Monday, October 31, 2011

Occupy Wall Street is a Democracy Movement

By Mike Dorf


The notion that Occupy Wall Street (OWS) has no demands is fueled in part by an arguably deliberate media obtuseness.  Judging from the movement's core catch-phrase -- "We are the 99%" -- it is clear that the movement centers around a complaint about economic inequality

There is, nonetheless, a kernel of truth to the media trope that OWS and its far-flung spinoffs remain an amorphous movement with demands no more concrete than, as my Cornell Government Department colleague Sid Tarrow puts it, "Recognize us!"  I agree with Tarrow and others that it is too soon to tell whether OWS will fade away or coalesce into a more conventional political movement, and if the latter, what its central focus will be.  But I also want to suggest that we may be looking at OWS through the wrong frame.

Most observers take OWS to be a nascent movement within American constitutional democracy.  Viewed this way, it is logical to ask what concrete policy changes the OWS protesters seek.  Do they want higher capital gains taxes?  A constitutional amendment overturning the Citizens United decision?  More money for mortgage relief?  Yet what if we view OWS not as a movement for anything within democracy but as a movement for democracy?

In this view, we should not be comparing OWS to the civil rights movement or the women's movement but to the Philippine "people power" movement of 1986, the Tiananmen Square protests of 1989, and the Arab Spring of 2011.  Nobody thought to question any of those protesters about their concrete aims: What exactly would be the land policy post-Marcos?  What role would the state play in the economy if the Tiananmen protesters had succeeded in deposing the Chinese Communist Party?  What version of Islamic finance would be used following the removal from power of Ben Ali and Mubarak?  Such questions would have been rightly seen as premature because everyone understood that the protesters in these movements sought, first and foremost, democracy -- with most concrete policy choices to be made within the framework of democracy once it was established.

It may be difficult to see OWS as a democracy movement because the United States already has democracy, but from the protesters' perspective, this is hardly clear at all.  The protesters believe that government serves the needs of the rich and powerful, rather than the considerably greater needs of the poor and middle class.

That may describe OWS today but not forever.  Where will OWS end up?  I can imagine at least three sorts of possibilities.  One is that the movement injects some life into progressive politics but then runs out of steam, becoming something like a conventional NGO, much in the way that MoveOn.org, after its founding as a grass-roots movement to oppose the Clinton impeachment, became a kind of all-purpose advocacy and lobbying shop on the liberal/left.  (Not surprisingly, MoveOn supports OWS.)

Writing in the NY Times last week, James Miller warned of a second possibility: That a small number of extremists could hijack the OWS movement, much in the way that anarchists have attempted -- with some success -- to hijack the anti-globalization movement.  The risk here is less that blood will run in the streets (although some might), but that violent tactics turn public opinion against the mass of peaceful OWS protesters.  OWS thus far has shown remarkable sensitivity to this risk and has taken steps to guard against it, but given the spontaneous nature of the rallies around the country and the world, it is impossible to rule this path out.

For me, the most exciting possibility is that OWS remains committed to directly deliberative democracy but solves the problem of scale.  With Chuck Sabel, I have written at considerable length about what direct deliberation looks like within the context of representative government, rather than as a replacement for it.  For OWS to embrace what we call "democratic experimentalism," however, would appear to require OWS to come to see itself as a movement for structural political change within the existing political framework.

At first blush, that may seem unlikely.  OWS seems to have an uncompromising commitment to unfiltered direct deliberation (rather than the direct deliberation nested in representative government that Sabel and I and others imagine).  The "human microphone," born of necessity when the authorities forbade electric amplification, might be thought to serve as a metaphor for the movement as a whole.

But on reflection, I think that OWS support for any particular form of deliberation is thin.  Few people join mass street movements to express a preference for direct deliberation over representative government.  The rank and file of OWS may accept or even like the directly deliberative "general assemblies" but only because they feel so strongly that the established representative government does not hear their voices or represent their interests.  Their goal is a politics that responds to people's needs, not any particular form of government.

There is thus potential in OWS for efforts aimed at campaign finance reform, as Larry Lessig suggested on NPR last week, as well as for something like democratic experimentalism.  For either of those to occur, however, would require that OWS come to see itself as working within the system.  To my mind, that is what makes OWS potentially so interesting -- the possibility that it could become both a democracy movement in the way that liberal revolutionary movements have been on the international scene and a movement for reform within the existing American framework.

Friday, October 28, 2011

What Is Not Wrong With College Sports?

-- Posted by Neil H. Buchanan

I have long been an avid fan of college sports, especially football. I grew up in Big Ten country, living in contested territory between Ohio State and Michigan. An unusual set of circumstances led me to betray my Buckeye roots to switch sides and become a Wolverine during my adulthood, but my passion for watching football never waned. Over the last few years, however -- and especially over the last ten months or so -- it has reached the point where I feel dirty even watching the games. I have been planning to write a blog post describing some of the issues that seem relevant to my change of heart, and I might still do so.

Today, however, I want to address some arguments from Taylor Branch, who has written a sustained attack on the NCAA, "The Shame of College Sports," in The Atlantic, now followed by a book, The Cartel, on the same subject. (I have read the article, while the book has apparently not yet been offered for sale, at least on Amazon.) Branch also discussed these issues on The Colbert Report on Wednesday night of this week.

I ought to have been a ready audience for Branch's arguments. Indeed, much of what Branch has written is important and eye-opening. He describes various inequities that the NCAA's rules have created, and he strongly criticizes its imperiousness and inconsistency. Branch also believes that college athletes should be paid a cash salary. He might be right about that, although I am deeply skeptical. On the way to his conclusions, however, he makes some arguments that strike me as extraordinarily weak. I will limit my comments today to two of those arguments, because they are emblematic of how his broader analysis ultimately became side-tracked and undermined by his evident (and largely justified) hatred of the NCAA itself, rather than the actual underlying problems in college sports.

The less important of the two arguments is Branch's explanation of why there is no college football championship tournament. I think such a tournament is a bad idea, for reasons not relevant here, but the question is why something for which so many other people have clamored for years has still not come into existence. The standard explanation is that the people who run the bowls, along with the networks and the big-time football schools, are protecting the traditional bowl system and its big-money payouts.

Branch's explanation is, to be honest, bizarre. Both in the article and on Colbert, he argued that the NCAA is terrified of the possibility that there will be a football playoff. He reports that the NCAA's operating budget is funded almost entirely by the TV fees from the March Madness basketball tournament. He then says that, if the big football schools were to run a successful football tournament, they would realize that they could "cut out the middleman" and run March Madness without the NCAA. This possibility "haunts the NCAA," Branch argues.

In the article, Branch links this fear to the NCAA's reluctance to punish member schools. On Colbert, he offered this explanation in response to a question about why there is no football tournament. At most, however, this could explain why the NCAA does not want a football tournament -- and it really does not even explain that -- not why no one else has stepped around the NCAA to start one. If the NCAA is really just a leech, and the schools could run the basketball tournament, too, then why do the big schools continue to give up almost a billion dollars each year on basketball? For that matter, what does that have to do with football at all?

The problem, I think, is that Branch's writing has been infected by his all-consuming disdain for the NCAA. It has become his white whale, and he is obsessed with it. That is not to defend the NCAA (although it can easily be defended against many of Branch's attacks), but only to observe that the NCAA and its funding through basketball somehow became Branch's focus, rather than the question of football. If anything, his explanation makes matters worse, because it is now more difficult to understand what is stopping the non-NCAA people from starting a football tournament, given the incentives that he describes.

The second, much more important, issue is Branch's responses to the argument that college athletes are already being paid, in the form of college scholarships. Full-ride scholarships even to state universities are no small matter, and the economic benefit from a college education is almost always going to be much more significant than the salary that all but the best players -- who will make their millions in the NFL, anyway -- would receive under a pay-for-play system at the college level.

The best response to this argument, I think, is that the system currently amounts to a bait-and-switch, promising to "pay" young men with a college education, but then making it nearly impossible for them actually to obtain that education. Many elite athletes are unprepared for college level work, while others are so busy with their full-time job of practicing and playing sports that they cannot take advantage of the free education that is nominally theirs for the taking. (As a side note, however, it is often said that the members of the marching band put in more hours than the players do on the practice field. If true, this undercuts the idea that the demands are too great, unless bands also have low graduation rates.)

I do think, therefore, that the "we pay them with free tuition" argument is, far too often, a dodge. If I were to try to reform college sports, I would require that athletic scholarships involve commitments to allow the athletes actually to graduate with meaningful degrees, through some combination of reduced practice time and extended financial support to finish degrees after their athletic eligibility is exhausted. Real reform is necessary and, for reasons that Branch ably notes in other contexts, highly unlikely.

