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Michael Greve

New euro zone ‘fiscal rule’ is absurd and illegal

By Michael Greve

December 12, 2011, 10:00 am

As if to illustrate the depths to which it has sunk, the European Union picked December 8, the day of the Feast of the Immaculate Conception, to produce an agreement that is rotten to its core. Its proposed creation of “a new fiscal rule”—that is, “automatic” sanctions for eurozone countries that run up excessive deficits—is both absurd and manifestly illegal.

Prohibitions against debts exceeding 3 percent of GDP were introduced along with the euro. They are to be enforced by the European Council. Because that body consists of member states’ leaders, the injunctions have been routinely ignored and no sanctions have ever been imposed. Thus, the Brussels agreement shifts enforcement authority to the European Commission and the European Court of Justice unless a qualified majority of the Council intervenes. Message to Athens, Rome, Paris, and Berlin: if you can’t balance your budget, the justices in Luxembourg will fine you. Good luck with that.

The enforcement mechanisms at issue are contained in the Maastricht and Lisbon Treaties, which can be amended only by unanimous consent of all EU members. Because in Brussels, Britain said “no,” the eurozone states decided to adopt the reforms through an international agreement, to be signed by March 2012. That cannot be done, at least not lawfully. While the Treaties provide for a few limited derogations and side agreements among member states, wholesale treaty revisions are not among those exceptions.

The Brussels communique’s Eurospeak barely disguises the fact. The heads of state “consider” that their plan “should be contained in primary legislation.” In English: they know that their plan must be enacted by treaty amendments—they just chose to do otherwise. Similarly, the eurozone states “recognise the jurisdiction of the Court of Justice to verify the transposition of [balanced budget requirements] at [the] national level.” The operative verb should be “create,” because there’s nothing to “recognize”: the Treaties specifically enjoin the ECJ from exercising this jurisdiction. The ECJ’s budget oversight, should it ever enter into effect, will join the European Stability Mechanism, which was likewise stick-built outside and in contravention of the Treaties.

This Monday, as the markets re-open and the sordid Brussels deal begins to disintegrate, is the Feast of the Virgin of Guadalupe. Europe needs all the divine assistance it can get.

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Categories:  Europe and Russia, Foreign and Defense   |   Tags: ,

Michael Greve

Game theory, the Supreme Court, and ObamaCare

By Michael Greve

November 15, 2011, 5:03 pm

This past Monday, the U.S. Supreme Court announced that it will hear extended oral argument on four separate questions pertaining to the Patient Protection and Affordable Care Act, aka ObamaCare: (1) whether Congress had power to legislate the act’s “individual mandate” provision, which requires individuals to purchase health insurance or else pay a penalty; (2) whether that mandate is “severable” (meaning that the rest of the statute would stand even if the mandate were found unconstitutional); (3) whether the Anti-Injunction Act (don’t ask) deprives the Court of jurisdiction over the case; and (4) whether the statute unduly “coerces” states into an expanded Medicaid program. Enough to make the layman’s head spin—and more than enough to pose a huge risk of strategic judicial voting.

Strategic judicial voting probably happened in some appellate ObamaCare decisions, and it has happened on the Supreme Court. For example, the chief or a senior justice may join a majority with which he disagrees so as to assign the opinion to himself and in that fashion to limit the damage. The risk increases when multiple issues provide an opportunity for de facto vote trades and where, as here, the political salience of the case invites strategic behavior.

In the ObamaCare case, the Court’s four liberal justices enjoy a far more straightforward calculus than the conservatives. They know, as everyone else knows, that they form a solid bloc in defense of the statutes on questions (1) and (4). Thus, they can deploy the jurisdictional issue (3) for purely strategic purposes. Let a single conservative justice think or say that the Court lacks jurisdiction: the liberals can produce a majority for that holding, or splinter the Court into three camps (pro-mandate, anti-mandate, no jurisdiction). Another, slightly more far-fetched but entirely possible scenario: let there be five conservative votes to declare the individual mandate unconstitutional and one or two of them deeming it non-severable. The liberal bloc can either “save” the remainder of the statute by voting for severability—or else, threaten to bring the entire statute down by voting the other way. Conservative justices who judiciously want to excise the mandate from the statute—this being an election year and all—would no longer have that option. They’d have to think long and hard.

And so on. Every curbstone game theorist knows that situations of this sort can produce almost any result. The order of votes and control over the agenda (whether in judicial conference or behind-the-scenes maneuvering) count for a lot. The eventual result may reflect no one’s authentic preferences—least of all those of voters who expect constitutional clarity and instruction.

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Michael Greve

Will the Supreme Court Enforce the Structure of the Constitution Any Time Soon? Not Likely

By Michael Greve

March 8, 2011, 6:38 am

Yesterday, the U.S. Supreme Court declined to hear arguments in S&M Brands v. Caldwell. The case presented a challenge to the 1998 “Master Settlement Agreement” (MSA) between large tobacco manufacturers and state attorneys general, which imposed—without the consent of the Congress, and without the vote of a single state legislator—a $250 billion tax on tobacco consumers. (The proceeds of that tax have since been shared between Big Tobacco, the states, and the trial lawyers who assisted the states.) Lower courts had sustained the agreement. The Supreme Court’s denial of certiorari has effectively affirmed those holding and immunized the MSA from here to eternity.

