The Volokh Conspiracy

For those who are interested, Ed Warren Whelan has some comments on Joan Biskupic’s new book on Justice Scalia.  Part I here and Part II here.

Ed’s conclusion:

My overall take on American Original is decidedly mixed.  On the positive side:  The book is well written, much more so than I expected from my occasional encounters with Biskupic’s reporting.  It is also in many places more evenhanded than I expected.  And I found the first four chapters particularly interesting.

I’ll flesh out the negative side in my posts to come, but here’s an overview:  Consistent with her reductionist depiction of judging as politics, Biskupic does not engage well with Scalia’s ideas about judging.  In particular, I doubt that any reader will come away from the book understanding what Scalia’s original-meaning methodology is, much less his stated reasons for believing that it’s the correct interpretive methodology.  Far from grappling with Scalia’s jurisprudential ideas, Biskupic resorts to flawed and simplistic accounts.  Worse, she misrepresents Scalia’s positions and statements on a variety of matters—always to his detriment.  In sum, although she may well have, as she says (p. 415), “worked hard to be both fair to him and true to the readers of this book,” she has fallen well short of those goals.

Ed’s review reminds me again of why I so admired Jan Crawford Greenburg’s book Supreme Conflict–I was impressed by Greenburg’s effort to really understand conservative judicial philosophy and their effort to distinguish law from policy and politics.  Some may criticize them as failing to live up to this purported goal, but I think that Greenburg’s sense of what animates the debates within the conservative legal movement is correct and that she does describe those debates fairly, even if she doesn’t agree with them (which, to her credit as a journalist, I had no idea after reading the book whether she was actually sympathetic or hostile to conservative legal theories).

One of the most interesting articles I have read on the health care cost issue was this one in the New Yorker that I read over the summer.

Overall, I thought it a pretty interesting insight into the issue.  But that’s not what I’m concerned about here.  What I thought was interesting about it was what an example it provides about the difficulty that people often have in understanding how markets work.  The author, Atul Gawande, is a doctor, not an economist.  At the end of the article he turns to proposals for reform.  And he has this discussion with a doctor:

The third class of health-cost proposals, I explained, would push people to use medical savings accounts and hold high-deductible insurance policies: “They’d have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

He gave me a quizzical look. We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? “I’ll do three vessels for thirty thousand, but if you take four I’ll throw in an extra night in the I.C.U.”—that sort of thing? Dyke shook his head. “Who comes up with this stuff?” he asked. “Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

Josh Wright and Adam Levitin have been going back and forth about Wright’s paper (co-authored with David Evans) about the predicted impact of the adoption of the Consumer Financial Protection Agency (CFPA) on the availability of credit, economic growth, and new business formation (many new businesses rely on their founder’s personal consumer credit, such as credit cards, to start businesses, a point for which the CFPA makes no allowance).  Wright and Evans offer some lower-bounds estimates of the predicted impact of the CFPA on interest rates and the other variables.  Levitin has criticized their estimates as arbitrary.  The estimates matter in thinking about the overall costs and benefits of the CFPA.  Levitin criticizes the Wright & Evans estimates, but he offers no estimates of his own of the costs, benefits, or net costs and benefits of the proposal.  Prof. Levitin seems to conclude from the absence of any estimated cost-benefit analysis, or any prediction of whether the benefits would exceed the costs, that this means we should go forward with the CFPA, a conclusion that seems questionable to me as I would think that the proponent of a new regulation (or a proponent of deregulation for that matter) would typically bear the burden of proof in advocating for a move from the status quo.

Be that as it may, Wright has proposed that the issue be settled on the field of battle–through a wager!  Here’s Wright’s wager (the stakes are undefined at this point):

The CFPA Act’s supporters have fought vigorously for this piece of legislation.  Professor Levitin appears quite confident that our analysis represents a “scare statistic” meant to avoid rigorous cost-benefit analysis and to ignore precision.   Of course, we find this line of attack ironic in light of the complete absence of empirical evidence in favor of the CFPA Act mustered up by its supporters.  More generally, we’d like to offer Professor Levitin the opportunity to prove that he means what he says about our overestimate of the lower bound of the impact of the CFPA Act on consumer credit and about the beneficial effects of the CFPA Act more generally.  We are economists.  And so we also believe in the power of revealed preferences.  We stand by our estimate of the lower bound at 2.1 percent.  If Professor Levitin is correct that is a ‘scare statistic’ that we’ve inflated from the true number, we would like to provide an opportunity for Professor Levitin to profit from our misguided approach and to test whether he really believes that the effect on consumer credit will be smaller than that.

