Friday, May 28, 2010

Jobs and Money and Such

[This post is being revised.]

Dr. Strangetax – Or, How I Learned to Stop Worrying and Love the (Inflation) Bomb

In a later post, I want to consider the possibility that we have the capacity to produce enough goods and services to achieve universal prosperity. I believe, almost as a matter of faith, that this productive capacity will eventually be unleashed. But, because massive economies of scale can be realized with a small workforce, the ratio of manufacturing workers to consumers will shrink, and to the extent any particular bit of manufacturing is labor-intensive, it will not be done in the US.

We need a way to put Americans to work doing something else. Over time, our entrepreneurial ingenuity will find things for us to do, but it's not at all clear that they will be very valuable things. Meanwhile, our infrastructure is a mess, and, from a societal perspective, I think a case can be made that the best use of our underutilized workforce is in repairing it. If so, we need to think about how the government pays for things and especially about the possibility of inflation resulting from government spending. My sense is that if we undertake the big infrastructure projects - high-speed rail, nuclear plants, water systems, smart grids, etc., we will have some inflation, but that we will find it far less awful than opponents of major infrastructure projects think.

Inflation works like a tax. Anything the government does that funds public spending while reducing the general population’s purchasing power is, in economic terms, a tax. Inflation clearly reduces the purchasing power of dollars, so, if it is attributable to government spending, it seems appropriate to regard it as a tax.

The inflation tax is said to be “hidden” because no one votes on it. Politicians can “enact” it or increase it at will. There is some pushback - we hear about government spending being “out of control” - but when politicians use inflation to pay for things (i.e., to repay debt with cheaper dollars), there is no vote or announcement of that fact.

Hyperinflation results when governments start printing money to service their debt. The interest compounds faster than revenues grow, and the amount of new money eventually overwhelms the old, growing geometrically as economic activity grinds to a halt thanks to the unavailability of credit. Hyperinflation is bad, very bad. But I think the US can avoid hyperinflation by keeping short-term interest rates low. Our trading partners cannot afford to sell anywhere else for anyone else's currency, and no major currency issuer really wants to provide the world's reserve currency, because that job entails running a trade deficit to put money in circulation.

As a thought experiment, I want to consider a model of public finance that relies entirely on inflation: no taxes, and no government borrowing except from the Central Bank to create money. The government pays for everything it uses by simply issuing money. When money comes in to the government (from tariffs, user fees – i.e., not euphemistically labeled taxes) – the money is simply cancelled. This may sound like a radical change, and in thinking it certainly is, but let’s look at how little we would have to do to our current system to achieve the same economic result.

First, look at the Federal deficit. It’s growing, and it is being funded by borrowing. Some of that borrowing is through long-term bonds, some through short-term bills. Right now, the government gets a bargain on interest rates at both ends of the curve. The temptation, therefore, might be to borrow as much money as possible now at relatively low prevailing rates to be repaid much later. That way, the interrelated risks of inflation and rising interest rates are on the lender, and the government can be sure of not having to crank up the printing presses to pay increasing interest rates anytime soon, which seems like a good idea if you assume that the other available choices are what they currently are. But what if those choices were different?

The current alternatives to borrowing long-term are taxing and borrowing short-term. The latter is a bargain right now because the Federal Reserve is printing money for anyone who has a reasonable chance of repaying it. These low interest rates are expected to continue “for an extended period,” but what matters is that they are interest rates and the Federal government must pay the Fed the same interest rates that the Fed charges the general public (i.e., banks). Thus, Fed policy intended to stimulate or restrain economic growth affects what the Federal government has to pay for money.

Because any increase in what the Federal Reserve charges for money raises the interest rate on short-term Federal borrowing, such an increase must necessarily lead to a tax on those of us who will eventually have to cover Uncle Sam’s interest costs. Of course, if the Fed does not raise interest rates, the result is inflation, which is also a tax. If increased interest rates and increased inflation are properly understood as the taxes they are, it becomes clear that whatever the government spends is paid for by taxes; only the mechanism is at issue. Thus, The “radical” idea here is simply decoupling the interest rate the Federal government pays on short-term borrowings from what banks pay to borrow money from the Fed and then setting the government rate at zero, which is pretty close to where it is now. That doesn’t sound so radical, does it?

The reason it is radical is that it removes all reason for the government to borrow long term; indeed it relieves all reason for the government to borrow on anything but a “demand” basis from the Federal reserve, which will never issue a demand. Of course, we already have a word for a demand loan that need not be repaid and bears no interest: money. If the Federal government doesn’t have to pay to borrow from the Federal Reserve, it wouldn’t have to borrow from anyone else, and when it borrowed from the Fed, it wouldn’t need to borrow for a term. In short, when the government needed cash, it would ask the Fed to print it some money and hand it over. Should the government come into some cash, it would send it to the Fed, where it would go "poof” and disappear. All of this would happen simply by reason of the Fed not charging the Federal government market interest rates.

