Our Great Recession ended 2½ years ago, according to the official cyclical timekeepers, but you wouldn’t know it by a glance at the news. Zero percent interest rates and $1 trillion in “stimulus” notwithstanding, the U.S. economy can hardly seem to heave itself out of bed in the morning. Now compare this with the first full year of recovery from the ugly depression of 1920-21. In 1922, under the unsung stewardship of the president best remembered for his underlings’ scandals and his own early death in office, the unemployment rate fell from 15.6 percent to 9 percent (on its way to 3.2 percent in 1923), while constant-dollar output leapt by 16 percent. After which the 1920s proverbially roared.

And how did the administration of Warren G. Harding, in conjunction with the Federal Reserve, produce these astonishing results? Why, by raising interest rates, reducing the public debt and balancing the federal budget. Let 21st-century economists rub their eyes in disbelief. Eighteen months after the depression started, it ended.

I’ve been fascinated by the contrast of Harding’s response to the 1920 depression versus Roosevelt’s seemingly-counterproductive response to the Great Depression since I read several discussions a few years back (see here, here, and here).  The problem with macroeconomics, of course, is the paucity of data points and the inability to control for relevant variables.  But it is nevertheless striking to me that discussion always seems to focus on what at first glance appears to be the failed Hoover-Roosevelt response to the Great Depression rather than the apparently effective Harding response to the 1920 Depression.

The only discussions I’ve seen of the 1920 Depression are those that support Harding.  Has anyone written a good response to that story, because what I’ve read seems fairly compelling (at least to the extent that macroeconomics can ever tell a compelling story).

The interview aired on “Nightline” some 90 minutes after the debate ended, and the bombshell turned out to be a dud. The supposed big revelation–that “he wanted an open marriage,” as she, not he, put it–turned out in context to be trivial.

As Mrs. Gingrich told the story, the then-speaker informed her over the phone that he wanted a divorce. “I said to him, ‘Newt, we’ve been married a long time.’ And he said, ‘Yes. But you want me all to yourself. Callista doesn’t care what I do.’ ”

“What was he saying to you, do you think?” asked interviewer Brian Ross.

Mrs. Gingrich: “Oh, he was asking to have an open marriage and I refused.”

By her account, he first asked for a divorce. She protested, and he made clear that he was unwilling to give up his then-mistress. It’s unclear from Marianne Gingrich’s account whether Mr. Gingrich actually offered to remain married in exchange for tolerance of his infidelity, or if this was merely her inference.

In either case, there is an enormous difference between offering such an arrangement as a “compromise” to a spouse who does not wish to divorce, which is what Mr. Gingrich appears to have done, and flat-out asking for an open marriage. Neither reflects well on him, but the former is within the normal range of cruel and confused behavior during a breakup, whereas the latter is, at least by American standards, deviant.

Note first that Gingrich never proposed having an “open marriage”–that’s the ex’s characterization.  And it doesn’t seem accurate to me either.  It looks like what Gingrich told her is (1) I’m in love with Callista, (2) I would like a divorce, (3) that he was planning on remaining with Callista regardless of whether she granted him a divorce, and (4) it is ambiguous (to me) what “Callista doesn’t care what I do” it could reasonably interpreted that Callista would tolerate infidelity or it could also reasonably interpreted that he was saying that Callista didn’t care whether he got a divorce or remarried (again recall this is the ex’s characterization of a conversation a long time ago and what was actually said between those two meanings would require a lot of nuanced parsing).  One could use a lot of terms to describe that set of facts (none of them flattering) but “he was asking to have an open marriage” isn’t how I would characterize it nor do I think most people would characterize it that way.  Especially because, as Taranto notes, the use of that term in the United States connotes deviancy such as swinging with multiple sex partners, rather than a long-term extra-marital affair.

To which I’ll add that given the facts as they appear to be and that the inflammatory term was provided by the ex, not by Gingrich, I think he was justified to berate John King for giving credence to the story–and I would say the interpretation that he “asked for an open marriage” is so inaccurate to actually be false (although others might disagree).

It should be obvious that I am not defending Gingrich’s behavior but I’ll say that explicitly just to make sure.  I also think that character issues such as this are not necessarily out of bounds for the media because they matter to some voters.  I’m just saying that this is an exceedingly dubious characterization of the story, which is not nearly so deviant as reported.

