The Volokh Conspiracy

New York Times reporter Adam Liptak recently published an interesting article on the controversy over whether the Roberts Court is “pro-business.” The article is much more balanced and nuanced than the accompanying headline (which probably, as per usual practice, was not written by the author): “Justices Offer Receptive Ear to Business Interests.” Liptak cites a wide range of experts on both sides of the controversy (including co-blogger Jonathan Adler, who last commented on this issue here). He also explains some of the difficulties involved in trying to determine whether or not the Court has a “pro-business” bias.

Nevertheless, both the article and most other discussions of the issues still have two important weaknesses: failure to consider the underlying quality of the two sides’ arguments in “pro” and “anti” business decisions, and the use of a crude definition of what counts as pro-business.

I. A Pro-Business Bias Relative to What?

Liptak discusses at some length the result of a recent study showing that “business” interests won 61% of “economic” cases in the Roberts Court, compared to 46% during the last few years of the Rehnquist Court. But this proves the existence of a pro-business bias only if unbiased decision-making would have led to a lower win rate for business. What percentage of these cases would business have won if the judges were totally unbiased? How good were the legal arguments on each side? If, for example, business “deserved” to win 80% of these cases on the merits, then the 61% win rate would reflect an anti-business bias rather than a pro-business one.

During his tenure as head of the NAACP Legal Defense Fund in the 1940s and 50s, Thurgood Marshall won 29 of the 32 civil rights cases he argued in the Supreme Court. Was that because the Court was “biased” in favor of civil rights plaintiffs or because many state governments in that era abused civil rights so severely that it was easy for skilled litigators at the NAACP to find egregious instances of discrimination that were very hard to defend in court? The justices of that era really were sympathetic to Marshall and the NAACP, but it would be a huge mistake to underrate the nature of the cases he argued. Obviously, “business” is not an oppressed class in the sense that southern blacks were prior to the 1960s. But the vast size and scope of the modern regulatory state makes it easy for skilled business lawyers to find cases where regulators or lower courts have overstepped their authority. That may explain the impressive recent 68% success rate of the Chamber of Commerce, cited by Liptak. Like Thurgood Marshall, the Chamber’s highly competent lawyers try hard to pick winners and steer clear of losers.

None of the studies and experts Liptak quotes address this problem. In fairness, doing so would be difficult. The question of how various cases “should have” come out is itself debatable, with experts often disagreeing among themselves. But the issue is unavoidable if one wants to prove the presence of bias as opposed to merely show that some group won or lost X percent of its cases.

II. What Counts as a Pro-Business Decision?

The second problem with the arguments cited by Liptak is that they rely on a very crude definition of what counts as a “pro-business” decision. In general, they count any case where a business has prevailed on a regulatory, antitrust, employment, or environmental issue as “pro-business,” and the reverse as “antibusiness.” This approach has a variety of weaknesses, some of which I previously covered here and here.

One problem is that many such cases have business interests on both sides. For example, a victory for antitrust defendants is counted as “pro-business.” But most antitrust plaintiffs are businesses themselves who are suing their competitors, usually for the purpose of increasing their own profits. I don’t see any reason to assume that the plaintiffs in these cases are any less “pro-business” than the defendants.

Even in regulatory decisions where there are no business interests directly involved on one side of the case, there are often outside business interests who will benefit if the business litigant loses to the government or a private individual. For example, businesses often benefit from increased regulation that increases their competitors’ costs or makes it difficult for new entrants to come into the market. Increased regulation of the oil industry benefits businesses that produce other types of energy. Increased labor regulation often benefits big business at the expense of small businesses that compete with the larger firms (because big businesses can more easily deal with larger regulatory burdens). Sometimes, business interests are heavily affected by a decision even if none of the parties to a case were commercial firms. For example, Ricci v. DeStefano, the famous 2009 case where the Supreme Court curtailed affirmative action in employment testing, made life hard for many businesses by making it more difficult for them to use race-conscious measures to avoid Title VII disparate impact litigation. Yet none of those who claim that the Court displays a “probusiness” bias count Ricci as a pro-business decision.

Overall, the pro-business vs. anti-business frame is a lot less useful for understanding legal decisions than many people believe. Very few important legal issues pit an undifferentiated business interest against an undifferentiated consumer, employee, or “Main Street” interest. In most cases, some important business interests will gain and others will lose no matter which way the Court comes out.

The widespread contrary belief is mostly due to an unjustified conflation of “pro-business” with pro-free market or anti-regulatory outcomes (I previously criticized this error here, here, and here). Once one recognizes that there are many business interests that often benefit from greater regulation and many non-business interests that are often harmed by it, the pro- vs. anti-business model starts to collapse of its own weight.

UPDATE: Ted Frank makes some related points here.

The Hill reports that the Senate’s failure to follow constitutionally prescribed procedures could doom the food safety bill.   The bill includes fee provisions that constitute taxes and the Constitution requires that all tax bills originate in the House of Representatives, and it looks unlikely that House Dems will let the slip pass.  Based on what Walter Olson has written about the bill, this could be a good thing.  (More here.)

In the past few days there has been speculation that President Obama would name Harvard law professor Elizabeth Warren to be the interim head of the new Consumer Financial Protection Agency (CFPA) created by the Dodd-Frank financial reform legislation.  What did Senator Chris Dodd think of this? TPMDC reports:

In dismissing the rumor last night, though, Senate Banking Committee Chair Chris Dodd — who authored the law — claimed he’d never heard of the interim appointment power.

“I don’t know what it is. I never heard of it before,” said a flabbergasted Dodd to TPMDC. “It’s kind of unique isn’t it?”

Yes it is somewhat unique — the interim appointment would be different than, say, a recess appointment — but the Dodd-Frank legislation provides for interim stewardship of the agency. From TPMDC:

The authority for the Treasury Department to grant an interim appointment — distinct from a “recess appointment” — comes from the financial reform law itself.

To be fair to Senator Dodd, the law does not use the phrase “interim appointment,” but it expressly authorizes the Treasury Secretary to “perform the functions of the Bureau . . . until the Director of the Bureau is confirmed by the Senate.”  This authority would entail naming someone to head the agency until an official director could be confirmed by the Senate.  Presumably this provision was included for a reason, such as to ensure that the new agency could begin work even if either the President or the Senate drags their feet in naming or confirming a new agency head.  But don’t ask Senator Dodd about it.  Even though he was lead sponsor on the bill, he can’t be expected to know everything that’s in it.

