only holds an executive office, but is the unofficial leader of his party. There is almost certainly a great deal of tension in these two roles. In order to successfully be party leader one may well be tempted to do things that inhibit the ability of the executive branch to fully do its job. I wonder if the controversies involving the Mineral Management Service, where appointments were apparently made to political supporters, is similar legally to the Sestak allegations.
2 - Political leaders do all they can, complete with carrots sticks and all number of other things, to influence who runs for office. They do not like it when challengers take on seemingly safe (or safer) incumbents, or the establishment's preferred candidate. Think about this if you ever decide to run for office. Politics is brutal.
3 - And speaking of brutal, has the threat, or reality, of impeachment become just another aspect of the political process? Republicans pushed for the impeachment of Clinton as soon as he was elected. It just took sometime for him to give them ammo. Fringe Democrats were anxious to impeach both Bush and Cheney for war crimes, among other things, while they were in office. The authors of the Constitution were troubled by the idea that impeachments would be used for political purposes, but perhaps it was inevitable that ambitious politicians would do so.
4 - While the conservative media is trumpeting this story, the rest have seemingly determined that this is a non-story and have pushed it behind others. We will see whether they're successful in making independents and others see their way on this issue. Since the press is closely tied into public opinion, we'll be able to track changes accordingly.
Thursday, May 27, 2010
The Center Wins
Here's empirical proof that moving to the right hurt Republican Senate candidates since 2000. Efforts by movement conservatives to force the party's candidates to the right may, if not hurt the party, lower the number of seats they could otherwise win in 2010.
The Median Voter Theorem argues that elections are won in the middle of the ideological spectrum.
The Median Voter Theorem argues that elections are won in the middle of the ideological spectrum.
The Sestak Job Offer
Chait thinks its not a real scandal and nothing illegal happened. It brewing though . . .
The Private and Public Sector
E.J. Dionne wrestles with the distinction and how the gulf oil spill muddies it.
Wednesday, May 26, 2010
The Messy Middle Between Hobbes and Locke
Here's a critical, but useful, appraisal of Rand Paul's philosophy from the New Republic. It'll touches on questions of the purpose of founding governments which we hit in the early days of 2301:
Speaking broadly, modern government moves between two poles, each of which has a seventeenth-century thinker as its champion, and each of which is focused on minimizing a particular form of injustice. On one side is Thomas Hobbes, who defended the creation of an authoritarian government as the only viable means of protecting certain individuals and groups from injustices perpetrated by other individuals and groups. On the other side is John Locke, who advocated a minimal state in order to protect individuals and groups against injustices perpetrated by governments themselves. Taken to an extreme, the Hobbesian pole leads to totalitarianism, while the Lockean pole terminates in the quasi-anarchism of the night watchman state.
Aside, perhaps, from the pretty thoroughly Hobbesian state of North Korea, every functional government in the world mixes elements of each of these pure forms—and partisan disputes within nations can often be reduced to conflicts over how Hobbesian or Lockean the state should be on a given issue. There are endless examples. Should health care be delivered by the state, by private entities, or by some mixture of the two? How much should the state regulate the market, and in what areas? And as Rand Paul has recently reminded us: Should racist business owners be free to treat black Americans as second-class citizens? Or should the federal government forbid such discrimination? In each case, to favor government action is to lean toward Hobbes; to oppose it is to favor Locke.
What makes Rand Paul’s position (as he originally expressed it on the Maddow show) noteworthy is that it’s a pure, unadulterated expression of Lockean anti-statism with little admixture of Hobbesian sentiments at all. Paul, like many libertarians and Tea Party activists, is so obsessed with the possibility that the state might commit an injustice that he’s indifferent to the reality of actually existing injustice at the hands of private citizens. As far as these radical Lockeans are concerned, the former is tyranny, pure and simple, while the latter is just life: yeah, it’s sometimes unfair, but freedom requires that we (or rather, in this case, blacks living under Jim Crow in the South) get over it.
But the reason why politics normally takes place in the messy middle between Hobbes and Locke—between the maximal and the minimal state—is that most of us don’t get over it. We recognize that both thinkers have a point. Decent politics—properly liberal politics—involves the attempt to combat both forms of injustice in full awareness that seeking to eradicate one form will often produce an increase in the other. The distinctive glory and pathos of liberal politics can be found in the endless effort to achieve and maintain precisely this precarious balance.
Those who give up on that effort and seek instead to realize one notion of justice to the exclusion of the other are history’s political mischief-makers.
Speaking broadly, modern government moves between two poles, each of which has a seventeenth-century thinker as its champion, and each of which is focused on minimizing a particular form of injustice. On one side is Thomas Hobbes, who defended the creation of an authoritarian government as the only viable means of protecting certain individuals and groups from injustices perpetrated by other individuals and groups. On the other side is John Locke, who advocated a minimal state in order to protect individuals and groups against injustices perpetrated by governments themselves. Taken to an extreme, the Hobbesian pole leads to totalitarianism, while the Lockean pole terminates in the quasi-anarchism of the night watchman state.
Aside, perhaps, from the pretty thoroughly Hobbesian state of North Korea, every functional government in the world mixes elements of each of these pure forms—and partisan disputes within nations can often be reduced to conflicts over how Hobbesian or Lockean the state should be on a given issue. There are endless examples. Should health care be delivered by the state, by private entities, or by some mixture of the two? How much should the state regulate the market, and in what areas? And as Rand Paul has recently reminded us: Should racist business owners be free to treat black Americans as second-class citizens? Or should the federal government forbid such discrimination? In each case, to favor government action is to lean toward Hobbes; to oppose it is to favor Locke.
What makes Rand Paul’s position (as he originally expressed it on the Maddow show) noteworthy is that it’s a pure, unadulterated expression of Lockean anti-statism with little admixture of Hobbesian sentiments at all. Paul, like many libertarians and Tea Party activists, is so obsessed with the possibility that the state might commit an injustice that he’s indifferent to the reality of actually existing injustice at the hands of private citizens. As far as these radical Lockeans are concerned, the former is tyranny, pure and simple, while the latter is just life: yeah, it’s sometimes unfair, but freedom requires that we (or rather, in this case, blacks living under Jim Crow in the South) get over it.
But the reason why politics normally takes place in the messy middle between Hobbes and Locke—between the maximal and the minimal state—is that most of us don’t get over it. We recognize that both thinkers have a point. Decent politics—properly liberal politics—involves the attempt to combat both forms of injustice in full awareness that seeking to eradicate one form will often produce an increase in the other. The distinctive glory and pathos of liberal politics can be found in the endless effort to achieve and maintain precisely this precarious balance.
Those who give up on that effort and seek instead to realize one notion of justice to the exclusion of the other are history’s political mischief-makers.
On the Role and Capacity of Government: Is Stability a Realistic Goal?
With apologies to the National Journal, here's another highly relevant article. It gets to the core of the ideological disputes that we've noted are at the heart of questions about the role of government. The national government is expected to provide stability to the financial system, but given its complexity, is this a realistic goal? What, is anything, can the national government do to minimize the risks of the marketplace?
FINANCIAL INSTITUTIONS
Is Stability A Realistic Goal?
Can the U.S. government really guarantee the nation's vast and complex financial system? There are few precedents.
Saturday, May 22, 2010by John Maggs
In many ways, the financial reform bill moving through Congress resembles other landmark pieces of legislation. Like health care reform, it tackles a pernicious side effect of America's free-market economy and treats it with a typically light touch by offering a package of incentives and disincentives for businesses and consumers. Instead of forcing banks to become smaller, the bill encourages them to do so. Instead of banning the kinds of home loans that contributed to the housing crisis, the legislation sets up a consumer protection agency that will rely mainly on disclosure to prompt Americans to make smarter financial decisions.
Like other regulatory reforms, the financial overhaul eschews a massive reorganization in favor of shifting oversight functions and responsibilities among several government agencies. The Federal Reserve System will continue to audit big national banks and some state-chartered banks; the two other bank regulators will split the rest, more or less as they do now.
Responsibility for one of the reform package's most far-reaching steps -- imposing the first rules for derivatives trading -- would mostly fall to private companies and big banks themselves, rather than to a government agency. The overhaul package leaves many details to regulators to work out. "It is really just a series of general guidelines," said Vincent Reinhart, a former top Fed official. He supports this conservative approach, saying that it will allow government officials to deliberately work through what rules to change and how to change them.
In at least one way, though, the financial reform plan represents a new approach. Grafted onto the largely familiar array of agencies that regulate banks is a council of top economic officials tasked with counteracting instability in the financial system before it becomes a critical threat. The council will look beyond individual institutions and practices to anticipate bubbles and spot potentially destabilizing financial innovations -- such as the bonanzas that subprime lending and collateralized debt obligations seemed to be a few years ago.
The proposed Financial Stability Oversight Council, as the Senate legislation calls it, is an interagency group of nine people chaired by the Treasury secretary; it would include the chairman of the Federal Reserve Board, the heads of other financial agencies, and one or two other appointees (the House and Senate bills have slight differences). Some of its functions approximate the emergency powers that the Federal Reserve and Treasury have traditionally kept for themselves. But giving the council the job of foreseeing problems and acting to preserve stability in the nation's vast and complex financial system is an audacious undertaking, even for the U.S. government.
"It hasn't been tried before," said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics. "We don't really know what [the council] will do -- a lot, or perhaps not a lot."
If the council doesn't do a lot, then the separate bank regulators might decide to be much more active and attentive than before. Perhaps the Fed, chastened by the near-failure of the financial system, would take a more active approach to its informal role of overseeing Wall Street and the rest of the "shadow banking system." New disclosure rules, although limited, might discourage banks from using derivatives for highly lucrative speculation. Unlike the subprime-fueled housing crisis, the next financial bubble could be safely deflated by the various bank regulators, even if that intervention deprives the banks they oversee of huge profits. "The [bank oversight] system isn't changing that much," Doug Elliott, a former investment banker and a finance expert at the Brookings Institution, said. "There is a hope, I think, that everyone is going to do better."
But if fragmented oversight again yields regulatory failure and threatens another economic meltdown, the "systemic risk council" could play a significant coordinating role. How would the council define instability? Would it intervene only in a crisis that threatens the imminent collapse of the financial system, or would it move earlier to quell turmoil before it could lead to such a crisis? Would the council act to rein in excessive executive pay that could fuel risky behavior? Would it move to deflate a financial bubble, even if that bubble is making people richer? If consumers are borrowing too much, would the council curtail credit? Would it deal with the domestic effects of an international financial crisis? Most important, if the council took any of these aggressive steps, would it be effective?