That is not, however, what Branch argues in response to the tuition-in-lieu-of-salary argument. On Colbert, he argued that this system is the same as if Stephen Colbert received only health benefits as compensation, without salary. As far as it goes, that is at least responsive. Yet, while it is difficult (but possible) to imagine people in certain situations being very willing to work only for health benefits, it is extremely easy to argue that college tuition for 18-22 year olds is hardly a sideshow. They are not being offered a few minor perks, like parking and a dental plan. They are being given for free the most expensive thing that most families have to pay for, other than a house.

Again, there are some arguments around the edges -- regarding the rules governing whether athletes can be given "spending money," for example. But the idea that we can simply dismiss free tuition as a mere side benefit, nowhere near as valuable as up-front salary, misunderstands the financial realities of tuition and the benefits of a college education.

Interestingly, however, Branch's argument on Colbert was a winner compared to his argument in his article in The Atlantic. There, he closed a very long article by calling tuition-in-lieu-of-salary an "evasion," passionately asserting that the argument "echoes masters who once claimed that heavenly salvation would outweigh earthly injustice to slaves. In the era when our college sports first arose, colonial powers were turning the whole world upside down to define their own interests as all-inclusive and benevolent. Just so, the NCAA calls it heinous exploitation to pay college athletes a fair portion of what they earn." Branch thus argues that "you get a free education that will benefit you for the rest of your life" is the moral equivalent of "you will go to heaven after a lifetime of slavery."

As I noted above, much of what Branch wrote for The Atlantic was valuable reporting. Too often, however, he turned each argument into yet another reason to hate the NCAA. His motives -- to find ways to help college athletes, who are too often abused and tossed aside -- were more than pure. It is a shame that he took his eye off the ball.

Thursday, October 27, 2011

Insert Pun About Gold Here

-- Posted by Neil H. Buchanan

My new Verdict column picks up on a point that I made toward the end of my October 14 Verdict column, in which I noted the worrisome resurgence of "gold bugs" on the left and far right of this country. It is, of course, not possible to say anything genuinely new about the gold standard, but I think I made at least one point that is not widely understood.

Defenders of the gold standard extol its virtues as a neutral, mechanical, "free of human intervention" system that naturally equilibrates the economy. All Congress has to do, they say, is set the set the ratio of dollars to gold once and for all, and everything will spin like a top thereafter. When pressed about the volatility of the world gold market, and the effect that such volatility would have on the economy, however, the answer is that the dollars-to-gold ratio can be adjusted in response to swings in the gold market.

At that point, however, the gold standard is revealed to be no different from the hated Federal Reserve, because we would need to have human intervention after all, and we would never want Congress to be directly responsible for making technical adjustments to the money supply on an ongoing basis. Something like the Fed, or what I ironically termed a "Gold Fed," would be required. We would end up with a system that is no more safe from human meddling than before, but it would add the inherent waste involved in tying everything to gold.

The Gold Fed, moreover, would be necessary to develop and enforce the regulations that would be a necessary part of a gold standard (even a gold standard that did not allow changes in the dollars-t0-gold ratio). The idea that a gold standard -- or any monetary system -- could run without an administrative regime is absurd, after all, because a gold standard does not actually require transactions to be carried out in gold. It only requires that dollars be "backed" by gold, which would be held "in reserve" somewhere. Once that separation is allowed, the possibility of fraud -- and the necessity of enforcement -- naturally follows. (And if we really outlawed paper currency and electronic transactions, and required every transaction to be carried out in gold, we could kiss even a pre-modern economy goodbye.)

The circular and self-negating nature of the defense of the gold standard (and the attacks on the Fed) is highly reminiscent of the attacks from some of the same people on the IRS. Various politicians on the right have talked for years about "shutting down the IRS." What would we do without a police force to enforce the tax laws? Well, we could create a new agency to do that. Or we could create an unfunded mandate to have state tax agencies (all of which, of course, heavily rely on the IRS for expertise, data, and enforcement assistance) take over the IRS's duties. It ends up, as I have argued before, being an exercise in re-labeling and reassigning the same responsibilities.

It is, of course, possible that the IRS and/or the Fed are subject to some sort of incurable internal rot, such that shutting them down and starting over would be a net plus. Which requires that we look at the track records of the two agencies. As I noted on Dorf on Law and in a column early last year, attempts to demonstrate systemic abuse at the IRS have repeatedly come up dramatically empty. The case against the Fed is equally weak.

But is it not true that the Fed was created to end the cycle of boom and bust that plagued the economy throughout the 1800's, yet the economy still experiences booms and busts? Yes, and yes. That, however, is not a sign of failure, but rather proof that nothing can be perfect. The amplitude of the booms and busts in the Fed era has been dramatically reduced. Even the Great Depression was a piker (both in severity and length) compared to some of its predecessors. (See a summary of the data from the late 1700's forward here.) Moreover, the Great Depression itself became more severe after the Fed in 1930-31 failed to carry out its mandate to act as lender of last resort. That proves that agencies can fail, but not that the Fed is so chronically bad that a Gold Fed (or certainly a rigid gold standard) would be better.

In the current situation, the Fed did exactly what was necessary when the financial system was on the brink in late 2008, and it has done everything right (at least in kind, although some hardliners on the Fed have unfortunately reduced the degree) since then. Even so, the Fed is a perfect whipping boy, because anyone who is sufficiently motivated can find something that the Fed did, or failed to do, to cause any problem. Like the more general claim that problems are caused by "government intervention," the reality is that there is no non-interventionist baseline in a system that is (like the financial system) defined and made possible by the government and its regulators.

In any case, I would rather live through the booms and busts of the Fed era a hundred times than to live even once through the booms and busts of the pre-Fed era of non-fiat money. Nothing in the record suggests that the Fed (or the IRS) is subject to anything remotely resembling systemic decay, making it especially inappropriate to think that shutting them down and starting over with new agencies would be worth the extremely high costs involved.

To be clear, I favor targeted reforms to address problems as they come to light. As I note in my new Verdict column, for example, there is probably a good case to be made to change the way the Fed policy committee's voting members are selected. But the arguments to "end the Fed" are beyond flimsy.

As a final side note, I should point out that the title of my new Verdict column uses the word "glisters," rather than "glitters." This is arguably pedantry, but given how seldom I am able to talk about literature, I admit to being somewhat pleased with myself that I remembered (without looking it up) that Shakespeare used "glisters" in his play. To my 10th Grade English teacher, Mrs. Brady, I can only say: "For this, and for being a dedicated teacher to generations of students, thank you!"

Wednesday, October 26, 2011

A Different Kind of Student Issue

By Lisa McElroy


A few years ago, I had “that” student. The one who constantly has his hand up in class, who asks questions that you answered mere minutes before, who loses his train of thought in the middle of a sentence, leading to uncomfortable silences and eye rolling by other students.



The student was becoming a problem in my class. I tried to remember that first-year students are flooded with so much information that they can’t possibly retain it all, but I was still frustrated. It seemed like this student wasn’t doing a good job of listening, of paying attention, of learning the material - and I was starting to feel like he was detracting from other students’ learning experiences. I began griping to my colleagues that I wished this student would get it together, because he was really starting to annoy me.



Then, one evening, as I was cooking dinner, my email pinged. My student was in the emergency room. He was asking for an extension on an assignment due the next day. He was really, really ill – because the medication he’d been taking for his bipolar disorder had been mismanaged, leading him to feel foggy all of the time and, now, causing him to black out.



My student’s ER visit was a terrible event for him (luckily, his medication was adjusted, and his condition stabilized), but a much-needed wake-up call for me. I had rushed to judge the student as lazy and inattentive, without really considering what might be underlying his issues in the classroom.



I’ve tried to keep my student in mind ever since, and I have worked hard to use the incident to inform my teaching and my relationships with students. For example, on the student questionnaire I distribute to students at the beginning of semester (which, like many such forms, asks for name, contact information, and prior coursework or work experience in the discipline), I ask students whether they have overcome any challenges they’d like to share with me. As I might expect, students interpret this question differently; I’ve had answers ranging from “none” to “I just came out to my family” to “I have a history of eating disorders” to “I have dyslexia” to “I was kidnapped, raped, and left for dead by a serial rapist and testified against him at his trial.” Most commonly, though, I hear that students are struggling in law school, often at a basic emotional and academic level, but also quite often at a level that requires clinical treatment, either because they suffered from mental illness before coming to law school or because they have developed a mental health condition while here.