(Hat tip: Daniel Foster at NRO)

With an eye to Ben Bernanke’s upcoming testimony to the Financial Crisis Inquiry Commission during the two days of hearings on “too big to fail” – in other words, systemic risk – the WSJ has an editorial in today’s paper raising various questions about the basis on which the Fed, the FDIC, and other agencies concluded that AIG, Bear Stearns, Wachovia, and others qualified as “systemic risk” exceptions allowing for extraordinary actions – i.e., bailouts.

I follow the systemic risk discussions pretty closely, as part of a current writing project, but I realized that I had not been tracking the FOIA requests surrounding some of the US government actions – in part because the government doesn’t seem to be much interested in responding to them.  The general point of the FOIAs is to try and get an understanding of what particular government agencies, and the Fed and FDIC in particular, believed constituted systemic risk, along with an account of how the concept was applied in practice in 2007-2009.  The conclusion of the editorial is, I think, right in the question it poses:

Two years after the bailouts and more than a month after President Obama signed into law new authority for the government to prevent “systemic risk,” Washington still won’t tell us what this term means. Releasing the history of 2008 would at least allow us to know what regulators thought it meant at the time, with lessons for the future.

I agree that the question takes on more importance given the new legislation that confers even more discretionary authority on the Fed to address questions of systemic risk.  What the Fed understands by that term as applied in particular circumstances – which is to say, as a concrete regulatory term, and not just as a matter of a conceptual economic term – is far from irrelevant.  Call it (maybe!) the ‘regulatory casuistry’ of systemic risk, how it gets worked out as a practical term in a run of particular circumstances.

(A useful discussion of the term as a regulatory concept is in Steve Schwarcz’s Georgetown law journal article from midway through the financial crisis, “Systemic Risk,” parts of which are being incorporated into a book Steve and I are doing on financial regulatory reform; the FOIA requests remind me that the concrete ways in which agencies interpret an abstract term that grants them a great deal of discretionary authority matters a lot, and not just the abstract concept denoted by the term.)

The American Association of Law Schools section on financial regulation is seeking paper proposals for the January meeting on all topics of financial regulation and regulatory reform.  The deadline for proposal submissions is August 1, fast approaching; I have posted details below the fold, and you can also contact my colleague Anna Gelpern with any questions … agelpern at wcl dot american dot edu.  I encourage to take advantage of this opportunity for exploring these issues; as I suggested in a recent talk to a student group that was later published as an informal essay, lawyers and law professors do have certain comparative advantages in relation to economists and others in addressing financial regulatory reform.   Continue reading ‘Financial Regulation Reform – AALS Call for Papers’ »

(Update:  Thanks, Glenn, for the Instalanche!  If readers want a further discussion of this, including a short response from one of the co-authors of the “Regulation by Deal” paper, David Zaring, go here.  One reason to look at that further comment is that it gives an approximate definition of “regulation by deal” from the paper.)

I have spent a lot of the weekend reading summaries – I grant, I have not yet read the text of more than a couple of bits and pieces in the derivatives materials – of the financial regulation reform bill.  (Here is a pretty good summary from the front page of the New York Times, Saturday, June 26, 2010, by Edward Wyatt and David M. Herszenhorn.  But if you are looking for a good graphic summary of the highlights, see this graphic, “The Hope and the Worry,” that accompanies the article at page A12.)

With regard to the bill overall, well, I share the concerns raised by the editors of the Wall Street Journal and many others.  Far from eliminating too big to fail, or too systemically connected to fail, etc., the bill instead enshrines it and all the moral hazard accompanying it.  Much of the important systemic risk stuff is left in the discretionary authority of the Fed, however.  This leads me to a particular question about it.

In a certain way, this seems like a return to the phenomenon that Steven Davidoff and David Zaring identified in an article early on in the crisis – the so-called crisis response of “regulation by deal.”  Meaning by that, regulatory actions taken on a deal by deal, firm by firm basis, running through, of course, Bear, Fannie-Freddie, and so on.  Does this new discretionary authority amount to a return to the policy of regulation by deal?  A certain amount of ‘regulation by deal’ seemed justified at the moment of crisis.  But very soon into the process of regulation by deal, everyone had to consider its limitations.

What was it, from a downside view?  There was already a toxic combination of liabilities in existence – triple whammy, simultaneously massive; yet widely diffused throughout the financial system; and yet also interconnected with one another so that one failure might trigger another in unforeseen directions – based around the assumption that in any moment of crisis, they would be put to the Fed. That is, lingering moral hazard and its mis-leveraged fruits, on the one hand.  And yet completely discretionary behavior by governmental authorities as to how they would respond to crisis in any particular firm  at that particular moment, on the other.  Presumably the freedom to respond to Bear but not to Lehman would choke off the moral hazard.  The problem was, given that the liabilities and the leverage that the moral hazard had permitted had already created rafts of really-existing securities with really-existing obligations, things could not be stuffed back into Pandora’s box simply by a policy that eliminated (supposedly) the moral hazard.

Even if the regulation by deal policy was the right way to re-center the market players around risk, that policy would have to act into the future, not the past.  The result was that, at least for purposes of addressing the crisis as it was then unfolding, it merely increased uncertainties without addressing the already-ripened fruits of moral hazard.  (I’m sure if I worked at it, I could come up with a One Ring LOTR metaphor here.  But I will refrain.)  Regulation by deal could not address the moral hazard, because the externalities comprising it had been created by a vast number of deals over years; suddenly putting back in the “threat” of not getting bailed out did not make any of that go away.  At the moment of crisis, it merely increased the uncertainty.  If you were a firm, you didn’t know whether or not you would get bailed out – but since you could not really unwind all the moral hazard assuming risks all at once, in the moment of crisis, there was no “compliance” behavior that could respond to the supposed incentive.  The only result would be the same risk as before since the relevant securities had already been created – and a new dollop of uncertainty.

My question is, does the discretion now handed off to the Fed return us to “regulation by deal”?  And is this a good idea or a bad idea?  After all, in favor of it is that if it truly resolved the moral hazard problem by introducing genuine strategic uncertainty as to the Fed’s actions for any particular firm, then if this is supposed to be regulation for the future, maybe it is a good idea.    Against it?  Well, to start with, the markets would have to believe it – and believe it in the context of everything else that is in the bill.  I don’t believe it.  In fact, I think the bill should have been titled, The Dodd-Frank Put.  I think it’s a bad idea.  But do you?

(I leave aside, for now, certain public choice consequences that seem to me highly problematic with regard to the Fed role.  I also leave aside the topic in this that I follow most closely, the details of derivatives.)

If David Zaring (David blogs at The Conglomerate, but I don’t see anything from him on the new bill as yet) has any views on this, I would be delighted to post them here as a guest post.