But what about inflation? Before we get to monetary matters, remember that the government would have access to unlimited, free money from the Fed. In other words, there would be no fiscal need for taxes. There is no need to “balance the budget” in accounting terms if there is no cost (other than inflation) to running over it. So let’s assume for now that there will be no taxes under the new regime. The government will fund its entire operations from the printing of money via interest-free loans from the Fed. (If you compare that to how things are now, when the government funds only a trillion dollars or so of its operations through near-zero interest borrowings from the Fed, the principle seems less bizarre.)

Obviously, there would be inflation. The logic is inescapable: all government spending is paid for by taxes, and inflation is the only tax other than statutory taxes. If there are no statutory taxes, there will be inflation. So the question is not whether there would be inflation, but whether, as taxes go, inflation is, or can be, a good tax. Let’s consider the pros and cons.

First, the good news:

Inflation is self-defining. Talk about reducing complexity! There are no loopholes, no shelters no nothing. The tax is the tax and you pay it automatically every time you buy anything or the purchasing power of your dollars declines.

Inflation is self-collecting. No forms to fill out and no withholding. No IRS. But no evasion either.

Inflation is universal. Everybody pays – workers, investors, spenders, savers, doctors, lawyers, hookers, and drug dealers. There is no hiding in the underground economy.

Inflation is self-leveling. Statutory taxes have to be calibrated. Inflation sets its own level. The more the government spends, the more money it prints, the faster the money supply grows (but not necessarily the inflation rate - that depends on how wisely the money is spent).

Now the bad news.

No-interest borrowing encourages government spending. A politician with an unlimited checkbook is likely to provide unlimited largesse from the public Treasury. Whether that urge can be overcome by other means remains to be seen.

Inflation encourages spending over saving. Consumers, fearing the loss of purchasing power, will spend today because “things” will go up in dollar value as the dollar goes down in purchasing power.

Inflation will kill international trade. This is a biggie. If the dollar is falling, foreign sellers won’t want to hold dollars, so they won’t sell to us. (This result is not surprising: if inflation is a tax, then, applied to imports, it’s a tariff, and like all tariffs, it depresses trade.)

Inflation changes prices constantly. Merchants really don’t like to have to change prices every day. With significant inflation, price increases would be commonplace, and the burden would be substantial. Ditto for consumers, who cannot budget if they don’t know what things cost. And wages would have to adjust more often and more significantly.

Note that I did not list hyperinflation in the cons. I’m not sure about this – after all, we’re just speculating here – but it seems to me that with no interest to compound, the government would never be in the predicament of having to print money to stand still. All money creation would be in return for goods and services provide to the American people by its citizens or foreigners. The money supply would increase, but I don’t see anything hyper about it. In fact, one might speculate further that “controlling” inflation by charging the government interest on its borrowings is what makes hyperinflation possible in the first place.

Assuming for now that all the pros are good things, let’s see what we can do about the cons.

Government Spending. The first step in this sort of analysis is to avoid static thinking. In a no-tax, no-government-borrowing world, a lot of things would be different from how they are now. For example, it’s not credible to me that there would be no political push-back against government spending. The economic problem with government spending is not that we cannot “afford” to pay for it, but that it crowds out private consumption of human and natural resources. Currently, we measure the public-private contention for resources through a combination of statutory tax levels and budget deficit (i.e., future taxes, statutory or inflationary). If statutory taxes went away, I think we’d find a way to measure the contention for resources with as much political feedback as is now the case.

Without a budget deficit to serve as a proxy, we might get a more direct look at the competition for goods and services between the public and private sectors. What would too much government spending look like? Shortages, I think – costs in some sectors increasing faster than the money supply. Right now, with high unemployment, we think of the government as the employer of last resort. But in good times, I think we would find ways to measure this pressure, and to correct it politically. If that’s done, the government’s unfettered access to cash won’t matter, because the voters will actually demand not that the government balance its budget, but that it just get out of the way.

Spending/Saving. Again, the problem is static thinking. The inference that people will spend rather than save in an inflationary environment depends on the assumption that investments will fall in value. But that is not necessarily true if inflation is the only tax. The Treasury currently issues TIPS – inflation protected securities. These would go away in a no-borrowing Federal scenario, but there’s no reason to believe that corporations would not issue them in a no-corporate-tax environment. Mortgages would be indexed to inflation, and the resulting bonds and CD’s would be indexed, too. When the dust settles, the necessity of saving will be the mother of appropriate savings vehicles, and the dislocations of an abnormally inflationary environment will not apply.