Of course, we know empirically that law students are more likely to develop anxiety and depression than graduate students in other fields. (If you’re interested in knowing more about the studies that have borne this out, check out Larry Krieger’s work.) Even knowing that our students may be clinically ill, however, we may not be sensitive to their needs. There’s an attitude in a lot of law school communities, or among certain professors, that law school is serious business, that law students need to toughen up, that their mental health issues are a sign of weakness.



I started thinking about this again last week when a colleague at another school remarked that today’s students are the “most medicated in history,” making the point by saying that they are engaged in binge drinking and taking medications for anxiety and depression.



Really? As I responded, binge drinking and mental health conditions are very different things (although binge drinking may be a manifestation of alcoholism). And the implied condemnation in my colleague’s observation really concerned me. Even if students are more likely these days to be taking medications for mental health conditions than they were when we were in law school, isn’t that a good thing? After all, when we were in law school, these medications didn’t exist or were just being introduced. Law students still suffered, but they didn’t have access to pharmaceutical treatment. And more students use insulin or epi-pens today, too – why don’t we comment on that?



One more question, and then I’ll leave the field open for your observations and comments. If we do know that a student has mental health issues (like the student with bi-polar disorder I mentioned at the beginning of this post), we should tell the student to consult with the office that deals with disability services and accommodations for any help he might need. But should we personally follow up? I sent my student a couple of emails as the semester went on, checking in, asking him how he was doing. Was that a violation of his privacy? Should I have done more? I’m not positive that there’s a “right” answer here, but I do think that humanity demanded that I acknowledge that he was experiencing some real difficulties - just as it would have had he had mono or been in a car accident. But is mental health different? Why or why not?

Tuesday, October 25, 2011

Does Occupy Wall Street Have a Free Speech Right to Sleep in the Park?

By Mike Dorf


Last week I fielded a call from a reporter who was interested in the question of whether the Occupy Wall Street protesters would have a First Amendment right to remain in Zuccotti Park in the event that either Brookfield Properties (the property's owner) or the city were to try to evict them.  My answer, in a nutshell, went like this:

1) A threshold question is whether to treat Zuccotti Park as a public forum or, if not, whether First Amendment protections apply in light of the character of the public easement that the city extracted from Brookfield in exchange for its development rights.

2) Assuming that the First Amendment does apply, the protesters could be subject to content-neutral, reasonable time, place, and manner restrictions.  Preserving a park for competing uses in addition to protests would ordinarily count as reasonable.  It would be unreasonable for a city to deny the organizers of a march or a rally a permit to hold that rally or permit on a mutually agreeable time and in a mutually agreeable place, but it would be reasonable to deny the organizers of a march or rally a permit to hold the march or rally every day for a period of months, if the march or rally effectively crowded out all other uses of the public property in question.

3) Thus, if litigation were to arise, I could well see the city prevailing if OWS insisted on staying in Zuccotti Park.  However, given the large number of alternative public spaces in NYC, OWS would not need to apply to use Zuccotti Park.  I would conservatively estimate that there must be at least 30 venues in NYC that would be appropriate sites for the OWS protest, so the protesters could apply to use each site no more than once per month and each day announce where the protest is going next.  It would be unreasonable to deny the organizers of a protest or rally the right to use a public space for just one day per month.

4) The difficulty with this "moveable feast" approach is that the protesters would need to disperse each night.  Thus far, a substantial core group has been sleeping in Zuccotti Park, but once they move to other parks, they could be subject to the city's 1 am park curfew and prohibition on camping in the city parks.  For a fuller description of the law governing such matters, I recommend this excellent post from the NYCLU.  The short of it is that under the Supreme Court's 1984 ruling in Clark v. Community for Creative Non-Violence (CCNV), a prohibition on sleeping in a public park will be upheld.  As the NYCLU post notes, there may be circumstances in which CCNV can be distinguished, but OWS does not appear to present them.  If anything, the protesters in CCNV had a stronger claim than OWS, because the former, but not the latter, aimed to dramatize the plight of the homeless by sleeping outdoors.  Thus, for CCNV, sleeping in the park was itself a form of expression.  Some OWS protesters may have that goal in mind, but mostly they want to sleep outdoors (or in tents in the park) just to keep the protest going.  Because CCNV lost, it seems likely that OWS would lose on its weaker right-to-sleep-in-the-parks claim.

5) Should a legal confrontation result in a new regime in which OWS would have to disband each night and reassemble at a new site each morning, that would undoubtedly sap some of the strength of OWS, but it might not be so bad.  Most of the protesters are sufficiently local to go home each night, and given the cooperative spirit of the event, those who have traveled from out of town would likely be given couch space on which to crash.  There would be issues about where to store donated food and other supplies, but there also would be less of a need for some of these supplies.  Indeed, an excuse to go indoors each night could actually be a boon for the protesters, many of whom might find their spirits flagging as the temperature drops.

6) That said, I am not happy with the decision in CCNV or its evident application to bar "camping" by groups like OWS.  The notion of semi-permanently "occupying" a public space for political purposes is both a throwback to a much earlier American tradition of "mobbing," (celebrated by Larry Kramer in his book The People Themselves) and a self-conscious reproduction of the occupation of Tahrir Square and other places occupied during the Arab Spring.  As mobs go, OWS is a phenomenally non-violent entity, and thus poses little threat to the public safety.  It is not exactly a march or a rally, and thus permits for marches and rallies are not quite adequate substitutes for the occupation activity.  Accordingly, if I were writing on a clean slate, I would want the First Amendment to protect OWS either in its current site or on a substitute city park, for as long as the protesters want to stay.

Monday, October 24, 2011

The Cultural Meaning of Defense Policy

By Mike Dorf


My latest Verdict column asks whether there is an emerging "Obama Doctrine" regarding the use of military force.  I say there is, and that it emphasizes air power, drone strikes, and special operations, rather than boots on the ground.  That much strikes me as largely uncontroversial, simply an extrapolation from recent events.  I also discuss some of the costs and benefits of the Obama Doctrine, as well as legal questions it raises.

Here I want to focus a little bit of attention on an issue the column raises in passing: The tendency of right-wing commentators to portray Obama differently, as dangerously multilateralist and uninterested in using force to defend U.S. national interests.  I give as an example an article by Douglas Feith and Seth Cropsey.  Readers will recall that Feith, the architect of much that went wrong in American war policy under President Bush, was described by General Tommy Franks as "the dumbest fucking guy on the planet," a characterization that strikes me as unfair.  Feith is arguably a war criminal, but he is not stupid.  In any event, I use the Feith/Cropsey article as only one example of a general phenomenon.  As noted last week on the Daily Show, a wide array of conservative pundits have sought to portray the Obama Administration's success in Libya as failure, often using the same trope as Feith and Cropsey: Obama is basically weak on defense, and so any examples of strength must be minimized.

To some extent, this is simply partisanship.  Republicans who more or less accused Democrats of treason when the latter questioned military operations initiated by Republican Presidents have questioned the legality of Democratic-initiated military operations, like Clinton's use of force in Kosovo and Obama's in Libya.  And the second half of that equation, in my view, is probably a good thing: The general tendency of Congress is to go along with whatever use of force the President attempts, so even hypocritical resistance to a President's desire to use force in international relations can serve as an important check on the White House.

Moreover, some Republicans are genuinely opposed to most American overseas military adventures.  As Sam Tanenhaus noted in yesterday's NY Times, there once was a robust isolationist wing of the Republican Party.  Pat Buchanan tried to speak for it during his ill-fated fifteen minutes of fame in the early 1990s and lately Ron Paul has been the standard bearer for a revival of right-wing isolationism.  Meanwhile, the likes of Arianna Huffington have been arguing since around 2006 that the doves-on-the-left/hawks-on-the-right assumption is increasingly outdated.  And indeed, as the nation tired first of the Iraq war and has now tired of the Afghanistan war, it does look like there's no political angle in militarism.

But to my mind--and as Tanenhaus essentially says--rumors of the demise of Republicans trying to portray Democrats as weak on defense are greatly exaggerated.  Roughly since the 1972 Presidential election, when anti-war activists came to be associated with the Democratic Party (rather than opposing the policy of both parties), Republicans have been claiming to be strong on defense partly as a cultural marker: They want to distance themselves, the "real Americans," from the sorts of people thought to oppose military adventures overseas.  Thousands of "Support Our Troops--Bring Them Home" bumper stickers have not dislodged the idea for conservative voters that those who oppose war or even particular wars are in some sense anti-American.

