The Volokh Conspiracy

Last week Conglomerate tossed up the question of what should be recommended reading for incoming law students.

I'll toss up one now that is sure to be right up Conglomerate's alley (as well as Bainbridge and Ribstein)--what business books would you recommend to law students who want to learn more about business and the "deals" that we see in corporations, securities, and bankruptcy classes.

Many students come to law school as majors in fields such as History or English but become fascinated with corporate and commercial law. I often am asked whether I can recommend reading for these students that will give them some of the flavor and texture of a deal, or a merger, or a large bankruptcy, that lies behind the cases we read.

I usually recommend Barbarians at the Gate, which I think remains the most entertaining and informative description of the logic of agency costs, takeovers, etc. (Make sure you read the book rather than seeing the movie.)

And, of course, we bankruptcy lawyers retain a soft spot in our hearts for the famous workout scene in Tom Wolfe's A Man in Full. But I haven't ever found a really good book that takes the reader through the texture of a large bankruptcy case in the way that Barbarians at the Gate does for understanding the dynamics of a takeover.

I liked the documentary Startup.com from a few years back also, which was a nice look inside the business side of venture capital and the dot.com boom.

Recommended books can be either fiction or nonfiction--I'm looking for books tha will give the flavor and texture of business transactions for those who are trying to get the intuition, rather than a textbook presentation.

Sean Sirrine rounds-up the latest SCOTUS appointment odds from the various gambling houses around the world.

As others have noted, these markets seem to be quite unreliable and thinly traded. BetUS, for instance, has Miguel Estrada at 3 to 1, which seems somewhat implausible.

Update:

Sean Sirrine says that these markets work good enough for him. For current purposes, he does make a good point in his response--if there is only one seat open, what matters is whether the markets correctly pick the top choice, not whether the odds on the second, third, or tenth-place choices are relevant. If the value in the market is the one-zero prediction of who gets the nomination, this may require a different set of information than that suggested by Bainbridge.

In response to the Supreme Court's decision striking down New York's discriminatory ban on interstate direct-shipment of wine, Governor George Pataki this week signed a new law legalizing interstate direct shipment of wine. The law takes effect in 30 days.

The AP story is here. The story reports that Michigan, the other state involved in the Supreme Court case, is considering similar legislation that would move in the opposite direction, by banning all direct shipment, whether from in-state or out-of-state wineries.

In response to a rapid increase in childrens' obesity rates over the past two decades, some politicians and interest groups have called for a ban on food advertising directed at children on the argument that such advertising has contributed to the children's obesity problem.

A new study by Federal Trade Commission staff reported yesterday, however, finds that over the past 28 years there has been a significant drop in the number of food product ads viewed by children. As the Washington Post reports:

Children see significantly fewer television ads promoting food products today than they did 28 years ago, according to a new study by the staff of the Federal Trade Commission.

Today, children watch about 13 food advertisements a day on television, down from more than 18 in 1977, the agency staff said. The staff study did not address how many other food ads kids see through other kinds of promotions, including online gaming, package promotions and in-school marketing.

The large drop in food advertising may be explained in part by the fact that much more of the television ad time today is being given over to promotional ads for other programs, as well as an increase in advertisements for products such as dvd's and video games, which either didn't exist 28 years ago or did so on a much smaller scale than today.

Moroever, my earlier research finds, somewhat surprisingly, that there has been a substantial downward trend in commercial television viewing by children during this same period, from about 4 hours a day, to a little under 3 hours, which probably explains some of the decline in viewing of ads. As parents will quickly realize, however, this drop in television viewing has been offset by a larger rise in "screen time" such as computers, video games, and dvd's and videos, such that even though kids are watching less television (and seeing fewer paid ads) they are probably engaging in more sedentary activity. This also doesn't count the important introduction of commercial-free or largely commercial-free premium cable tv such as HBO Family or the Disney Channel. There is no good evidence on the prevalence of food ads on those media.

This is the most comprehensive reseach on the question of the relationship between the purported link between food advertising and the rise in children's obesity to date. It is consistent with what some of us predicted previously that further research would likely find.

