The Courts Don’t Do Justice

At the Sacramento Bee Erwin Chemerinsky does a pretty good job of distinguishing between the two present schools of thought on jurisprudence:

Originalism is the view that a constitutional provision means the same thing today as when it was adopted, and that its meaning can be changed only through a constitutional amendment. This approach to constitutional interpretation is attractive because there is a desire to think of Supreme Court decisions as being more than just a reflection of who is on the bench at a particular time.

But this is neither desirable nor possible. The original understanding of the Constitution is unknowable, and even if it could be known, it should not be binding today.

His argument is essentially that such a strict interpretation of the law impedes the Court’s ability to do justice. The opposite point of view is that it is not the Court’s role to do justice but to interpret the law. Doing justice is the responsibility of the Congress.

That the original understanding of the Constitution is unknowable is either a lie or no more true of the Constitution than of any other law. At what point does the understanding of a law become unknowable? After 200 years? After 100 years? After 50 years? The day after it is enacted? The authors of the Constitution left a substantial body of writing explaining what they meant and much of it is quite readable, unlike the turgid Supreme Court decisions of today.

The Supreme Court and the Congress operate along vastly different lines. The Congress runs for office every two (or six) years; Supreme Court justices serve for life (“in good behavior”). Congress makes its decisions for political reasons; the Supreme Court, presumably, through expertise in the law.

No Supreme Court justice has ever been removed from office via the impeachment process. It was tried once.

To argue that the justices follow their consciences rather than the law, as Mr. Chemerinsky does, is to argue for a much more openly political Supreme Court and, because of their lifetime tenure, a much more tyrannical Supreme Court. If we are to have a Supreme Court that rules by the seats of the justices’ pants, they should run for office like Congressmen.

That the Congress has failed to act time after time is a reasonable complaint. The remedy for Congressional inaction on the issues of the day is to stop re-electing the same do-nothing Congressmen term after term after term.


They’re Not the Church

Yet another scandal involving Catholic priests abusing children and teens has been revealed, this time in Pennsylvania. From U. S. News and World Report:

HARRISBURG, Pa. (AP) — A priest raped a 7-year-old girl while he was visiting her in the hospital after she’d had her tonsils removed. Another priest forced a 9-year-old boy into having oral sex, then rinsed out the boy’s mouth with holy water. One boy was forced to say confession to the priest who sexually abused him.

Those children are among the victims of roughly 300 Roman Catholic priests in Pennsylvania who molested more than 1,000 children — and possibly many more — since the 1940s, according to a sweeping state grand jury report released Tuesday that accused senior church officials, including a man who is now the archbishop of Washington, D.C., of systematically covering up complaints.

The “real number” of abused children and abusive priests might be higher since some secret church records were lost and some victims never came forward, the grand jury said.

While the grand jury said dioceses have established internal processes and seem to refer complaints to law enforcement more promptly, it suggested that important changes are lacking.

There are actually three grave scandals involved. The first and most serious is the child and teen sexual abuse. The second is the coverups by other priests and bishops. The third is that the man under whose papacy many of the abuses took place was canonized. That he created a climate in which the Church hierarchy were predisposed to cover up these abuses and shield the abusers can now hardly be denied.

I will not utter a word in defense of the abusers or their co-conspirators in the clergy. I am proud to be acquainted with the man who formulated the Chicago Archdiocese’s policy 35 years ago which amounts to “Call the Cops”. Don’t try to hush it up. Don’t shield the abusers. Don’t try to handle it internally as a disciplinary matter. Turn the abusers over to law enforcement. They are criminals.

I will not dwell on the anti-Catholic tone of many of the reports in the media. Neither the clergy nor the Church hierarchy are the Church, however much the clergy and the hierarchy think that is the case. IMO they barely qualify as Christians let alone as the Church.

In the Catholic tradition forgiveness has three prerequisites: confession of one’s sins, a sincere intention to change one’s actions, and penance. Paying the penalty for one’s actions is not penance. Neither is foisting the costs of your misdeeds on the laity. Confession, reform, and penance by the Catholic clergy and hierarchy are still wanting and long overdue.


The 21st Century’s Answer

In his Wall Street Journal column Holman Jenkins suggests some interesting analogs to Elon Musk. Howard Hughes:

It is not a bad time to remember that Elon Musk created two amazing companies—not counting his role in founding PayPal —in the form of his car company, Tesla, and his rocket company, SpaceX.