Libertylawtalk is a serious of podcasts from the same source that you can download here.

Best wishes to Mike and Mike (perhaps it should be known as “Mikelawblog”?) and thanks to Liberty Fund for bringing this project into being.

The problem is that the Senate does most of its work by unanimous consent—meaning without objection from present Members and without a vote or quorum. Even a single Senator alone on the floor (or “as a practical matter” one from each party) can use this process to modify the standing order in a heartbeat and conduct business.

The Senate did exactly that to pass Mr. Obama’s payroll tax holiday in December, changing a standing order by unanimous consent to conduct business during an ostensibly pro forma session. Mr. Obama signed that bill. Either that was a real session and therefore his recess appointments are unconstitutional or the bill was invalidly enacted and therefore unconstitutional. Both can’t be true.

That seems correct to me–that either a pro forma session is a real session or it is a recess.  It cannot simultaneously be both, can it?

This seems to suggest that even if the President might be able to appoint Cordray under the recess power the full grant of statutory authority wouldn’t transfer to the Bureau unless the statutory language was fulfilled as well.

(HT: Jerry Loeser)

In general, of course, more competition is better than less, and so I fully support the right of online payday lenders to compete with traditional bricks-and-mortar operations.  On the other hand, as noted in the article, online payday lending raises several novel regulatory concerns.  For example, as I understand it, rather than writing a post-dated check, online payday lending often works through a borrower giving the lender direct access to his bank account to make an EFT, which can raise heightened concerns about privacy and security.  Moreover, despite their lower operating costs, to date online payday lenders do not appear to offer rates noticeably lower than bricks-and-mortar businesses.  This could be for several reasons: adverse selection, heightened default risk (because of lack of legal enforceability), or reduced competition because of the fact that many online borrowers lack easily-accessible offline options.  In the medium to long run, however, I suspect that online payday lending is a useful pro-consumer innovation and would grow over time, even without the subsidy provided by legislators regulating out of existence their leading source of competition.

More generally, the point here is obvious: while competition and free choice is good, enacting well-intentioned but misguided regulations that eliminate consumers’ preferred options and push them to less-preferred options is not a strategy well-designed to increase their welfare.  You simply cannot wish away consumer need for credit, even short-term high-cost credit.  And while state regulations enacted on the misguided premise that we can wish away that need has proved a boon for Indian Tribes and online lenders I fail to see how payday loan customers are better off as a result of this substitution.

Update:

I received a few useful comments from a lawyer who expert in all types of payday lending.  He offers a few corrections and elaborations to some of my observations:

1.  Regarding “heightened concerns about privacy for ACH debits, the information necessary to initiate an ACH debit entry to a person’s checking account is the same information that is encoded on the bottom of his check–the routing number and account number, nothing more, and has no more “private” information than the possessor of an unsigned black check from the borrower’s account.  The ACH process is also extensively used by brick-and-mortar payday lenders to collect past-due loans for reasons for speed and simplicity.  The cost of doing so is also lower than the cost of presenting the physical check; bank charges for a returned ACH debit are generally a small fraction of such charges for a returned check–this despite the current practice of banks under the Check 21 Act to present nearly all checks electronically.

2.  There is a huge, and rapidly-growing, Internet-based lending business, both for payday and auto title.  Indian tribal sovereign immunity is only one of the models.

3.  In general, the price of an Internet payday loan is, as you point out, higher than the price of a comparable brick-and-mortar loan.  There are several reasons for this.  First, with immaterial exceptions, every state that permits payday lending has a regulated price ceiling.  As a general matter, the regulated ceiling is below the equilibrium price.  The Internet is generally free of these strictures, price discovery is simple, and the equilibrium price unsurprisingly winds up as the market rate.  Second, the lender’s highest costs on the Internet are not credit losses but rather the costs of borrower acquisition that involve payments to third parties….  Lead generation is itself a huge and profitable industry.  Third, credit losses are indeed somewhat higher with Internet loans but insufficiently higher to explain the price differential.

This is all very helpful.  I find point 3 especially interesting in that it reminds me that payday loan storefronts are themselves a type of advertising, much like the ubiquity of Starbucks stores not only enables them to sell a lot of coffee but also serves as a type of advertising for the chain more generally.  At the same time, this advertising function is embedded in the overhead.  Online payday lending, of course, lacks that attribute so it follows that they would have to use alternative marketing devices.  I’m intrigued by the “lead” business for Internet payday loans if anyone knows more about that.

