Sesquestration and Its Discontents

Absent a dramatic turnabout in events, sequestration begins to kick in on March 1.  Once was thought of as the dumbest of all dumb ideas now has the real possibility of coming to fruition and its impact on the economy will not be good since it is essentially an austerity program.  But even without sequestration, US economic policy is already one of sequestration, raising doubts about the medium and longer term prospects for American economic growth.

Let’s first be clear about what sequestration is.  Back in 2011 when Obama and the House Republicans were at logger heads about raising the debt limit the core of the disagreement then was insistence by the Republicans that they would not raise the debt ceiling unless there was a significant effort to cut future US spending.  Obama and Speaker Boehner were close to a grand bargain to cut several trillion dollars in future spending, but the deal was scuttled by GOP refusal to go along with some tax increases. 

In the end, the deal to raise the debt ceiling was postponed to the end of last year–the Fiscal Cliff.  But part of the 2011 deal was also the creation of the mother of all poison pills--sequestration.  The idea behind sequestration was that if the Republicans and Democrats (Obama) could not agree on future spending cuts there would be automatic cuts to military and discretionary spending so severe that the mere threat of these cuts would force each side to reach a deal.  By self-description both sides then described the sequestration cuts as stupid or unwise.  Sequestration was supposed to occur at the end of last December as part of the Fiscal Cliff but it was kicked down the road two months to allow time to deal.  You could have practically predicted what would happen–the day of reckoning is again upon us.

It is looking less and less likely a deal will occur by the end of the month.  Both sides are yelling and accusing the other of bad faith and being unwilling to compromise. 

But the truth be told, both sides are responsible but in very different ways.  The Republicans are responsible for the problem by their refusal to consider any tax increases to go along with the cuts.  Remember this is the same party that when asked of its presidential candidates two years ago would they go along with one dollar of tax increases for nine dollars in spending cuts, none of the contenders said yes.  The GOP also seems to hold to a mythic fairyland belief that all taxes are bad, that the only way to help the economy is by spending less, that government is evil, or that it crowds out the economy.  They essentially lack an economic plan and instead simply have  failed dogma to which they cling.  No surprise here.  For the most part Congress is devoid of members who know much about economics.  One of my favorite books is Paul Gary Wyckoff’s Policy and Evidence in a Partisan Age (2009).  He highlights the lack of understanding in economics among members in Congress, finding few with any formal training and literacy in this field.  He also points out that often what elected officials use as evidence for their ideas are  anecdotal stories—the least reliable types of evidence there is.  Few seem to grasp statistics, regression, or correlations and what they mean.  Effectively, Congress in general and the GOP specifically seem largely ignorant about basic economics.

But Obama too is at fault.  His fault is that he has already conceded the battle.  While he talks a good game about jobs he has largely embraced the austerity agenda.  He is largely committed to spending cuts and seems really to have given up on any major efforts to revitalize the economy and jobs.  We have produced several million new jobs in his first four years but the recovery is still tepid and it will take years if at all to make up the lost ground from the last few years. Obamanomics has not been terrific.

But even if sequestration is avoided, there will be cuts.  The Saturday February 23, 2013 New York Times reports that states are worried about the impact of sequestration on their economies and budgets, but equally worried about the cuts that will happen in the alternative to sequestration.  In either case, we are headed into a longer term austerity plan.  A plan that really does not produce jobs, future investments, or which tries to grow the economy out of its budget problems.  It is austerity similar to what many European countries are doing, and the results for them are not good.

But the other tragedy of sequestration beyond the foolish commitment to austerity and a blind faith in thinking that cutting federal spending and investments are the gateway to economic Nirvana is this idea that somehow gimmicks can solve budget problems.  Sequestration needs to be thrown into the dustbin of failed ideas that include PPBS, the Balanced Budget Amendment, the Gramm-Rudman Act of 1985, and line-item vetoes.  The history of budgeting in America is told of special commissions (Simpson-Bowles) and gimmicks yet none work simply because they are poor substitutes for political will and reasoned and informed judgment.