Perhaps some day that connection will be broken, but not this election cycle.  Running against Obama, who is already "other-ized" by much of the Republican base, Republicans will continue to allege that he is weak, evidence be damned.  Characterizing Obama as weak serves as a kind of deep code for the claim that Obama is not truly American.  This will not likely be a dominant theme in the 2012 election, which will almost certainly turn on the economy, but if a recovery is seen as picking up steam a year from now, look for  a flurry of otherwise perplexing ads and statements describing Obama as reluctant to use force to defend American interests and values.

Friday, October 21, 2011

A Few More Thoughts About Keynes's Victory

-- Posted by Neil H. Buchanan

In my post yesterday, I discussed the views of the winners of this year's faux-Nobel in Economics, Christopher Sims and Thomas Sargent. In particular, I pointed out that the claims of some on the right that Sargent's selection is a slap at Keynesians are simply wrong. Both Sims and Sargent are aggressively apolitical, but even so, at least Sims has said directly that Keynesians are doing the most important work in economics these days. He also approved of further efforts to stimulate the economy through fiscal policy.

The econ nerd in me then made a further argument, which is that Sargent's description of a theory called "rational expectations" was a (perhaps unintentional) endorsement of Keynesianism. Sargent described that theory as merely the assertion that people's expectations (about prices in particular) matter in determining economic outcomes. In other words, the theory of rational expectations is now merely a theory of expectations.

This would not be a problem for the anti-Keynesians if Keynesians had actually built their models on the assumption that people's expectations have no impact on economic outcomes. The fact is, however, that Keynesians have long taken expectations seriously. The only way to get a model that includes expectations in it not to have Keynesian results (most importantly, the prediction that active government policy can improve the economy) is if one assumes that expectations are formed fully rationally, in the very specific and peculiar sense in which rational expectations theorists define that term. (To describe it from a different perspective, the assumption that expectations are formed rationally means that markets are either never out of equilibrium, based on the information that is available at any given moment.)

One interesting aspect of this observation is its analog in American politics. In economics, anti-Keynesian models are built on the idea that expectations are formed 100% rationally (by their definition), and then they say that Keynesians build their models on the idea that expectations are formed 0% rationally (i.e., that expectations do not matter). The reality is that Keynesians say that expectations do matter, that people might be partly "rational" in the stylized sense, but that anything less than 100% rationality still leads to Keynesian results.

In American politics, the right (especially the currently ascendant version of the right) takes the attitude that government is always, completely, dangerously, 100% bad and wrong. They then accuse people in the center and on the left of believing that government is 0% wrong. The reality, again, is that the center and the left are fully aware that government is not perfect, and they are looking for ways to improve social outcomes. If a government program can help, and if we can set it up with proper safeguards, then it should be implemented. If a public/private partnership is better, then that is what we should adopt. If tax incentives will do the trick, great. If there is no problem in the first place, then there is no reason even to ask whether there is a role for government.

This is another reason that claims of equivalence between left and right strike me as so absurd. When someone says that, say, Paul Krugman simply has a bias for bigger government that he builds into his analysis, while right-wing economists do the equivalent to support their bias for smaller government, that is simply wrong. Neither Krugman nor anyone I know who counts as non-right has a baseline preference regarding the size of government. The right does. Only pure sophistry can turn "I don't think government is always wrong" into the equivalent of an absolutist statement.

A second issue relating to yesterday's post was raised by the commenter Doug, who pointed out that I had adopted a definition of "helping" the economy that was inappropriately narrow. That is, even if the rational expectations theorists were right that government policy cannot make the economy grow faster, or push the unemployment rate below its "natural" level (as if such a thing exists), there are still plenty of things that government policy can do to make life better, that is, to "help." I completely agree. This is yet another example of the danger of arguing on the other side's terms. I did not mean to concede anything, but only to describe the anti-Keynesian case in its own narrow terms.

Similarly, I noted yesterday the anti-Keynesian claim that austerity can be expansionary. The interesting thing is that this argument, too, is not supported merely by claiming that stimulus is not expansionary. That is, even if stimulus were proven to be non-stimulative, that would not prove that austerity is stimulative. Under the rational expectations theory (or any other theory, for that matter), one needs additional assumptions to turn austerity policies into expansionary policies. Those assumptions, in turn, must withstand empirical scrutiny, and they do not.

Finally, I should not that one can easily believe that the government can do some goods things for the economy in the long run, even if one thinks that it cannot change short-term macro outcomes. To their credit, some prominent anti-Keynesians have argued over the years that the key to long-term prosperity is increased support of education. That is, if the government wants more prosperity, it can raise people's productivity so that everyone's standard of living can rise. This need not be a Keynesian nor an anti-Keynesian point.

Unfortunately, the new move among economists and politicians on the right has been to denigrate government's role across the board. So, the same people who once might have said that the government should not try to "fine-tune" the economy in the short run, but should instead focus on affirmative strategies for long-term growth, like education, are now arguing that teachers are overpaid and underworked, that education (including college) is not worth it (individually or collectively), and that we should simply give up on trying to change the long-term outcome (and, instead, shut down the EPA). That is a coherent argument, in some sense -- the empirical assertion that government always makes things worse -- but it is both defeatist and unsupported by the evidence.

Again, however, I am not saying that government always makes things better. We do not live in a world of absolutes.

Thursday, October 20, 2011

Another Way to Know That the Keynesians Are Right

-- Posted by Neil H. Buchanan

The annual ritual of granting the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, incorrectly known as "the Nobel Prize in Economics," is always attended by a sub-ritual in which politicians and policy wonks try to claim validation by aligning themselves with the recipients of the prize. Or, if the prize goes to a foe, the standard move is to denigrate the prize. When Krugman won, people on the right screamed. When someone like Buchanan wins (no relation), people on the left dismiss the significance of the award. Given that the prize is awarded on the basis of things that only economics professors really understand, all of that is rather silly.

This year should have been especially non-controversial. The prize, awarded to Christopher Sims and Thomas Sargent, recognized their important work on econometric technique. (I used some of their most important technical innovations as a central part of the empirical analysis in my dissertation.) Even so, Sargent had long been associated with the "rational expectations" school of macroeconomics, which is anti-Keynesian, seeming to give the Wall Street Journal's editorialists and their compatriots reason to cheer. And they did.

In last Sunday's Business Section of the NYT, however, a news analysis article by Jeff Sommer used quotes from the two winners to make it clear that they were "not non-Keynesian." It turns out that Sargent, who had been central in developing rational expectations theory (explanation below), had spent quite a bit of time over the last decade or so moving beyond that theory, due to its limitations. Also, in an interview with Sommer, Sims poured cold water on the idea that he was against Keynesian policies:

"Professor Sims spoke favorably of the Obama administration’s fiscal stimulus programs, which are Keynesian in their countercyclical spending. 'An expansionary fiscal policy is probably what we need right now,' he said. ... He criticized the Republican Congressional leadership for ruling out tax increases, which, he said, most economists know are needed. And he generally approves of the accommodative monetary policies of the Federal Reserve, led by his fellow Princetonian, Ben. S. Bernanke, whom he described as a 'new Keynesian.'"

Sims did criticize Keynesian models "in the temporal dimension," but it was clear that neither Sims nor Sargent believe anything that could validate those who insist on "expansionary austerity" and want to "end the Fed." Again, I find the exercise of looking to faux-Nobelists to weigh in on policy matters a bit silly, but if one was looking to see which side Sims and Sargent are on in the current policy divide, it is clear that they are with people like Krugman (and me).

All of that is on the "top level" of political discussion. That is, we ask the newly-minted super-experts whether they are for the Democrat's basic approach to economic policy, or the Republicans' basic approach, and this year they say the former. What is more interesting to me, however, is Sargent's discussion of rational expectations theory. His defense of that theory is so minimal that it actually says more about the Keynesian/non-Keynesian divide than Sims's endorsement of expansionary fiscal policy ever could.

The major policy divide in economics has long been over the efficacy of government policy. Although post-WWII policy debates centered around the divide over fiscal vs. monetary policy, the profession has long since settled into a camp that denies that government policy can ever help the economy (anti-Keynesians), and another camp that says that it can (Keynesians).

What made Keynesian models Keynesian, therefore, was that they provided a basis for believing that the government's fiscal and/or monetary policies could change the path of the economy (in the short run or long run). Even if one accepted arguendo that the long-run path of the economy is impervious to macro policy changes, the basic Keynesian model showed that government intervention could improve the short-run outcome. In the current environment, that would argue in favor of increased stimulus spending to reduce unemployment and increase economic growth.

The rational expectations theorists purported to show that short run policy interventions could have either no effect, or only the most transitory effect. The idea was that profit-motivated people would respond immediately to any new information, leading the economy back to its "natural" long-run position through the inexorable logic of supply-and-demand equilibrium. Expectations were "rational" in that hyper-rational, maximizing economic actors would exploit all new information as soon as it was available, negating the intended policy effect.