"We don't know," Goldstein said. "It is an experiment. We'll have to see what it does and how that works."
Like Elliott, Norman Ornstein believes that the risk council won't do much more than sign off on the emergency actions that the government would take in any case to deal with a financial crisis. Ornstein, a resident scholar at the American Enterprise Institute, doubts that the government is about to embark on an uncharted, proactive approach to financial oversight.
Goldstein disagrees. The legislation signals a substantially different and more hands-on regulatory regime, he argues. The repeated promises from President Obama and virtually every member of Congress that expensive bailouts won't be needed (or forthcoming) again have raised the bar, he says. "When lawmakers say 'Never again,' I think there is an expectation that things are going to be done differently, and [the council] is part of that," Goldstein said. "I expect it to try things that haven't been tried before."
We're Not Good At It
The government has long set rules for businesses operating in the market-based economy. Washington has little practice, however, in guaranteeing the outcomes of market activity. The 1,000-point drop in the Dow Jones industrial average on May 6 demonstrated that even in the highly regulated stock market, the government has few tools to prevent a degree of instability that many people would regard as disastrous. Under current rules, only a 30 percent plunge in the market can shut down trading for the day.
In times past, Americans would have blanched at the prospect of the government's guaranteeing the health of an entire industry, even one considered essential to the well-being of the overall economy. In 2009, the Treasury Department loaned more than $100 billion to rescue General Motors and Chrysler, but it put the automakers on a short leash, forcing them to promptly repay most of the money. If they were to falter again, Washington would likely allow them to fail.
The financial system that seized up in 2008 is exponentially larger and more complex than the stock market or the auto industry, and a government promise to maintain its stability is unprecedented.
"When lawmakers say 'Never again,' I think there is an expectation that things are going to be done differently, and [the council] is part of that." -- Morris Goldstein, Peterson Institute for International Economics
To put this commitment into perspective, consider the scope of the health care reform package enacted this year. Imagine for a moment that Washington had empowered a council to guarantee the stability of the U.S. health care system. If medical care, like credit, was scarce or too expensive, the council could intervene to make sure it was affordable and readily available, by acting wherever it chose to head off, say, shocking rate increases, or by guaranteeing medical care to everyone, with or without insurance. This sounds far-fetched because the epic health debate revealed that Americans are hardly eager to embrace government intervention to guarantee such ambitious outcomes.
Compared with many other countries, the U.S. government has tended to take a laissez-faire approach to regulating such essential services as transportation, electricity, and telecommunications. Washington does attempt to preserve the stability of agricultural supply and prices, with only mixed results. Most economists say that the current system of farm subsidies and price controls exists more to boost the farmers' income than to protect consumers.
But even these examples involve industries much smaller and simpler than the financial system, which extends beyond banks to include insurance, mortgage lending, and consumer credit -- sectors that will remain relatively free of federal regulation, even after the regulatory reform package becomes law. The most comparable example of the government ambitiously trying to maintain the stability of markets was World War II and the extensive system of rationing and price controls that the Roosevelt administration used to prevent inflation, hoarding, and profiteering. That intervention was arguably successful, but a more recent iteration wasn't.
President Nixon imposed wage and price controls from 1971 to 1973 to combat inflation and escalating wage demands by labor unions. The move triggered runaway inflation, slow growth, food and commodity shortages, and an era of declining living standards. Economists consider the controls one of the most disastrous economic policy decisions ever by a U.S. president.
Looking for more?
Before The Emergency
Oddly, the debate over financial reform hasn't focused much on the question of whether government can or should try to assume responsibility for stabilizing the financial system. Neither party in Congress has drawn attention to the goals of the systemic risk council or to the very notion that a government body would try to head off instability throughout the financial system before it causes a crisis.
Most of the discussion in Congress has centered on the council's role in managing the shutdown of giant financial companies that fail. The council is supposed to handle this emergency action in an orderly and predictable way, in contrast to the ad hoc, chaotic bailouts and shotgun mergers that took place in 2008 and 2009. This process has been the focus of ideological skirmishes in the Senate between Republicans, who charged that the bill that arrived on the floor would permit bailouts to save faltering banks, and Democrats, who insisted that the opposite was true.
To settle that argument, the first amendment, offered by Sen. Barbara Boxer, D-Calif., simply reiterated that the systemic risk council would have no choice but to break up faltering banks and financial companies rather than bail them out. The amendment passed by a wide, bipartisan margin.
In one form or another, the federal government has always taken emergency action to stem financial panics and other crises that threaten the economy, according to Liaquat Ahamed, author of The Lords of Finance: The Bankers Who Broke the World, a 2009 book on the early years of central banking. Congress established the Federal Reserve Board in 1913 to coordinate emergency action, using the power to make emergency loans to counter bank runs and otherwise manipulate interest-rate policy to maintain liquidity in the banking system. Although the Fed and Treasury took actions during the recent crisis that were messy and in some ways unprecedented in size and scope, the interventions essentially followed past patterns, Ahamed said in an interview.
In Ahamed's view, the earliest days of the crisis made it clear that the United States had to do three things to minimize the risk of a plunge that could wreck the financial system. First, the government needed to bolster the capital reserves of banks, which had used holes in the accounting rules to evade reserve requirements; second, Washington needed to take on increased oversight to prevent excessive risk-taking and leveraging; and third, if the first two requirements weren't met, government would need a more streamlined and effective process to handle emergencies.
Steps to meet the first requirement, he said, are well under way. The Fed and other bank regulators, in coordination with their counterparts in Europe, are expected to issue interim capital requirements in late 2010 or early 2011 and to finalize regulations over the next two years. In the past, banks traditionally had capital reserves of 8 to 10 percent of their total deposits, but through "off balance sheet" transactions and other creative accounting, some big banks had shrunk their reserves to perhaps half this level. "Recapitalization of the banks is happening," Ahamed said. "The banks have been preparing for it."
The emerging legislation intends to provide a smoother and swifter process for the government to seize insolvent banks and sell their assets. This process will also allow regulators to capture and execute nonbank financial companies, such as American International Group, that are large enough to threaten the financial system if they fail.
These two functions were already important government responsibilities, according to Ahamed, but the middle role -- seeking to guarantee the stability of the financial system -- is different. The Fed has been responsible for auditing many of the largest banks, and it has important duties to keep interests rates and inflation low and employment and the economy growing.
The Fed's responsibility for maintaining the overall stability of the financial system has been more ambiguous, especially in recent decades. Although regulators have stepped up its efforts to stabilize the financial system, "it is also true that the financial system is more complex" than a decade or two ago, Ahamed said.
The Federal Reserve has long had close relations with large bank holding companies such as Citigroup and Bank of America (where Fed examiners actually showed up for work every day at their headquarters). Until recently, though, Fed accountants were not as involved in the day-to-day operations of Wall Street banks -- such as Bear Stearns, Goldman Sachs, and Lehman Brothers -- that were some of the biggest customers for the Fed's Treasury bills. The chaos of the financial crisis revealed just how little attention the Fed paid to ensuring their stability and how limited were its powers to help them.
This Time Is Different
Ahamed and others contend that the Fed has traditionally served as a kind of systemic risk council for the financial system. They point to the 1998 rescue of the hedge fund Long Term Capital Management. Worth about $4.7 billion at the start of that year, the fund made a number of risky bets in derivatives that went bad, and it faced the prospect of failure as investors tried to withdraw their money.
Long Term Capital Management was involved with every big bank on Wall Street, and its failure arguably threatened similar runs at other institutions. Moreover, a separate and less quantifiable risk was a crash in the value of privately traded financial derivatives of the kind the fund held. The big banks' direct business with the hedge fund represented a few billion dollars in potential losses, but their exposure to the derivative market as a whole was much larger, and that was a major factor in motivating the Fed to act.
The rescue that Federal Reserve Board Chairman Alan Greenspan organized in September 1998 demonstrates how different the new risk council will be. The government used no taxpayer funds to bail out Long Term Capital Management, and the Fed did not even use its emergency lending powers, as it did during the recent financial crisis. Instead, Greenspan and officials at the Federal Reserve Bank of New York were able to cajole the fund's creditors to invest from $100 million to $300 million each, approximately what each stood to lose if it failed. Of course, in 1998, in the midst of the dot-com boom, the rest of Wall Street was otherwise flush with cash, in contrast to 2008.
A hallmark of the Greenspan era, from 1987 to 2006, was the Fed's unwillingness to serve as the kind of guarantor of financial stability envisioned in the plan for the Financial Stability Oversight Council. At the same moment that Long Term Capital Management's derivatives trades were souring, Greenspan was otherwise engaged in killing off an effort by Brooksley Born, then the chairwoman of the Commodities Futures Trading Commission, to regulate derivatives. At multiple congressional hearings, Greenspan argued successfully that no oversight was needed -- because the self-interest of big banks and investors would be more effective than any government agency in controlling risk and maintaining stability.
Since then, Greenspan has expressed wonderment at the failures of such market discipline during the financial crisis, but he has not admitted that he might have been mistaken about unregulated trading in derivatives. Ten years after his tidy and privately financed rescue of Long Term Capital Management, one type of unregulated derivative was at the center of the subprime mortgage meltdown, and a related derivative underlay the $182 billion bailout of AIG, which at last count is expected to cost taxpayers $50 billion.
Reinhart has low expectations for the systemic risk council and the rest of the regulatory overhaul because he thinks that Congress is aiming at the wrong target -- preventing banks from becoming "too big to fail." Reinhart, a former director of the Fed's Division of Monetary Affairs, believes that in the 24 years since the government made major changes to the tax code, banks have exploited weaknesses in accounting rules. Banks' "splintering" of their balance sheets, he says, made it impossible for regulators to understand what was going on, for the market to exercise the discipline that Greenspan was depending on, and even for managers of the banks to understand the risks that had accumulated.
Washington's crucial decision to allow Lehman Brothers to fail in September 2008 came after the Treasury Department tried for a week to sell off pieces of the company. The stumbling block, Reinhart says, was that neither the prospective buyers nor Lehman's management really understood the company's liabilities, which at that point were buried in the more than 2,000 affiliates and "special-purpose vehicles" that Lehman had created to conceal its debts. At Citigroup and banks much larger than Lehman, the complications were even bigger, and they got government bailouts because no one wanted to find out what would happen to the counterparties to those trades if all of the banks' activities dissolved. "The problem wasn't that [the banks] were too big to fail -- they were too complicated to understand," Reinhart said.