The Economic Case for Gay Marriage (and two dumb ideas)

Politics and economics are interconnected.  We saw that in the State of the Union speech the other night where the president hung his second term political fortunes on helping the middle class.  He offered a set of ideas surely opposed by the GOP but potentially popular with the voters, hoping that the Republicans will vote them down or not vote on them, lending political fodder and ammunition to the Democrats in 2014.

But Obama’s speech is also a great occasion to discuss some economic issues, seeking to separate fact from fiction.

The Economic Case for Gay Marriage

Legalizing gay marriage in Minnesota and across the country is ethically correct thing to do.  Whatever religious reasons those opposed to same-sex marriage have, their preferences should not preempt or be binding upon those who wish to marry.  The case for gay marriage is not different than the case for mixed-race marriages 50 years ago.  Back then religion often reinforced racism (“God did not intend Blacks and whites to marry.”)   The same is true today.

But there is also an economic argument supporting gay marriage in Minnesota.  Were Minnesota  to legalize gay marriage the economy would benefit both in direct and indirect ways.

Directly, several studies have demonstrated that legalizing gay marriage reaps immediate economic benefits to a community.  Studies regarding legalization of gay marriage in Massachusetts by the Williams Institute, New York by CNN, and Tasmania, Australia point to the economic benefits of legalizing same-sex marriage.  Such legalization leads to more tourism by same-sex couples and couples spending money on weddings.  According to the UCLA Williams Institute in a study looking at the economic benefits of legalizing same-sex marriage in Maine, Washington, and Maryland may generate more than $166 million over the next three years.

But indirectly, legalizing same-sex marriage will also benefit communities.  Richard Florida’s highly influential The Rise of the Creative Class documents the importance and relationship between cultural amenities and support for gay-friendly policies and economic development in a community.  Support for gay-friendly policies highly correlates with the most economically successful communities across the United States.  Additionally, as many business leaders know (as evidenced by the CEO of General Mills speaking out against the Marriage Amendment in Minnesota last year), a new generation of employees exists that look to support for gay rights as an important factor in considering where to live and work.  The majority of these individuals are highly educated and skilled.  Supporting gay rights and marriage is an important key to attracting this new generation of workers and with that, employers who wish to locate to take advantage of these skilled workers.  Thus, supporting gay marriage is a smart jobs and economic development initiative that Minnesota should consider.

Why is making the economic case for gay-marriage important?  First, it might move some Republicans and Democrats to support it if they can use as a cover that it is good for the economy.  Second, if one can document the economic consequences of discriminating against GLBT then that gives Congress the ability under the Commerce class to take action.  Ordinarily the issue of marriage is a state issue and a matter beyond the authority of Congress to address. However, demonstrate how GLBT discrimination affects interstate commerce then Congress can act.  In 1964 the Civil rights Act was justified and upheld as a valid at of Congress based on finding of fact demonstrating that  racism impeded and affected interstate commerce.   Bottom line-think about gay marriage as a bottom line issue.

Tax-Dodging Millionaires: The New Welfare Queen

Remember the welfare queen of the Reagan era?  In a 1976 speech Ronald Reagan referred to a woman in Chicago on public assistance:  “She has eighty names, thirty addresses, twelve Social Security cards and is collecting veteran's benefits on four non-existing deceased husbands. And she is collecting Social Security on her cards. She's got Medicaid getting food stamps, and she is collecting welfare under each of her names. Her tax-free cash income is over $150,000”  This welfare queen was a glaring indictment of all that was wrong with government and of those lazy individuals—mostly women—who were simply squeezing out more and more children in an effort to avoid work and stay on government assistance.   She was also the impetus of major policy reform to lower benefits and kick needy people off of public assistance.  However, she did not exist.