Today’s WSJ has an interesting and eye-opening article on corporate-funded opposition to proposed Wal-Mart stores disguised as local community activism.  When I saw local busybodies try to stop the opening of a Wal-Mart in Cleveland — a Wal-Mart that did not receive any local subsidies nor require the use of eminent domain — I realized that union groups backed the effort.  What I was not aware of at the time was that grocery stores and large supermarket chains have become substantial funders of anti-Wal-Mart activism.

The article focuses on the activities of the Saint Consulting Group and its founder, P. Michael Saint, and their astroturf efforts  on behalf of SuperValue, Giant and other supermarket chains.

For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say.

They hire lawyers and traffic experts to help derail the project or stall it as long as possible, in hopes that the developer will pull the plug or Wal-Mart will find another location.

“Usually, clients in defense campaigns do not want their identities disclosed because it opens them up to adverse publicity and the potential for lawsuits,” Mr. Saint wrote in a book published by his firm.

Mr. Saint says he “encouraged” his employees not to use their real names in campaigns in order to protect the client’s identity and “to protect our employees, who have been followed, threatened and harassed by the opposition.”

Safeway, a national chain based in Pleasanton, Calif., retained Saint to thwart Wal-Mart Supercenters in more than 30 towns in California, Oregon, Washington and Hawaii in recent years, according to a Saint project list and interviews with former employees. Former Saint employees say much of the work consisted of training Safeway’s unionized workers to fight land-use battles, including how to speak at public hearings. . . .

In Pennsylvania, Saint’s work roster in August 2007 listed 53 projects, almost all directed at stopping Wal-Mart on behalf of client Giant Food Stores, owned by Amsterdam-based supermarket company Ahold. Saint documents from 2007 say it had lost one battle in Pennsylvania, defeated 13 projects and delayed the remaining ones from four months to four years.

This sort of thing is nothing new.  Many corporations have been known to fund community activism against their competitors.  One of my favorite examples was when hazardous waste incinerator companies created and funded an offshoot of a local grass-roots environmental group to oppose waste-burning by cement kilns.  The plot was only discovered after the cement kilns noticed this little group was represented by high-priced attorneys — attorneys who also represented their incinerator competitors. This all serves as a healthy reminder that not all “grass-roots” activism is what it seems.

Just published on-line this morning is the above Backgrounder from the Heritage Foundation. My coauthors are Theodore Bromund  and Ray Walser, of Heritage. We argue that the CIFTA gun control convention, which was drafted by the Organization of American States, and which President Obama has urged the Senate to ratify, would harm First and Second Amendment rights. We suggest that the convention offers no practical benefits to the United States.

I am a sometime-contributor to the National Journal‘s Energy & Environment Expert Blog.  This week the focus is the Kerry-Lieberman climate change bill, the “American Power Act,” and the EPA’s decision to raise the threshold for stationary sources regulated under the Clean Air Act from emissions to 75,000 tons per year for carbon dioxide, even though the statute contains a far lower numerical threshold.  Here is my comment:

The American Power Act is an agglomeration of complex regulatory measures and corporate subsidies. In an effort to provide something for everyone, the bill provides little for the American people. As it stands, the bill is not in the economic nor environmental interest of the United States. Erecting an ever-more complex cap-and-trade scheme on an industry-by-industry basis invites rent-seeking and corporate gamesmanship at the expense of meaningful reductions. Directed subsidies and grants may reward powerful constituencies, but they won’t encourage the innovation and deployment of transformative environmental technologies. A partial directed rebate of the revenues from carbon allowances is half of a good idea. A far better, and much simpler, approach would be the adoption of an economy-wide carbon tax from which all revenues are directly rebated to American taxpayers, with no strings attached. This is the simplest and fairest way to provide marginal incentvies for increased efficiency and carbon-use reductions without hampering economic growth.

While the bill is bad, the EPA’s plans are not much better. This week the EPA finalized rules purportedly designed to fulfill the agency’s statutory obligation to regulate greenhouse gases as pollutants under the Clean Air Act. The rule EPA issued, however, is patently illegal and a flagrant violation of the plain text of the Act. The statute sets clear numerical thresholds for the imposition of PSD and Title V permitting requirements, and provides EPA with no authority to re-write these thresholds — turning 250 tons-per-year into 75,000 tons-per-year — by administrative fiat. The EPA may believe that the it is not practicable to apply the express terms of the Clean Air Act to GHGs, but that is not the agency’s call to make, especially not after the Supreme Court’s decision in Massachusetts v. EPA, which expressly rejected the argument that the CAA was unworkable for GHGs. If the EPA would like to follow a different course, it must go to Congress — and let’s hope Congress can come up with something better than the APA.

in first not preventing and then managing a man-made disaster in the Gulf of Mexico as it proved in managing the aftermath of Hurricane Katrina, can we finally put to rest the inane (not to mention counter-factual) Krugman argument that the Bush Administration’s incompetence in handling Katrina was a result of the government being “run by a political party committed to the belief that government is always the problem, never the solution?”

Indeed, if we want to follow Prof. Krugman’s argument to its logical conclusion, given that we have had two administrations in a row that have believed in big government and have proven incompetent, maybe having the government run by believers in government causes incompetence.

Or perhaps government just has some structural flaws that transcend the ideology of whatever party happens to be in power.

UPDATE: Amusingly, some commenters are insisting that the Bush Administration failed because it was composed of bad people who hated government but (a) the Obama Administration hasn’t failed with regard to the rig (how about Nashville, then?); or (b) the failure was a result of corporate malfeasance, which somehow makes it different from a failure that resulted from a natural disaster; or (c) the Bush Administration failed because its members just didn’t care about the people who lost their lives and homes under Katrina, whereas, apparently because empathy is an inherent part of being a liberal Democrat, the members of the Obama Administration really, really care.

Putting aside the partisan component, this does demonstrate a difference in mindset between (many) liberals and libertarians. Liberals tend to believe that government fails because the wrong people are in power, or the right people were not given enough power to do good. Libertarians tend to believe that government failure is a result of poor incentives and other structural problems that can sometimes be mitigated, but are always looming over government action.

Interior Secretary Ken Salazar plans to break up the Minerals Management Service in the wake of the offshore well blowout in the Gulf of Mexico.  The rationale is that the MMS has an internal conflict-of-interest because it is responsible for both generating revenue through offshore leases as well as protecting worker safety and the environment.  To eliminate the conflict, the two tasks will be separated; one agency will focus on leasing, the other on regulation.

“The job of ensuring energy companies are following the law and protecting the safety of their workers and the environment is a big one,” Mr. Salazar said, “and should be independent from other missions of the agency.” . . .