"We are giving the [risk] council a nearly impossible job," he says, because the complications of stabilizing an entire financial system are almost unimaginable. Reinhart asks rhetorically whether regulatory reform will make the balance sheets of big banks any easier to understand. "If not, then I think the council has a mission it can't accomplish."
The Peterson Institute's Goldstein is more optimistic. He believes that the council will try to use "countercyclical" policy to respond to changes in banks' level of risk-taking, even in the absence of cash-flow problems. As a hypothetical, if banks invent a home mortgage or debt instrument that is producing big profits but arguably creating new risks for the financial system, the Financial Stability Oversight Council could pre-emptively raise capital reserve requirements based on the level of this newfangled lending, he argues. Another countercyclical option, anticipated in the Senate version of the legislation, is a requirement that banks issue a certain level of "contingent capital," bonds that automatically convert into equity if a bank falls into financial difficulty. This would spread the pain of the bank failure to debt holders as well as stockholders.
Would the risk council use such countercyclical means to try to head off the next financial bubble? Goldstein thinks it is possible, but Reinhart is doubtful. When Greenspan issued his famous warning in late 1996 about "irrational exuberance" in the stock market, Reinhart said, no one wanted to listen. The market doubled in the next four years, until the dot-com crash, and Greenspan, according to his memoirs, concluded that even Fed chairmen are powerless to puncture a financial bubble.
No elected or appointed official would risk the political fallout from taking action against a possible bubble, Reinhart argues. At best, a lot of people will be poorer. At worst, he said, government officials risk destabilizing rather than stabilizing the situation.
If we are lucky, former investment banker Elliot says, the risk council's existence will be enough to deter excessive risk-taking. Depending on whether the House or Senate version is enacted, either a two-thirds vote or a simple majority of the council could force a company to sell off some divisions, even if it wasn't yet in financial difficulty. More likely though, Reinhart warns, it will take another crisis to move government to directly address the complexity of large banks that is at the root of systemic risk. "I fully expect it," he said.
FINANCIAL INSTITUTIONS
Is Stability A Realistic Goal?
Can the U.S. government really guarantee the nation's vast and complex financial system? There are few precedents.
Saturday, May 22, 2010by John Maggs
In many ways, the financial reform bill moving through Congress resembles other landmark pieces of legislation. Like health care reform, it tackles a pernicious side effect of America's free-market economy and treats it with a typically light touch by offering a package of incentives and disincentives for businesses and consumers. Instead of forcing banks to become smaller, the bill encourages them to do so. Instead of banning the kinds of home loans that contributed to the housing crisis, the legislation sets up a consumer protection agency that will rely mainly on disclosure to prompt Americans to make smarter financial decisions.
Like other regulatory reforms, the financial overhaul eschews a massive reorganization in favor of shifting oversight functions and responsibilities among several government agencies. The Federal Reserve System will continue to audit big national banks and some state-chartered banks; the two other bank regulators will split the rest, more or less as they do now.
Responsibility for one of the reform package's most far-reaching steps -- imposing the first rules for derivatives trading -- would mostly fall to private companies and big banks themselves, rather than to a government agency. The overhaul package leaves many details to regulators to work out. "It is really just a series of general guidelines," said Vincent Reinhart, a former top Fed official. He supports this conservative approach, saying that it will allow government officials to deliberately work through what rules to change and how to change them.
In at least one way, though, the financial reform plan represents a new approach. Grafted onto the largely familiar array of agencies that regulate banks is a council of top economic officials tasked with counteracting instability in the financial system before it becomes a critical threat. The council will look beyond individual institutions and practices to anticipate bubbles and spot potentially destabilizing financial innovations -- such as the bonanzas that subprime lending and collateralized debt obligations seemed to be a few years ago.
The proposed Financial Stability Oversight Council, as the Senate legislation calls it, is an interagency group of nine people chaired by the Treasury secretary; it would include the chairman of the Federal Reserve Board, the heads of other financial agencies, and one or two other appointees (the House and Senate bills have slight differences). Some of its functions approximate the emergency powers that the Federal Reserve and Treasury have traditionally kept for themselves. But giving the council the job of foreseeing problems and acting to preserve stability in the nation's vast and complex financial system is an audacious undertaking, even for the U.S. government.
"It hasn't been tried before," said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics. "We don't really know what [the council] will do -- a lot, or perhaps not a lot."
If the council doesn't do a lot, then the separate bank regulators might decide to be much more active and attentive than before. Perhaps the Fed, chastened by the near-failure of the financial system, would take a more active approach to its informal role of overseeing Wall Street and the rest of the "shadow banking system." New disclosure rules, although limited, might discourage banks from using derivatives for highly lucrative speculation. Unlike the subprime-fueled housing crisis, the next financial bubble could be safely deflated by the various bank regulators, even if that intervention deprives the banks they oversee of huge profits. "The [bank oversight] system isn't changing that much," Doug Elliott, a former investment banker and a finance expert at the Brookings Institution, said. "There is a hope, I think, that everyone is going to do better."
But if fragmented oversight again yields regulatory failure and threatens another economic meltdown, the "systemic risk council" could play a significant coordinating role. How would the council define instability? Would it intervene only in a crisis that threatens the imminent collapse of the financial system, or would it move earlier to quell turmoil before it could lead to such a crisis? Would the council act to rein in excessive executive pay that could fuel risky behavior? Would it move to deflate a financial bubble, even if that bubble is making people richer? If consumers are borrowing too much, would the council curtail credit? Would it deal with the domestic effects of an international financial crisis? Most important, if the council took any of these aggressive steps, would it be effective?
"We don't know," Goldstein said. "It is an experiment. We'll have to see what it does and how that works."
Like Elliott, Norman Ornstein believes that the risk council won't do much more than sign off on the emergency actions that the government would take in any case to deal with a financial crisis. Ornstein, a resident scholar at the American Enterprise Institute, doubts that the government is about to embark on an uncharted, proactive approach to financial oversight.
Goldstein disagrees. The legislation signals a substantially different and more hands-on regulatory regime, he argues. The repeated promises from President Obama and virtually every member of Congress that expensive bailouts won't be needed (or forthcoming) again have raised the bar, he says. "When lawmakers say 'Never again,' I think there is an expectation that things are going to be done differently, and [the council] is part of that," Goldstein said. "I expect it to try things that haven't been tried before."
We're Not Good At It
The government has long set rules for businesses operating in the market-based economy. Washington has little practice, however, in guaranteeing the outcomes of market activity. The 1,000-point drop in the Dow Jones industrial average on May 6 demonstrated that even in the highly regulated stock market, the government has few tools to prevent a degree of instability that many people would regard as disastrous. Under current rules, only a 30 percent plunge in the market can shut down trading for the day.
In times past, Americans would have blanched at the prospect of the government's guaranteeing the health of an entire industry, even one considered essential to the well-being of the overall economy. In 2009, the Treasury Department loaned more than $100 billion to rescue General Motors and Chrysler, but it put the automakers on a short leash, forcing them to promptly repay most of the money. If they were to falter again, Washington would likely allow them to fail.
The financial system that seized up in 2008 is exponentially larger and more complex than the stock market or the auto industry, and a government promise to maintain its stability is unprecedented.
"When lawmakers say 'Never again,' I think there is an expectation that things are going to be done differently, and [the council] is part of that." -- Morris Goldstein, Peterson Institute for International Economics
To put this commitment into perspective, consider the scope of the health care reform package enacted this year. Imagine for a moment that Washington had empowered a council to guarantee the stability of the U.S. health care system. If medical care, like credit, was scarce or too expensive, the council could intervene to make sure it was affordable and readily available, by acting wherever it chose to head off, say, shocking rate increases, or by guaranteeing medical care to everyone, with or without insurance. This sounds far-fetched because the epic health debate revealed that Americans are hardly eager to embrace government intervention to guarantee such ambitious outcomes.
Compared with many other countries, the U.S. government has tended to take a laissez-faire approach to regulating such essential services as transportation, electricity, and telecommunications. Washington does attempt to preserve the stability of agricultural supply and prices, with only mixed results. Most economists say that the current system of farm subsidies and price controls exists more to boost the farmers' income than to protect consumers.
But even these examples involve industries much smaller and simpler than the financial system, which extends beyond banks to include insurance, mortgage lending, and consumer credit -- sectors that will remain relatively free of federal regulation, even after the regulatory reform package becomes law. The most comparable example of the government ambitiously trying to maintain the stability of markets was World War II and the extensive system of rationing and price controls that the Roosevelt administration used to prevent inflation, hoarding, and profiteering. That intervention was arguably successful, but a more recent iteration wasn't.
President Nixon imposed wage and price controls from 1971 to 1973 to combat inflation and escalating wage demands by labor unions. The move triggered runaway inflation, slow growth, food and commodity shortages, and an era of declining living standards. Economists consider the controls one of the most disastrous economic policy decisions ever by a U.S. president.
Looking for more?
Before The Emergency
Oddly, the debate over financial reform hasn't focused much on the question of whether government can or should try to assume responsibility for stabilizing the financial system. Neither party in Congress has drawn attention to the goals of the systemic risk council or to the very notion that a government body would try to head off instability throughout the financial system before it causes a crisis.
Most of the discussion in Congress has centered on the council's role in managing the shutdown of giant financial companies that fail. The council is supposed to handle this emergency action in an orderly and predictable way, in contrast to the ad hoc, chaotic bailouts and shotgun mergers that took place in 2008 and 2009. This process has been the focus of ideological skirmishes in the Senate between Republicans, who charged that the bill that arrived on the floor would permit bailouts to save faltering banks, and Democrats, who insisted that the opposite was true.
To settle that argument, the first amendment, offered by Sen. Barbara Boxer, D-Calif., simply reiterated that the systemic risk council would have no choice but to break up faltering banks and financial companies rather than bail them out. The amendment passed by a wide, bipartisan margin.
In one form or another, the federal government has always taken emergency action to stem financial panics and other crises that threaten the economy, according to Liaquat Ahamed, author of The Lords of Finance: The Bankers Who Broke the World, a 2009 book on the early years of central banking. Congress established the Federal Reserve Board in 1913 to coordinate emergency action, using the power to make emergency loans to counter bank runs and otherwise manipulate interest-rate policy to maintain liquidity in the banking system. Although the Fed and Treasury took actions during the recent crisis that were messy and in some ways unprecedented in size and scope, the interventions essentially followed past patterns, Ahamed said in an interview.
In Ahamed's view, the earliest days of the crisis made it clear that the United States had to do three things to minimize the risk of a plunge that could wreck the financial system. First, the government needed to bolster the capital reserves of banks, which had used holes in the accounting rules to evade reserve requirements; second, Washington needed to take on increased oversight to prevent excessive risk-taking and leveraging; and third, if the first two requirements weren't met, government would need a more streamlined and effective process to handle emergencies.