Also, it sounds like there is indeed some adverse selection with respect to Internet lenders as at least some of those who borrow have been rationed out of traditional bricks-and-mortar price controls.  Adverse selection might also contribute to the higher default rate online if collection is more difficult because of legal restrictions and difficult in enforcement.

Now all we need is a “cash for clunkers” for old Priuses and we’ll have a trifecta of goofy auto policies.

Some New Hampshire lawmakers are backing a bill that would put up border signs warning drivers about to enter Massachusetts.

Signs welcoming drivers to other states are common on major roads, but lawmakers said travelers on back roads might not realize they’re crossing a border and may be subject to different laws.

“You have to think about the fact that there is a huge amount of laws that change when you go from New Hampshire to Massachusetts,” said Rep. Jennifer Coffey, R-Andover. “You don’t want to get caught on the other side of the line with illegal fireworks in an uninsured vehicle without your seat belt.”

Some of these would be helpful on the Virginia-DC border too.

The Bill of Rights Institute, for those of you who are unfamiliar, is a nonprofit group that educates high school students about the Bill of Rights.  It describes its mission as follows:  ”The mission of the Bill of Rights Institute is to educate young people about the words and ideas of America’s Founders, the liberties guaranteed in our Founding documents, and how our Founding principles continue to affect and shape a free society. It is the goal of the Institute to help the next generation understand the freedom and opportunity the Constitution offers.”

I’ve been the group’s Academic Advisor since its founding and I now also serve on the Board of Directors.  If you are interested in knowing more about BRI for yourself or your kids, check it out here.  And remember that December 15 is Bill of Rights day!

A few participants at the meeting declined to trade on the inside information.  Most of the attendees at the meeting, however, refused comment, so in the world of investment banker ethics we can probably assume we know what that means:

Eton Park’s Mindich, Lone Pine’s Mandel, TPG-Axon’s Singh and Och-Ziff (OZM)’s Och all declined to comment through spokesmen. Reservoir’s Stern didn’t return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further.

Brosens confirmed in an e-mail that he had attended and said he couldn’t recall details. A spokesman for Rattner acknowledged he attended and said he didn’t trade in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.

A Blackstone spokesman confirmed in an e-mail that GSO’s Goodman attended the meeting. Blackstone doesn’t believe market- sensitive information was discussed, and in any event Blackstone didn’t take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote.

I’d be shocked if this is the last of the stories we hear about Paulson feeding inside information to his buddies from which they can profit.  I hope that Congress goes after this (and goes after trading on inside information by members of Congress too).  This is exactly the type of crony capitalism that needs to be stopped.  And even if Paulson didn’t benefit directly at that time it certainly makes you wonder how many of those who benefited from his tips have subsequently hired him as an advisor or have donated to his new academic center at University of Chicago.

The Ninth Circuit U.S. Court of Appeals on Monday rejected a class action settlement that called for AOL Inc. to give $110,000 to random charities, sending a message that courts should be more careful in doling out money under the cy pres doctrine.

A unanimous panel said the charities had nothing to do with the plaintiffs’ email privacy claims and that too much money was being funneled to Los Angeles groups, despite a class spread out across the country. And the court expressed skepticism about whether judges or mediators should make recommendations on how large sums of money get paid out when the money doesn’t go to the class members.

AOL was poised to donate a total of $75,000 to three different charities — Legal Aid Foundation of Los Angeles, the Boys and Girls Clubs of Santa Monica and Los Angeles, and the Federal Judicial Center Foundation — upon the suggestion of a former federal judge who mediated the agreement. Another $35,000 was to go to charities picked by class representatives, an arrangement also recommended by the mediator, Dickran Tevrizian.

“When selection of cy pres beneficiaries is not tethered to the nature of the lawsuit and the interests of the silent class members, the selection process may answer to the whims and self-interests of the parties, their counsel or the court,” Judge N. Randy Smith wrote for the unanimous three-judge panel.

Also on the panel in Fairchild v. AOL, 10-55129, were Senior Judge Betty Fletcher and U.S. District Judge James Gwin, visiting from Ohio.