This theoretical prediction was satirized in the famous (among economists) joke about a rational expectations theorist refusing to pick up a $100 bill that was lying on the ground, on the basis that it was not really there at all. Why? "If there were really a $100 bill on the ground, someone would have already picked it up." The serious point was that rational expectations models required people only to be forward-looking, and to process all information as quickly as possible in order to exploit profitable opportunities -- until those opportunities had been competed away.

The Keynesians, meanwhile, used various assumptions about expectations in building their models. The most common was "adaptive expectations," in which people set their expectations based on recent experience, and not only on the basis of what they "rationally" expect everyone else to be "rationally" doing. With anything other than perfectly rational expectations, Keynesian results would follow. That is, government policy could improve the economy in the short-run, to shorten or end a recession.

Now look at Sargent's explanation of what, he says, rational expectations means. He said in 2007 that rational expectations describes "
economic situations in which the outcome depends partly on what people expect to happen." Last week, he added: "The value of a currency and its rate of depreciation depend partly on what people expect that rate of depreciation to be. That is because people rush to desert a currency that they expect to lose value, thereby contributing to its loss in value. Similarly, the price of a stock or bond depends partly on what prospective buyers and sellers believe it will be in the future."

Sargent rightly says that this assumption is built into all modern economic models. That assumption, however, is not the rational expectations assumption at all. Rather, it is the assumption that expectations matter in some way. And, as I said, Keynesian models -- which support expansionary fiscal and monetary policies -- can easily incorporate assumptions about how expectations are formed. So long as the expectations are not "rational" in the extremely stylized sense that the anti-Keynesians hypothesized, you get a Keynesian model.

As I said above, Sargent is now a bit of a critic of the rational expectations approach. The quotes immediately above, however, were sincere defenses of the approach -- attempts to say, "Look, all that theory really means to do is make the very reasonable claim that expectations matter somewhat." And they surely do. Once the theory is redefined in that way, however, it is drained of all meaning. It would be like saying, "All Christianity really means, when it comes right down to it, is that people should be good when they can."

When the other side's assumption has to be defended by defining it into oblivion, you know you have won.

Wednesday, October 19, 2011

Where Anger and Fear Coexist

By Sherry F. Colb

In my column for this week, I discuss the recent acquittal of Barbara Sheehan in the shooting death of her husband Raymond Sheehan.  Mrs. Sheehan admitted killing her husband but claimed that she did so in self-defense.  My column analyzes the traditional duty to retreat and its connection to the imminence requirement, the latter of which frequently serves to frustrate the defenses of battered women who kill their batterers.  In this post, I want to explore one possible account of why people are skeptical about the good faith of women who kill their batterers.

As I explain in my column, it can be challenging to persuade a jury that you acted in self-defense if the threat to your life to which you were responding was not an immediate one.  But I think there is more to the story than a jury's strict fidelity to doctrine and the imminence requirement.  When people hear about a long history of domestic abuse followed by a killing, particularly when the killing is very gruesome and seems like "overkill," a common feature of such cases, the emotion that appears to be animating the killer in the moment is rage.  Barbara Sheehan, for example, shot her husband eleven times with her revolver.

That a person who has been abused for an extended period of time would be angry is hardly surprising, of course, but it does seem to provide a motive for murder, a motive often corroborated by the timing and manner of the killing.  The misguided step people take, however, is to imagine that anger and fear are inconsistent emotions and that therefore, a person who kills in anger must not have truly feared for her life in that moment.  Studying "non-violent communication" (NVC) can help illuminate the role of anger in human interactions and clarify the possible feelings of a battered woman who kills her batterer.

In a book called Nonviolent Communication, clinical psychologist Marshall Rosenberg explains the process of NVC.  It is a process by which people experiencing a series of negative emotions triggered by other people can come to understand and then effectively communicate their feelings and needs to one another.  For simplicity, take a very simple example.

You are angry at your daughter, who just yelled "I hate you!"  If asked to articulate the trigger of your anger, you might say it was your daughter's statement.  Having focused on the trigger, you would then identify the various emotions, aside from anger, that you feel in the presence of that trigger.  For example, you might feel worry, sadness, and frustration.  Next, you would connect those feelings with your own needs that  the triggering event made it difficult for you to meet.  Here, you might say that you have a need for connection, love, and appreciation for the things you do for others, and that when your daughter says "I hate you!", you feel worried that you will not be connected to your child, sad that she doesn't love you (for the moment), and frustrated that she is not appreciating the things you have done for her.

Having uncovered the various emotions that underlie your anger, you may now be able to express them to your child without angrily labeling her "obnoxious," "spoiled," or "ungrateful," labels that, if spoken aloud to your child, are unlikely to bring you closer to the connection, love, and appreciation that you are seeking.  In NVC, anger, though very explosive, is viewed as a superficial emotion that generally obscures feelings of vulnerability.  By contrast to anger, moreover, vulnerability -- when acknowledged -- is not as likely to put off other people whose actions one hopes to affect.

You may be wondering what any of this has to do with battered women who kill their spouses.  It suggests that the anger of a victim of domestic violence, if the anger is unpacked, can expose a seemingly very different feeling:  terror.  A person who is repeatedly abused, despite her pleas to the batterer to stop and attempts to avoid provoking him, begins to fear that some of her most basic needs -- for safety, for freedom from pain, for serenity and peace, and for autonomy -- cannot be met.  Blaming her batterer for this state of affairs naturally leads to anger, but the underlying needs remain the same.

As a result, the battered woman who kills in self-defense is likely to be filled with terror and rage at the same time, a combination that is not a contradiction at all.  The basic physiological "fight or flight" response is instructive here:  someone who fears for her life is flooded with chemicals that ready her to fight or to flee, depending on which option is available.  And in the case of a battered woman like Barbara Sheehan, her prior experience has conceivably taught her that flight is illusory.  Indeed, battered women find themselves more likely to be killed by a batterer when they leave than when they stay.  Knowing this, some battered women fight instead, a violent expression of fear.

But isn't NVC opposed to violence?  Is it not odd for me to invoke a non-violent approach to human relations in the service of people who have dealt with their problems through the ultimate act of violence?  I would say that it is not so odd.  The one context in which NVC finds a place for force is when force is necessary to protect oneself or another from harm.  In the case of a battered woman confronting ongoing violence and death threats from her partner, she may be able to meet her need for safety in only one way:  through deadly force.  We can thus understand her actions -- however angry -- as a reflection of a profound, overwhelming, and well-founded fear of violence, a fear that will ignite rage when it is not and cannot be otherwise addressed.

Tuesday, October 18, 2011

Do You Have Any Questions For Us?

By Mike Dorf


Back when I was a law student doing on-campus interviews for law firm jobs for the summer of 1989, a story circulated about the following exchange between an interviewer and interviewee.

Interviewer: What practice areas interest you?

Interviewee: I think I'd really like litigation.

Interviewer: Litigation. Litigation. Every damned student I interview says litigation.  Did your placement office tell you all to say that?

Interviewee: No, did they tell all of you to say "big firm, small firm atmosphere?"

This story is revealing along two dimensions.  First, it shows how times have changed.  My graduating class and many that followed it were entering a job market so eager to hire new lawyers that the interviewee didn't care about insulting the interviewer.  She knew she'd have plenty of offers, and so she couldn't care less about this guy.  The story may well be apocryphal, but it rang true enough that it circulated widely at the time.  Today, of course, such a story would be completely unbelievable.  Facing a much tougher job market, interviewees simply have to smile and make their pitch, even in the face of rudeness.

Second, the story reveals something about the silliness of the interview process.  There are both questions and answers that must be, respectively asked and provided, without communicating any information.  Having just returned from a weekend at the AALS hiring conference, where, as chair of Cornell's faculty appointments committee, I interviewed my share of candidates, I want to focus on one such patterned exchange.

At the end of each interview, we asked the candidate whether he or she had any questions for us.  I'm confident that interviewers for just about every other school did the same.  This is a standard question, which the interviewees were all prepped to respond to.  Here are some safe replies:

1) Law School X  is known for its __________ [fill in with "interdisciplinary scholarship;" "clinical programs;" "commitment to small classes;" or whatever the candidate has figured out the school sees as one of its core strengths].  How does that affect the overall atmosphere of the school?

2) In what ways does Law School X provide support for junior faculty scholarship?

3) Professor Y, I know that you taught at Law School Z before coming to Law School X.  How would you compare the two.  [Answer: Z was great but X is better.]

4) Would you describe faculty relations as collegial?