The findings were reported at a joint FTC-HHS workshop on Marketing, Self-Regulation, and Childhood Obesity. The workshop concludes today. There are call-in numbers for those who are interested in listening in to the proceedings, but cannot make it to Washington.

FTC Chair Deborah Majoras also reiterated in her remarks opening the workshop that there remains no plan for the FTC to ban food advertising on children's television, a policy decision that is reinforced by the findings reported yesterday:

In opening the workshop, FTC Chairman Deborah Platt Majoras said it would be unwise and not viable for the agency to ban children's food advertising. However, she warned, it would also be "unwise for industry to maintain the status quo. Not only is downplaying the concerns of consumers bad business, but if industry fails to demonstrate a good-faith commitment to this issue and take positive steps, others may step in and act in its stead."

I've Tivo'ed a number of recent programs on Winston Churchill recently, and have noted that he had a remarkable gift of showing leadership and building solidarity through the use of humor in times of crisis, i.e., WWII. He would often sort of poke fun at Hitler and the Nazi and thereby cut them down to a size where the British felt that the Germans were beatable as well as bolstering British morale that they must eventually prevail. Reagan too, was able to do this during the Cold War by poking fun at the Soviet economy (like the old jokes about the giant nail or the electrician appointment ten years hence "in the afternoon"). These were both deadly serious times, but somehow both Churchill and Reagan could use humor to unite their countries and humanize the enemy by bringing them down to size.

My impression is that the humor has gone out of politics, especially on serious subjects. If so, why is that? One explanation could be that politicians these days are essentially humorless--they are so heavily stage-managed and scripted that there is no room for humor. Or second, could this be another casualty of partisanship and the 24-hour news cycle? My impression is that attempts to use humor today, especially about serious subjects, run the risk of being pounced upon and brandished as evidence of a lack of "seriousness" or "concern" about the subject matter. Third, perhaps there is something about the type of threats we face today (terrorism, for instance), that mean that they are simply are not amenable to humor in the same way as WWII or the Cold War.

I don't know the answer, but watching Churchill, it is amazing how he could use humor to deflate very tense discussions--you simply feel a deep relief when you smile and laugh along with him. For many reasons, it seems like we could use that sort of influence today in politics.

If anyone has any thoughts on this, I would be interested in hearing them.

An amicus brief is being prepared to be filed in the Supreme Court on behalf of law students and law professors urging the reversal of the Third Circuit's opinion in FAIR v. Rumsfeld. The brief will be filed in support of the constitutionality of the Solomon Amendment. The brief is authored by my colleagues Nelson Lund, Dan Polsby, and Joseph Zengerle of George Mason Law School and several lawyers from the law firm of from Wiley, Rein and Fielding in Washington, DC.

If you are law professor and you think you may be interested in signing onto the brief, you can download a copy of the brief here. Instructions for how to go about affixing your name to the brief are provided there as well as well as who to contact for further info.

Please note that if you would like to sign your name to the brief, you must do so by NOON, Friday, July 15, 2005.

Please do not direct any questions or anything else to me--follow the contact info indicated in the link. I am signing the brief, but am not a primary author on it, so I can provide no answers about details or logistics.

Chicago Tribune has a story today about liberal Republicans joining with some Democrats to express their views on a proper Supreme Court nominee.

According to the story, as a result of opposition from liberal Republicans, Edith Jones is reported to be "no longer under serious" consideration for the vacancy.

As for the idea expressed in the article that the President should "appoint someone like O'Connor," I'm not sure that can actually be done. As one of my colleagues observed to me one day, "The problem with pragmatists is that every one is different," so it's not really clear that you can aim for someone "like O'Connor." Moreover, as Charles Krauthammer noted in his column on O'Connor, the problem with O'Connor's pragmatism was that you could never be quite sure what factors she would consider to be relevant or outcome-determinant in any given case. In other words, the next pragmatist could very well weigh every factor completely differently from O'Connor and have everything come out with a reverse result.

Via Powerline, Professor Jonathan Turley comments on Supreme Court nomination politics and offers some advice to Senator Reid and the Democratic Party.