Trade. It’s important, I think, to recognize that it is fear of unexpected inflation that should concern our trading partners. Like our own savers, foreign sellers who run a dollar surplus are free to buy the inflation-indexed securities that are sure to emerge in a no-tax America. Thus, there should be no wholesale abandonment of the American market on account of future drops in the value of the dollar.

That leaves the effect of a predictably and perpetually falling dollar on other currencies. I don’t see why our trading partners cannot simply raise the price of things they sell here, knowing that American competitors get no advantage from the falling dollar, because domestic competition will be experiencing inflationary pressures as well. In short, exporters do not just choose not to sell to an established market. They withdraw after, and only after, their sales start to fall or their currency losses become intolerable. To prevent the latter, they raise prices and wait to see what effect that has on the former. I’m guessing, not much at all. (We’ll still need tariffs, but that’s another issue, and the revenue will simply reduce the government’s need to print money for some of the things it buys, thereby passing along to the “taxpayers,” in the form of lower overall inflation, the proceeds of the tariff.)

Price Changes. Actually, this would be the biggest headache. But it is also the most intensely practical, which is to say it has the least to teach us about the economics or politics of the system. The administrative problem might, if such a system were formally proposed, make a strong political contribution to its defeat, but since the drift of this post is that we are, well, drifting toward the no-tax/no-interest scenario anyway, I don’t think we need waste much time worrying about the annoyance it will cause merchants.

This analysis – recall that this is a thought experiment aimed at thinking through how things work, not a policy prescription for the real world – leads to the possibility that the Fed’s “extended period” of low interest rates may well last forever. After all, the Fed’s main job in setting monetary policy is to limit inflation. But if the Federal government is committed by its deficit to borrow a certain amount of money in the short-term market, increases in short-term interest rates that would otherwise be anti-inflationary because they slow private economic activity become inflationary because they increase the Federal government’s demand for dollars. Thus, the deficit can reach a point where increases in the Fed’s discount rate are inflationary. At that point, the Fed basically loses control over inflation in the private economy, and we are essentially, as to a portion of the budget, in precisely the no-tax/no-interest scenario that is the subject of this post.

My guess is that the Fed will not raise interest rates for the foreseeable future. The question then is whether, when Medicare really starts to drive up the deficit, the Fed will remain accommodative in the face of political obstacles to revenue increases. I think the Fed will realize that raising interest rates will exacerbate inflation rather than tame it, that the share of the tax burden paid by inflation will, therefore, increase, and that we will learn to live with inflation. The yield curve will steepen as investors demand higher long-term rates, but Federal borrowing will move to the short end of the curve to enjoy the Fed's cheap money. (The biggest risk is that the government will continue to issue TIPS, the worst invention ever, but that's for another day.)

If the government borrows short, and the Fed remains accommodative, we may not have to deal with the trade deficit either. We can put our people to work on infrastructure projects and let the poor of the world send us the labor-intensive consumer goods we need. That, I think, is how we can uncouple “productive” jobs from access to production, which is crucial to achieving near-universal national prosperity in an import-based economy. But I want to deal with the distributional aspects of our post-taxation economy in a separate post.

Monday, May 24, 2010

Rand Paul and the Civil Rights Act

The philosophical problem for big-L Libertarians is that they don’t understand the role of government in life’s Prisoners Dilemmas. I like my autonomy as much as the next guy, and I like to think that my property is mine to do with as I see fit. But I also recognize that, at least in the commercial realm, others’ bad behavior may preclude my good behavior, that my “liberty” is in fact lessened by an expansive interpretation of theirs.

Say, for example, I ran a luncheonette in the American South fifty years ago and I thought it would be in the best interests of the community if it were integrated. Several practical obstacles would have arisen, not the least of which that my White clientele could choose to eat somewhere else, viz., at a segregated competing establishment. The White community, not as enlightened as I, might take other reprisals against me for voluntarily going against the old ways.

It’s all well and good to call me a coward, etc. for not integrating my place in the face of these obstacles, but my being “brave” wouldn’t have changed who got to eat where. No, the only way to do that was to do what was done: make it illegal for anyone to maintain a segregated lunch counter. Such a law would have freed me, and any like-minded colleagues, to do the right thing, with no loss of business to competitors, and no reprisals. I realize that government rules are not the same thing as the “natural” impediments of competition, but if what I’m really concerned about is my ability to use my property as I see fit, the law is actually a libertarian win for me.

I do think it’s important to note that my competitors and I all own public facilities. All the taxpayers pay for the inspectors who inspect our establishments and the police who protect them, so why shouldn’t all of the public be allowed to patronize them if they have the money and manners to do so? Yes, the capital that went into the restaurant may well have been “private property,” but once that capital is contributed to a corporation in exchange for limited liability or is dedicated to the creation of a licensed business that imposes costs on the community to support, there is no philosophical property basis for arguing that the community cannot say who may or may not patronize the resulting business.

