Archive | Economic LIberties

Don’t Bank on Legal Challenge to Bank Tax

Monday’s NYT reported the Securities Industry and Financial Markets Association is investigating potential constitutional challenges to the President’s proposed $90-billion bank tax.  It’s apparently not enough to argue that the President’s various economic and regulatory initiatives are bad policy — as this proposal is — it must also be unconstitutional.

Based on the article, SIFMA hopes to argue the tax is an unconstitutional bill of attainder or ex post facto law.  I suppose another challenge, if the tax legislation is poorly drafted, could be that it is a direct tax and must be apportioned to be constitutional.  None of this is likely to matter, however.  Barring exceedingly poor draftsmanship, I doubt any court would strike down the tax, should it be enacted.  If the AIG bonus tax would pass muster in the courts (as discussed in this thread), I don’t see any likelihood a more broad-based tax on banks would face any difficulty at all. [...]

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Excluding Unfit Workers: Social Control Versus Social Justice in the Age of Economic Reform

I’ve just posted this article, co-authored with Tim Leonard of the Princeton Economics department, on SSRN.  Here’s the abstract:

Contrary to their modern reputation as egalitarian liberals, many of the original progressive architects of American labor reform were partisans of human inequality. The labor legislation they pioneered was, in important respects, designed to exclude immigrants, women, and African Americans from some or all of the labor market.

The first part of this article discusses the origins and development of a progressive economic ideology that favored, indeed demanded, the exclusion of various so-called “defective” groups from the American labor market. Xenophobia, race prejudice, and sexism certainly were not new to the United States in the Progressive Era. What was new was, first, the idea that protecting deserving workers required the social control of undeserving workers, enough so that labor-legislation advocates defended the exclusion of purportedly unfit minority workers not as an ostensibly necessary evil, but as a positive social benefit. Second, the exclusion of undesirables acquired a new scientific legitimacy: the Progressive Era marked not only the advent of the welfare state but also an extraordinary vogue for race thinking and for eugenics, the social control of human breeding. The new science of eugenics turned “undesirables” into the “hereditarily unfit” and elevated exclusion to a matter of national and racial health. And the new sciences of society, especially economics, showed how unfit workers wrongly lowered the wages and employment of racially superior groups.

The second part of this article discusses the practical impact progressive ideology had on labor reform in the 1930s. The intellectual heirs of progressivism used the prevailing economic crisis to promote previously unachievable government involvement in the labor market to the detriment of those deemed excludable.

The Davis-Bacon Act of 1931, which regulated the wages paid on

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Underfunded Public Pensions as “Stranded” Costs? Two Trillion Dollars?

The Financial Times runs a story today by Francesco Guerrera and Nicole Bullock on the looming problems of underfunded public pensions at the state and local level in the United States.  The news story cites a new study by Orin Kramer, chairman of New Jersey’s pension fund:

The estimate by Orin Kramer will fuel investors’ concerns over the deteriorating financial health of US states after the recession. “State and local governments are correctly perceived to be in serious difficulty,” Mr Kramer told the Financial Times.

“If you factor in the reality of these unfunded promises, their deficits will rise exponentially.”

Estimates of aggregate funding requirement of the US pension system have ranged between $400bn and $500bn, but Mr Kramer’s analysis concluded that public funds would need to find more than $2,000bn to meet future pension obligations.

Two trillion dollars?  One question about these obligations is whether taxpayers will stick around to pay them, or instead will vote with their feet.  (“Vote with their feet” is something that has been discussed in various ways at VC – as an aspect of a federal system and states with their own laws.)  Many of these pension obligations have been incurred by municipalities and others by states, and in some cases the obligations are intertwined.  But what happens if voters-taxpayers move out?

The assumption has long been that taxpayers are stuck, on account of jobs and other circumstance.  But query whether that is necessarily true as the baby boom generation retires.  In that case, it might find itself far more mobile, in circumstances where rising taxes at every level make relocation a more valuable decision at the margin.  For that matter, if otherwise desirable locales manage to tax their businesses away, will the baby boomers’ kids and grandkids have reason ever to locate in [...]

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New Institute for Justice Economic Liberties Case

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 [...]

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