In announcing his plan to split up the minerals service, Mr. Salazar said it had become clear that the agency’s two missions were often in conflict. He said that he had undertaken a number of steps to improve ethics and tighten safety enforcement at the agency but that he decided more radical steps were needed.

Mr. Salazar also announced that he had asked the National Academy of Engineering to conduct an investigation of the causes of the Deepwater Horizon accident, a task that now falls solely on the minerals management agency and the United States Coast Guard.

And he said he was seeking a change in the law to provide more time for regulators to review safety and environmental plans for new wells. The law now requires government to act within 30 days on an application for a new well; Mr. Salazar would lengthen that to 90 days or longer if needed.

Internal agency conflicts, such as between raising revenue and reducing environmental risk, pose the threat that one goal will become subordinate to the other.  But separating the  functions does not necessarily solve the problem, and can create new ones of its own.  Two separate agencies may each pursue their own goals, but insofar as they conflict, a Presidential Administration may still be able to privilege one over the other.  Without  internal conflicts, agencies may also be more prone to “tunnel vision” and the single-minded pursuit of narrow goals without adequate consideration of trade-offs and collateral consequences. Splitting up MMS may be a good idea, but I doubt it would have prevented this accident.  The costs of this spill to BP are far greater than any potential regualtory infractions, so I am not sure that reorganizing regulatory structures would necessarily prevent this sort of thing from happening again.

According to The Hill, Goldman Sachs CEO Lloyd Blankfein endorsed the financial regulation reform legislation during his Senate testimony today.

“I’m generally supportive,” Blankfein told the Senate Permanent Subcommittee on Investigations.

Wall Street will benefit from the bill because it will make the market safer, Blankfein said.

“The biggest beneficiary of reform is Wall Street itself,” he said. “The biggest risk is risk financial institutions have with each other.”

I don’t think this says much about the merits of the legislation, particularly because Blankfein also confessed not to know all of the bill’s details, but I suspect it could affect the politics.

The Washington Post has an interesting story on the 3-2 split on the Securities and Exchange Commission over whether to file charges against Goldman Sachs.  According to the story, Republican appointees Kathleen Casey (a former Hill aide) and Washington Univeristy law professor Troy Paredes, “were skeptical that the evidence showed that Goldman had misled its clients because the investors were big, sophisticated firms who should have known what they were doing.”  They also raised concerns that filing a flawed case could hurt the agency’s reputation, which is already smarting from its failures to uncover the Madoff ad Stanford fraud schemes.

The dissenting commissioners are not the only ones to raise questions about the SEC’s case.  Sebastian Mallaby and David Zaring also have questions.  Professor Bainbridge also looks at the suit’s timing.

From today’s Washington Post:

The Food and Drug Administration is planning an unprecedented effort to gradually reduce the salt consumed each day by Americans, saying that less sodium in everything from soup to nuts would prevent thousands of deaths from hypertension and heart disease. The initiative, to be launched this year, would eventually lead to the first legal limits on the amount of salt allowed in food products.

The government intends to work with the food industry and health experts to reduce sodium gradually over a period of years to adjust the American palate to a less salty diet, according to FDA sources, who spoke on condition of anonymity because the initiative had not been formally announced.

Officials have not determined the salt limits. In a complicated undertaking, the FDA would analyze the salt in spaghetti sauces, breads and thousands of other products that make up the $600 billion food and beverage market, sources said. Working with food manufacturers, the government would set limits for salt in these categories, designed to gradually ratchet down sodium consumption. The changes would be calibrated so that consumers barely notice the modification.

The legal limits would be open to public comment, but administration officials do not think they need additional authority from Congress.

A reader sends me the following comment, further to the several VC posts on behavioral economics (initially occasioned by Andy Ferguson’s Weekly Standard essay):

One basic issue that this whole-”behavioral econ– good-or-bad?”
discussion seems to have neglected the following simple point: welfare
evaluation is much harder with “behavioral agents” than “rational
agents.”

With “rational” agents we know that subject to tons and tons of
asumptions markets are great (first welfare theorem).  And we have a
pretty good idea of what constitutes a market failure (externalities)
and when a “social planner” can help.  Thus, there is a principled
econ case for certain forms of “social planner” intervention that we
know will raise welfare (whether a government can act as an optimal
social planner is another question).

With “behavioral” agents, the basic issue is that people’s preferences
are at some level time-inconsistent.  My self of today wishes that my
self of tomorrow would put money in to a 401(K) but my self of
tomorrow wishes it to be the next period’s self and etc.  Thus, the
person sitting at today does *not* have the same preferences as the
person sitting at tomorrow.   If you make the person of today put
money into a 401(k) *today* you make them worse off (since they wanted
to put money in a 401(k) tomorrow), but you make their yesterday’s
self happy.   As a social planner, whose utility do you maximize?

It’s not obvious how you do this.  There are some attempts to work
this out in the literature (e.g. http://www.nber.org/papers/w13737)
but it’s not settled.

I guess the main take-away is that claiming policy implications from
behavioral research is *much* harder than from other kinds of econ
research, so at some level behavioral people are jumping the gun a bit
in claiming that they have a new way to do policy; and this objection
is totally independent of worries about slippery slopes and whatnot.
That said, much of the actual-existing behavioral influenced policy
moves (e.g. doing stimulus through withholding rather than lump sum)
seems like a good idea since it is formally identical to what would
have been the status quo.

The paper cited at NBER is interesting, but I would add that this seems to me an area in which philosophy does have something to say.  The problems of the self over time have been much discussed, and at least some of the leading arguments about “whose” utility you maximize have been formally adduced, including the proposition that this present-self, future-self, successive-selves way of thinking about things is appealing in part because it matches up to marginality analysis, but is not coherent as an account of identity.  This is not an argument about values or an argument from moral philosophy; it is an argument about the nature of identity and self, and I think the philosophers of mind, identity, and such fields do indeed have something to say as to the conceptually valid and invalid ways of framing the issue of the self.

(In a quite different approach to the time-identity problem, framed as a matter of constitutional law and politics, I recommend highly Jed Rubenfeld’s short, compelling book, Freedom and Time: A Theory of Constitutional Self-Government.  When it first appeared, I found it – with apologies to Jed – very smart but frankly weird.  It has grown on me since then – grown on me a lot.)

Thanks to the VC reader for this thoughtful comment.