Steps to meet the first requirement, he said, are well under way. The Fed and other bank regulators, in coordination with their counterparts in Europe, are expected to issue interim capital requirements in late 2010 or early 2011 and to finalize regulations over the next two years. In the past, banks traditionally had capital reserves of 8 to 10 percent of their total deposits, but through "off balance sheet" transactions and other creative accounting, some big banks had shrunk their reserves to perhaps half this level. "Recapitalization of the banks is happening," Ahamed said. "The banks have been preparing for it."
The emerging legislation intends to provide a smoother and swifter process for the government to seize insolvent banks and sell their assets. This process will also allow regulators to capture and execute nonbank financial companies, such as American International Group, that are large enough to threaten the financial system if they fail.
These two functions were already important government responsibilities, according to Ahamed, but the middle role -- seeking to guarantee the stability of the financial system -- is different. The Fed has been responsible for auditing many of the largest banks, and it has important duties to keep interests rates and inflation low and employment and the economy growing.
The Fed's responsibility for maintaining the overall stability of the financial system has been more ambiguous, especially in recent decades. Although regulators have stepped up its efforts to stabilize the financial system, "it is also true that the financial system is more complex" than a decade or two ago, Ahamed said.
The Federal Reserve has long had close relations with large bank holding companies such as Citigroup and Bank of America (where Fed examiners actually showed up for work every day at their headquarters). Until recently, though, Fed accountants were not as involved in the day-to-day operations of Wall Street banks -- such as Bear Stearns, Goldman Sachs, and Lehman Brothers -- that were some of the biggest customers for the Fed's Treasury bills. The chaos of the financial crisis revealed just how little attention the Fed paid to ensuring their stability and how limited were its powers to help them.
This Time Is Different
Ahamed and others contend that the Fed has traditionally served as a kind of systemic risk council for the financial system. They point to the 1998 rescue of the hedge fund Long Term Capital Management. Worth about $4.7 billion at the start of that year, the fund made a number of risky bets in derivatives that went bad, and it faced the prospect of failure as investors tried to withdraw their money.
Long Term Capital Management was involved with every big bank on Wall Street, and its failure arguably threatened similar runs at other institutions. Moreover, a separate and less quantifiable risk was a crash in the value of privately traded financial derivatives of the kind the fund held. The big banks' direct business with the hedge fund represented a few billion dollars in potential losses, but their exposure to the derivative market as a whole was much larger, and that was a major factor in motivating the Fed to act.
The rescue that Federal Reserve Board Chairman Alan Greenspan organized in September 1998 demonstrates how different the new risk council will be. The government used no taxpayer funds to bail out Long Term Capital Management, and the Fed did not even use its emergency lending powers, as it did during the recent financial crisis. Instead, Greenspan and officials at the Federal Reserve Bank of New York were able to cajole the fund's creditors to invest from $100 million to $300 million each, approximately what each stood to lose if it failed. Of course, in 1998, in the midst of the dot-com boom, the rest of Wall Street was otherwise flush with cash, in contrast to 2008.
A hallmark of the Greenspan era, from 1987 to 2006, was the Fed's unwillingness to serve as the kind of guarantor of financial stability envisioned in the plan for the Financial Stability Oversight Council. At the same moment that Long Term Capital Management's derivatives trades were souring, Greenspan was otherwise engaged in killing off an effort by Brooksley Born, then the chairwoman of the Commodities Futures Trading Commission, to regulate derivatives. At multiple congressional hearings, Greenspan argued successfully that no oversight was needed -- because the self-interest of big banks and investors would be more effective than any government agency in controlling risk and maintaining stability.
Since then, Greenspan has expressed wonderment at the failures of such market discipline during the financial crisis, but he has not admitted that he might have been mistaken about unregulated trading in derivatives. Ten years after his tidy and privately financed rescue of Long Term Capital Management, one type of unregulated derivative was at the center of the subprime mortgage meltdown, and a related derivative underlay the $182 billion bailout of AIG, which at last count is expected to cost taxpayers $50 billion.
Reinhart has low expectations for the systemic risk council and the rest of the regulatory overhaul because he thinks that Congress is aiming at the wrong target -- preventing banks from becoming "too big to fail." Reinhart, a former director of the Fed's Division of Monetary Affairs, believes that in the 24 years since the government made major changes to the tax code, banks have exploited weaknesses in accounting rules. Banks' "splintering" of their balance sheets, he says, made it impossible for regulators to understand what was going on, for the market to exercise the discipline that Greenspan was depending on, and even for managers of the banks to understand the risks that had accumulated.
Washington's crucial decision to allow Lehman Brothers to fail in September 2008 came after the Treasury Department tried for a week to sell off pieces of the company. The stumbling block, Reinhart says, was that neither the prospective buyers nor Lehman's management really understood the company's liabilities, which at that point were buried in the more than 2,000 affiliates and "special-purpose vehicles" that Lehman had created to conceal its debts. At Citigroup and banks much larger than Lehman, the complications were even bigger, and they got government bailouts because no one wanted to find out what would happen to the counterparties to those trades if all of the banks' activities dissolved. "The problem wasn't that [the banks] were too big to fail -- they were too complicated to understand," Reinhart said.
"We are giving the [risk] council a nearly impossible job," he says, because the complications of stabilizing an entire financial system are almost unimaginable. Reinhart asks rhetorically whether regulatory reform will make the balance sheets of big banks any easier to understand. "If not, then I think the council has a mission it can't accomplish."
The Peterson Institute's Goldstein is more optimistic. He believes that the council will try to use "countercyclical" policy to respond to changes in banks' level of risk-taking, even in the absence of cash-flow problems. As a hypothetical, if banks invent a home mortgage or debt instrument that is producing big profits but arguably creating new risks for the financial system, the Financial Stability Oversight Council could pre-emptively raise capital reserve requirements based on the level of this newfangled lending, he argues. Another countercyclical option, anticipated in the Senate version of the legislation, is a requirement that banks issue a certain level of "contingent capital," bonds that automatically convert into equity if a bank falls into financial difficulty. This would spread the pain of the bank failure to debt holders as well as stockholders.
Would the risk council use such countercyclical means to try to head off the next financial bubble? Goldstein thinks it is possible, but Reinhart is doubtful. When Greenspan issued his famous warning in late 1996 about "irrational exuberance" in the stock market, Reinhart said, no one wanted to listen. The market doubled in the next four years, until the dot-com crash, and Greenspan, according to his memoirs, concluded that even Fed chairmen are powerless to puncture a financial bubble.
No elected or appointed official would risk the political fallout from taking action against a possible bubble, Reinhart argues. At best, a lot of people will be poorer. At worst, he said, government officials risk destabilizing rather than stabilizing the situation.
If we are lucky, former investment banker Elliot says, the risk council's existence will be enough to deter excessive risk-taking. Depending on whether the House or Senate version is enacted, either a two-thirds vote or a simple majority of the council could force a company to sell off some divisions, even if it wasn't yet in financial difficulty. More likely though, Reinhart warns, it will take another crisis to move government to directly address the complexity of large banks that is at the root of systemic risk. "I fully expect it," he said.
Tuesday, May 25, 2010
The Supreme Court Rules Against the NFL.
The National Football League, and other sports leagues, are not single entities immune from anti-trust laws. They are separate entities and must compete amongst themselves. They are subject to anti-trust laws spelled out in the Sherman Anti-Trust Act.
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The case is American Needle Inc, v. NFL.
- Comments from ESPN.
- Washington Post.
.
The case is American Needle Inc, v. NFL.
- Comments from ESPN.
- Washington Post.
Sunday, May 23, 2010
Finance Reform Bill: Fiduciary Responsibility
More detail on a provision of the finance bill: Financial advisers have to take their clients interests into consideration when doing deals for them.
The SBOE Revisions
Our esteemed State Board of Education has been newsworthy recently.
Here are the revisions to the social studies curriculum that have been raising such a fuss. This doesn't include the changes made last week. I'll post them when I find them.
Background and comments:
- Washington Post.
- Fox News.
Here are the revisions to the social studies curriculum that have been raising such a fuss. This doesn't include the changes made last week. I'll post them when I find them.
Background and comments:
- Washington Post.
- Fox News.
Ex-Justice O'Connor Argues in Favor of Merit Selection of Judges
Story here. This is timely for my 3 week 2301 since we are about to read through Federalist #51.
Saturday, May 22, 2010
Questions for Libertarians
In light of Rand Paul's statements regarding the Civil Rights Act of 1964, Ezra Klein has additional questions for Paul. These are worth chewing on as we discuss the proper role of government.
Understanding the Senate's Finance Bill
We should discuss the major components of the finance bill passed in the Senate soon.
Here they are:
- It provides for the oversight of sale of derivatives
- It creates a Consumer Protection Agency
- It creates a council of regulators to look for systemic risk
- It applies restrictions on large failed banks
- It establishes that executive compensation be set by independent directors
- It prohibits banks from making investments that do not benefit clients
- It establishes that companies selling complex financial products must retain part of the risk of these products.
For amendments that failed, click here.
If you have time to kill, here's the bill itself.
The bill now goes to a conference committee where it will be reconciled with the House bill already passed. Nothing is set in stone, but typical lobbying rules do not seem to apply, almost certainly due to voter anger.
Here they are:
- It provides for the oversight of sale of derivatives
- It creates a Consumer Protection Agency
- It creates a council of regulators to look for systemic risk
- It applies restrictions on large failed banks
- It establishes that executive compensation be set by independent directors
- It prohibits banks from making investments that do not benefit clients
- It establishes that companies selling complex financial products must retain part of the risk of these products.
For amendments that failed, click here.
If you have time to kill, here's the bill itself.
The bill now goes to a conference committee where it will be reconciled with the House bill already passed. Nothing is set in stone, but typical lobbying rules do not seem to apply, almost certainly due to voter anger.
Special Prosecutor Requested to Investigate Job Offer
A California Representative -- Republican -- wants a special prosecutor assigned to investigate whether the Obama Administration broke the law by offering a member of Congress an administration job if he would not run against Arlen Specter.
Apparently these offers are not unusual, but its a good example of checks and balances.
Apparently these offers are not unusual, but its a good example of checks and balances.
The Director of National Intelligence Resigns
Story here.
Commentators argued that the position, designed after 9-11 to coordinate the 16 agencies which gather intelligence, has no real power and needs to be redesigned. Some argue that the position should be eliminated and the CIA Director should serve as coordinator of the U.S. Intelligence Community.