We propose the following wager to Professor Levitin:

If the effect on consumer credit is less than 2.1 percent, you win and we lose

If and when the CFPA Act is passed, there will be ample data to test the impact of the CFPA on consumer credit directly.  We’re happy to negotiate what methods should be used to calculate the number to both of our satisfaction.  We’re also happy to let you name the stakes.  But let’s make it interesting.  If it’s good enough for Mankiw and Krugman, it’s good enough for us.  What do you say?

I wish that wagers such as this would become more common.  The most famous was probably the Simon-Ehrlich wager.

Back during the debates over the 2005 bankruptcy reform act I wish that I had thought to make a wager on whether bankruptcy filings would decline following the reform.  Critics argued that filings would stay the same because bankruptcy filings are largely involuntary (so consumers don’t respond to incentives) or even that bankruptcy filings would rise because credit card issuers would expand credit supply and lending to riskier borrowers.  I think a well-specified wager (as is the Wright challenge) is an excellent way of seeing how much people believe their claims as opposed to just making rhetorical arguments.

Congratulations to VA’s new AG, Ken Cuccinelli who, to the best of my knowledge, becomes the first George Mason law school alumnus to be elected to state-wide office in Viriginia.  He bested alumni of William & Mary and UVA in the primaries.  GMU is a relatively young law school and this is a proud day for us.

The owner of a highly-coveted “LAWHOO” license plate (at least to UVA Law Alumni) is putting it up for auction, with the proceeds to benefit the UVA Public Interest Law Association.  It is on eBay.

My recent article “Check that Checkbook: A Guide to Smarter Alumni Giving” which was recently published in National Review is now available online on NR Digital.

(At least I think it is–I’m always a bit unclear when NR Digital is generally available and when it isn’t.)

A couple of weeks ago Bank of America announced that it would not raise interest rates in response to the new regulations imposed by the CARD Act.  At the time I didn’t understand how Bank of America could apparently repeal the laws of supply and demand when no one else could.  Now I understand–yesterday B of A announced that it was going to impose annual fees on some of its cardholders, particularly targeting those who do not revolve balances or pay penalty fees.

As I noted a few weeks back, annual fees are a particularly pernicious form of term repricing by credit card issuers because they deter card-switching and the holding of multiple cards by consumers.  As a result they have a hugely detrimental negative effect on competition.

To make matters worse, Congress apparently is considering imposing new regulations on interchange fees, which today is the primary way in which card issuers recoup the costs of serving transactional users.  If Congress does this, then this will accelerate the trend toward reimposing annual fees–and further exacerbate the negative impact on competition and consumer choice.

Congratulations to my GMU colleague and long-time friend Don Boudreaux, who has been named the winner of the 2009 Thomas Szasz Award for Contributions to the Cause of Civil Liberties.  It well-merited and it is great to see Don’s tireless and advocacy for individual liberty recognized.

I am really pleased–elated really–about the naming of Ostrom and Williamson for the Nobel Prize in Economics.  The two of them are real leaders in the development of the New Institutional Economics.  Both have already had important and profound impacts on the study of law and economics and I hope that this will raise interest in their work to an even higher level.

My book “Public Choice Concepts and Applications in Law” (co-authored with Maxwell Stearns) is now available.  Just in time for Christmas!

You can order your very own copy here.

The WSJ has a really sharply-worded attack on the CFPA today and mentions a new Blue Dog Democrat proposal (this is the first I’ve heard of that).

David Evans and Josh Wright have a new paper posted on SSRN on “The Effect of the Consumer Financial Protection Agency Act of 2009 on Consumer Credit.”  I think this is the most thorough academic critique of the proposal to date.

Also, about two weeks ago the Chamber of Commerce published an excellent paper by Tom Durkin on the impact of the CFPA on small business access to credit.  Because many small businesses use “consumer credit” (such as the owner’s personal credit cards) to start and grow businesses, these small businesses would also be affected by the CFPA.

This afternoon I had the pleasure (along with Marcus Cole). of participating in a webcast at the Washington Legal Foundation on our article on “The New Forum-Shopping Problem in Bankruptcy” focusing on the Marshall v. Marshall case.  The webcase is available here. It is a bit over an hour long.  The working paper that is the basis for the webcast is here.

Toward the end of the program we also discussed the pending cert petition in In re Chrysler.  Earlier this week WLF, the Cato Institute, and I filed an amicus brief in the case urging the Supreme Court to take cert.  The brief is available here.