Todd’s right, Andy Ferguson’s Weekly Standard piece is excellent – whether one agrees with his ultimate take on it or not.  The bottom line of the piece, however, is not simply a skepticism about the powers of social science – behavioral economics as the New Social Engineering.  It is, rather, a broadly libertarian point, going to a crucial apparently methodological, but ultimately moral, difference between traditional economics and behavioral economics:

You can see how useful the notion of irrational man is to a would-be regulator. It is less helpful to the rest of us, because it runs counter to every intuition a person has about himself. Nobody sees himself always as a boob, constantly misunderstanding his place in the world and the effect he has upon it. Surely the behavioral economists don’t see themselves that way. Only rational people can police the irrationality of others according to the principles of an advanced scientific discipline. If the behavioralists were boobs too, their entire edifice would collapse from its own contradictions. Somebody’s got to be smart enough to see how silly the rest of us are.

Traditional economics has always been more modest. Assuming the rationality of man was a device that made the discipline possible. The alternative—irrational people behaving in irrational ways—would complicate the world beyond the possibility of understanding. But the modesty wasn’t just epistemological. It was also a democratic impulse, a sign of neighborly deference. A regulator who always assumed that man was other than rational was inviting himself into a position where he could exert a control over his fellow citizens that wasn’t proper for a true democrat. Self-government demands this deference. It won’t work otherwise.

“Ultimately,” the economist Brian Mannix wrote not long ago, “we insist that our regulators start from a presumption of rationality for the same reason that we insist that our criminal courts start from a presumption of innocence: not because the assumption is necessarily true, but because a government that proceeds from the opposite assumption is inevitably tyrannical.”

Long before reading Cass Sunstein as a risk-expert, I read him as a jurisprudential philosophe.  I mean, going back to his writing on “deliberative democracy,” going way back.  It seems to me that the move from traditional economics here to behavioral economics is precisely the same move in moral philosophy that he, and others of the same tendency, made in the deliberative democracy literature.  What was it, after all, that characterized “deliberative democracy” as an intellectual move, in the hands of Amy Gutmann, Sunstein, and others?  A theory of meta-deliberation, a theory of how people would ideally discuss all the deeply divisive issues of the day – abortion, affirmative action, on and on.

And yet somehow, some way, the conclusion was always that the right process of thinking must ineluctably lead one to think they way Gutmann, Sunstein, all good and  honorable liberal thinkers thought about these hot button issues.  Not just good people – but rational people -would all think affirmative action a good thing, abortion okay, etc., etc.  The most stunning intellectual move was not merely the claim that these were the right moral conclusions, but that to reach some other conclusion meant that you hadn’t deliberated enough, or deliberated in the right way.

It is the same move that Ferguson’s article describes because it presumes to know what you don’t – viz., the set of rational outcomes.  As an exercise in paternalism, it reminds me of conversations as a child with my mother – viz., it wasn’t a conversation in which we had come to reason together to conclusions that we each might reach, even to agree to disagree.  No, the conversation wasn’t over until I had come to agree with her.  That’s deliberative democracy in a nutshell – and Ferguson describes the same move recapitulated as social science, in the form of behavioral economics.

The WSJ reports on the rapid rise and apparent fall of behavior economics within the Obama Administration.  It begins:

A little more than a year into its ascendancy at the White House, behavioral economics as a key policy-making tool may be on the wane.

The opening weeks of the Obama administration were a coming-out party for economists who hold that incomplete information, subtle obstacles to participation and confusion tend to make people act in economically irrational ways. Economic policy can “nudge” people and institutions into more efficient, economically beneficial behavior without heavy-handed command-and-control measures in regulation and legislation, they argue.

Cass Sunstein, co-author of the behaviorist bible, “Nudge,” took up residence at the White House Office of Information and Regulatory Affairs, while behavioral economist Jeff Liebman is acting deputy director of the Office of Management and Budget. Yet another true believer, Austan Goolsbee, took a seat on the Council of Economic Advisers.

At this time a year ago, the order of the day was disclosure, transparency and light-touch policy proposals, such as automatically enrolling workers into 401(k) plans and simplifying student-loan forms.

But in recent weeks, President Barack Obama has proposed regulating health-insurance rate increases, separating commercial banking from investing on behalf of their own bottom lines, and prohibiting commercial banks from owning or investing in private-equity firms or hedge funds.

Indeed, the proposal to regulate health-insurance rate increases is among the most heavy-handed regulatory proposals to surface in years, and would amount to de facto price controls.

Tommorrow, Tuesday, Opinio Juris will be hosting a one-day discussion of the new book by Gregory Shaffer and Mark Pollack, When Cooperation Fails: The International Law and Politics of Genetically Modified Foods (Oxford, 2009).  Sungjoon Cho and Rebecca Bratspies will join with guest commentary.  Stop on by!

University of Chicago economists Gary S. Becker, Steven J. Davis, and Kevin M. Murphy argue that continuing legal and regulatory uncertainty have inhibited efforts to get the economy back on track.  Among other things, uncertainty about the rules of the game discourages investment and economic risk-taking.  After surveying some evidence to support their argument, they conclude:

These facts suggest that it was a serious economic mistake to press for a hasty, major transformation of the U.S. economy on the heels of the worst financial crisis in decades. A more effective approach would have been to concentrate first on fighting the recession and laying solid foundations for growth. They should have put plans to re-engineer the economy on the backburner, and kept them there until the economy emerged fully from the recession and returned to robust growth. By failing to adopt a measured approach to economic policy, Congress and the president may be slowing the economic recovery, and thereby prolonging the distress from the recession.

A standard argument for government regulation or prohibition of private sector activities runs as follows: Individuals or businesses are doing something harmful and/or immoral. Therefore, the government must step in and ban it, or at least regulate to restrict it. A standard libertarian response (also sometimes used by liberals) is that, in a free society, people often have a “right to do wrong.” Maybe it’s wrong to engage in racist speech. But the government should not enact hate speech laws because even evil racists have a right to self-expression. My GMU colleague Bryan Caplan points out that this is often not the only or the best strategy for defending liberty:

Libertarians often highlight “the right to do wrong.” We are often morally obliged to tolerate the wicked and foolish behavior of others….

Fruitful as this insight is, however, it is often superfluous. If a law forbids actions that are good, or persecutes beliefs that are true, critics might as well start attacking the law by defending the merit of the violations. If the law persecutes creationists, it makes sense to appeal to freedom of belief. If the law persecutes evolutionists, on the other hand, it makes more sense to make the alibertarian argument that evolution is true.