- Wikipedia.
- Times Topics: U.S. Intelligence Community.
- Times Topics: Dennis C. Blair.
Commentators argued that the position, designed after 9-11 to coordinate the 16 agencies which gather intelligence, has no real power and needs to be redesigned. Some argue that the position should be eliminated and the CIA Director should serve as coordinator of the U.S. Intelligence Community.
- Wikipedia.
- Times Topics: U.S. Intelligence Community.
- Times Topics: Dennis C. Blair.
Do Cameras Affect Police Behavior?
Speaking of the media . . . though this story is about reality shows, not newspaper journalism. Do we act differently when the camera is on us? Do police? Considering that some want the Supreme Court to be televised, does this story suggest this would be a bad idea?
Rand Paul and the Demise of the Local Press
Josh Green has an interesting theory why Rand Paul, who did not talk about the Civil Rights Act of 1964 on the campaign trail at all, was suddenly tripped up by questions about it on the Rachel Maddow show.
Due to the recent demise of newspapers, especially on the local level, Senate candidates are no longer forced to face tough questioning on the local or state level. Paul was able to sail through by only offering stump speeches and never had an aggressive reporter pestering him about positions on issues he does not wish to talk about. He was therefore unprepared for Maddow.
Considering that part of the job of the press is to give us information about political candidates, its worth speculating about what this means for the amount of information we get about lower level candidates in general. This episode will probably also encourage political candidates to simply not talk to reporters. This is a lesson many politicians learn. Sarah Palin certainly did.
Due to the recent demise of newspapers, especially on the local level, Senate candidates are no longer forced to face tough questioning on the local or state level. Paul was able to sail through by only offering stump speeches and never had an aggressive reporter pestering him about positions on issues he does not wish to talk about. He was therefore unprepared for Maddow.
Considering that part of the job of the press is to give us information about political candidates, its worth speculating about what this means for the amount of information we get about lower level candidates in general. This episode will probably also encourage political candidates to simply not talk to reporters. This is a lesson many politicians learn. Sarah Palin certainly did.
Friday, May 21, 2010
Defining the Tea Party as Extreme
The Rand Paul civil rights comment may allow Democrats an opportunity to paint the Tea Party as too extreme for the voting public. And apparently they have been banking on something like this happening. The public will not automatically see Paul as extreme unless Dems can successfully portray him as such.
Paul is apparently continuing to stir the pot, seemingly suggesting that the feds shouldn't dig into the BP and Masset Coal disasters. Accidents happen.
While this is going on, moderate Republicans may be making a comeback in New England.
Paul is apparently continuing to stir the pot, seemingly suggesting that the feds shouldn't dig into the BP and Masset Coal disasters. Accidents happen.
While this is going on, moderate Republicans may be making a comeback in New England.
Thursday, May 20, 2010
The Consequences of Rand Paul's Win in Kentucky
A couple of thoughts some pundits are offering after (the other) Dr. Paul's victory over the Republican establishment's candidate in the Kentucky Primary:
1 - The establishment is in trouble and the activists are moving the party further to the right and forcing out the heretics. Paul may be too conservative for Dick Cheney.
2 - Paul's objections to civil rights, including questions about the wisdom of the Civil Rights Act of 1964, have introduced new questions into the upcoming elections. Do private businesses have a right to discriminate?
1 - The establishment is in trouble and the activists are moving the party further to the right and forcing out the heretics. Paul may be too conservative for Dick Cheney.
2 - Paul's objections to civil rights, including questions about the wisdom of the Civil Rights Act of 1964, have introduced new questions into the upcoming elections. Do private businesses have a right to discriminate?
Election 2010: Democrat wins Special Election in PA - 12 to fill John Murtha's Seat
Republicans had hoped to pick this one up. The early take is that a conservative Democrat (pro-gun, pro-life, said he would have voted against health care bill - but will not vote to repeal it) can still win elections. House elections are not national, they are district by district.
Wednesday, May 19, 2010
The Right to Competent Counsel -- Part 2
From the New York Times comes a story about who you do not want to represent you if you are accused of a capital crime:
A good way to end up on death row in Texas is to be accused of a capital crime and have Jerry Guerinot represent you.
Twenty of Mr. Guerinot’s clients have been sentenced to death. That is more people than are awaiting execution in about half of the 35 states that have the death penalty.
And next comes a chilling kicker:
“People who are well represented at trial do not get the death penalty,” Justice Ruth Bader Ginsburg has said.
So what does this say about our justice system? Equal justice for all or are those who can afford it effectively allowed to be treated according to different rules? Is this a constitutional violation? If so how?
- Heres a previous post on the same subject.
A good way to end up on death row in Texas is to be accused of a capital crime and have Jerry Guerinot represent you.
Twenty of Mr. Guerinot’s clients have been sentenced to death. That is more people than are awaiting execution in about half of the 35 states that have the death penalty.
And next comes a chilling kicker:
“People who are well represented at trial do not get the death penalty,” Justice Ruth Bader Ginsburg has said.
So what does this say about our justice system? Equal justice for all or are those who can afford it effectively allowed to be treated according to different rules? Is this a constitutional violation? If so how?
- Heres a previous post on the same subject.
Tuesday, May 18, 2010
A Test Case?
So in class today we had some fun tossing around a kooky little idea. Let's say you consider environmentalism to be akin to religious belief -- the whole "mother earth" Wicca type thing. If that's true (if) then isn't the Environmental Protection Agency, an executive agency designed to promote environmentalism (a religious belief) a form of state religion? If so (again, if) than doesn't the EPA violate the establishment clause?
I'll offer extra credit points to whoever want to put a brief together making that argument. We could have a press conference and announce a lawsuit. I bet Glenn Beck will take us seriously even if we dont.
I'll offer extra credit points to whoever want to put a brief together making that argument. We could have a press conference and announce a lawsuit. I bet Glenn Beck will take us seriously even if we dont.
Texas Doctors are Dropping out of Medicare
At an alarming rate says the Chron. This is an unintended consequence of a 1997 effort to reduce spending on medial care.
A related story:
- Medicare Pay Cuts Averted, Cobra Extended — Why All the Sad Faces ...
A related story:
- Medicare Pay Cuts Averted, Cobra Extended — Why All the Sad Faces ...
Monday, May 17, 2010
Do We Have Too Many Elections?
Some suggest that one of the reasons voter turnout is lower in the United States than in other countries is that we have more elections, and therefore place a huge burden on voters. Should more positions be appointed? Do terms need to be so short?
Here are two takes on this question
- Matt Yglesias.
- Jonathan Bernstein.
Here are two takes on this question
- Matt Yglesias.
- Jonathan Bernstein.
Two Supreme Court Decisions Regarding Sentencing
In one, Graham v. Florida, the court decided 6-3 that life sentences without the possibility of parole for juveniles convicted of crimes less than murder was cruel and unusual punishment which violated the eighth amendment.
In the other, United States v. Comstock, a 7-2 court stated the Congress had the authority to allow continued confinement of some sex offenders who had completed their sentences, even though this power is not an enumerated (or delegated) power granted to Congress in Article One. It was argued on the basis of the necessary and proper clause, though the dissent wondered necessary and proper to do what?
In the other, United States v. Comstock, a 7-2 court stated the Congress had the authority to allow continued confinement of some sex offenders who had completed their sentences, even though this power is not an enumerated (or delegated) power granted to Congress in Article One. It was argued on the basis of the necessary and proper clause, though the dissent wondered necessary and proper to do what?
Sunday, May 16, 2010
Texting and Open Meetings
The legislatures of local and other small governments are subject to the Open Meetings Act which is meant to ensure that all meetings, and potential meetings -- such as cases when a quorum is likely to occur by happenstance -- are open to the public. Backroom deals, say made when a majority of a seven member city council somehow finds themselves alone on an elevator, are banned. But might enhanced communications, social networking and texting, also provide opportunities for these secret meetings and subsequent deal making? The Texas Legislature is set to consider this question in its next session.
Jaworski Learned From Obama Campaign
The Galveston County Daily News details Joe Jaworski's convincing victory in the Galveston Mayors race and notes that the campaign was run by a woman who learned campaigning from Obama's 2008 race. Heavy emphasis was placed on block walking and communication.
The Future of Miranda Warnings
The recent arrest of the Times Square bomber has led some, and possibly even the Obama Administration, to call for limits to Miranda Warnings. Constitutional tests to the warnings are nothing new, and given the conservative slant of the court it is worth wondering how secure the warnings are. History tells us that in times of threat, civil liberties take a hit.
For my 2301s, this fits into our discussion of the constitution, as a document that defines and limits governmental power, the Bill of Rights, civil liberties, and how the Supreme Court defines constitutional language.
Links:
- Miranda Warnings.
- Miranda v. Arizona.
- Right Against Self Incrimination.
- Fifth Amendment.
- Due Process.
- Warren Court.
- Dickerson v. U.S.
- The Origins of the Public Safety Exception to Miranda Warnings.
For my 2301s, this fits into our discussion of the constitution, as a document that defines and limits governmental power, the Bill of Rights, civil liberties, and how the Supreme Court defines constitutional language.
Links:
- Miranda Warnings.
- Miranda v. Arizona.
- Right Against Self Incrimination.
- Fifth Amendment.
- Due Process.
- Warren Court.
- Dickerson v. U.S.
- The Origins of the Public Safety Exception to Miranda Warnings.
Saturday, May 15, 2010
More on the MMS
They apparently allowed drilling in the gulf before required permits were obtained.
Obama calls the relationship between MMS and the Oil Industry "cozy."
Most of the oil spill seems to be hugging the gulf floor.
Obama calls the relationship between MMS and the Oil Industry "cozy."
Most of the oil spill seems to be hugging the gulf floor.
Are Tea Party Activists Pushing the Republican Party too Far to the Right?
We will only find out in upcoming general elections, but Dana Milbank thinks recent primary votes in Utah and Maine, along with the changes the activists are making to the party platform will pose problems for the party, if not in 2010, in the near future.
Friday, May 14, 2010
MMS to be Split in Two
The much maligned Minerals Management Service is about to be split in two. The part that collects royalties is to be split from the part that actually regulates wells for safety violations. The solution to many bureaucratic problems seems to be a redesign of the institutions at issue. Here's an example.
Direct Democracy in the House
The House Republican leadership is allowing activists to vote on what spending items to cut. What would Madison say about this?
The American Power Act
That's the name given to the climate change bill introduced into the Senate by Liberman and Kerry. Ezra Klein argues that recent events give it less chance of passing this Congress.