Largely the welfare queen was a myth as I point out in my new book.  But myths die hard.  The newest myth is the tax-dodging millionaire.  He is the rich guy who migrates from one state or country to another in search of a lower tax rate.  He is the bogeyman trotted out by opponents of higher taxes–individual or corporate–and used to argue that if taxes are increased rich people will leave and head elsewhere to a low tax area.  Gerard Depardieu in France and Phil Michelson in California are trotted out to prove this point.

Yet while a few individuals may migrate if taxes are increased, the tax-feeling millionaire is largely a myth.  James Stewart’s most recent column in the New York Times reviews several studies demolishing this myth.  This should be no surprise.  We already know that taxes are a relatively minor factor affecting business location and investment decisions (again see my American Politics in the Age of Ignorance).    Additionally, many years ago in two articles of mine examining tax commuters I found little evidence that tax rates across states affect employment migration patterns ( See:  “State Taxation of Interstate Commuters:  Constitutional Doctrine in Search of Empirical Analysis,”16 Touro Law Review, 435 (2000) ; “State Tax Commuters:  Classifications and Estimates,” 15 State Tax Notes, 355 (1998)).  Many factors, and not simply tax rates, affect where the affluent live.  Factors such as health care, cultural amenities, weather, friends, and family all dictate residential choices.  Taxes are only one part of the mix in making decisions about where to live. 

Minor changes in tax rates are not going to produce any mass exodus from a state.  Conversely, simply lowering taxes is not going to result in much immigration either.

Sequestration and the Economy

Europe is sinking back into a recession and the go global economy is weak.  One cause of that weakness has been a wrong-headed economic policy favoring austerity over economic growth.  Great  Britain and other economies have prematurely cut government spending, with the result being a serious damage to economic demand for goods and services.  Austerity has not produced prosperity.

It would be nice if the United States learned this lesson.  Yet it appears the Congress is ready to allow for sequestration to occur.  The stupid budget deal of 2011 that was supposed to scare Congress and the president to reach a new deal included a call for government spending cuts so awful is about to occur.  The cuts will be nearly a trillion dollars, triggering according to many estimates, the loss of hundreds of thousands of jobs across the United States.  The American economy is barely growing, sequestration may well throw the US into another recession.

But even if sequestration is avoided, Obama has effectively endorsed a Herbert Hooverism austerity  program.  He wants to cut government spending as a way to deal with the deficit.  Deficits do matter but the primary goals still should be to reduce unemployment and grow the economy.  Those twin objectives will generate additional tax revenues to help reduce the deficit.  Spending cuts simply create a downward spiral of economic decline and will fail to revitalize the economy.