The cert denial bodes ill—very ill—for any lawsuit predicated on the notion, or hope, that the Supreme Court will one of these days enforce the structure of the Constitution. The Constitution’s Compact Clause categorically prohibits any agreement among the states without congressional consent, let alone an agreement among all states to create monopoly profits and to share them with tobacco peddlers. The plaintiffs’ case was sufficiently compelling to draw vocal support from constitutional luminaries across the political spectrum—from Michael McConnell to Kathleen Sullivan; from Alan Morrison to Richard Epstein, as well as a group of prominent antitrust experts. And yet, in the teeth of the clear constitutional language, and in a political environment that, shall we say, suggests heightened public concern over crony capitalism, government collusion, and the erosion of constitutional norms, the justices couldn’t be bothered. (S&M Brands was “re-listed” once, meaning that it died not at the hands of some law clerk but after discussion among the justices themselves.) They’re too busy adjudicating the constitutionally mandated distance between funerals and obnoxious protesters.

Perhaps, a team of justices that fumbles the simple S&M Brands hand-off is yet capable of catching a constitutional Hail Mary—say, an ObamaCare “mandate” lawsuit. The smart money says otherwise: when it comes to constitutional constraints on government, we’re on our own.

Image by Thorne Enterprises.

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Michael Greve

‘The Bootstrap Problem’ and the Healthcare Mandate

By Michael Greve

February 24, 2011, 3:19 pm

District court decisions over the “individual mandate” provisions of ObamaCare (most recently, Judge Kessler’s February 22 decision) have highlighted a nasty constitutional difficulty. Call it the “bootstrap problem.”

Shorn of its alluring fur, the administration’s defense of the mandate is this: through minimum-coverage mandates and a prohibition against excluding applicants with pre-existing conditions, ObamaCare turns health insurance into a product that cannot survive in an ordinary market. Therefore, it is “necessary and proper” to compel its purchase by people who would rather not buy it. Judge Vinson, in the course of an impressive opinion in the Florida case, noted the obnoxious logic of this argument: “The more harm the statute does, the more power Congress could assume for itself under the Necessary and Proper Clause.” Judge Kessler’s opinion contains a variation on the theme. Confronting the plaintiffs’ argumentum ad broccolum—“If Congress may mandate the purchase of health insurance on the theory that everyone will need it at some point, it may also mandate the purchase and consumption of broccoli”—the judge responds that we can be confident that future consumers of food won’t be permitted to rake it off the shelves without paying. Not so with healthcare: federal law compels healthcare providers (such as hospitals) to care for needy patients, regardless of their ability to pay. The cross-subsidy makes the healthcare market “unique” and provides the constitutional hook for the individual mandate.

Why haven’t plaintiffs contested this bootstrap rationale head-on? Because the case law, and the Constitution itself, block that attack. Wickard v. Filburn (1942), the notorious commerce clause case over a federal prohibition against the production of wheat for home consumption, is a classic bootstrap case. After the Smoot-Hawley tariffs had destroyed U.S. export markets, the country confronted excess capacity and supply in agricultural commodities, which Congress—compounding, as usual, one idiocy with another—sought to reduce by means of marketing quotas. To make the quotas stick, the government had to control the local transactions. Concede the premise (that is, the congressional power to limit national supply): contrary to lore, Wickard is an easy case, correctly decided. And the premise, for better or worse, is unassailable. The power to regulate interstate commerce encompasses the power to regulate it into the ground.

The challenge in the individual mandate cases is to craft an argument that steers around this fateful logic. A clear-eyed recognition of the problem may make that difficult task a little bit easier.

Image by Wikimedia Commons.

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Michael Greve

Supreme Court Re-establishes Some Accountability

By Michael Greve

June 28, 2010, 2:51 pm

supreme-courtToday’s Supreme Court decision in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB) re-establishes a modest measure of accountability on our political institutions. The Court’s reminder comes at an opportune time.

The PCAOB was created by the 2002 Sarbanes-Oxley Act to implement and administer a Byzantine accounting regime for all public corporations. To that end, PCAOB was granted expansive rulemaking powers; civil and criminal enforcement authority; and, for good measure, its own taxing authority. Despite this awesome concentration of powers, PCAOB’s members are appointed not by the president but by the Securities Exchange Commission (SEC), an independent agency whose commissioners are removable by the president only for good cause (that is, willful misconduct). In turn, the SEC may remove PCAOB members only for cause.

Chief Justice Roberts’s opinion for the Court’s majority held that this “double for cause” removal arrangement undermines the president’s authority and is therefore unconstitutional. The Court upheld PCAOB’s appointment by the SEC.