And this year, for the first time, I witnessed a few candidates adopt a new approach, in which they said something like this:

5) You know and I know that you're just asking that question because you have to, and I don't want to waste your time by having you explain for the 20th time that X is very committed to supporting its junior faculty, so I'll just be on my way to my next interview.

Move 5 is a nice play because it communicates that the candidate is already an insider who knows how the game is played.  I predict that it spreads.

Meanwhile, in case any of the people I met over the weekend are reading this post: Our committee really was just giving you a chance to ask a question, and we didn't evaluate your questions.  All questions were perfectly fine.  That's not true at the other schools where you interviewed, though.  They really were trying to test you.  Don't get me wrong; those other schools are great; but we're better.

Sunday, October 16, 2011

Post by Bob Hockett: 'Lease Swaps' as Mortgage Market Cure


By Bob Hockett (NB from Mike: Bob asked me to note that Lynn LoPucki and another who wishes to remain anonymous were very helpful in his development of the proposal described here.)

------------------------------------------------------------------------------------- 

One general prospect that I think deserves more attention than it seems generally to attract is that of financial innovation on behalf more directly of proverbial 'Main Street,' to supplement those many very clever innovations, some admittedly perhaps 'too clever by half,' that regularly come down the pike to the benefit of proverbial 'Wall Street.  Indeed, it seems to me that many potential innovations that might directly benefit the former would ultimately redound indirectly to the benefit of the latter as well.  The following idea is offered in that spirit.

First a brief bit of contextualization.  So, as many of our readers are doubtless aware, the chief drag upon consumer demand, hence employment, in the U.S. economy right now is ongoing post-bubble delevering on the part of American households.  This is a process that, if the example of Japan since the early 1990s serves as any indication, could take many more years to complete.  Indeed, in our case, the debt overhang per capita is more formidable even than that of Japan – an ominous consideration, to say the least.  

Next, as many of our readers also know, a significant component - if not indeed the principal component - of the mentioned overhang shows up in the form of mortgage debt.  So significant is this component that millions of American home mortgages are in fact 'under water.'  That is, the market values of the underlying homes are significantly less than the nominal debts still owed on the mortgages.  It is not difficult to appreciate how owing more on one's home than that home is now worth might dampen one's propensity to spend on consumption. Indeed, it is not even difficult to appreciate why many mortgagors might even find it financially rational, if nevertheless morally discomfiting in some cases, to 'walk away' from their homes and their mortgage debts under such circumstances.   

For these reasons, not a few observers of the underlying causes of our ongoing debt deflation now argue that many mortgage debts simply will have to be significantly restructured - even to the point of reducing principal.  For one thing, principal reduction might well be fundamentally fair in many cases - at least in such cases, which surely are many, as those in which neither borrower nor lender was better situated to appreciate that an ultimately unsustainable housing bubble was underway at the time that the debt was incurred.  Think in terms of comparative fault in the law of tort here.  But don't rest on this consideration alone, for ... 

Even apart from considerations of fundamental fairness, principal reduction is apt to prove necessary in many cases simply in order to avoid yet greater loss – loss not only to debtor, but also to creditor, and indeed also to all participants in the macroeconomy, inasmuch as our ongoing debt deflation stands to deprive all of us of many years' worth of economic growth looking forward.  It is for this reason, of course, that even many economists who often are labeled 'conservative' favor principal reductions in the cases of many now underwater home mortgages. 

Where the only apparent alternative to principal reduction is mortgagor 'walkaway' or lengthy and costly foreclosure proceedings, principal writedowns are value-maximizing.  The net present values (NPVs) of the asset sides of financial institutions' balance sheets, too, are accordingly apt to look better, in the long run, and the financial system itself accordingly healthier, where mortgage loans can be restructured in manners that include partial writedowns.  And lien-holders know this.

What, then, stands in the way?  There are a number of factors, as I and many others catalogue elsewhere.  But certainly one very formidable obstacle is the notorious 'creditor collective action problem' that afflicts most troubled loan workouts.  The problem, in other words, is the 'holdup' power wielded by some lienholders who wish to take larger 'slices of the pie' than they ought to have in comparison to other, prior lienholders.  A particularly salient instance at present is that of those who hold secondary liens on mortgaged homes pursuant to home equity lines of credit (HELOCs) extended to homeowners during the bubble years.    


Now, our legal tradition, particularly thanks to the old courts of equity, registers strong appreciation of the creditor collective action problem, as well as the need to be able to break through it sometimes.  It does so, of course, through the institution of bankruptcy.  Bankruptcy is expressly designed to solve creditor collective action problems, by enabling bankruptcy judges, sitting in equity, to act on behalf of the full collectivity of creditors with a view to maximizing the NPVs of troubled loans.


But alas, bankruptcy is not generally available right now where it is needed most by debtors, creditors in aggregate, and all of us who would like to avoid years and years of macroeconomic stagnation ahead.  For 'primary residences' are excluded from the U.S. Bankruptcy Code's protections, by Section 1322(b)(2).  Members of Congress have of course noticed the problem, and have accordingly proposed legislation to remedy it repeatedly over the past several years.  But in the current political climate, of course, these initiatives - like just about all initiatives that might plausibly aid in ending our present economic ills -- have unsurprisingly gone nowhere.


But now go back in memory to your law school years and consider this: Surely one's 'primary residence' for Bankruptcy Code purposes need not be held in what property lawyers call 'fee simple,' right?  Surely instead it can be held in the form of a 'leasehold'   Well, then, what if troubled mortgagors were to make use of the now well developed infrastructure of web-based 'house swapping' that has developed in recent years - essentially, as a means of house barter where tight credit conditions have shrunken the money supply in the housing market to near zero - as a means of 'lease swapping' rather than 'fee simple swapping'?


Here's how it would work: A moves out of the house that he owns in fee simple, and leases B's house. B moves out of the house that she owns in fee simple, and leases A's house. A and B both file for bankruptcy. Each is now able to modify his or her own mortgage because the mortgage is on a house that is not the debtor's 'principal residence.'  (To preempt arguments that some dissenting creditors might make, to the effect that A and B intend all along to move back into their original homes later, which would render these still their principal residences, let A and B contractually commit not to swap back.) 


Beautiful, no?  And what judge or lawyer could object?  Those who are concerned with fundamental fairness, efficiency, or both will surely approve, just like the debtors and primary creditors themselves.  Those who don’t care about fairness or efficiency, most of whom seem to be ‘textualists,’ cannot balk either, can they?  ‘Primary residence’ means primary residence.   


Now, were many people to avail themselves of the prospect we’re floating here, it seems to me it would offer at least three welcome benefits.  First, it would enable home owners with troubled mortgages - as well as their creditors in aggregate - to enjoy the benefit of value-maximizing bankruptcy protection - which, again, is precisely what bankruptcy is for.  Second, this very prospect, simply by dint of its status as an option available in the marketplace, might serve at long last to break through the logjam of creditor collective action challenges to sensible principal-reductions for troubled mortgages economy-wide.  And finally third, the latter development itself would then eliminate the principal source of debt overhang now underwriting our ongoing demand- and employment-dampening debt deflation.  We would avoid becoming Japan.


Now of course, this will work only, if at all, for lease swaps, not ownership swaps. For the latter would surely be viewed by the courts as 'fraudulent conveyances' - actual transfers of title intended to defraud creditors – ineligible for bankruptcy protection.  But limiting the method to leases is of course fine, for lease swapping is all that we need here to qualify for the NPV-maximizing bankruptcy solution to the creditor collective action problem.  And simply moving, as lease swapping entails, is rather less readily characterized as a transfer, hence as a fraudulent transfer, than would be ownership-conveyance. Certainly it's not a transfer of title, as distinguished from a transfer of resident, and it's the former to which fraudulent conveyance appertains.


It's also the case that this solution is helpful only for 'underwater' mortgages, since debtors with equity lose the Bankruptcy Code's equity exemption not only by transferring title, but also by moving out. But this is fine too, for two reasons.  First is that underwater mortgages constitute by far the most vexing component of that post-bubble debt overhang that is at work in our debt deflation. And second is that underwater homes are those from which debtors are most tempted to 'walk away,' meaning that creditors themselves have yet another reason to favor the bankruptcy availability that lease swapping could bring in these cases. 


The more you think about it, then, the more workable it looks. And it even ought to look more familiar than I suspect that it does. Why? Because thousands of lawyers out there learned bankruptcy and related law from LoPucki & Warren's classic Secured Credit casebook, and Problem 14.3.d in that casebook, now in its 6th edition, countenances a possibility much like that we're imagining here.  So ... creditors, debtors, lawyers and other advocates looking for NPV-maximizing solutions to our continuing mortgage troubles, what say you?