Lately I’ve been reading the classic arguments in favor of regulation of reproductive technology. They usually take the rights-based position as their main foil. They’ll propose a ban on human cloning for the greater good, and libertarians will object, “You’re violating human rights.” On reflection, though, defenders of reproductive laissez-faire can do a lot better. Artificial insemination, in vitro fertilization, surrogacy, and yes, cloning deserve an affirmative defense. Here’s an outline:

1. Creating new human life is almost always good.

2. Voluntary exchange is mutually beneficial for the participants.

3. Third parties are also better off, at least on average.

When Leon Kass proposes a ban on human cloning, for example, the most obvious reply is, “Cloning creates human life. What kind of a monster would want to stop that?” When feminists say it’s “exploitation” to hire surrogates from the Third World, the obvious reply is, “The women we hire earn money that they need to buy extra food for their families.”

As Bryan emphasizes, many of the targets of government regulation can be defended on the grounds that their effects are on balance good. I adopted this strategy in my rebuttal to the standard claim that we must ban organ markets in order to prevent “exploitation” of the poor. I argued that organ markets actually benefit poor sellers, and that in any case the beneficial effect of saving thousands of lives greatly outweighs any possible harm caused by exploitation. This consequentialist argument against regulation is sometimes stronger than the “right to do wrong” argument because it requires less in the way of agreement on fundamental principles of morality.

There is also a third strategy of arguing in favor of liberty: pointing out that even if the activity we propose to ban is indeed harmful or immoral, government regulation and prohibition is likely to cause greater harm and immorality. Government power has systematic flaws that severely limit its ability to improve social outcomes relative to the private sector. This type of argument is, in my view, the strongest case against the War on Drugs. Using illegal drugs is often bad for your health and many people believe that it is immoral. But prohibition causes much greater harm and immorality by undermining the War on Terror, weakening family values, stimulating corruption and organized crime, and destabilizing societies such as Colombia and Mexico. Focusing on the flaws of government action is often a better argument for liberty than either of the others, because it doesn’t require either moral consensus on values or proof that the targeted activity actually has beneficial effects. Often, such arguments show that government action will make things worse even in terms of the regulators’ own professed values. For example, many of the advocates of drug prohibition are conservatives who care intensely about fighting terrorism and promoting family values.

None of the three pro-liberty arguments necessarily prove that regulation and prohibition are always undesirable. But defenders of liberty should consider all three, and should avoid relying too much on the traditional “right to do wrong” approach. For their part, advocates of regulation and prohibition should take note of all three as well, and avoid the standard fallacy of assuming that the case for government action has been established merely by proving that some private sector activity is harmful or immoral.

UPDATE: The original version of this post was probably overly ambiguous as to whether I am arguing that the second and third approaches to defending liberty are logically superior to the “right to do wrong” argument, or merely that they are more likely to persuade skeptics. So let me point out that I believe that both are often true: the two alternatives to the right to do wrong claim are often (though by no means always) both more logically sound and more likely to persuade.

In the Financial Times today, Martin Dickson’s amusing admonition to bankers and their regulators.  If you happened to be the kind of parent who read your kid Hillaire Belloc’s Cautionary Tales for Children, this will all seem like familiar terrain.  Here is a bit from the opening:

There was a time when naughty boys
Would have to forfeit all their toys,
And go to bed without their food
To force a new, repentant mood
Upon the wretched little toads,
Who flouted our great social codes.

Nor was blind arrogance a trait
That parents liked to inculcate.
They had regard for social graces:
Not for their offsprings’ haughty faces.
A beastly child engaged in folly
Would surely have to say: “I’m sorry!”

But now we live in debased times,
Sans punishment to fit our crimes
Our moral compass has got lost,
Or on the rubbish heap been tossed.
As in this cautionary tale of bankers,
Who came to look like social cankers.

You will all know the basic story,
In all its venal details, gory.
Of how a bunch of peerless clowns
Despite degrees – from Yale to Brown –
Behaved like schoolboys in the lab,
When teacher’s gone to smoke a fag.

Exuberant beyond all reason
(For this or any other season)
Fired up by dreams of starter castles,
Sardinian yachts and vineyard parcels,
They built themselves a strange device –
A ticking bomb, to be precise.

The trouble was they did not know,
It was a bomb ’twas ticking so.
They thought it merely marked the beat
That called them to stay on their feet
And dance away – to really bop –
To music that would never stop.

Both the House and Senate health care bills contain an unwelcome surprise for those whose current health care plans allow “flexible savings accounts” for out-of-pocket medical expenditures.  FSAs enable people to spend pre-tax dollars on medical expenditures, including doctor visit co-pays and drug costs.  Money is deducted from an employee’s paycheck, pre-tax, and placed in a separate account that can only be used to reimburse for medical expenses incurred over the course of a year.

In 2003, the federal government concluded that FSA dollars could be used for over-the-counter medicines.  This was a boon for consumers, and helped reduce health care costs by making it less expensive for many consumers to substitute less expensive OTC remedies for prescription drugs.  In my own case, it was much cheaper for me to use a prescription allergy medicine than an equally effective OTC drug because my drug co-pay was lower than the cost of the OTC product.  Allowing FSA reimbursement for OTC drugs helped close the gap.  It was also a major benefit for families, as expenditures on things like Pedialyte and pre-natal vitamins were also eligible.

This is all going to change if the current health care bills become law, however.  As John Berlau reports, both the House and Senate bills would restrict the use of FSAs (and Health Savings Accounts) to prescription drugs and insulin.  This will be a boon to drug makers insofar as prescription drugs are more profitable than OTC medicines, but could increase medical costs for many Americans — and is also likely to increase health care costs overall.

This sort of thing is nothing new.  In 2005, Pfizer began supporting greater regulation of pseudophedrineto force it behind the pharmacist’s counter, just as it prepared to market products containing a less-effective alternativephenylephrine (PE) ahead of its competitors.  The profit motive may induce drug companies to develop life-saving (and profit-making) medicines — and that’s a wonderful thing — but it is also encourages efforts  to game the regulatory system.  In this case, a small shift in the rules for FSAs allows drug makers to gain at consumer expense.  Alas, I doubt it’s the only corporate goodie stuffed inside the health care overhaul.

The Institute for Justice has recently filed a new case challenging an especially egregious infringement on economic liberties under the Constitution:

A civil liberties law firm has filed suit against the state of Texas on behalf of eight eyebrow-threading entrepreneurs, several of whom are based in San Antonio.

The Institute for Justice, Texas Chapter, is alleging the state government has violated the entrepreneurs’ constitutional rights by requiring them to go through a licensing process that mandates 1,500 hours of instruction at an estimated cost of $20,000…..

Wesley Hottot, lead attorney for the Institute for Justice Texas Chapter, says Texas’ proud heritage as a beacon for entrepreneurship is in danger “when the state tries to regulate every new industry rather than trusting entrepreneurs and consumers.”