John Truslow has a good op-ed on the 17th Amendment in Roll Call.  Nominally it is about the process for filling vacant Senate seats, but it also lays out the more general case for repealing the 17th Amendment.

I had a short essay on the topic of Senate Vacancies in the Heritage Guide to the Constitution.

This whole week on “Uncommon Knowledge” Peter Robinson is interviewing Judge Silberman. The first entry, on Heller and the Second Amendment, is available here.  The second, on the Second Amendment and incorporation, is on The Corner today.  Judge Silberman will be covering a wide range of other issues this week–and if you know Judge Silberman you will know that this certainly won’t be boring.

Not so much.

One of the Comments links to recent pictures of the site.

It looks like major modifications to the CFPA are on the table, including eliminating many of the most troubling elements, such as the “plain vanilla” proposal, the consumer comprehension tests, and the application to non-financial firms. Details here.

Some of the provisions of the the Credit Card Accountability Responsibility and Disclosure Act of 2009 are now effective. CEI’s Hans Bader has an excellent summary of some of the unintended consequences of this “consumer protection” measure–well, actually, most of them, such as the return of annual fees, was fully predicted:

In response to the new law, some credit card companies are starting to charge annual fees on their credit cards to protect themselves against potential losses. Others will likely drop their rewards programs, or stop giving customers’ percentage rebates on credit card purchases. For example, I and my wife get 3% to 5% back on most of our credit card purchases.

One of my co-workers just emailed me that since the new law, he will now be charged an annual fee on what he calls “the best reward card I ever found.” It’s the same card I use for many of my purchases.

The new law is supposed to “protect” cardholders. But what it really does is transfer wealth from people who pay off their credit card bills at the end of every month, (or have good enough credit that the credit card company would not likely have increased their interest rate anyway) to people with bad credit who have run up big balances.

If you make it harder for credit card companies to charge risky people higher rates than responsible people, they’ll increase rates for everyone, or make it harder for people to get credit cards in the first place.

Let me stress one point: annual fees are a uniquely pernicious form of term re-pricing by credit card issuers to deal with limits on their ability to price other terms at market rates. First, they dampen market competition because once a consumer pays an annual fee he has essentially made a capital investment and is locked into that card for the year. And if he switches cards, he has to pay another annual fee. Second, they dampen competition because they are a tax on multiple-card holding. Right now card issuers compete for my business every single time I make a purchase and I can decide which card to use for every transaction. Third, consumer surveys over many decades show that annual fees are the least-liked term by consumers of all credit card terms. Finally, as Hans suggests, annual fees are imposed on all card holders, good and bad risks and responsible and irresponsible users alike. Thus, they have extremely questionable redistributional consequences among card users.

More regulations go into effect next year, so look for more offsetting changes to your credit cards: more annual fees, higher interest rates, less-generous rewards, higher penalty fees, lower credit lines, and less access to credit.

Perhaps someday somewhere a free lunch will be discovered, but it won’t be with respect to this legislation.

I have a piece of political commentary on President Obama and health care reform on Forbes.com today, “Obama’s Ailing Popularity: The health care debate is tarnishing the president’s reputation.”

I can vouch that Allison is a far better law professor than violin player.

The amicus brief filed by Allison and several other professors (both law and political science) is here.

A friend of mine asked me who were some famous federal judges who never sat on the Supreme Court. Learned Hand came to mind first. Are there others? I suggested Henry Friendly and John Minor Wisdom as possibilities, but even those I wasn’t confident of. Any others?

I am not including state judges who were famous but never sat on the United States Supreme Court (Roger Traynor, Thomas Cooley).

Yesterday I testified in the House Financial Services Committee on the Obama Administration’s proposed Consumer Financial Protection Agency. My testimony is here. As you probably inferred from my WSJ column last week, I am not a fan of the proposal.

The full list of testimony is available here as well as an archived webcast for those who are interested. Unlike Ilya, who gets to meet David Cone, this hearing consisted of 7 bankers and me.

First Things is conducting an online survey of religion on college campuses. Looks like they are soliciting responses from current students and recent grads. The survey is here if you are interested in participating.

My latest Wall Street Journal contribution, “Let’s Treat Borrowers Like Adults: The problems with a financial products safety panel” is available here.

The basic point of the piece is that there were a lot of bad loans that were made over the past decade (duh). But the primary problem with these loans was the combination of bad Federal Reserve monetary policy and the bad incentives that they created for borrowers when house values fell. Although there certainly were borrowers who were defrauded by lenders (and lenders defrauded by borrowers) the underlying problem was caused by incentives and rational responses to those incentives.