Friday, October 14, 2011

What if Moderation Fails?

-- Posted by Neil H. Buchanan

In my new Verdict column, I discuss the Occupy Wall Street protests (OWS) and their potential importance as harbingers of larger protests to come. I do not, however, take the position that OWS is the leading edge of a lefty radical movement in the country. Far from it. Instead, I point out that the current protesters seem to be arguing for little more than moderate, center-left policies. In other words, they are calling on Obama and the Democrats to be just a little less willing to capitulate to Republicans. To the extent that we can determine an overall agenda, the protesters are asking for some mildly redistributive tax policies, along with some long-term investments in infrastructure, education, and the environment. Not exactly weak tea, but certainly not a boilermaker, either.

The OWS protesters are, in other words, asking Obama to stick to his recent script, which he adopted a few weeks ago once he realized that his "only grown-up in the room" strategy -- along with his evident reluctance to stand for anything -- had done much more harm than good. Given all of that, the OWS protests are not the right-wing echo chamber's nightmarish Leninist uprising. They are, instead, nothing more than a group of people expressing their (clearly correct) opinion that the government has been taken over by the financial elite of the country.

Even if the protesters were wrong about that, my column's larger point is that this might be the political system's last chance to deal with festering problems and resentments in a reasonable way. If this movement goes nowhere, the next round of protests could ignite some genuinely dangerous fires. We already have seen some dovetailing of far right and far left views in the calls to abolish the Fed, for example. That radical and disastrous move could be merely the first of many overreactions, should enough people in the country become convinced that the political system is truly broken.

Regular readers of this blog might have noticed that this theme -- the current crisis might get out of hand -- has come up more than once in my posts over the past three years or so. I have become fascinated by the Great Depression, especially its lessons regarding the possibility of cataclysmic social change. We know that there were large numbers of people in the 30's who were drawn to anti-democratic, extreme ideologies on the left and right. The American Communist Party's high point for membership was reached during those years, for example. The Klan and Nazi sympathizers also found many new adherents.

Because of that and other factors, I have always marveled at the hatred that those on the political right harbor for FDR and the New Deal. The most likely counter-factual to the New Deal remains a breakdown of the capitalist system -- not necessarily an embrace of Stalinism, but certainly something that would have combined some ugly nativist tendencies with strong backlash against Wall Street and the business sector of this country. We cannot know, of course, what would have happened, but that outcome seems much more likely than the counter-factual in which people calmly wait for the prosperity that is right around the corner, while the business sector waits until wages have fallen far enough for it to be worth hiring again.

As many others have noted, this logic also applies to the right's hatred of the Rev. Martin Luther King, Jr. For all the blind fury that J. Edgar Hoover directed at King, the alternative was (from the standpoint of white America) surely worse. After Malcolm X's assassination, the Black Panthers and leaders like Stokely Carmichael were openly talking about not being as "patient" as Dr. King. I was in grade school when rioting broke out in cities across the country (Detroit in 1968 being the one closest to my home), and I can testify that white people were genuinely scared that things were getting out of control. Even after King's assassination, his message of nonviolence was a key part of keeping the relative peace. (I express no opinion about the wisdom of any of the strategies adopted by various civil rights groups and leaders. I am only saying that Dr. King's views should have been welcomed by all white leaders, rather than making him a target of their rage.)

What has made the 2008-present period so unique is that -- even though we have an economy that is broken, and a political system that has moved from doing too little to doing nothing at all -- the political radicalism has been entirely one-sided. There certainly is a resurgent right, one that has shown its willingness to blow up the economy in the name of an extreme ideological agenda. It is because one should have expected a "scary left" to emerge by this point, I suspect, that so many people were eager to label the OWS protesters as extremists. They are anything but.

The absence of pressure from the left, in turn, has allowed Obama to forsake the role of FDR or MLK, and instead to be content with minimalism. It is true that he has been fiercely opposed throughout his tenure, but it is also true that he could have, for example, demanded much more from Wall Street in return for continued TARP distributions and Fed support in early 2009, yet he chose not to attach any strings.

The non-existent radical left, however, might have been temporary. The OWS movement does not, at this point, show any tendency toward radicalism (or even unapologetic liberalism). My reluctant prediction/warning is not that the current protesters will suddenly become violent if their demands are not met, but that there is enough pain and hopelessness in the country that we are risking much worse results if the political system continues on its current path.

Thursday, October 13, 2011

The Hockett Revolution

-- Posted by Neil H. Buchanan

[Update: Professor Hockett, in a private email, has graciously taken on the blame for the "global currency" confusion that I note at the end of this post. In a very long-run sense, the Hockett vision could become a system with a well-regulated global currency. That, however, is definitely not what is needed in the immediate, or even in the intermediate, policy environment. The confusion in Nocera's column, however, could have been the result of a shortened explanation that Professor Hockett provided to him.]

A few weeks ago, I had harsh words for Joe Nocera, one of the new op-ed columnists for The New York Times, who had written a profoundly misguided column about the National Labor Relations Board. In that post, I also mentioned some other puzzling columns from Nocera, going back to his days as a columnist for the Times's Business Day section. In early 2009, Nocera wrote a column about AIG that mischaracterized the very notion of insurance as a financial scam, a column that I criticized contemporaneously.

My conclusion in my more recent post was that Nocera was "a loose cannon," despite his pose as an unbiased centrist. Nocera does, of course, produce some good work. My complaint about him is not that he is a hack or an ideologue, or a fool, but that he seems to become overly infatuated with a new idea and then to run with it. This is true when I agree with him as well as when I disagree with him. And I often do agree with him.

One such case arose earlier this week, when Tuesday's op-ed page included Nocera's column: "This Time, It Really Is Different." The column summarized and lauded a policy brief co-authored by Dorf on Law's own Bob Hockett: "The Way Forward: Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness." The brief (summary here, full paper here), which Bob wrote with Daniel Alpert and Nouriel Roubini, debunks the idea that the 2008 global financial crisis was a standard (though extremely deep) economic downturn, to be followed by the usual recovery period and lagging employment growth.

[Because Professor Hockett is "one of ours" at Dorf on Law, I will refer to the paper as "the Hockett paper" herein, rather than following the usual practice of identifying the paper by the first author under an alphabetical listing.]

Hockett and his compatriots argue that the global economy is, in fact, facing something like Japan's "lost decade" (now approaching two lost decades), with chronic deflation, fed by too little government action to fight the economic downturn, and placing too much faith in laissez-faire economics. The very real danger is that the modern global economy has become stuck in the low-employment rut that has left tens of millions of people in the U.S. under- or unemployed for the last three-plus years.

Describing the authors' proposed solutions, Nocera offers a very nice summary of the current state of professional opinion on fiscal policy orthodoxy: "Like most mainstream economists, Alpert, Hockett and Roubini roll their eyes at the calls for immediate government deficit reduction, which led to the creation of the supercommittee. Reducing government spending in the short term will only make things worse."

This is important, because it reminds us that the people who say, "But the stimulus didn't work!" and other such nonsense are on the intellectual fringe. Yes, there are economists who are willing to say things to back up Republican talking points, but Nocera is right that the weight of professional opinion is solidly against the idea that immediate deficit reduction is a good idea.

Economists as a group can be quite wrong, of course. They often are. Still, it is important to know that calls for deficit reduction are not based on "sound economics." They are based -- if they are based on anything at all, other than political and career opportunism -- either on models that were never designed to explain short-run deviations in the real economy (e.g., monetarism) or that have proven unable to do so (e.g., real business cycles).

Hockett et al. further argue, as Nocera notes, that the globalization of the economy has produced a great deal of "slack" in the economy. This is important, because the fundamental error in applying most micro-based economic thinking to our current macroeconomic problems is the assumption that there is scarcity in capital markets. When the economy already has much more capital (both physical and financial) than it needs, and when the most important prices (interest rates) are bounded at zero, our usual homilies about the miracles of the invisible hand are simply irrelevant.

The problem that Hockett and his colleagues stress, moreover, is the problem of inequality and its effect on the macroeconomy. In particular, they resuscitate the deep Keynesian insight that distribution of income affects the ability of the economy to reach full employment. With our growing levels of inequality, and taking into account the inequality of the newly globalized poor economies, we cannot merely assume that, given enough time, the global economy will find a set of prices that will bring full employment prosperity to all.

This is the basis for Hockett's call to have governments engage in aggressive infrastructure programs (which I have endorsed repeatedly in my writing), suggesting 5-7 year time lines for such programs. Similarly, the government must immediately address the debt crisis among homeowners by forcing down the principal values of mortgages.