Of course, people who shout “racist” for a living will earn their pay off of Dr. Paul’s quibbles with the Civil Rights Act, but only the mainstream media will pretend there’s any there there. It is a fact of American political life that if you take a position adverse to the interests of an identity group, someone will say you are doing it because you “hate” that group. And some network news whore will treat the accusation as worthy of others’ attention, as if each new night following each new day were a new surprise. But that’s politics.

Anyway, not being a racist hardly makes Dr. Paul otherwise qualified for an office as important as U.S. Senator ought to be. He is raising an important issue about the nature of government, and that issue ought not to be missed in the kerfuffle over race. He’s wrong on that issue, but I suspect it won’t matter. In an ideal world, Dr. Paul would lose for being the Libertarian he is and not for being the racist he isn’t. But elections aren't decided by the niceties of game theory, so I may have to settle for him losing any way he can.

Sunday, May 16, 2010

Elena Kagan and The First Amendment

Prof. Kagan wrote most fully about the First Amendment in “Private Speech, Public Purpose: The Role of Governmental Motive in First Amendment Doctrine,” 62 University of Chicago Law Review 413 (Spring 1996). The article is over 100 pages long, and I do not claim to have read it all. But I do claim to take away from it a specific impression of Professor Kagan, namely, that she may be a better student than teacher.
The first part of the article concentrates on R. A. V. v. City of St. Paul, 505 U.S. 377 (1992). R.A.V. arose from a prosecution under an ordinance that made it a misdemeanor to "place[ ] on public or private property a symbol... which one knows or has reasonable grounds to know arouses anger, alarm or resentment in others on the basis of race, color, creed, religion or gender .... ." The majority of the Court assumed, arguendo, and consistently with the holding of the Minnesota Supreme Court on the matter, that the ordinance applied only to "fighting words," a category of speech not protected by the First Amendment. Thus, according the majority opinion, and Prof. Kagan, the issue before the Supreme Court was whether St. Paul constitutionally could prohibit some, but not all, unprotected speech - more specifically, fighting words based on race and the other listed categories, but no others.
I believe that only eight justices voted in the case. (For some reason, I cannot find a list of justices who joined Justice Scalia in the Court’s opinion, but I suspect that Justice Thomas, who was on the Court when the case was decided had not heard the case when it was argued.) Justice Scalia did address the issue as described by Justice Kagan and held that the ordinance was unconstitutional because it punished some fighting words and not others. But four Justices disagreed with Scalia’s reasoning, arguing that a subset of unprotected speech can be barred, but finding that the St. Paul ordinance went beyond “fighting words,” and was, therefore unconstitutional.
Prof. Kagan devotes a footnote to the concurring opinions of half the participating justices and then addresses the Court’s opinion:
Three explanations for the Court's decision offer themselves, the first two relating to different effects of the St. Paul ordinance, the last relating to its purpose. First, the Court might have held as it did because the St. Paul ordinance too greatly interfered with the opportunity of speakers to communicate their desired messages. Second, the Court might have reached its decision because the ordinance harmed the ability of the public-that is, the audience-to become exposed to a desirable range and balance of opinion. Third, the Court might have invalidated the ordinance because regardless how (or whether) it affected either speaker or audience, it stemmed from an improper purpose on the part of the government.
But there is a fourth possibility, the one that offered itself to the four justices who concurred only in the result, viz., that the Court’s opinion was wrong. That possibility, it seems to me, is where the fun is. Certainly, lawyers need to be able to deal with the legal landscape created by the “official” opinion, but that’s something for students and practitioners to wrestle with. The debate among the justices revealed a Court deeply divided about an important jurisprudential question, and I see far more food for scholarly analysis in that division than in the doctrinal mess that arose from treating the Court’s opinion as sound.
I may be biased, as I find Justice White’s concurrence persuasive. I also like Justice Stevens’s concurrence, although I think he saw more distance between himself and Justice White than was really there. Still, the difference that he found, which relates to role of context in categorizing speech, is philosophically intriguing and just the sort of thing I would want a scholarly piece to pick apart.
The philosophical split among the justices is especially significant in hindsight, as the Court, without admitting it, backed away from R.A.V. in Virginia v. Black, 538 U.S. 343 (2003). There, the Court reversed the Virginia Supreme Court, which had ruled that Virginia’s anti-cross-burning statute was unconstitutional under R.A.V. Somehow, the Court managed to distinguish R.A.V. away, in what I see as a legal fiction intended to respect stare decisis while recognizing that they had in fact got R.A.V. wrong. Obviously, Prof. Kagan did not have this history available, but she did have the chance to say, as four justices did, that Scalia et al. were wrong; instead, she tried to make sense out of a world in which they were presumed to be right.
The second part of the article considers three theories of First Amendment jurisprudence:
The first approach - call it the "speaker-based" model - understands the primary value of the First Amendment to reside in its conferral of expressive opportunities on would-be communicators. A system of free expression, in allowing individuals to communicate their views, enhances their "autonomy" or "self-respect" or "self-development" or other (equally amorphous but desirable) human quality. Under this theory, any limitation of expressive opportunities constitutes a harm because it interferes with some speaker's ability to communicate to others and with the benefit that speaker thereby derives….
By contrast, the second approach to the First Amendment - call it the "audience-based" model - focuses on the quality of the expressive arena. A system of free expression, under this theory, has value because it enables the public-the audience for the speech - to arrive at truth and make wise decisions, especially about matters of public import. In order best to fulfill this function, a system of free expression should promote not speech alone, but speech of a certain kind and mixture. Rich public debate is the goal; the concern is the expressive realm as a whole, rather than each opportunity for expression….
The third approach to the First Amendment - call it the "government-based" or "motive-based" model-claims that what is essential is not the consequences of a regulation but the reasons that underlie it. The point of attention is neither the speaker nor the audience, but the governmental actor standing in the way of the communicative process. Under this model, an action may violate the First Amendment because its basis is illegitimate, regardless of the effects of the action on either the sum of expressive opportunities or the condition of public discourse. Conversely, an action may comport with the First Amendment because legitimate reasons underlie it, again regardless of its range of consequences. The critical inquiry concerns what lies behind, rather than what proceeds from, an exercise of governmental power.
Again, Kagan seems to be getting the lay of the land, rather than digging into it. I am particularly interested in her description of the “audience-based” model, which I favor, but with a significantly different focus. The electorate does not do truth; it does politics. What I want to know as a member of the electorate, is what other people think. Not what “worthy” contribution they have to make, but what they think, however bizarre, outdated, benighted or obnoxious their thoughts. Justice Harlan (of course) understood this when he wrote in Cohen v. California, 403 U.S. 15 (1971:
The constitutional right of free expression is powerful medicine in a society as diverse and populous a ours. It is designed and intended to remove governmental restraints from the arena of public discussion, putting the decision as to what views shall be voiced largely into the hands of each of us, in the hope that use of such freedom will ultimately produce a more capable citizenry and more perfect polity and in the belief that no other approach would comport with the premise of individual dignity and choice upon which our political system rests. See Whitney v. California, 274 U.S. 357, 375-377 (1927) (Brandeis, J., concurring).
To many, the immediate consequence of this freedom may often appear to be only verbal tumult, discord, and even offensive utterance. These are, however, within established limits, in truth necessary side effects of the broader enduring values which the process of open debate permits us to achieve. That the air may at times seem filled with verbal cacophony is, in this sense not a sign of weakness but of strength. We cannot lose sight of the fact that, in what otherwise might seem a trifling and annoying instance of individual distasteful abuse of a privilege, these fundamental societal values are truly implicated. That is why "[w]holly neutral futilities . . . come under the protection of free speech as fully as do Keats' poems or Donne's sermons," Winters v. New York, 333 U.S. 507, 528 (1948) (Frankfurter, J., dissenting), and why, "so long as the means are peaceful, the communication need not meet standards of acceptability," Organization for a Better Austin v. Keefe, 402 U.S. 415, 419 (1971).
Cohen and the cases cited were all available to Kagan – she even cites Cohen in support of her convoluted “government-based” position even though, in my view, it actually explains why such an approach is unnecessary - but she chose to use secondary sources to inform her understanding of the “audience-based” model. “Wholly neutral futilities” do not contribute to substantive truth, but they provide politically useful information, and the reason we have a constitution, much less a bill of rights, is to do politics. By ignoring Cohen and its forebears, Kagan makes her own “government-based” model seem like an attractive alternative to an unconvincing competitor:
The discussion so far has assumed that the disparate impact of a law on ideas will distort the speech market. If that assumption is false, then the distinction between content-based and content - neutral laws - even if the most sensible way of determining whether a law disparately affects ideas -would not further the interest in balanced discourse.
But this reasoning assumes that the audience-based model is about balanced discourse, which, as Justice Harlan explained, it is not. When Cohen is added to the mix, I think a coherent audience-based theory of the First Amendment emerges without the need for what, I believe, is a circular argument about motives. Or at least, the possibility arises, and Kagan should have dealt with it.
I would not vote against General Kagan on the basis of her writings, but they do not suggest to me that she will be much of a counterweight to Justice Scalia et al. Of course, it seems to me that Justice Scalia’s work in R.A.V. was second-rate, and I suspect that if that opinion were a law review article and he were a nominee, I wouldn’t hold out that much hope for him, either. Maybe I’m just a tough room to play. We’ll see.