He likely would not have achieved these successes if he weren’t a little crazy. One reader emails to compare him, both flatteringly and unflatteringly, to Howard Hughes.

and Enron:

Not to elicit howls, but Enron was a company that found itself trying to sustain a stock price its underlying business couldn’t support. Here was an overlooked progenitor of what became the signature corporate scandal of its era. A gas-pipeline company that was selling for $20 suddenly was boosted to $90 based on internet-era hype about the commodification of everything. Notice any similarity to today’s belief among a certain public that Tesla is solving the climate problem and government policy will guarantee Elon’s success? What followed, at Enron, was management’s resort to funky, illegal and then frankly piratical measures to support a valuation received from investors intoxicated with new-age thinking.

Are those really reasonable comparisons to Elon Musk? I don’t recall either one of them basing so much of their business on rent-seeking. Maybe a better comparison for Elon Musk is John D. Rockefeller. After all the basis of his fortune was war-profiteering during the Civil War.

Companies whose stock prices far exceed what its underlying business can support are hardly uncommon these days. Indeed, the biggest names in stocks, i.e. Facebook, Apple, Amazon, Netflix, and Google, all fall into that category.

Maybe we should stop thinking that there is any relationship between stock valuation and earnings. Maybe there is just too much money looking for a presumedly safe landing spot.


Canada’s Course Correction

I found Mary Anastasia O’Grady’s Wall Street Journal column on changes in Canadian economic policy interesting:

Canada’s ability to attract capital suffered a setback when oil prices fell hard in 2015. Under Mr. Trudeau, who took office in November of that year, it hasn’t caught up. In an April 13 blog post, Jason Clemens and Niels Veldhuis of the Vancouver-based Fraser Institute noted that Canadian foreign direct investment amounted to C$31.5 billion in 2017, down 56% from C$71.5 billion in 2013. The authors added: “Since peaking in the fourth quarter of 2014, total business investment adjusted for inflation—excluding residential housing—is down almost 17.0 percent. Private-sector investment in factories and other structures is down 23.3 percent. And investment in intellectual property is down 13.3 percent.”

The causes of this capital strike seem to be taxes and regulation, as more than one business leader has noted. Suncor Energy CEO Steve Williams said in February that his company is “having to look at Canada quite hard. The cumulative impact of regulation and higher taxation than other jurisdictions is making Canada a more difficult jurisdiction to allocate capital in.”

For prospective investors, the business climate in Canada is naturally compared with that of the U.S. Recent U.S. tax cuts, including accelerated depreciation, and President Trump’s deregulation push, are increasing the pressure on Canada to step up. In an April interview with the Canadian Press, Royal Bank of Canada president and CEO Dave McKay described the competitiveness problem behind what he called “significant” capital flight and called on the government to address it. “If we don’t keep the capital here, we can’t keep the people here—and these changes are important to bring human capital and financial capital together in one place,” he said.

The new carbon tax is only one of the green policies hurting Canada’s competitiveness. Ontario has long been the nation’s manufacturing hub. But in 2005 the province began phasing out the use of coal for electricity generation, and in 2009 it passed the Green Energy Act, designed to force industry and consumers into renewable energy. The net effect has been skyrocketing electricity prices in the province and declining manufacturing output.

The reaction by the Ottawa government has been to retrench on their environmental policies a bit by restraining the carbon tax. I’m sure they’ll have more flexibility to return to the prior policies after the election.

I’m skeptical about carbon taxes. Can anyone give me an example where they’ve actually worked? Other than as a means of producing revenue, I mean. The basic problem I see is that they’re regressive while carbon emissions are not distributed evenly through the population but increase geometrically with income. In other words the rich can just pay the tax.

Don’t cite European countries as an example. Most of their reductions in emissions over the last 30 years have been realized by exporting heavy industry to China. Not only is that not a solution, it exacerbates the problem.


The Productivity Paradox

I found Jared Bernstein’s Washington Post column on the relationship between productivity and wages excellent:

When economists tick off the reasons for our current wage problems, we usually include “slow productivity growth” on the list. Well, somebody asked me the reasonable question: Why should that matter?

Productivity, or output per hour, is growing slowly, but it’s still up, so why should it explain stagnant real wages? And at a more intuitive level, suppose a business figures out how to produce more efficiently and its productivity goes up. Where is it written that it must share that extra income with its workforce? Isn’t a big chunk of the inequality problem precisely that it doesn’t?

because it made me think. Pay particular attention to the two graphs (gap between productivity growth and median compensation and labor share of total income). The second graph tells us something about which we might not be aware: that labor’s share of income is about what it was 60 years ago but lower than it was 40 years ago.