But this means that many of the loans that were made presented profound issues of safety and soundness for the banking system. But not problems of consumer protection. When a borrower who put nothing down rationally and knowingly responds to incentives to walk away from an underwater house, especially in a state with an anti-deficiency law which makes this strategy largely costless, this presents a major problem of safety and soundness. But it is not a consumer protection issue. Treating it as a consumer protection issue when it isn’t, I argue, could have severe unintended consequences for competition, consumer choice, and the safety and soundness of the banking industry, as well as creating a problematic new bureaucracy.

As I understand the situation, as things stand now, secured creditors in the GM bankruptcy case are slated to get paid in full on their claims. In Chrysler they got about 30 cents on the dollar.

Does anyone know why secured creditors are getting paid in full in one but not the other? Whatever the legal theory in Chrysler (which is not exactly clear), it seems like it would be valid in GM. Whatever the policy or bankruptcy reason for refusing to pay secured creditors in full in Chrysler, it seems the same in GM.

One possible explanation is that the Obama Administration decided as a prudential matter that it went too far in Chrysler and that to do Chrysler again would spook investors too much. A second explanation is that, as I understand it, a much higher percentage of the debt in Chrysler was secured, so it was a bigger liability, so worth pushing more. A third possibility is that the Administration simply thought they could get away with it easier in Chrysler–that the urgency of the case made it less likely that judges would intervene to stop the sale. Fourth, it is possible that there is some different in how the law would process the two cases, but I have not read any distinction. Fifth, perhaps there is some key factual difference that I have overlooked or misunderstood.

Anyway, I’m genuinely asking here–has the Administration provided any explanation for the difference in treatment in the two cases or does any reader have any explanation? This is a question I’ve been asked a couple of times by reporters now and I haven’t really been able to figure out a good answer. AT this point my hunch is that it is a combination of prudential reasons–even if the Administration could do it again it doesn’t want to, it isn’t as important, and it is less likely that they would get away with it without a more difficult challenge–rather than that there is some difference in the law or economics of the two cases.

Yes, says Mark Tushnet, in this interesting essay, and see his Opinio Juris posts here and here. By globalization of constitutional law, he means 

The manuscript for my new coursebook with Maxwell Stearns, Public Choice Concepts and Applications in Law, was sent off to West on Monday. We expect page proofs in September or thereabouts with hard copy shipping in October. It will be published by West.

If you are interested in seeing the book for possible adoption to teach the course drop me an email and I’ll get you on our distribution list. The book will certainly be available for use for Spring 2010 semester. If you are interested in teaching the course during Fall 2009 we can try to make that work too. We already have all the materials posted on a TWEN page for download in manuscript form.

The book is suitable for teaching as a paper-writing seminar or as a course with a final exam. It is also suitable for use to teach a similar course in Economics or Political Science. It is also suitable, I think, for those who have been teaching classes in Law & Positive Political Theory, as we integrate those materials into this project. We have organized the book conceptually so that even though the case illustrations are drawn from American law it can be used in foreign countries as well.

The book will be published in paperback so the price should be affordable. Drop me a line if you want more information or are interested in adoption.

My colleague Nathan Sales has posted an interesting working paper on intelligence agency information sharing. Congress has frequently told intelligence agencies to share more information among themselves. Nathan looks at the incentives of the various agencies to do that. Some useful public choice insights.

Here’s the abstract:

Why don

The Mackinac Center for Public Policy in Michigan has posted a short interview (11 minutes) with me that was done a couple of weeks ago on the GM Bankruptcy.

Unfortunately for me and fortunately for him, it is not the size of our bank accounts. But as Anne Neal reports, we both did get reprimanded by our respective boards of trustees for speech crimes, Forbes for criticizing Princeton’s hiring of Peter Singer while he was serving on the board there. She also reports that University of California Regent John Moores got in trouble for asking scandalous questions about whether UC was violating state law in its admissions practices.

In an earlier post, I compared Judge Sotomayor with other judges, including Judge Wood, who were ranked in a paper by Choi and Gulati. Choi and Gulati focused on three statistics

The Foundation for Individual Rights in Education reports that this indeed happened, at the Community College of Allegheny County in Pennsylvania. At this point, the factual allegations are just the student’s, with no confirmation by the school (the school was asked for its side of the matter on April 29, and wrote on May 13 that “a response will be forthcoming in a reasonable time frame,” but hasn’t said anything further). Still, I have found FIRE’s past factual assertions to be quite reliable; and if the student’s accusations are accurate, this seems like a serious First Amendment problem. Check out FIRE’s summary, and the linked documents, and see for yourself.