Thursday, May 13, 2010

Justice Kagan on Hate Speech and Pornography

In her 1995 U. Chicago L. Review piece on hate crime and pornography (which I found here), then Professor Kagan wrote:

This Essay on the regulation of hate speech and pornography addresses both practicalities and principles. I take it as a given that we live in a society marred by racial and gender inequality, that certain forms of speech perpetuate and promote this inequality, and that the uncoerced disappearance of such speech would be cause for great elation.


The question I pose is whether there are ways to achieve at least some of the goals of the anti-pornography and anti-hate speech movements without encroaching on valuable and ever more firmly settled First Amendment principles.

In other words, while the uncoerced disappearance of certain forms of speech would be a good thing, let’s see what we can do to coerce its disappearance. Missing entirely is the argument that would signal Ms. Kagan’s stature as a serious thinker. That argument is the one in which she takes us from how good it would be if all forms of speech that perpetuate and promote racial and gender inequality would disappear without coercion to the premise that we should find ways to get rid of them by coercion. (Also missing are descriptions of “hate speech” and “pornography” sufficient to let us know what we are talking about.)

We do get a robust, if utilitarian, defense of viewpoint-neutral First Amendment jurisprudence, in which, for example, Prof. Kagan outlines the reasons why regulation that claims to be “harm-based,” as opposed to “viewpoint-based,” would in effect be viewpoint-based and should, therefore, be rejected. But, whereas her defense of viewpoint neutrality against claims of harm-based regulation seems to make hate-speech and, especially, pornography, beyond the scope of regulation, she continues:

None of this discussion, of course, denies either the possibility or the desirability of crafting carefully circumscribed exceptions to First Amendment norms of viewpoint neutrality, and in the last section of this Essay, I briefly consider whether and how this task might be accomplished.

Say what? “[C]arefully circumscribed exceptions to First Amendment norms of viewpoint neutrality”? Circumscribed by whom under what standard of care? Yikes.

Her suggestions:

The four approaches are, in order: (1) the enactment of new, or the stricter use of existing, bans on conduct; (2) the enactment of certain kinds of viewpoint-neutral speech restrictions; (3) the enhanced use of the constitutionally unprotected category of obscenity; and (4) the creation of carefully supported and limited exceptions to the general rule against viewpoint discrimination.

1. The enactment of new, or the stricter use of existing, bans on conduct. In this category, Prof. Kagan included the enhanced punishment of hate crimes and the prosecution of crimes incidental to the production of pornography, specifically, “the sexual assaults and other violent acts so frequently committed against women in the making of pornography.” So frequently? If she says so. Certainly, kiddie porn and snuff films and any other degrading video in which anyone is forced or conned into appearing should give rise to prosecution. But that hardly seems worth the trouble to say.

Prof. Kagan rejects the application of prostitution, pimping, and pandering laws to porn. She rejects prostitution prosecution, which won’t work anyway seeing as how it’s almost impossible to prove in what jurisdiction any particular act occurred, because such prosecution would make a criminal of the “victim” – viz., the female performer. But that argument seems to misconstrue her own complaint against pornography in the first place, which is not that it victimizes the performers but that it promotes and perpetuates gender inequality. Whatever, we are left with only a proposal to outlaw assault and deceit. Fine.

2. The enactment of certain kinds of viewpoint-neutral speech restrictions. Here Prof. Kagan runs smack into her own premises. Recall that she wants to get rid of speech that perpetuates and promotes racial and gender inequality. Those are viewpoints. Not nice ones. But viewpoints nonetheless. That’s why their uncoerced disappearance is to be wished for. But how do we impose viewpoint-neutral restrictions on something we want to get rid of precisely because we don’t like its viewpoint?

Prof. Kagan wrote:

A law prohibiting, in viewpoint-neutral terms, not merely fighting words but other kinds of harassment and intimidation would (and should) face greater constitutional difficulties, relating most notably to overbreadth and vagueness; but a carefully drafted statute might well surmount these hurdles, and such a law surely would not be subject to the selectivity analysis of [R. A. V. v. City of St. Paul, 505 U.S. 377 (1992)]. Viewpoint-neutral laws of this kind - whether framed in terms of fighting words or in some other manner - might be especially appropriate in communities (such as, perhaps, educational institutions) whose very purposes require the maintenance of a modicum of decency."

That’d be speech codes on campus made into law. I’d want to see a more exhaustive defense of that one.

There’s more than a whiff of “nothing’s impossible for the man who doesn’t have to do it himself” in Prof. Kagan’s proposals. Such proposals. without well-defended examples, are vacuous. Just what the careful drafter would have to be careful to do is not made clear, and so the job is assumed to be doable without evidence that it is.

And it won’t do to say, as Prof. Kagan does, that she cannot give these tough questions “the extended treatment they merit.” Then why show up at all? Anyone can ask hard questions. (Which is not to say that Prof. Kagan has asked the right hard questions. Indeed, until you try to answer your own questions, you can’t be sure that they are the right questions.)