I received this email from a reader:

Prof.,

I have yet to encounter articles on the desirability of Fed budget deficits. Today's [Wednesday's] news states that due to increased tax revenue, the Fed deficit this year was reduced $100 B, but is still at $338 B. This in conjunction with a story I saw in Monday's WSJ (about corporate cash reserves being at an all-time high) had me thinking about the following: As corp debt is to some degree desirable, can gov't debt ever be?

Principally, corporations leverage themselves so that they can invest in what they are good at and make a considerably higher return than the interest rate on their debt. Could there ever be such an economic justification for gov'ts? Or is it just poor management, coupled with crisis spending, i.e., wars, hurricane relief, etc?

I would be interested to see you post on this topic on the VC.

This is something that I also haven't seen much commentary on and since this is something I have thought about a bit (its actually related to questions of household savings and that sort of thing that I work with all the time), so I'll give my thinking on it. I offer this to stimulate discussion and I hope other economists will offer their views too, especially if they have relevant empirical evidence that sheds light on the question.

The answer is yes, my view is that I think deficits could be ok but only under limited circumstances. In general, however, they are difficult to justify. Thus, it is likely that they are more defensible in theory than in practice. Whether the current budget deficits are defensible is an empirical question, I think, for reasons that I will elaborate, but that it is doubtful that much of recent budget deficits are justified.

First, as suggested in the email there is an analogy to corporate debt, if the government is making profitable investments in collective capital investment projects that the private sector would not undertake efficiently. So that if the government was building infrastructure, as local governments do when they go into debt to build schools or road. Or, arguably, investments in national defense or anti-terrorism could be these sorts of collective capital investments if they actually build a sort of anti-terror infrastructure. The federal government does not issue bonds in the same way that a municipal government does, but under this logic, they would be instrumentally similar.

There are, however, two qualifications to this. First, it must be that the investments are profitable investments, i.e., as mentioned in the email, where the rate of return exceeds the interest rate paid (which is actually the opportunity cost, as we will get to in a second). Unlike private businesses, however, there is no real accounting for the economic return on these projects, so it is pure speculation whether the return exceeds the interest rate. Given the amount of pork in infrastructure budgets (see the recent budget-busting highway bill) and the tendency to allocate these funds to political ends, rather than their highest-valued economic purpose, there is some doubt as to whether they recover their cost. As for investments in anti-terror and miliary expenditures, others have detailed the ways in which much of this money too has been diverted to other (pork) ends. So the WSJ definitely has a point in noting that the war against terror is certainly the sort of thing in which most people would agree it is appropriate to fund through deficit spending (just like wars are usually funded through deficits) and that this is probably a wise investment in theory, it also seems clear that in practice some of this money has been inappropriately diverted to nonproductive ends.

The second qualfication, of course, is that the money is actually being invested, not merely spent on consumption. To the extent that the deficit is caused by things like transfer payments (such as social security), etc., then it is difficult to see why this should be funded by deficits rather than taxes.

The second circumstance is what households do with the money. A "deficit" is nothing more than a deferred tax increase--either we pay today, or we pay in the future plus interest. So a deficit simply means that we have more money today, and less money whenever "we" have to repay the loan. There are three things that we can do with this "windfall." (1) We could simply save it in anticipation of higher taxes later--for instance, if we bought Treasury Bills then we would in theory perfectly break even vis a vis our future tax liability, or we could save the money and bequest it to our children to pay off our portion of the taxes. In this scenario (which is essentially similar to what is called "Ricardian Equivalence") deficits would be perfectly neutral. (2) We could spend our greater current income on current consumption, in which case this is a simple intergenerational wealth transfer, allowing us to consume today beyond our true wealth and trying to get someone else to pay for it.