- Info on the bill from Open Congress.
- and from Thomas.
- Info on the bill from Open Congress.
- and from Thomas.
White House Video Blog
Each new leap in technology allows the White House new ways to frame how it presents itself to the public. This doesn't meant the efforts are necessarily successful. Here's a link to the White House's video blog.
Thursday, May 13, 2010
Consequences of the Debt Crisis
A few points of view on what the debt crisis means for the services provided for the elderly.
Monday, May 10, 2010
Political Knowledge and Political Ideology
A worthy read:
...If we want to know the true impact of political knowledge on political opinions, it's necessary to test that impact while controlling for other variables in a randomly selected sample of adults. Political scientist Scott Althaus has actually done this in his book Collective Preferences and Democratic Politics. He shows that, controlling for a variety of demographic and other variables, increased knowledge makes people more socially liberal and economically conservative (i.e. - more libertarian). That does not mean that high political knowledge necessarily turns you into a libertarian. Far from it. It does mean that it is likely to make you more libertarian than you would be otherwise. The pattern is not completely consistent across all public policy questions. For example, greater knowledge reduces opposition to taxation (I suspect because antitax arguments are less counterintuitive than the protax ones). But it does hold true across most issues.
Finally, low knowledge levels are just one of two major negative effects of rational political ignorance. The second is poor evaluation of the information that we do possess, what economist Bryan Caplan has called "rational irrationality." As I discuss in this article, the fact that there is little incentive to acquire political information for the purposes of becoming a "better" voter implies that most of the information people do learn is acquired for other purposes. Many of these purposes - such as entertainment value and confirmation of preexisting prejudices - are antithetical to rational, unbiased evaluation of evidence. In my article, I explain how rational irrationality may account for the fact that most citizens tend to discount information that goes against their preexisting views and only read and watch those political media that reinforce those views, while ignoring opposing positions. Such behavior is inexplicable if the goal is to get at the truth in order to be a better voter; it is perfectly rational, however, if truth-seeking is not the primary objective.
...If we want to know the true impact of political knowledge on political opinions, it's necessary to test that impact while controlling for other variables in a randomly selected sample of adults. Political scientist Scott Althaus has actually done this in his book Collective Preferences and Democratic Politics. He shows that, controlling for a variety of demographic and other variables, increased knowledge makes people more socially liberal and economically conservative (i.e. - more libertarian). That does not mean that high political knowledge necessarily turns you into a libertarian. Far from it. It does mean that it is likely to make you more libertarian than you would be otherwise. The pattern is not completely consistent across all public policy questions. For example, greater knowledge reduces opposition to taxation (I suspect because antitax arguments are less counterintuitive than the protax ones). But it does hold true across most issues.
Finally, low knowledge levels are just one of two major negative effects of rational political ignorance. The second is poor evaluation of the information that we do possess, what economist Bryan Caplan has called "rational irrationality." As I discuss in this article, the fact that there is little incentive to acquire political information for the purposes of becoming a "better" voter implies that most of the information people do learn is acquired for other purposes. Many of these purposes - such as entertainment value and confirmation of preexisting prejudices - are antithetical to rational, unbiased evaluation of evidence. In my article, I explain how rational irrationality may account for the fact that most citizens tend to discount information that goes against their preexisting views and only read and watch those political media that reinforce those views, while ignoring opposing positions. Such behavior is inexplicable if the goal is to get at the truth in order to be a better voter; it is perfectly rational, however, if truth-seeking is not the primary objective.
Executive and Legislative Attention to Auto Safety
In response to Toyota's troubles, the executive and legislative branches have placed automobile safety on their relative agendas.
In the executive, the Secretary of Transportation said that Toyota's response to the crisis would be monitored more carefully, the effective agency is the National Highway Traffic Safety Administration.
In the legislature, bills are being crafted in the House Energy and Commerce and Senate Commerce, Science and Transportation Committees. The bill is called the The Motor Vehicle Safety Act of 2010. The car lobby has come out against the bill: "seizing on a provision that would empower the top U.S. car regulator to order a recall when an "imminent hazard" is present."
Their efforts is being spearheaded by "top car-industry lobbyist (and former member of Congress - think "revolving door") Dave McCurdy, president of the Alliance of Automobile Manufacturers."
For more information on the legislation:
- S.3302: Motor Vehicle Safety Act of 2010 - U.S. Congress ...
- WashingtonWatch.com - S. 3302, The Motor Vehicle Safety Act of 2010
- Motor Vehicle Safety Act of 2010, Section by Section
- Motor Vehicle Safety Act of 2010 Unveiled The Truth About Cars
In the executive, the Secretary of Transportation said that Toyota's response to the crisis would be monitored more carefully, the effective agency is the National Highway Traffic Safety Administration.
In the legislature, bills are being crafted in the House Energy and Commerce and Senate Commerce, Science and Transportation Committees. The bill is called the The Motor Vehicle Safety Act of 2010. The car lobby has come out against the bill: "seizing on a provision that would empower the top U.S. car regulator to order a recall when an "imminent hazard" is present."
Their efforts is being spearheaded by "top car-industry lobbyist (and former member of Congress - think "revolving door") Dave McCurdy, president of the Alliance of Automobile Manufacturers."
For more information on the legislation:
- S.3302: Motor Vehicle Safety Act of 2010 - U.S. Congress ...
- WashingtonWatch.com - S. 3302, The Motor Vehicle Safety Act of 2010
- Motor Vehicle Safety Act of 2010, Section by Section
- Motor Vehicle Safety Act of 2010 Unveiled The Truth About Cars
Its Elena Kagan
Obama is prepared to make the announcement soon.
Some miscellaneous readings:
- A Climb Marked by Confidence and Canniness
- How conservatives will attack Elena Kagan
- A timeline of Elena Kagan's career
- Kagan's Notable Statements and Writings
- Elena Kagan - Wikipedia, the free encyclopedia
Some miscellaneous readings:
- A Climb Marked by Confidence and Canniness
- How conservatives will attack Elena Kagan
- A timeline of Elena Kagan's career
- Kagan's Notable Statements and Writings
- Elena Kagan - Wikipedia, the free encyclopedia
Sunday, May 9, 2010
The Upcoming Supreme Court Nominee and Executive Power
Justice Stevens was often the fifth vote against further expansions of executive power. Will the eventual nominee continue in this vein or add to the growing list of justices who seem to favor expansive executive powers?
Utah Tea Party Defeats Incumbent Republican Senator Bob Bennett
Bennett was apparently not conservative enough for the movement. His support of the bailout, continued acquisition of earmarks for the state and willingness to work with Democrats apparently worked against him. Endorsements by Mitt Romney, Newt Gingrich and Dick Cheney had no effect. Commenters argue that this will pull ordinarily moderate Republicans further to the right.
Attention now turns to Kentucky.
- Some background on Utah's peculiar method for selecting nominees.
Attention now turns to Kentucky.
- Some background on Utah's peculiar method for selecting nominees.
Iron Triangle Watch: Monsanto and the Department of Agriculture
Thomas Barnett comments on the link between Monsanto and the Department of Agriculture. If you've seen Food.Inc you're also aware that one of Monsanto's old corporate lawyers, Clarence Thomas, is now on the Supreme Court.
Saturday, May 8, 2010
The Terrorist Expatriation Act
In response to the attempted bombing of Times Square, by a recently minted, Pakistani born, American citizen who received bomb making training apparently from the Pakistan Taliban, members of the U.S. House and Senate have proposed legislation that would "revoke American citizenship from people suspected of allying themselves with terrorists."
Senators Lieberman and Brown call theirs the Terrorist Expatriation Act. Jason Altmire and Charlie Dent are introducing the same bill in the House.
Questions are now being raised about the constitutionality of this legislation, and whether it is a good idea.
- PrawfsBlawg argues that it is unconstitutional. For one thing, the decision is not based on a conviction, but rather an accusation.
- Reason Magazine agrees. The law is vague and overbroad.
In all likelihood, the law has been introduced so that Congress appears to be on the ball and responsive to a threat. Members are well aware of the institution's low approval ratings and wants to be seen as being proactive. No word yet on whether this thing is likely to pass.
Senators Lieberman and Brown call theirs the Terrorist Expatriation Act. Jason Altmire and Charlie Dent are introducing the same bill in the House.
Questions are now being raised about the constitutionality of this legislation, and whether it is a good idea.
- PrawfsBlawg argues that it is unconstitutional. For one thing, the decision is not based on a conviction, but rather an accusation.
- Reason Magazine agrees. The law is vague and overbroad.
In all likelihood, the law has been introduced so that Congress appears to be on the ball and responsive to a threat. Members are well aware of the institution's low approval ratings and wants to be seen as being proactive. No word yet on whether this thing is likely to pass.
Friday, May 7, 2010
MMS: A Captured Agency?
More evidence that the Minerals Management Service was captured by the oil industry.
Agency records show that from 2001 to 2007, there were 1,443 serious drilling accidents in offshore operations, leading to 41 deaths, 302 injuries and 356 oil spills. Yet the federal agency continues to allow the oil industry largely to police itself, saying that the best technical experts work for industry, not for the government.
Critics say that, then and now, the minerals service has been crippled by this dependence on industry and by a climate of regulatory indulgence.
Agency records show that from 2001 to 2007, there were 1,443 serious drilling accidents in offshore operations, leading to 41 deaths, 302 injuries and 356 oil spills. Yet the federal agency continues to allow the oil industry largely to police itself, saying that the best technical experts work for industry, not for the government.
Critics say that, then and now, the minerals service has been crippled by this dependence on industry and by a climate of regulatory indulgence.
The 2010 British Elections
For my 2301s, we'll cover the just completed -- but still unresolved -- British elections as a contrast to our own.
Ours are non-stop, theirs begin and end in less than two months. We should consider whether this is an admirable distinction. Do we have too many elections in the United States?
Ours provide a clear winner, theirs -- at least now -- do not. The fact that there was no majority winner allows a minority party the opportunity to have an impact on policy because they are now king makers. The minor party is a non-entity in American politics -- at least as a positive force, they can still make life hell for the majority. Again, are there advantages to the British system that could prove valuable to ours?
Ours are non-stop, theirs begin and end in less than two months. We should consider whether this is an admirable distinction. Do we have too many elections in the United States?
Ours provide a clear winner, theirs -- at least now -- do not. The fact that there was no majority winner allows a minority party the opportunity to have an impact on policy because they are now king makers. The minor party is a non-entity in American politics -- at least as a positive force, they can still make life hell for the majority. Again, are there advantages to the British system that could prove valuable to ours?