Abstract

Should judges protect private property rights and constitutional rights as vigilantly in times of crisis as in ordinary times? Conventional wisdom holds that crises justify suspending the rule of law and allow government discretion to address the crises. I argue that this lesson of past economic crises as well as the most recent crisis is that we should uphold the rule of law with special rigor in times of economic crisis because the temptations for politicians to misuse their powers during times of crisis are especially great. During crises, judges must be particularly vigilant in protecting private property and constitutional structure.

Crisis often is invoked to rationalize both governmental discretion and waiver of the rule of law. But as the financial crisis and its aftermath reveal, it is precisely during times of crisis that it is most important to tie the hands of government with the bonds of the rule of law. First, in times of economic crisis there is a special need for government behavior to be predictable and rule-bound to encourage investment and economic recovery in a period of uncertainty. Second, adherence to the rule of law in the face of crisis is important to restrain politicians from using the crisis to pursue their own self-interest or unleashing rent seeking by special interest groups—both of which dampen economic recovery and long-term economic growth. Third, the government’s seizure of discretion creates a ratchet effect whereby the discretion and exceptions to the rule of law made during the crisis ossify and never return to pre-crisis levels. Fourth, the dynamics of short-term interventions tend to invite moral hazard that can be exploited by powerful special interest groups.

Leave aside that it seems somewhat questionable whether Mankiw’s class is biased as opposed to being just good economics (a detailed description of the course to date is provided here).  Mankiw, of course, is a well-respected economist of the highest order and the author of one of the most popular introductory economics textbooks (apparently he sells 700 a year at Harvard alone–man, that’s a big class!).

Now here’s the humor in the cluelessness of the students who walked out–apparently Mankiw’s class is set up like a typical introductory economics course: the first semester focuses on micro economics and the second semester focuses on macro.  So the Keynesian macroeconomic theory that the students are demanding will be covered in the second semester of the course–when he actually teaches, you know, macroeconomics.

And here’s the irony: when one considers the number of left-wing professor proselytizing from the podium in higher education today, it is comical to think of these students are unable to tolerate the uncongenial views of even a single conservative professor.  If I had walked out of every class where my professors were saying things that were uncongenial to my ideological worldview then I would never have been able to finish enough courses to complete a degree.  By contrast, these students can–and, it seems, probably will–spend their entire four years hearing from professors who will never challenge their preexisting worldview.  I find it quite disconcerting that these kids at one of the premier universities in the world are so resistant to having their worldview challenged in even the slightest fashion.

Here’s the info for economics for law professors.

Here’s the info for law for economists.

The two programs actually run simultaneously at the same hotel.

Yours truly, among others, will be among the faculty for the programs.

I think the website looks really great too.

(Disclosure: I am an academic affiliate of the International Center for Law & Economics, which published the study but I have nothing to do with this particular study).

I confess that it is awfully hard for me to see any antitrust harm or consumer harm from Google and until otherwise convinced this looks an awful lot like rent-seeking by Microsoft which is turning the tables in response to being targeted by similar rent-seeking in its own case a few years ago.

Nan Terrie learned an expensive lesson last week about the importance of property rights. “Stealing is our biggest problem at the moment,” the 18-year-old protester told the New York Post. “I had my Mac stolen—that was like $5,500.” Why? Because she left it in a public place, amid a crowd demanding the redistribution of wealth. Imagine that.

I wonder what percentage of Americans own a $5,500 Mac computer–less than 1%, I’d guess.

Mr. Schmidt had just given his first congressional testimony. He was called before the Senate Judiciary Antitrust Subcommittee to answer allegations that Google is a monopolist, a charge the Federal Trade Commission is also investigating.

“So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. OK? I mean, I don’t know how to say it any clearer,” Mr. Schmidt told the Post. “It’s not like we raised prices. We could lower prices from free to . . . lower than free? You see what I’m saying?”

The parallel, of course, is that search engines and payment cards are two paradigm examples of two-sided markets where one side of the market–invariably the more inelastic side–bears the bulk of the cost in maintaining the platform.  And so, until the Durbin Amendment at least, consumers received debit cards for free and merchants (the more inelastic parties) bore the cost of operating the system.  For search engines, consumers get an unlimited number of free searches and clicks–with all those costs paid by advertisers (the inelastic parties).