Or, (3) We could invest it ourselves in some sort of individual investment and capital development. This is the most interesting arguemtn. It could be that if there are imperfections in certain capital markets for some reason, it might make sense for the government to borrow on our behalf and give us the money. For instance, the government essentially does this when it guarantees student loans--because of the riskiness of these sorts of investments in human capital, it is conceivable that such a private loan market might not work perfectly efficiently, and so a guaranteed student loan program might enable more efficient investments in human capital markets. So, if people are using their "extra" money, say, to quit working and go back to school to develop more valuable skills, and for some reason this is the most efficient way to enable them to do this, then it might make sense.

Again, however, the qualifications are substantial. My recollection from the Ricardian Equivalency literature (and any economists out there can set me straight on the current empirical state of the world on this question) is that people tend to save some of this and consume a substantial portion of this. Perhaps they invest some of it as well, but for most of those investments my guess is that the case for funding them through deficit spending is pretty week.

In the end, the case for budget deficits boils down to an empirical question about what the government and private individuals do with the money they get today, and the recognition that deficits today are just future taxes. In general, however, I am skeptical that capital markets are so incomplete that it makes sense to fund individual human capital investment through government deficit spending. And much of the deficit spending by the government today seems unrelated to true investment ends as well.

Two other arguments have also been made that I won't really discuss much, as they are more political and philosophical arguments, rather than economic arguments.

If the problem with deficits, roughly stated, is excessive government spending that funds current consumption (rather than investment), some have argued that deficits have the practical utility of constraining the overall size of the spending budget. This is Milton Friedman's famous justification for Reagan's budgets. This assumes, however, that there is some limit on public tolerance for budget deficits--it is no longer clear that this is the case. I had a long talk with James Buchanan a few weeks ago, and he strongly believes that this is the case, and that today, spending would be lower if we forced it to be financed by taxes rather than permitting deficits.

Some have also made a philosophical argument that even if there is an intergenerational wealth transfer, it is justifiable, because our children and grandchildren will almost certainly be wealthier than us, and (oversimplified) that they "wouldn't mind" lending us some money today, just as we leave money for them in our wills. This doesn't seem to be particularly persuasive to me, but it is one argument that is occasionally made to justify even deficits that fund current consumption.

As for a balanced budget amendment to the Constitution, the idea seems to be an idea that has disappeared as a political matter, nonethless I think that the intellectual argument is interesting. Leaving aside practical enforcement problems for a moment, I understand the strongest argument in favor of a balanced-budget amendment to be a public choice sort of argument, rather than an economic one. The idea would be that to the extent that a balanced budget amendment created some constraint on spending, it would be to create a sort of prisoners' dilemma game among politicians--i.e., I could only get more for my project if you got less. The logic of the argument would be that through this competition for limited funds, politicians would have the incentive to identify and plunder one anothers' pork projects, thereby increasing the public scrutiny on pork. Under the current system, by contrast, they can logroll each others' pork and shove the cost into the deficit. The argument would be, therefore, that the effect of a balanced-budget amendment would be to reduce expenditures on pork more than expenditures on public goods.

My sense of this argument for a balanced-budget amendment is that it too seems theoretically sound, but that the enforcement problems with a balanced-budget amendments, and the need for exceptions, would probably render it unenforceable in practice. In particular, it seems that any such BBA would probably put most entitlement spending off-budget, so it would not constrain exactly that which it would be intended to constrain in theory. Which is why I think the idea has fallen out of favor--in addition, of course, to changes in the political winds in Washington that no longer see it as, um, "necessary".

Update:

A week or so ago, I posted on Ben Adler's New Republic story interviewing conservative pundits on various questions related to the theory of evolution, intelligent design theory, and the teaching of both. In that post, I took for granted that Adler had reported the answers accurately, but now I'm not so sure. Mike Rappaport at The Right Coast notes David Frum's objection that Adler's reporting may not have been fully accurate. As Rappaport writes:

I previously posted on the responses that conservatives gave concerning evolution. Now it appears that the New Republic may not have reported the answers fairly. David Frum, one of those interviewed, claims that Ben Adler played fast and loose with some ellipses. I had wondered about those ellipses. Sadly, you can't be too careful these days.