What follows? The Court deemed the offending position “severable,” meaning that the remainder of Sarbanes-Oxley remains unaffected. Even so, the case could have very significant effects in the future. Justice Breyer’s dissent for the Court’s four liberal horsepersons helpfully lists a large number of federal agencies whose removal arrangements are now suspect. Breyer also advances the very novel proposition that SEC commissioners may be removable for political as well as “good cause” reasons.

It is no insult but rather a compliment to the chief justice to note that his majority opinion and its split-the-baby holding reflect the difficulty of holding a fractious majority together: what matters is that he did it. And whatever direct effects the decision may eventually produce, its signal value is unmistakable.

The Court impatiently brushed aside the government’s jurisdictional defenses and its attempts to immunize dubious schemes against constitutional challenges. Likewise, the Court disposed of the government’s argument that the president himself had no objections to the dilution of his powers. The executive’s affirmative embrace of irresponsibility and unaccountability, the Court observed, is not a defense; it is the constitutional problem. Nor was the majority impressed with appeals to the effect the PCAOB’s efficient functioning and need for expertise warranted the double removal arrangement. Wrote Chief Justice Roberts:

One can have a government that functions without being ruled by functionaries, and a government that benefits from expertise without being ruled by experts.

All those in favor of nailing that sentence to the Oval Office door, say “aye.”

Image by dbking

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Michael Greve

The United States of Europe — Steepening Our Financial Cliff

By Michael Greve

May 10, 2010, 2:10 pm

The European Union’s impromptu establishment of a standing member-state bailout agency serves as yet another reminder that our own federalism is suffering the same debilities that afflict the Old Continent’s, and then some. Like some EU countries, some of the United States are effectively bankrupt. And like the EU as of this weekend, we have an institutionalized bailout agency called the United States Congress.

Unlike the EU, the Congress has already utilized its authority to stage bailouts under any other name. Among the many examples of the past decade are SCHIP, a health program that allowed states to transfer Medicaid recipients into a yet-more-generously-funded program; a “stimulus” bill that covered billions of unsustainable state expenses; and ObamaCare, which will allow state and local employers to move retirees and their health expenses off budget and into insurance exchanges. State officials are well aware that at the end of the day, these maneuvers only steepen the financial cliff. Elected officials, however, have the time horizon of a mole, and so they demand and take the money anyhow.

Our federalism’s combination of central taxing authority and local spending authority—the engine of our overextended entitlement state—will produce ruin without a central commitment against bailouts. The commitment has ceased to be credible: states and their bondholders know that we will not let any state default on its debts. Nor will we be able to exact from California or Illinois what the EU and the International Monetary Fund will try to exact from Greece, a de facto surrender of fiscal autonomy. That path is blocked both by the Constitution and by bipartisan, brain-dead consensus on “devolution.”

Fasten your seat belts. It’s going to be a very rough ride.

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Michael Greve

What’s at Stake in the Sarbanes-Oxley Case

By Michael Greve

May 19, 2009, 12:50 pm

Yesterday, the U.S. Supreme Court agreed to hear a challenge to the constitutionality of the Public Corporation Accountability Oversight Board (PCAOB). That body, affectionately known as Peek-a-Boo, was created by the 2002 Sarbanes-Oxley Act to implement and administer a Byzantine accounting regime for all public corporations. To that end, PCAOB was granted expansive rulemaking powers, civil and criminal enforcement authority, and, for good measure, its own taxing authority. (PCAOB does not have its own air force.) Despite this awesome concentration of powers, PCAOB’s members are appointed, not by the president or even by a department head but rather by the Securities and Exchange Commission, another “independent” agency. The plaintiffs in the case insist that this arrangement violates the appointments clause of the U.S. Constitution. The federal Court of Appeals for the D.C. Circuit rejected that challenge in a 2-1 decision. The Supreme Court has now granted certiorari and will decide the case in its next term, beginning in October. A decision in the plaintiffs’ favor would kick PCAOB and Sarbanes-Oxley back into Congress, where anything could happen.scotus

To understand the salience of this case and its seemingly technical legal questions, two features of the litigation bear note.

One, the case presents a direct, dramatic confrontation between the political institutions’ government by free-form improvisation and the Supreme Court’s responsibility to protect the constitutional structure and order. PCAOB’s bizarre status is of one piece with a $700 billion blank check to the U.S. Treasury, financial “regulation” through seriatim deal-making, congressional rumblings about compelling state governors to accept stimulus funds, and other exotic, often “bipartisan” innovations that our so-called political process has come to throw up with alarming frequency. Somebody, soon, will have to cut back on this vegetation, and by the look of things, that somebody will have to be the U.S. Supreme Court.

Two, the case illustrates the tendency of even the most ill-conceived government schemes to gather, in very short order, political support from a broad coalition of the frightened. Behind closed doors, business leaders denounce PCAOB as a reign of terror and a menace to U.S. capital markets. No corporation, however, can or will do anything about it. The defense of good sense and constitutional order has thus been left in the capable hands of  free-market think tanks, notably the spunky Competitive Enterprise Institute, and a small team of lawyers at Jones, Day, headed by the one and only Michael Carvin. Their legal entrepreneurship merits a full-throated cheer and best wishes for success.

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