I have been trained to try to explain changes by first considering changes in other factors. What are the most significant changes in public policy over the period under consideration, 1958 to present? I would say that they were Medicare and greatly increased immigration. Just a thought.

The first graph made me want to know the standard deviation. Is it possible that the entirety of the gap between productivity increases and median wages can be explained by a loss in bargaining power among the least productive workers?

Whatever the factors that underpin the increasing gap between productivity and median wages, the very fact of the relationship between productivity wages means that we should want more domestic capital investment. The most important factors in productivity growth are capital investment and the nature of the work being performed. In other words merely preferring areas in which increased capital investment does not produce much more output, e.g. education, would produce the gap illustrated in Dr. Bernstein’s first chart.


Why Is This One Different from the Rest?

While I think that increased scrutiny of medical education in the United States, one example of which is this op-ed in the Washington Post from medical resident Akhilesh Pathipati:

U.S. physicians average 14 years of higher education (four years of college, four years of medical school and three to eight years to specialize in a residency or fellowship). That’s much longer than in other developed countries, where students typically study for 10 years. It also translates to millions of dollars and hours spent by U.S. medical students listening to lectures on topics they already know, doing clinical electives in fields they will not pursue and publishing papers no one will read.

Decreasing the length of training would immediately add thousands of physicians to the workforce. At the same time, it would save money that could be reinvested in creating more positions in medical schools and residencies. It would also allow more students to go into lower-paying fields such as primary care, where the need is greatest.

is not only completely warranted but long overdue, I find it sad that a physician is so ignorant of public policy related to medicine, economics, and human behavior in general, let alone an MD-MBA as Dr. Paripathi is. I strongly doubt that lowering the cost of medical education will have much effect on the number of graduate physicians who pursue primary care. IMO the greater factors in choice of specialty are revenue expectations and lifestyle reasons not costs.

But the biggest thing missing from his analysis is that the gating factor in the number of physicians isn’t the number of qualified applicants or the length of classroom medical education, or any factor other than the number of medical residents that the Medicare system will pay for. Most Americans aren’t aware of it but each and every medical resident in the United States is subsidized to the tune of $80,000+ per year.

Post-high school medical education in the United Kingdom, from classroom to specialization is around nine years. It’s the same in Germany and slightly longer in France. We, as in so much are the outlier.

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Confusing the Lightning Bug With the Lightning

The Economist says that at least looking at the early returns, the U. S. is winning Trump’s trade war with China:

WHEN Donald Trump tweeted on August 5th that tariffs were working “big time”, American media sprang into action to test the claim (see article). In China, editors were more circumspect. No major Chinese-language newspaper reported his tweets. One of his claims—that China’s stockmarket has fallen 27% in the past four months—was an exaggeration. But why would any self-respecting propagandist in Beijing dwell on that? Chinese stocks have indeed fallen sharply (see chart), which officials do not wish to emphasise.

And this is just one of a series of awkward facts for China as its trade war with America deepens. The yuan is down 8% against the dollar since April, and near its weakest in more than a year. A shrinking trade surplus produced a current-account deficit in the first half of 2018, China’s first such gap in at least two decades. More broadly, China’s growth is slowing at a time when America’s economy is expanding at its fastest pace since 2014. No wonder Mr Trump feels that he is on the right path, and that Chinese investors are jittery.

Making matters worse for China is a whiplash effect. Until recently officials and executives believed their own declarations of technological prowess. Privately, advisers were confident that Mr Trump could be placated with promises to ramp up imports from America. Now both views look wanting. An agreement for China to buy more American natural gas and soyabeans collapsed in June. Chinese officials are keenly aware of vulnerabilities; had America maintained its sanctions on sales of semiconductors to ZTE, the Chinese telecoms giant might well have gone out of business. Those with a conspiratorial mindset see things in a darker light. “The Americans don’t want a deal. They want to screw us,” says a fund manager.

The asymmetry in the trade war is another uncomfortable fact. Since America buys far more from China than vice versa, America has more scope to impose tariffs. This imbalance, long discussed in theoretical terms, is close to becoming a hard reality. Mr Trump has instructed his trade team to consider 25% tariffs on $200bn of Chinese imports as early as September, taking the total affected by its tariffs to about $250bn, with room for twice that amount. China’s threatened retaliation, announced on August 3rd, will be tariffs on $60bn of American imports. This would take the total under its tariffs to $110bn, with little room for more.