Some Random Thoughts on the Judiciary
- Jeff Sessions (Republican Senator) wants Obama to appoint a textualist to the court.
- Joseph Ellis thinks the doctrine of original intent is bizarre and that the founders disagreed over what the document meant.
- Linda Greenhouse has some questions about originalism.
- Joseph Ellis thinks the doctrine of original intent is bizarre and that the founders disagreed over what the document meant.
- Linda Greenhouse has some questions about originalism.
Thursday, May 6, 2010
Arizona Immigration Law: Possibly Unconstitutional, Certainly Popular
Arizona's recently passed immigration legislation may prove unconstitutional since it intrudes on the national government's authority over immigration matter. There are also questions about whether its enforcement will lead to racial profiling, which could violate the equal protection clause. There are arguments that it is constitutional however, including this one from the law's author. Challenges have already begun, though as with similar challenges to health care legislation, it is unclear that anyone has standing to sue yet.
Regardless, a small majority of people who have heard of the law, like it.
David Broder thinks the passage of this law adds to the argument that Congress is broken.
Regardless, a small majority of people who have heard of the law, like it.
David Broder thinks the passage of this law adds to the argument that Congress is broken.
Does Government Work Afterall?
E.J Dionne thinks recent events prove it does, or at least can. The trick will be selling that idea. Over the past few decades, conservatives have been able to convince people that, in the words of Dick Armey, "government is dumb." Will the Wall Street crash and the various other private sector screw-ups provide liberals the opportunity to change opinions, or are anti-government attitudes hard wired into the American psyche?
Wednesday, May 5, 2010
Louis Brandeis
The quote in the post below (about sunlight being a disinfectant for politics) is credited to Louis Brandeis. Ive been remiss in not discussing him further when we cover developments in First Amendment freedoms. I'll correct this this summer. My upcoming students should anticipate an assignment of some sort about him and the influence the Supreme Court has on our evolving understandings of what Constitutional freedoms mean at any given moment.
- Other People's Money.
- Other People's Money.
No Backroom Deals for Finance Reform?
If these stories are to be believed, Senate Committees aren't what they used to be. It is said that sunlight is the best disinfectant, and it is alleged that media exposure breaks apart issue networks and iron triangles. Let's see.
Have Attitudes About Surveillance Cameras Changed?
Once seen as contrary to civil liberties -- living in a police state and all -- the Times Square near miss seems to have led to a reappraisal of the relative merits of police surveillance cameras. See the third lesson from the Times Square bomb.
Tuesday, May 4, 2010
An Off Shore Drilling Iron Triangle?
William Galston seems to think such a thing might lie at the root of the ongoing Gulf oil spill. He highlight changes in the Minerals Management Service (a division of the Interior Department) during the early years of the Bush Administration which 
made the institution more oil friendly, and less likely to aggressivley inspect off shore oil wells.
made the institution more oil friendly, and less likely to aggressivley inspect off shore oil wells.
Measuring Political Rhetoric
For our ongoing discussion of framing, a study of the positive and negative reactions various and phrases elicits from people. Most positive? Family Values. Most negative? Militia. My hunch is that ll of this is old news to political consultants.
The Limits of Policy
A worthwhile read from David Brooks. Public policy can make things worse, but seldom makes things better for people. Not a positive message.
Monday, May 3, 2010
Implementing Health Care Reform
With apologies to the National Journal, I copied and posted a recent piece detailing the issues associated with implementing the recently passed health care legislation.
Writing The Rules For The Health Law: The new law offers some benefits this year, but a quick turnaround on writing regulations could prove difficult.
by Marilyn Werber Serafini
Saturday, May 1, 2010
The Obama administration faces a monumental task this year in implementing the first changes dictated by the new health care reform law, not to mention laying the groundwork for the bigger changes to come in 2014.
On the political front, meanwhile, Obama and his team have a challenge in selling the public on health reform's benefits before November's congressional elections. Surveys show that opposition has grown since the law was enacted on March 23, with various April polls finding 40 to 54 percent of respondents unhappy. The White House announced last week that Stephanie Cutter, who handled the president's nomination of Sonia Sotomayor to the Supreme Court and advised first lady Michelle Obama on her childhood obesity initiative, will spearhead the effort to bolster public understanding of and support for the reforms. (See "Winning the Perception Game," NJ, 4/24/10)
Democrats wrote the law so that some of its most appealing reforms come this year -- a good strategy so long as those changes happen smoothly and on time. "The major benefits of the law -- the coverage expansions, subsidies, and insurance market reforms -- do not kick in until 2014," Drew Altman, president of the Kaiser Family Foundation, wrote on the foundation's website. "To compensate for that, the architects of the legislation built in a long list of early deliverables so the public would see tangible and understandable benefits right away -- from allowing dependent children to stay on family policies until age 26, to beginning to eliminate the prescription drug doughnut hole for seniors."
These early reforms will help only a modest number of people, he cautioned, and premiums and out-of-pocket costs will continue to rise faster than wages. "So, on the one hand, the law might not provide the kind of help people are expecting in the first few years. On the other hand, the sky will not immediately fall, as many people seem to believe it might."
Altman predicted that few people will see any changes in the near term. "If the benefits and timetable for the law are communicated effectively, the expectations gap should be manageable; over time, the benefits the law provides will be highly valued by the American people, but it will be crucial to develop mechanisms to answer people's questions and link them to the benefits the law provides."
The Health and Human Services Department and other federal agencies are tasked with producing regulations for the changes that take effect this year. Nancy-Ann DeParle, director of the White House Office of Health Reform, is confident the administration can move quickly, although some observers predict missed deadlines.
The law provides $1 billion to help HHS implement the new law -- probably not enough, said Mark McClellan, director of the Engelberg Center for Health Care Reform at the Brookings Institution. As the Medicare administrator in the Bush administration, he launched the program's huge prescription drug benefit enacted in 2003. The Congressional Budget Office has estimated that HHS and the Internal Revenue Service will need $10 billion to $20 billion over 10 years to carry out health reform.
McClellan said that speeded-up hiring procedures helped him implement the drug benefit but added that HHS no longer has such authority. Even with that boost, he said, he needed six to nine months to get key staff on board, and he faced his share of criticism. As the program geared up, the media trumpeted stories of seniors who were turned away from pharmacies empty-handed because of confusion over coverage. The program's telephone help line sometimes kept frustrated seniors on hold too long and then provided incorrect advice. Still, McClellan was able to smooth the wrinkles quickly enough to earn good marks for the program in opinion polls.
The "biggest challenge coming up fast" for HHS, he said, is ensuring that states and the federal government meet a June 23 deadline for establishing subsidized high-risk insurance pools for the people who are hardest to insure. More than 30 states operate such pools, and they may enhance those programs or let the federal government step in.
Georgia's insurance commissioner last month announced that his state would let the feds take over. It will be much easier (and cheaper) if states build on their existing pools, said McClellan, who agreed with other health care experts that the $5 billion to fund the pools until 2014 won't be enough; that amount might not last even a year, he said. If the funding runs out, the administration will have to ask Congress for another appropriation. Conversely, if the money lasts, it would probably signal that the pools are reaching too few people.
"Insurance availability for people who can't get it now is expected to be a high-profile issue," McClellan said. "If programs are not working, then that would confirm some views of the critics and create momentum for change. On the other hand, if the initial provisions go well and the administration can point to people who are benefiting, it keeps the overall package on track."
Also this year, Medicare beneficiaries who hit the so-called doughnut hole -- a gap in their prescription coverage -- will get a $250 rebate. Under the drug program, when spending on an individual has reached $2,250 on prescriptions in a given year, the person must pay 100 percent of the cost of their medications unless and until spending reaches $5,100. The doughnut hole, which Congress created to lower the cost of the program, has been an irritant for seniors and Democrats, who have long vowed to close the coverage gap as soon as possible.
Small businesses that have up to 25 workers and pay average wages under $50,000 are eligible for tax credits to help cover their employees. States may also draw down federal matching money this year if they begin expanding Medicaid to people who earn up to 133 percent of the federal poverty level (about $14,400 for an individual). Moreover, the government will reimburse employers up to 80 percent of the cost if they offer health insurance to retirees over 55 who don't qualify for Medicare. Regulations must spell out all of this in detail, and Health and Human Services Secretary Kathleen Sebelius has significant leeway in defining such concepts as pre-existing conditions and dependent care.
By the end of September, the act will prohibit insurers from imposing cost-sharing on patients for preventive medical services identified by the U.S. Preventive Services Task Force. In addition, insurers must cover young adults up to age 26 on their parents' policies and must not exclude children under age 19 from coverage because of pre-existing medical conditions. Insurers are forbidden to cancel anyone's policy unless the initial application was fraudulent, or to impose lifetime benefit limits.
Sebelius is encouraging insurers to voluntarily make some changes sooner, and already a handful of carriers have agreed to speed up their coverage of young adults on their parents' policies. The secretary announced last week that Blue Cross Blue Shield plans, Kaiser Permanente, and Humana will begin covering young adults before the end of September.
The law requires HHS and other agencies to take a number of other steps by the end of the year, including:
• Reduce annual increases in Medicare payments for inpatient hospital, home health, skilled nursing, hospice, and other services.
• Increase the Medicaid drug rebate for brand-name drugs.
• Create a process for the approval of generic versions of biologic drugs.
• Launch a nonprofit institute to research and compare the effectiveness of medical services.
• Establish a committee to develop a national health care workforce strategy.
• Administer a 10 percent tax on indoor tanning services.
The federal government, states, employers, insurers, and medical providers have all begun laying the groundwork for the massive changes to come in 2014 and beyond. Washington will need to work with states to establish health insurance exchanges and expand Medicaid programs. Federal administrators will also have to prepare for new taxes (and tax breaks), and for Medicare pilot projects to test such concepts as accountable care organizations and bundled payments.
Writing The Rules For The Health Law: The new law offers some benefits this year, but a quick turnaround on writing regulations could prove difficult.
by Marilyn Werber Serafini
Saturday, May 1, 2010
The Obama administration faces a monumental task this year in implementing the first changes dictated by the new health care reform law, not to mention laying the groundwork for the bigger changes to come in 2014.