Hottot says eyebrow threading is an ancient technique for removing unwanted eyebrow hairs using tightly wound cotton thread. “Threading is a booming industry in Texas because it is cheaper, faster and less painful than waxing,” he says.

But now the TDLR has threatened this small business-based industry by requiring practitioners to obtain what Hottot says are “expensive and irrelevant licenses in Western-style cosmetology.”

“Threading is not mentioned anywhere in state law, yet TDLR expects threaders, some with over 20 years of experience, to immediately stop working and spend $20,000 obtaining up to 1,500 hours of instruction in government-approved beauty schools that do not even teach threading,” Hottot says. “Further, threaders must pass government-approved cosmetology exams that do not test threading.”

Here is a link to an IJ video on the case. Despite the longstanding claim that judicial protection for economic liberties is just “judicial activism,” such protection actually has strong support in the original meaning of the Privileges or Immunities Clause of the Fourteenth Amendment, and other clauses. The original meaning evidence is discussed at great length in Bernard Siegan’s classic book Economic Liberties and the Constitution, and some of it is summarized in Alan Gura’s brief for the petitioners in the McDonald gun rights case currently before the Supreme Court.

Even if we accept the idea that economic liberties deserve significant judicial protection, there is room for debate as to how broad that protection should be. However, this case is sufficiently egregious that it is difficult to imagine any reasonable basis for judicial protection of economic liberties that would allow this regulation to be upheld.

CONFLICT OF INTEREST WATCH: As regular readers probably know, I have done various pro bono projects for the Institute for Justice over the years, and was a summer clerk there when I was a law student.

Third installment in a five-part series on Silverglate’s book, Three Felonies a Day: How the Feds Target the Innocent.

“As a result of a burgeoning number of fraud investigations and prosecutions, I have become convinced that a concerted interagency effort is needed. We want to bring this additional firepower to bear on behalf of investors who might otherwise lose their confidence in the integrity of these markets.”

The Financial Fraud Enforcement Task Force, an interagency effort to investigate and prosecute those responsible for the current economic crisis, was established via executive order on November 17. But the above announcement was made twenty years prior. On January 31, 1989, then-Attorney General Dick Thornburgh touted the creation of a coordinated task force to bring to heel those responsible for the Wall Street scandals du jour.

Indeed, the present response to Wall Street failures seems straight out of a time-tested Washington playbook: Ratchet up enforcement, throw the miscreants in prison, and—voila—the public’s confidence in their markets and in their government is restored.

Arrest rates for “white collar” fraud have surged in the wake of recent well-publicized financial scandals, according to data generated (PDF) from the FBI’s Uniform Crime Reports. Over a two-year period after the savings-and-loan scandal and the creation of the task force described above (1990-1992), the number of fraud arrests increased 53%; over the same period following the dot-com bust (2000-2002), arrests jumped 26%. Now, with regulatory agencies expanding their probes of alleged insider-trading violations and the Justice Department promising more convictions, a raft of indictments appears inevitable. But do these enforcement efforts reflect true criminal violations? Putting aside the long-term efficacy of such periodic orgies of prosecution, there remains the nagging question of whether the defendants are guilty of any crime.

One’s unease lies not in the seeming futility of enforcement per se, but in the very nature of the laws that regulate financial fraud. For one thing, the sheer volume of regulatory codes makes adherence to legal standards a high hurdle. When Congress was considering the Fraud Enforcement and Recovery Act earlier this year, the National Association of Criminal Defense Lawyers and the Federalist Society—organizations on opposite ends of the ideological spectrum but joined at the hip in battling unfair and excessive federal prosecutions—authored a joint letter (PDF) to the Senate Judiciary Committee, pointing out that virtually all criminal provisions then under consideration were already encompassed within the existing federal criminal code. Congress ignored this nonpartisan and eminently sensible plea, passed the legislation, and added to the Justice Department’s armamentarium of overlapping and vague criminal statutes.

More pernicious than the volume of federal laws, however, is their imprecise wording. Prosecutors are given too much latitude in pursuing perceived wrongdoers whose conduct isn’t explicitly proscribed by statutory language. In a society of laws, fair notice as to what conduct might land a citizen in prison is a vital component of due process.

This should not be confused with a plea for de-regulation, which is largely a political and not a legal debate. Nor is it a plea for leniency for those who knowingly violate clear rules, even if those rules are unwise. But providing average citizens with clarity of their legal obligations is a vital civil liberties matter having nothing to do with whether one believes in more regulation or less. Timothy Lynch, director of the Cato Institute’s Project on Criminal Justice, spells out the need for specifically defined legal boundaries in his timely treatise on modern criminal law, In the Name of Justice (to which I contributed a chapter):

There is precious little difference between a secret law and a published regulation that cannot be understood. History is filled with examples of oppressive governments that persecuted unpopular groups and innocent individuals by keeping the law’s requirements from the people.

Galleon Group hedge fund founder Raj Rajaratnam, indicted (PDF) yesterday on 11 counts of securities fraud and conspiracy, would likely fit into this “unpopular” category, especially as his unflattering, hand-cuffed image from an October 16 early-morning “perp walk” continues to grace broadsheets and blogs. Rajaratnam is accused of having foraged around for—and obtained—purportedly non-public information from corporate insiders. But serious questions exist as to the line between legitimate research and illegal trading, as well as the extent to which insider trading laws even cover such outsiders who seek inside information. (Unlike Rajaratnam, others involved in the case might be insiders, and their legal obligations would be considerably clearer.)

The law criminalizing insider trading, enacted with the Securities and Exchange Act of 1934, prohibits “any person, directly or indirectly,” to “use or employ, in connection with the purchase or sale of any security…any manipulative or deceptive device.” Lawmakers assumed the SEC, which the Act created, would issue regulations to flesh out the vague language and effectuate the statute’s intent. But the SEC’s regulations tend to mimic, rather than clarify, the statute’s oracular wording, and neither the SEC nor Congress has been particularly eager to spell out precisely the nature of “securities fraud” or “insider trading.”

In the 1980s, both Congress and the SEC had an opportunity to provide clarity to securities fraud law. The Insider Trading Sanctions Act of 1984 (“ITSA”) substantially increased the penalties for insider trading. The Insider Trading and Securities Fraud Enforcement Act of 1988 (“ITSFEA”) further upped the ante by providing sanctions against those who “recklessly…failed to take appropriate steps to prevent” violations by others. Remarkably, despite near-unanimous support in both chambers of Congress, neither statute did anything to define precisely what insider trading was and what kinds of “outsiders” were covered.