3. The enhanced use of the constitutionally unprotected category of obscenity. I have to admit that I have read the section of Prof. Kagan’s piece about redefining “obscenity” to capture sexually violent pornography on the basis of the harm such works do to women, and I do not get it. She says that “the obscenity doctrine itself may benefit by transformative efforts, as these efforts bring the doctrine into greater accord with the harm-based morality of today, rather than of twenty years ago.” But that is precisely the sort of harm-based argument that she rejected earlier because, as she so ably argued, all viewpoints worth the trouble to suppress harm someone. So, having come out against harm-based subterfuges in one part of her essay, she seems to be advocating one in another.

More disturbing, this portion of the essay seems the most blatantly political. I have no problem with Ms. Kagan having a political views, including certain feminist views that I don’t think much of, but I do have a problem with her trying to find ways to suppress speech that she clearly opposes on political grounds by pretending that it is not political speech.

Obscenity, above all, is apolitical. Otherwise, it’s not obscenity in the Constitutional sense. I’m not saying that a producer can put a political fig leaf on obscene material and make it not obscene. But I am saying that if the reason we oppose obscenity is because it does harm to a group (as opposed to public morals generally) by the message it sends, then we are admitting that it is, ipso facto, political speech and that we are suppressing it for that reason. Thus, Kagan’s “enhanced” use of obscenity is code for the political use of obscenity, and that’s, well, obscene.

4. The creation of carefully supported and limited exceptions to the general rule against viewpoint discrimination. This section seems to reveal a shallowness in Kagan’s understanding of viewpoint neutrality. She cites existing exceptions to viewpoint neutrality in cases where the Court has permitted certain speech to be suppressed. As regards obscenity, she writes (in footnote 73):

It might be argued that such a redefinition of the obscenity category would render it viewpoint-based and therefore inconsistent with the First Amendment. This argument depends first on the proposition that a statute framed in terms of sexual violence is viewpoint-based…. As important, the argument depends on the proposition that the obscenity category is not now viewpoint-based - in other words, that it does not now constitute some kind of exception to the rule of viewpoint neutrality. This proposition is difficult to maintain given the obscenity test's reliance on community standards of offensiveness. [Citations omitted.] As between an obscenity doctrine that focuses on sexual prurience and offensiveness and an obscenity doctrine that focuses on sexual prurience and violence, the former would appear to pose the greater danger of viewpoint bias.

The last sentence of this footnote is crucial. The purpose of the First Amendment – not of the judicial rules implementing it, but of the Amendment itself – is to protect the flow of political information. The question, therefore, is not whether a law suppresses a “viewpoint” per se, – every obscene work can be seen to express the “viewpoint” that we should not to be disgusted by what we see – but whether the law in question favors or disadvantages a political interest, i.e., the interests of something less than the community at large. Yes, we have carved out public morals as an exception to viewpoint neutrality, but only to the extent necessary to prohibit material that offends community standards.

We enforce obscenity laws because we recognize, I would argue, that obscene materials raise no serious issue regarding competing political interests. As soon as one says, however, that a form of speech disadvantage some subset of society, then the protections afforded political speech come into play. That’s why a statute based on offense to the community causes less Constitutional concern than one based on potential violence against a group.

Thus, Kagan writes:

Could it possibly be the case that viewpoint discrimination built into the very definition of a low-value category is permissible, whereas viewpoint discrimination carving up a neutrally defined low-value category is not?

No, it cannot be. Not if the viewpoint discrimination relates to a political matter, including the relative status of interest groups in society. And so we return to the beginning. Speech that perpetuates and promotes racial and gender inequality is political speech. and, as such, there should be no way to suppress it, and no one, least of all a Supreme Court nominee, should be looking for a way to suppress it.

Prof. Kagan recognizes the modesty of what can be done even under her reading of the authorities:

But … the hard question remains: should the Court accept pornography or hate speech as a low-value category of expression? The currently recognized categories of low value speech seem to share the trait, as Cass Sunstein writes, that they are neither "intended [nor] received as a contribution to social deliberation about some issue. [Citation omitted.] That definition offers several lessons for any regulation, concededly based on viewpoint, either of hate speech or of pornography. In the case of hate speech, such an ordinance should be limited to racist epithets and other harassment: speech that may not count as "speech" because it does not contribute to deliberation and discussion. In the case of pornography, any ordinance should be limited to materials that operate primarily (as obscene materials operate primarily) as masturbatory devices; in addition, an explicit exception, like that in the obscenity standard, for works of serious value ought to be incorporated. Only if pornography and hate speech are defined in this narrow manner might (or should) the Court accept them as low-value categories - a classification that, it must be remembered, depends at least as much on the non-expressive quality of the speech as on the degree of harm the speech causes.