There are obvious dangers in having journalists explain technical economics papers. One such danger showed up at the end of Nocera's column, where he describes one of Hockett's proposals as follows: "Finally, they call for a 'global rebalancing,' which includes a radical change in the current dysfunctional relationship between creditor and debtor nations, and even a new global currency that would be administered by the International Monetary Fund."

What?! Given the obvious Keynesian foundations of the Hockett proposals, how could they possibly have looked at the problems in the world today and not seen the havoc that the half-baked euro project has visited upon Europe's economies? How could a new global currency be part of their solution? The answer is easy: It isn't. They call instead for an "emergency global demand-stabilization fund to recycle foreign exchange reserves, now held by surplus nations, in a manner that boosts employment in deficit nations." That is not a global currency, but instead a carefully regulated system to make sure that trade imbalances do not fester into permanent stagnation. Creating a global currency would, of course, be a terrible idea right now (and maybe for decades to come).

Notwithstanding that rather large error, Nocera's column is important because it brings welcome attention to a very important contribution to the policy debate. The policy brief from Messrs. Alpert, Hockett, and Roubini lays out the causes of the continuing crisis, the dangers of inaction, and the path to a comprehensive solution. If policymakers will now pay attention, then having their arguments filtered through an inconsistently-reliable source is a small price to pay.

Wednesday, October 12, 2011

Why Doesn't Congress Enact More Default Rules?

By Mike Dorf


My latest Verdict  column examines what's at stake in the Supreme Court case of Douglas v. Indep. Living Ctr. of So. Calif., Inc.  The case poses the question whether private parties can sue a State for failing to satisfy its obligations under the federal Medicaid statute.  Traditionally, the answer has been yes under the doctrine of Ex Parte Young, but another line of cases says that there are no private rights of action to enforce statutes unless the statutory language manifests Congressional intent to create such private rights of action.  The column explains, among other things, that the issue is small in principle because it only involves a default rule: Through clear language Congress can always recognize, or deny recognition to, a private right of action, whatever default rule the Court sets.  I also note, however, that here, as in other contexts, the default can be sticky.  The default matters because it is costly to overcome legislative inertia.

I stand by my analysis in the column but I want to raise a question here: Why doesn't Congress simply enact legislation switching the default?  "Well, that's a stupid question," Dorf, I can practically hear my readers thinking.  If it's difficult for Congress to act in order to recognize, or deny recognition to, private rights of action for any particular statutory provision, it's super-difficult for Congress to act in order to change the default rule applicable to thousands of statutes.  But I think that's not necessarily right.

The stakes outside of any particular context might be low. Lobbyists who would be moved to act to prevent adoption of a private right of action for any particular law might not mobilize against a general change in the presumption simply because they might not notice it. Or they might think it easier to seek a special rule for the statute they care about, and not fight the general change. As evidence, consider that the Dictionary Act has an impact on the construction of every federal statute there is, but that very little lobbying appears to focus on changing it. Matters like rules of construction SHOULD be fertile ground for lobbyists because they can get what they want by flying below the radar screen of public opinion. But they're apparently so far below the radar screen that even the lobbyists haven't yet discovered them. Before they do, it would behoove Congress to enact a bunch of progressive default rules. Actually, the time to have done that would have been in the two years when there was a Democratic majority in both houses of Congress. So all that's needed to get my proposal enacted is a time machine!

Tuesday, October 11, 2011

The Limits of Conscientious Objection


By Michael C. Dorf


{N.B.  I am cross-posting today on the Cornell Journal of Law & Public Policy Blog.  In order to coordinate, I wrote this post a little over a week ago, before Linda Greenhouse posted on the same subject.  She and I reach similar conclusions but by different routes.}


A
local controversy raises some interesting questions about the proper scope of rights to conscientious objection.  Rose Marie Belforti is the Clerk of the Town of Ledyard in nearby Cayuga County.  Citing her religious-based moral objections, she recently refused to issue a marriage license to a same-sex couple, although she agreed (perhaps after some discussion) to delegate the job of issuing marriage licenses to the deputy clerk, who has no objection to issuing licenses to same-sex couples.  According to the news story, the two women who sought the marriage license are considering possible litigation.

In this post, I want to consider two questions: 1) What distinctions should the law draw among the substantive grounds for conscientious objection?  and 2) What counts as participation in activity deemed morally objectionable.

1) Substantive Grounds

For people like me who favor same-sex marriage, it may be hard to sympathize with Ms. Belforti.  The fact that she finds same-sex marriage immoral strikes us as bigotry, not much ameliorated by the fact that Belforti, like other opponents of same-sex marriage, invokes religious scruples.  After all, Scriptural authority can be, and has been, invoked to support slavery, collective punishment, subjugation of women, and other practices that people like Ms. Belforti do not now attempt to rationalize.  Thus, we think that Belforti and her religious community have made a conscious choice to oppose same-sex marriage, even while other religious communities using the same holy books have made a choice to welcome gays and lesbians as full equals.

To be sure, the same could be said for other conscientious objector claims.  Quakers read the same Bible as other Protestant sects, but end up as pacifists.  Why then, does Belforti’s claim seem substantively less worthy than that of a Quaker who refuses to take up arms?  A big part of the answer is that the Quaker’s pacificism is not tantamount to the view that some members of the community are less valuable than others, while that is a fair implication of the anti-same-sex-marriage view.  Just as we would not be comfortable recognizing a right of a Town Clerk to decline to issue marriage licenses to interracial couples, so too here, the asserted right to conscientious objection is weakened by the fact that it appears to be part of a zero-sum game: Recognition of Belforti’s claim undermines the equality of marriage of same-sex couples.

Yet seen in wide enough angle, any conscientious claim can be seen as condemning some other people.  The Quaker who refuses to fight could be understood to be insulting people who have different scruples.  A vegan Town Clerk who objected to issuing hunting and fishing licenses on grounds that such activities are unethical could be understood to be making a statement about people who hunt and fish.  Etc.

The difference between the Quaker and the vegan, on the one hand, and Ms. Belforti, on the other, is that the Quaker and the vegan make tacit statements (if at all) about members of the majority.  The vast majority of people who think war not categorically immoral and consume animal products are not seriously threatened by the fact that a few of us oddballs hold views that regard their conduct as unethical.  By contrast, gays and lesbians are a persecuted minority, and so the recognition of conscientious objector rights to denigrate them stings much more sharply.

2) Participation

Even if we assume that there ought to be circumstances in which conscientious objection to same-sex marriage should be recognized, there is an additional worry in the Belforti case.  When the law recognizes exemptions for conscientious objectors, it typically does so for people who do not want to participate in acts they regard as immoral.  For example, conscientious objector laws protect people from serving in the armed forces, from performing abortions, and from having to officiate at same-sex marriages (as in New York’s Marriage Equality Act itself).

Such laws do not protect people against indirectly supporting practices with which people disagree, even if they strongly disagree on moral and religious grounds.  Quakers must pay taxes that support wars, just as my taxes go to subsidies for the animal exploitation industries, despite my desire not to participate in them.

Nor is it feasible to imagine that we could exempt everyone with a conscientious objection to some practice from even the remotest sort of participation in that practice.  Administration of the tax code would be enormously complicated were we to allow checkoffs for particular budget items.  And the problem does not end with taxes.  A postal employee might object to delivering an envelope containing a marriage license to a same-sex couple or even to delivering mail containing promotional material for political candidates she opposes.

Where does a town clerk fall on the spectrum between objecting to fighting in a war and objecting to delivering mail for causes with which one disagrees?  I’m inclined to think that it comes closer to the latter position, and thus that the government could legitimately enforce a rule that says that if you want to be a town clerk, you have to issue marriage licenses to everyone who legally qualifies.

That said, I do think we can also recognize that for people like Ms. Belforti, that’s a real harm (albeit one that the law will not accommodate).  People will feel uncomfortable with a level of participation in what they regard as evil at some point below the threshold that the law can recognize for conscientious objector status.

For me personally, that point was driven home twenty years ago when, as a law clerk at the Supreme Court, I occasionally had to sign orders denying an application for a stay of execution, knowing that this was the last step before a person would be executed.  Of course, it wasn’t my decision to deny the stay.  I wasn’t even signing on my own behalf.  (The last legal action often takes place in the wee hours of the morning, when only law clerks are left in the building, with the final authority coming via telephone call with the relevant Circuit Justice.)  But still, I experienced the signing of my initials as a form of participation in capital punishment.  So, even though I do not share her values, and even though I think she should be denied the power to opt out, I do sympathize with Ms. Belforti.