During the ITSFEA hearings, Chairman John Dingell of the House Committee on Energy and Commerce claimed that any definition of insider trading would provide criminals with a “roadmap for fraud.” (It appeared not to occur to him that legal clarity is actually meant to provide a roadmap for lawful conduct.) Dingell explained that his committee “did not believe that the lack of consensus over the proper delineation of an insider trading definition should impede progress on the needed enforcement reforms encompassed within this legislation.”

It is reasonable to ask the question—especially in light of the early morning arrests, perp walks, sensational trials, and gargantuan prison sentences—whether the current system for dealing with “insider trading” by corporate outsiders who pursue as much information as their research skills and personal contacts allow comports with basic notions of due process of law.

Similar due process questions arose in the case of two former Bear Stearns hedge fund managers. Prosecutors indicted (PDF) Ralph Cioffi and Matthew Tannin on securities fraud charges for, in effect, presenting an optimistic picture to investors while aware of the possibility of collapse. When Cioffi and Tannin were faced with questions as the subprime mortgage market—in which their funds were heavily invested—looked ominously shaky, they doubtless agreed with the prevailing wisdom: Sure, a total collapse could happen, but the markets could instead stabilize and suddenly present managers with a huge buying opportunity. The situation, after all, was unprecedented in modern times.

Were a fund manager to respond to questions by publicly indulging his pessimistic side— “I think our liquidity has dried up and we may be on the verge of collapse”—he surely would have caused precisely that which he was hoping to avoid: a fatal “run on the bank.” Such a statement could rightly be seen as professional malpractice, subjecting the manager to endless civil litigation by disgruntled investors who doubtless could demonstrate that, at the time, an optimistic outcome was still a distinct possibility and that the manager’s predictions of doom were a reckless self-fulfilling prophecy.

The case was yet another example of the Justice Department targeting “professionals who have engaged in seemingly routine requirements of their job,” I wrote in the Wall Street Journal when the criminal investigation commenced in April 2008. Fortunately, jurors recognized the Catch-22 in which the Bear managers found themselves and acquitted Cioffi and Tannin on November 10.

In light of the legacy of the federal government responding to market downturns with task forces and ramped up prosecutions and perp walks, former Attorney General Thornburgh’s testimony (PDF) at a July 2009 Congressional hearing on the phenomenon of “overcriminalization” was a gratifying departure from remarks past. Said Thornburgh:

Make no mistake, when individuals commit crimes they should be held responsible and punished accordingly. The line has become blurred, however, on what conduct constitutes a crime, particularly in corporate criminal cases, and this line needs to be redrawn and reclarified.

Amen!

This afternoon, the U.S. Environmental Protection Agency will announce that it has made a formal determination that, in the judgment of the EPA Administrator, the emission of greenhouse gases cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.  This is the so-called “endangerment finding” which will trigger the EPA’s obligation to regulate greenhouse gas emissions under the Clean Air Act.  Regulations limiting such emissions from motor vehicles and other sources will follow.  Here is coverage from the Washington Post, and New York Times’ Green Inc. blog.

There is little doubt the announcement is timed to bolster the U.S. position at the Copenhagen climate summit, and create the impression of greater U.S. action on climate change.  Although regulation under the Clean Air Act is unlikely to produce substantial emission reductions — certainly not the level of reductions the Obama Administration has called for — the willingness to proceed with such regulation is a sign that the current Administration wants to act.  The threat of such regulation could also provide a spur for climate legislation in Congress.  However bad the cap-and-trade proposals in Congress are (and they’re pretty bad), there’s a strong case that greenhouse gas regulation under the Clean Air Act would be much worse, particularly for major corporations.

The timing of the announcement also makes it clear that the EPA was not troubled by the ClimateGate revelations.  Decisions of this sort are not made quickly, and it takes time to prepre the relevant documents.  Does this matter? Probably not, though it will depend in part on how the EPA defends its decision.  Judicial review of the EPA’s endangerment finding will be quite deferential. The EPA is not required to prove global warming is an imminent threat, only that the Agency could conclude that it “may reasonably be anticipated to endanger public health or welfare.”  Further, the Act makes clear that this is up to the “judgment” of the EPA Administrator.  This means that all the agency has to show is that its decision is a reasonable interpretation of the relevant scientific information — not the best interpretation, just a reasonable one — and any reviewing court will defer to the Agency’s assessment of the relevant scientific literature.

The only way ClimateGate creates a real problem for the Agency is if the EPA’s attorneys didn’t do their job, and relied uncritically on some of the specific studies called into question by the controversy, and this would only happen if the EPA’s attorneys were asleep at the switch.  In a field where the science is so highly contested, what an Agency should do is lay out all of the evidence, acknowledge some degree of uncertainty, and then note explicitly that even if some pieces are contested or disproven, ample evidence remains to support its ultimate conclusion.  At the same time, the Agency should note that the Act empowers the Administrator to take a precuationary view of the relevant scientific evidence.  If this is what the Agency did, then it does not matter if one data series or another is undermined, nor is it relevant that reasonable people may have a basis to be skeptical of the agency’s scientific conclusions.  What matters is whether the EPA could reasonably have come to the conclusion that greenhouse gases are a threat, and that should be an easy case to make, ClimateGate notwithstanding.

With the endangerment finding on the books, Clean Air Act regulation of greenhouse gas emissions will follow.  Indeed, once the endangerment finding is made, the EPA is compelled to act.  As a consequence, the only way to prevent the regulation of greenhouse gases under the Clean Air Act is through new legislation.  The cap-and-trade monstrosities proposed in Congress are one option.  A revenue-neutral carbon tax, such as that proposed by James Hansen or Rep. Bob Inglis and Arthur Laffer, would be another.  But the bottom line is that unless Congress passes something, EPA regulation of greenhouse gases will proceed.

NOTE: The Washington Post story noted above erroneously reports “Facilities that produce at least 250,000 tons of carbon dioxide or its equivalent yearly account for more than 70 percent of the nation’s greenhouse gas emissions.”  This sentence is wrong.  Rather, facilities that emit at least 25,000 tons of carbon dioxide or its equivalent (the threshold for this proposed EPA rule) are responsible for “nearly 70 percent” of stationary source emissions, according to the EPA, which in turn represent approximately two-thirds of domestic greenhouse gas emissions.   [UPDATE: The Post story is now fixed.]  I should also note (as I did here) that the 25,000 ton threshold embraced by the EPA is an arbitrary threshold entirely of the agency’s creation, as the relevant provision of the Clean Air Act applies to all stationary sources that emit over 250 tons of regulated pollutants.