Killing Americans: Obama’s Constitutional Arrogance

Barack Obama’s assertion that he has the authority to kill American citizens abroad suspected of being terrorists is disturbing both because of its constitutional arrogance and  because its flimsy legal justification resembles the dubious Bush era arguments for presidential power that he supposedly criticized and repudiated.
    After 9-11, President Bush asserted dubious constitutional authority to prosecute the war on terrorism.  He did that in two ways.  The first was to point to a congressional joint resolution, the Authorization to Use Military Force of September 18, 2001, which urged the President “to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed or aided the terrorist attacks that occurred on September 11, 2001, . . . in order to prevent any future acts of international terrorism against the United States by such nations, organizations, or persons.”  The President declared that this language gave him extensive power to respond to the terrorist attacks.
    Second, regardless of this language, four Justice Department memoranda asserted inherent or extra-constitutional presidential power to respond to terrorism. These memoranda include a September 25, 2001 Department of Justice opinion written by John Yoo which describing presidential war making powers, then a second legal opinion of January 22, 2002 addressing the treatment of al Qaeda and Taliban detainees.  The third memorandum is from August 1, 2002, reviewing the classification and treatment of al-Qaeda held outside the United States, (the torture memo) while the fourth was a January 19, 2006 Department of Justice memorandum supporting President Bush's decision to order the warrantless wiretapping of telephone conversations by the National Security Agency.
     These four memoranda, taken together, framed the Bush Administration's arguments for its post 9-11 foreign policy and national security authority by asserting a conception of presidential power largely exempt from congressional and judicial oversight in foreign affairs and  the conduct of war.  Effectively, Bush argued that the president had inherent  powers as commander-in-chief to torture, wiretap, and detain suspected terrorists, even if they were American citizens, without any constitutional review or authorization.  These legal arguments were severely criticized by most constitutional scholars, and largely ignored by the Supreme Court in several opinions surrounding the detainment  of suspected terrorists at  Guantánamo Bay.
    The Obama Administration’s assertion in a recently released Department of Justice White Paper of presidential authority to kill American citizens abroad suspected of being terrorists rests upon many of the same arguments of Bush, especially the torture memo.  The White Paper argues that the president can order the killing of American citizens if there is insufficient opportunity to capture and detain them and if it would save American lives.
    The memo begins with the claim that it would be constitutional to kill Americans abroad who are in combat zones fighting against the United States.  From there the White Paper  takes the dubious next step to argue that it would be permissible to kill Americans anywhere in the world outside of the United States, even beyond battlefields. It justifies this claim with questionable constitutional logic.  First, it cites Matthews v. Eldridge, a Supreme Court Fourteenth Amendment Due Process case.  Matthews is an administrative law case the defines when the government must provide hearings to individuals denied Social Security benefits.  That case said hearings were not necessary when the cost to the government was greater than the possible injury to someone losing benefits.  Applied here, the benefit of saving American lives outweighs any individual constitutional rights.   
    The problem here is that killing individuals is different from denying Social Security benefits.  This is simply the wrong legal analysis.  A more appropriate one might be to  examine the law governing police use of deadly force.  Here  the Supreme Court has ruled that the Fourth Amendment is the legal standard.  Under the Fourth Amendment the killing of an individual is considered a search and seizure, and an exceedingly high constitutional bar is used to determine whether it is permitted.  The White Paper acknowledges this Fourth Amendment standard, but gives it barely a one paragraph perfunctory dismissal.
     Obama reliance on the deadly force Fourth Amendment analysis is also wrong. Determination of police use of deadly force is subject to judicial review.  The White Paper dismisses the idea that the courts have the right to review its use of force, let alone its determination of who is suspected of being a terrorist.  On it own , presidents can be prosecutor, judge, and executioner, subject to no constitutional checks.  Individuals falsely suspected of being terrorists have no recourse except to duck when the drone strikes.
    Finally, the White Paper extends  two Bush era arguments.  First,  the Authorization  to Use Military Force permits the killing of American citizens abroad anywhere when suspected of being terrorists, especially since there is no geographic limitation in this congressional declaration defining where the president can fight the war on terrorism.  Today Afghanistan, tomorrow Canada?   Lastly, the White Paper simply asserts that the president has the power as commander in chief to kill Americans he suspects as terrorists.
    The White Paper exploits every legal ambiguity and asserts that it favors presidential power.  It makes dubious assertions that run roughshod over legal precedent, and it simply makes the type of claims that the four Bush-era memos made. It is another president aggrandizing constitutional or extra-constitutional power that  does not exist.   He is like Nixon and the secret war in Cambodia or Reagan and Iran-contra. Many expected better from this president.  He was the one who criticized Bush for his lack of transparency and disregard for the Constitution.  Now Obama is doing exactly the same as his predecessor, only taking it to a new level in asserting a right not simply to detain and torture, but to kill.

The Obama Judicial Revolution that Wasn't

Obama’s legacy is largely written because second presidential terms are usually disappointing.  But in assessing his legacy, one needs to look at how successful Obama  has been in remaking the federal courts with his appointees.  By that score he has squandered an Obama judicial revolution.