I should note that the college apparently defended itself on the grounds that students couldn’t use the name of the college without the college’s permission. But according to FIRE, the name was used in a way that made clear that it was just identifying the location of a student group; I see no constitutional basis for the college to prohibit the use of a name in this context (though I suppose that it might, in an excess of caution, require that use of the name be accompanied with an express note that the college name is used only for identification purposes, and not as a sign of endorsement). 

I should also note that the college reportedly asserted that its policy is to require preapproval of student publications; to the extent that such a policy is permitted on college property, it has to be nondiscretionary and viewpoint-neutral, and according to the student’s account the college claimed that it would not approve publications that express this viewpoint. And the only policy that FIRE could find that supposedly covered this behavior (which the college reportedly labeled as “soliciation”) was this one, which is pretty clearly unconstitutional:

Solicitation: The distribution or display of, and the personal contact with individuals or groups related to non-sponsored college material or events, without prior written approval of the college are prohibited. These actions are limited to public property; however, public property in this context does not include college property.

I hope to hear more about this case in the future, and especially to hear the college’s side of the story.

Disclosure: I will be a keynote speaker at FIRE’s 10th Anniversary event this October.

Odysseas Papadimitriou has an informative summary of the likely effects of the credit card bill on his “Wallet blog” at cardhub.com, both the costs and benefits:

In short the credit card legislation will significantly change the way credit card companies conduct business. Relative to the current landscape and once credit card companies reach full compliance under the new law, consumers will see smaller credit lines, higher interest rates, higher membership fees and fewer 0% offers. Rewards offers will likely stay the same. 

While the effects of the legislation we

Well at least one set of secured creditors is objecting in Chrysler: The state of Indiana on behalf of the Indiana State Teachers Retirement Fund and the Indiana State Police Pension Trust. The objection is available here.

The pleading indicates that the hearing date is May 27. Tom Lauria is one of the lawyers for the objectors.

I’m glad that this is going to at least be forced to be teed-up for a hearing and give Judge Gonzalez a crack at this thing. Obviously this makes it more difficult for the case to be resolved on the government’s preferred timetable as well.

The state’s press release is here.

In my WSJ column on Chrylser last week I asked:

Chrysler — or more accurately, its unionized workers — may be helped in the short run. But we need to ask how eager lenders will be to offer new credit to General Motors knowing that the value of their investment could be diminished or destroyed by government to enrich a politically favored union. We also need to ask how eager hedge funds will be to participate in the government’s Public-Private Investment Program to purchase banks’ troubled assets.

Bloomberg reports that hedge fund managers burned by Obama now are “wary”:

May 20 (Bloomberg) — Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC

Marcus Cole and I have been working on an article on the Anna Nicole Smith bankruptcy case and the negative incentives it creates for forum-shopping in bankruptcy. I’ll be posting our working paper in the next few days.

In the meantime, Marcus, Ron Rotunda, Todd Brown, and I have filed a amicus brief in the case as to whether the issues that arose in the bankruptcy case are “core” or “non-core” matters. The brief is available on Ron’s website here for those who are interested.

Update:

Oops, I forgot to list myself as a signatory on the amicus in the original post.

Keith Hylton, Geoffrey Manne, and Josh Wright here.

I’ll be speaking to the Federalist Society’s Greenville, SC Lawyers’ Division on Monday about the Mortgage and Foreclosure Crisis. We’ll probably touch on Chrysler and various other aspects of the financial crisis as well.

Details here.

John Hinderaker has some of the documents obtained pursuant to a FOIA Request about how Treasury bullied banks into taking TARP money back in the fall.

The documents were obtained by Judicial Watch, discussion here.

Check out this interesting tidbit from Judicial Watch:

Judicial Watch filed a Freedom of Information Act (FOIA) request about the bankers meeting on October 16, 2008. After months of stonewalling, a FOIA lawsuit was filed against the Obama Treasury Department on January 27, 2009. Incredibly, on February 4, Treasury responded it had no documents about the historic meeting. Pressure from Judicial Watch forced Treasury to reevaluate its response, which resulted in this document release last month.

For those who are interested in hearing more about “Chrysler and the Rule of Law” in additional media formats I’ll be on Lou Dobbs’s radio program this afternoon about 3:30 and I’m slated to be on Neil Cavuto’s tv program on Fox Business this evening sometime in the 6:00 hour (exact time to be determined).

Today’s Wall Street Journal has my column on “Chrysler and the Rule of Law” here.