On the political front, meanwhile, Obama and his team have a challenge in selling the public on health reform's benefits before November's congressional elections. Surveys show that opposition has grown since the law was enacted on March 23, with various April polls finding 40 to 54 percent of respondents unhappy. The White House announced last week that Stephanie Cutter, who handled the president's nomination of Sonia Sotomayor to the Supreme Court and advised first lady Michelle Obama on her childhood obesity initiative, will spearhead the effort to bolster public understanding of and support for the reforms. (See "Winning the Perception Game," NJ, 4/24/10)
Democrats wrote the law so that some of its most appealing reforms come this year -- a good strategy so long as those changes happen smoothly and on time. "The major benefits of the law -- the coverage expansions, subsidies, and insurance market reforms -- do not kick in until 2014," Drew Altman, president of the Kaiser Family Foundation, wrote on the foundation's website. "To compensate for that, the architects of the legislation built in a long list of early deliverables so the public would see tangible and understandable benefits right away -- from allowing dependent children to stay on family policies until age 26, to beginning to eliminate the prescription drug doughnut hole for seniors."
These early reforms will help only a modest number of people, he cautioned, and premiums and out-of-pocket costs will continue to rise faster than wages. "So, on the one hand, the law might not provide the kind of help people are expecting in the first few years. On the other hand, the sky will not immediately fall, as many people seem to believe it might."
Altman predicted that few people will see any changes in the near term. "If the benefits and timetable for the law are communicated effectively, the expectations gap should be manageable; over time, the benefits the law provides will be highly valued by the American people, but it will be crucial to develop mechanisms to answer people's questions and link them to the benefits the law provides."
The Health and Human Services Department and other federal agencies are tasked with producing regulations for the changes that take effect this year. Nancy-Ann DeParle, director of the White House Office of Health Reform, is confident the administration can move quickly, although some observers predict missed deadlines.
The law provides $1 billion to help HHS implement the new law -- probably not enough, said Mark McClellan, director of the Engelberg Center for Health Care Reform at the Brookings Institution. As the Medicare administrator in the Bush administration, he launched the program's huge prescription drug benefit enacted in 2003. The Congressional Budget Office has estimated that HHS and the Internal Revenue Service will need $10 billion to $20 billion over 10 years to carry out health reform.
McClellan said that speeded-up hiring procedures helped him implement the drug benefit but added that HHS no longer has such authority. Even with that boost, he said, he needed six to nine months to get key staff on board, and he faced his share of criticism. As the program geared up, the media trumpeted stories of seniors who were turned away from pharmacies empty-handed because of confusion over coverage. The program's telephone help line sometimes kept frustrated seniors on hold too long and then provided incorrect advice. Still, McClellan was able to smooth the wrinkles quickly enough to earn good marks for the program in opinion polls.
The "biggest challenge coming up fast" for HHS, he said, is ensuring that states and the federal government meet a June 23 deadline for establishing subsidized high-risk insurance pools for the people who are hardest to insure. More than 30 states operate such pools, and they may enhance those programs or let the federal government step in.
Georgia's insurance commissioner last month announced that his state would let the feds take over. It will be much easier (and cheaper) if states build on their existing pools, said McClellan, who agreed with other health care experts that the $5 billion to fund the pools until 2014 won't be enough; that amount might not last even a year, he said. If the funding runs out, the administration will have to ask Congress for another appropriation. Conversely, if the money lasts, it would probably signal that the pools are reaching too few people.
"Insurance availability for people who can't get it now is expected to be a high-profile issue," McClellan said. "If programs are not working, then that would confirm some views of the critics and create momentum for change. On the other hand, if the initial provisions go well and the administration can point to people who are benefiting, it keeps the overall package on track."
Also this year, Medicare beneficiaries who hit the so-called doughnut hole -- a gap in their prescription coverage -- will get a $250 rebate. Under the drug program, when spending on an individual has reached $2,250 on prescriptions in a given year, the person must pay 100 percent of the cost of their medications unless and until spending reaches $5,100. The doughnut hole, which Congress created to lower the cost of the program, has been an irritant for seniors and Democrats, who have long vowed to close the coverage gap as soon as possible.
Small businesses that have up to 25 workers and pay average wages under $50,000 are eligible for tax credits to help cover their employees. States may also draw down federal matching money this year if they begin expanding Medicaid to people who earn up to 133 percent of the federal poverty level (about $14,400 for an individual). Moreover, the government will reimburse employers up to 80 percent of the cost if they offer health insurance to retirees over 55 who don't qualify for Medicare. Regulations must spell out all of this in detail, and Health and Human Services Secretary Kathleen Sebelius has significant leeway in defining such concepts as pre-existing conditions and dependent care.
By the end of September, the act will prohibit insurers from imposing cost-sharing on patients for preventive medical services identified by the U.S. Preventive Services Task Force. In addition, insurers must cover young adults up to age 26 on their parents' policies and must not exclude children under age 19 from coverage because of pre-existing medical conditions. Insurers are forbidden to cancel anyone's policy unless the initial application was fraudulent, or to impose lifetime benefit limits.
Sebelius is encouraging insurers to voluntarily make some changes sooner, and already a handful of carriers have agreed to speed up their coverage of young adults on their parents' policies. The secretary announced last week that Blue Cross Blue Shield plans, Kaiser Permanente, and Humana will begin covering young adults before the end of September.
The law requires HHS and other agencies to take a number of other steps by the end of the year, including:
• Reduce annual increases in Medicare payments for inpatient hospital, home health, skilled nursing, hospice, and other services.
• Increase the Medicaid drug rebate for brand-name drugs.
• Create a process for the approval of generic versions of biologic drugs.
• Launch a nonprofit institute to research and compare the effectiveness of medical services.
• Establish a committee to develop a national health care workforce strategy.
• Administer a 10 percent tax on indoor tanning services.
The federal government, states, employers, insurers, and medical providers have all begun laying the groundwork for the massive changes to come in 2014 and beyond. Washington will need to work with states to establish health insurance exchanges and expand Medicaid programs. Federal administrators will also have to prepare for new taxes (and tax breaks), and for Medicare pilot projects to test such concepts as accountable care organizations and bundled payments.
Obama Comments on the State of Politics
And uses an example we discuss in class:
So before we get too depressed about the current state of our politics, let’s remember our history. The great debates of the past all stirred great passions. They all made somebody angry, and at least once led to a terrible war. What is amazing is that despite all the conflict, despite all its flaws and its frustrations, our experiment in democracy has worked better than any form of government on Earth.
On the last day of the Constitutional Convention, Benjamin Franklin was famously asked, “Well, Doctor, what have we got -– a republic or a monarchy?” And Franklin gave an answer that’s been quoted for ages: He said, “A republic, if you can keep it.” If you can keep it.
Well, for more than 200 years, we have kept it. Through revolution and civil war, our democracy has survived. Through depression and world war, it has prevailed. Through periods of great social and economic unrest, from civil rights to women’s rights, it has allowed us slowly, sometimes painfully, to move towards a more perfect union.
So before we get too depressed about the current state of our politics, let’s remember our history. The great debates of the past all stirred great passions. They all made somebody angry, and at least once led to a terrible war. What is amazing is that despite all the conflict, despite all its flaws and its frustrations, our experiment in democracy has worked better than any form of government on Earth.
On the last day of the Constitutional Convention, Benjamin Franklin was famously asked, “Well, Doctor, what have we got -– a republic or a monarchy?” And Franklin gave an answer that’s been quoted for ages: He said, “A republic, if you can keep it.” If you can keep it.
Well, for more than 200 years, we have kept it. Through revolution and civil war, our democracy has survived. Through depression and world war, it has prevailed. Through periods of great social and economic unrest, from civil rights to women’s rights, it has allowed us slowly, sometimes painfully, to move towards a more perfect union.
Sacrificing Freedom to Gain Greater Freedoms
Here's some commentary on the different conceptions liberals and conservatives have about freedom. This guy uses an example I've used in class for years:
If freedom involves having a decent set of alternatives available to us, then government action can enhance our freedom even if it involves restraints on conduct that would not otherwise violate anyone’s rights. Consider traffic laws. Those of us who drive are constantly subjected to government dictates telling us what we can and cannot do. We can only drive on one side of the street. We have to stop at red lights and stop signs even when no one else is around. If freedom means only that government should not tell us what to do, then the traffic laws are a massive intrusion on our liberty.
I suspect that most people don’t see things that way, though. They probably agree with Elizabeth Anderson, from whom I have taken this example:
To be sure, in a state of gridlock, one has the formal freedom to choose any movement in one's opportunity set -- which amounts to being able to rock forward and back a couple of inches from bumper to bumper, getting nowhere. Some freedom!
Normally, the point of driving is to get somewhere. The traffic laws enable us to get where we are going much more quickly and safely than we would if each of us had to decide for him- or herself which side of the street to drive on. The traffic laws do not tell us where to go. They leave the choice of destination, and for that matter the decision whether to drive at all, entirely up to us. They simply tell us which side of the road to drive on, that we should stop at various points, and so forth. By taking away our freedom to drive on the left, or to blast through busy intersections, they grant us much more freedom in the form of a greatly enhanced ability to get wherever we want to go quickly and safely.
Anyone who thinks that the traffic laws enhance our freedom should acknowledge that in some cases, including this one, government action can enhance our freedom, even if that action takes the form of restrictions on what we can and cannot do.
If freedom involves having a decent set of alternatives available to us, then government action can enhance our freedom even if it involves restraints on conduct that would not otherwise violate anyone’s rights. Consider traffic laws. Those of us who drive are constantly subjected to government dictates telling us what we can and cannot do. We can only drive on one side of the street. We have to stop at red lights and stop signs even when no one else is around. If freedom means only that government should not tell us what to do, then the traffic laws are a massive intrusion on our liberty.
I suspect that most people don’t see things that way, though. They probably agree with Elizabeth Anderson, from whom I have taken this example:
To be sure, in a state of gridlock, one has the formal freedom to choose any movement in one's opportunity set -- which amounts to being able to rock forward and back a couple of inches from bumper to bumper, getting nowhere. Some freedom!
Normally, the point of driving is to get somewhere. The traffic laws enable us to get where we are going much more quickly and safely than we would if each of us had to decide for him- or herself which side of the street to drive on. The traffic laws do not tell us where to go. They leave the choice of destination, and for that matter the decision whether to drive at all, entirely up to us. They simply tell us which side of the road to drive on, that we should stop at various points, and so forth. By taking away our freedom to drive on the left, or to blast through busy intersections, they grant us much more freedom in the form of a greatly enhanced ability to get wherever we want to go quickly and safely.
Anyone who thinks that the traffic laws enhance our freedom should acknowledge that in some cases, including this one, government action can enhance our freedom, even if that action takes the form of restrictions on what we can and cannot do.
A Tradition of Self Governance
The founders were not amateurs, and their experience in self governance came in handy for a newly formed republic searching for stability.
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