            Second term presidents including Obama,  confront declining political capital.  Obama is already a lame duck, facing a hostile Republican Congress and a Senate lacking a filibuster-proof Democratic majority.  A president’s party generally lose seats in the second term midterm elections and in 2014 Democrats will have to defend 20 seats compared to 13 for Republicans.  Obama’s agenda is packed with guns, immigration, global warming, and fiscal and economic issues.  The president has too much too do, too little time, and too little support.

            One area where presidents have a chance to leave a mark beyond their term is with their judges.  With appointments to the bench, federal judges that include district and appellate courts and justices to the Supreme Court, can influence the fate of a president’s agenda decades after he leaves office.   The federal courts have become a powerful third branch of the federal government, called upon to determine the constitutionality of many issues, and resolve controversies ranging from who will be elected president in 2000 to the fate of Obamacare.

            Franklin Roosevelt’s New Deal was held up by a hostile Supreme Court and it was not until after he attempted to pack it in 1937 that the president got his way and many of his reforms were upheld.  Eisenhower, in reflecting on his presidency, conceded that he made two mistakes, Earl Warren and William Brennan, and they were both sitting on the Supreme Court.  Court appointments matter.  There is significant evidence that federal judicial appointments  generally decide consistent with the philosophies of the presidents who appointment them. Warren and  Brennan notwithstanding, surprises are the exception to the rule.

            President Clinton filled 370 judgeships during his presidency, including two Supreme Court Justices, 62 for the Court of Appeals and 306 at the district Court level.  By the time he left office in 2000 nearly 44% of the judges were Clinton appointees. George Bush was almost as successful, with 2 Supreme Court, 59 Court of Appeals, and 261 district court appointments.  His 322 appointments constituted  37% of federal judges.

            Obama’s judicial record so far is weak. Unlike Ronald Reagan and his staff who took office with a clear plan to locate and fill judicial appointments quickly, Obama was slow in grasping the importance of judicial selection.  This was especially odd being a former law professor.  He was often criticized for being slow in nominating judges, even when the Senate had a filibuster-proof majority.  After the 2010 elections judicial confirmation slowed to a trickle as Republicans held  up confirmations in hopes of retaking the White House in 2012.

            As of the start of Obama’s second term he has placed 173 judges on the federal bench–approximately 20% of the total.  That includes two Supreme Court Justices, 30 for the court of appeals, and 141 district court judges.  Few are real liberals. There are currently 87 vacancies at the court of appeals and  district court levels.  Obama is unlikely to achieve the numbers that Clinton had, let alone Bush, even if he fills the current vacancies and those anticipated.  He will fined it increasingly more difficult to  secure Senate confirmation of his nominees even if the Democrats hold the chamber, and if Republicans take over in 2014, expect little or no action on them in the last two years of his term.  Obama has perhaps 18 months left to make his mark on the federal courts, and the crowded agenda  his second inaugural speech pronounced suggests that judicial nominations are not high on his list.

            Yes Obama has replaced Justices Souter and Stevens with Sotomayor and Kagan, but that has not shifted the balance of the Supreme Court.  Obama may get a chance to replace one or two more Justices in his second term, but it is not clear that the conservatives on the bench will be leaving. He may replace Ginsburg and perhaps Breyer.  Do not expect Scalia or Thomas to step down in the next four years.  If Kennedy, a swing vote on many issues, steps down, that may be Obama’s best chance to alter the Court’s direction.  But no guarantee here.

            Obama has squandered a chance to remake the federal courts. One need only look to the recent decision striking down his recess appointments as proof of that.  The three judges were appointed by Reagan , George W. Bush, and George H.W.  Bush. Obama’s  major pyrrhic victory on the Supreme Court, upholding Obamacare, came courtesy of Bush appointee Chief Justice Roberts in a 5-4 vote that also drew future limits to the use of the Commerce clause to sustain federal laws.  This June Reagan appointee Justice Kennedy, a Reagan appointee, will probably lead a 5-4 majority striking down some bans on same-sex marriage.  But in terms of Obama redoing the federal courts, he has underperformed on perhaps his most important task.