The Professor’s point about masturbation rings a bell. In 1993, Carol Iannone wrote an article for Commentary contesting McKinnon-Dworkin on pornography. I don’t recall Ms. Iannone’s arguments, but she seemed to me too quick to accept the idea that pornography could be Constitutionally regulated. I wrote a letter to the editor, which was published in the January, 1994 issue of the magazine:

To the Editor:

Without disagreeing at all with Carol Iannone's points [“Sex & the Feminists,” September 1993], I would urge upon her a stauncher defense against Catharine MacKinnon's assault on the Constitution.

MacKinnon's argument is simple: because the Constitution protects speech to enhance the search for truth, the government should be able to suppress specific views that cannot be true, at least where there is a compelling state interest to be advanced by the suppression. Because anti-egalitarian speech cannot possibly be true, and equality is a compelling state interest, the former should be suppressed in furtherance of the latter. Miss Iannone seems to accept MacKinnon's premises, arguing back only that some ideas MacKinnon would suppress are at least debatable. In this, she rises too willingly to the bait.

To suppress speech on the ground that it cannot be true is to miss entirely the point of the First Amendment. As organic law, the First Amendment is not about truth; it is about politics. Political information . . . is the lifeblood of our electoral democracy. If a view that cannot be true cannot be expressed, we cannot learn that the view is even held. As a result, we are denied important information about the beliefs of the electorate. We cannot adequately develop a platform on which to run or a basis on which to vote. (Imagine trying to conduct a public-opinion poll on the status of the sexes in Catharine MacKinnon's America.)

When the First Amendment is properly understood as protecting the flow of political information, MacKinnon is hoist by her own petard. Unlike conservatives who would ban pornography because it has no more social importance than a vibrator, MacKinnon would suppress it because it contains a dangerous political message. If pornography really does contribute to the oppression of women, and especially if its producers intend that effect, pornography ipso facto has redeeming social importance and is protected speech (I take the word “redeeming” in the phrase “redeeming social importance” to mean redeeming from mere prurience, not redeeming in any uplifting sense). The pornographer's message may demand rebuttal but, if he does have a political message, censorship is not our way of rebutting it.

Prof. Kagan seems to have come down on the side of the conservative vibrator crowd. The question is, though, on what basis do we ban masturbatory aids? And is that really what this fuss is about.

Prof. Kagan’s piece seems to me something of a sop to feminists who wanted her to say something at a time when the issue was hot. Because, in the end, she says very little, giving them, perhaps, a slender tree to bark up, and specific suggestions of the slightest practical import. But it’s discouraging to see how quick she is to wish she could squelch unpopular speech. I want a justice who will defend my right to know what my most obnoxious neighbors think, not apologize for her inability to suppress it.

Tuesday, May 4, 2010

Oil Spills and Financial Hemorrhages

I don't know why BP's Deepwater Horizon rig blew up, but it's pretty clear that the ensuing environmental mess results from the failure of the blow-out preventer, a gadget whose job, I have to assume, is to prevent blow-outs. So, while President Oblamer has assured us that BP is responsible and that BP will pay - that, as Interior Secretary Salazar put it, we will "keep the boot on their throat" - that'll help fend off some of that nasty Nazi imagery the Right favors - we should probably be looking into who made the BOP.

The BOP sounds like the ratings agency of the deepwater drilling world. The thing worked fine while the demand was manageable, but eventually, the demand got so strong that the agencies got in over their heads, in deep water, so to speak, and failed to stop a leak of toxic assets into the environment. Until the BP rig explosion, I had been analogizing the financial crisis to a flood, and the ratings agencies as the leak in the dam holding back the inflow of sino and petrodollars. But the demand for AAA-rated paper and demand for safely drilled oil are a pretty good match. Someone had to make sure that investment value could be safely extracted from US real estate, and the ratings agencies were the blow-out preventers.

The real problem facing deepwater drillers right now is the possibility that none of their BOPs work. If, as would make sense, the companies carry insurance against the failure of their BOPs, there must be some scared insurance companies out there, and one can imagine that premium costs will rise for companies that buy such insurance in the future. There is some sort of limit on the damages that BP can be made to pay for this mess - although the costs of repairing the leak, which may not be insured, and which BP will pay, at least until it can collect from the BOP maker, if that was not BP itself, will dwarf those statutory damages.

In contrast, I don't think anyone carries insurance against the failure of the ratings agencies. But then, who needs insurance when the only way to prevent collapse of the financial system is for taxpayers to bail out anyone hurt by the blow-out. Presumably, the same will hold true of this oil spill. What if BP just walked away? Wouldn't we "bail out" the marshes?

There's more to be written about this spill, but I'm betting its genesis and treatment will look a lot like the financial mess through the right set of lenses. Just replace the red ink with black goo...