If I follow the logic of apologists for the Durbin Amendment, what follows next is price controls on Google Ads with the goal of eliminating free search engines, thereby making the cost of search more “transparent” to consumers and eliminating the subsidy from consumers who don’t search on line to those who do.

Of course, this isn’t the nub of the government’s antitrust case against Google.  But the very fact that it is recognized that would be an illogical way of thinking about consumer harm in the case of Google illustrates the fallacy of the reasoning with respect to payment cards.

Hal Singer makes some similar points about the similarities between the FCC’s Open Internet order and payment card price controls at Truth on the Market.

Consumer use of bank overdraft protection has risen rapidly over the past decade, leading to increased scrutiny and the imposition of new regulations. Public and political debate regarding overdraft protection has highlighted anecdotal stories about irresponsible college students who overdraw their accounts to buy a cup of coffee, thereby triggering substantial overdraft fees. But there has been little systematic examination of the safety and soundness or consumer protection issues implicated by the increased use of overdraft protection.

Available evidence indicates that those who rely on overdraft protection tend to have low credit ratings, use overdraft protection because it is sometimes less expensive, to maintain short-term liquidity needs, and more convenient than available alternatives. These alternatives include other credit options, such as payday lending, or options such bounced checks or dishonored payments, which may result in eviction or termination of utilities or other services.

There is also no evidence that those who use overdraft protection are unaware of the cost or otherwise use overdraft protection foolishly or unknowingly. In addition, there is no evidence that banks are earning economic rents off the issuance of overdraft protection, as increases in overdraft revenues have been offset by dramatic increases in free checking, improved quality, and free services offered to bank customers. A serious reduction in overdraft revenues would reverse all of these trends and result in many consumers being driven out of the mainstream financial system, especially low-income consumers.

Absent a demonstrable market failure or demonstration of systematic consumer abuse, restriction on consumer choice of overdraft protection would likely impose substantial costs on consumers and banks with minimal gains.

This will also be the paper that I will be contributing to the Washington & Lee Law Review Symposium on “Regulation in the Fringe Economy” coming up on November 10-11.

Maybe Home Depot will eventually come up with their “Durbin pennies” to symbolize the two cents you might possibly eventually save on a piece of plywood in a couple of years (no guarantees, of course).

About 30 percent of U.S. consumers said they’d leave their banks over fees for using their debit cards, according to a survey by the Research Intelligence Group.

About 43 percent said they’d switch to paying with cash or credit cards if their bank implemented charges; 13 percent said they’d pay the fee if it was “reasonable,” according to the survey released last week by the consulting and market-strategy firm.

According to the survey, lower-income consumers, who have the fewest alternatives for escaping the new fees, report that they will be the most likely to persist in paying bank fees:

Low- to middle-income consumers are more likely to pay the fees, according to the survey. About 22 percent of those consumers, defined as those households earning $35,000 to $49,000 a year, would be willing to pay the fee, compared with 14 percent of consumers whose households earn $100,000 or more.

“Less-affluent populations often feel like they have fewer options at their disposal,” Kaplan-Sherman said.

More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. These banks now have assets worth over 66% of gross domestic product—at least $9.4 trillion, up from 20% of GDP in the 1990s. There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose.

The major banks’ too-big-to-fail status gives them a comparative advantage in borrowing over their competitors thanks to the federal bailout backstop. This funding subsidy amounts to roughly 50 basis points, or one-half of a percentage point in today’s market.

Hunstman provides no citation for the 50 basis point subsidy, however.  I know that there were studies done before Dodd-Frank was enacted that estimated the subsidy in that range (here’s a summary of that debate).  Does anyone know of studies that have been done since Dodd-Frank?  Dodd-Frank supposedly eliminated the implicit subsidy of too big to fail and one of the open questions is whether in fact it actually did so.  So one cannot simply extrapolate from pre-Dodd-Frank estimates to post, unless one simply assumes that Dodd-Frank did not eliminate it.  Does anyone know of any work that has been done post-Dodd-Frank as to whether the subsidy has been eliminated?  The language of the law makes quite clear that the resolution process is supposed to eliminate it but most of those who I’ve talked to believe that in the end the TBTF institutions will be bailed out.  But that’s an assertion that hasn’t been proven and I’ve not been able to find any studies that have examined the question post-Dodd-Frank.

Update: Thanks for those who pointed out the typo in Huntsman’s name.  Boy, that’s embarrassing.