Frum adds:

Then he [Adler] asked me about whether I thought evolution should be taught in public schools. Here's the answer that he quotes in his survey:

"How evolution should be taught in public schools: 'I don't believe that anything that offends nine-tenths of the American public should be taught in public schools. ... Christianity is the faith of nine-tenths of the American public. ... I don't believe that public schools should embark on teaching anything that offends Christian principle.'"

Two ellipses in three sentences should stand as a warning to the reader that there's funny business going on here. Those are my words all right - but they are not words given in answer to the question in italics. They are answers to questions posed later in the interview, when Adler embarked on a very argumentative and tendentious line of queries about who should decide what gets taught.

I have no idea what proportion of Americans object to the teaching of evolution, but I very much doubt that it's 90% or even 50%. I was responding rather to a question about who should decide on public school curricula: parents or professionals. My sympathies are ever and always with the parents, in the full knowledge of how wrongheaded parents can be. At the same time, as I didn't go on to say, because I was losing patience with the argumentative Adler, I think that one of the great advantages of a system of private higher education is that it enables universities through their admissions criteria to influence the choices that parents make. I'm all for scientific education - achieved via market choice and democratic decision.

To my mind, that is certainly a very substantial difference in the interpretation of Frum's answers, in that he is plainly referring to the political question of who should set education policy, rather than questions of science.

Does anyone know whether other participants in the survey have come forward to object to how they were quoted?

I have long been interested in the great Bobby Jones and have wanted to learn more about him, especially after working at his old firm, Alston & Bird, out of law school (the firm was formed from the merger of Jones, Bird, & Howell and Alston, Miller & Gaines). Especially cool was the "Jones Conference Room", which had a bunch of pictures and Jones memorabilia, including a classic autographed picture of Bobby with President Eisenhower at Augusta (if I recall the details correctly). In particular, the veterans at the firm would speak in hushed and awed tones about what a remarkable man Jones was, and especially his depth of character and honor.

So I was very excited to get ahold of Mark Frost's book, The Grand Slam: Bobby Jones, America, and The Story of Golf. I had read great reviews of Frost's The Greatest Game Ever Played (I have this on my shelf to, but decided to read the Jones book first). I thought the book was ok, but not great. For my taste it gets bogged down in too much stroke-by-stroke description of tournaments on courses I've never seen, and insufficient insight into Jones and his personality. The ties to the events of the age (the Jazz Age and Great Depression) seem somewhat forced to me, unlike Laura Hillenbrand's glorious Seabiscuit. So while it is certainly a very readable and entertaining book, it may be of more interest as a book about golf than as a book about Jones.

I thought the best parts of the book were the early and beginning parts, which I thought had the best insights into how Jones grew into the hero he later became (learning the mental side of the game) and the later parts, describing Jones's retirement and dealing with his crippling medical condition (about the latter, Frost repeats Jones's great line to Al Laney, "You know, in golf we play the ball as it lies. Now, we will not speak of this again, ever."). Those were the times where I felt like I was getting to understand Jones and his persona a bit better.

I know that a slew of books and reprinted books have come out in the past years in honor of the 75th Anniversary of Jones's Slam (not to mention that the British Open is at St. Andrews again this year), so if anyone has any recommendations of books about Jones or his Grand Slam that you would recommend, especially as a complement to the Frost book, please recommend them in the Comments.

To quote Monty Python. Tom Smith has the sad truth here. An excerpt:

A voice, crying in the wilderness, and then just crying

By Tom Smith

I just got some new data back from Lexis, with whom I am engaged in a massive citation study, but that's another story. This data concerns law review articles that are in their Shepard's database and how much they get cited. This data covers about 385,000 law review articles, notes, comments, etc. etc. that appear in 726 law reviews and journals, and looks at how often they are cited. Cited by other law reviews, or cases.

First of all, 43 percent of the articles are not cited . . . at all. Zero, nada, zilch. Almost 80 percent (i.e. 79 percent) of law review articles get ten or fewer citations. ...

Yoi and Double Yoi!

Yoi and Double Yoi! Forget O'Connor--how did I miss the news that the legendary Steelers announcer Myron Cope retired?

And I was looking forward to a few more years of him trying to pronounce "Roethlisberger."