I can make no claim to understanding President Trump’s thinking. His patterns of thought are completely alien to me but that has been true for the last three presidents. For all I know it may be true that Mr. Trump is looking at trade in the strictly zero-sum manner his critics allege and that has clearly been the assumption of China’s leaders but if so they’re missing the major impact of the tariffs.

Whether or not the the tariffs change the behavior of the Chinese, they will change the behavior of Americans. Americans will consume less. They might save more although rapidly increasing state and local taxes will quickly put an end to that for all but the richest Americans.

And those tariffs may encourage entrepeneurs to invest in American productive capacity rather than in Chinese productive capacity. That is what has been missing for the last several decades and what our economy needs. We cannot flourish as a country by being a nation solely of financiers, software designers, and health care workers with all of the builders and implementers living in China, India, Vietnam, etc. For all of us to flourish we need a broader as well as deeper economy and in my opinion that should be the objective of any policy.


Commanding the Waves to Recede

or California Dreamin’. In an op-ed at the Wall Street Journal Duke prof Steven Sexton is suspicious of the state’s assumptions underpinning its green mandate:

The California Energy Commission, which approved the rule as part of new energy-efficiency regulations, didn’t conduct an objective, independent investigation of the policy’s effects. Instead it relied on economic analysis from the consultancy that proposed the policy, Energy and Environmental Economics Inc. Its study concluded that home buyers get a 100% investment return—paying $40 more in monthly mortgage costs but saving $80 a month on electricity. If it’s such a good deal, why aren’t home buyers clamoring for more panels already? Most new homes aren’t built with solar panels today, even though the state is saturated by solar marketing.

The Energy Commission is too optimistic about the cost of panels. It assumes the cost was $2.93 a watt in 2016 and will decline 17% by 2020. Yet comprehensive analysis of panel costs by the Lawrence Berkeley National Laboratory estimated the average cost of installed panels to be $4.50 a watt for the 2- to 4-kilowatt systems the policy mandates. That is $4,000 more than regulators claim for a 2.6-kilowatt model system in the central part of the state, where 20% of new homes are expected to be built. Berkeley Lab further estimates that costs fell a mere 1% between 2015 and 2016, far short of the 4% average annual decline the regulators predict.

Now consider the alleged savings on energy bills. The commission’s analysis assumes California will maintain its net energy-metering policy, which effectively subsidizes electricity produced by a rooftop solar panel. Residential solar generators are paid as much as eight times what wholesale generators receive, according to a grid operator’s analysis of publicly available data. Dozens of states are rethinking these generous subsidies, paid by ratepayers, because they shift the costs of maintaining the electric grid to relatively poor nonsolar households. The California Public Utilities Commission is set to revisit this regressive policy in 2019—before the solar mandate takes effect.

If the subsidies are removed, solar adopters would be in the red. This is why the electricity generated by the solar mandate should be valued at the cost of its replacement from the grid—not at the subsidized rate households receive. In a presentation at the National Bureau of Economic Research earlier this year, I estimated the value of rooftop generation for each of California’s ZIP Codes using one year of price data from the grid operator. The average electricity value of the solar mandate’s model system is $12.50 a month, far less than the $80 benefit the regulators claim.

Moreover, using statistics to estimate which power plants would respond to additional solar generation, my colleagues and I also estimated the total value of the pollution avoided by the mandate’s model system to be only $6 a month. Even accepting the Energy Commission’s optimism about solar panel costs, the policy’s public benefits are only half as large.

Have no fear. When the time comes to defend the mandate, California’s politicians will defend it using some combination of sophistry, the politicians’ friend and an appeal to emotion (look at all of the people who’ve suffered from brush fires!). The practical effects of the mandate are a lot less important than showing your heart’s in the right place.

California needs to face the harsh reality that its population is already larger than the land’s carrying capacity and the state is too heavily dependent on real estate development.


A 12 Step Program for States

The editors of the Wall Street Journal are worried about the state of New Jersey:

If the first step to recovering from an addiction is admitting you have a problem, at least a few Democrats in New Jersey are sobering up. Behold recommendations last week by a bipartisan legislative commission to scale back public-employee benefits.

Democratic Senate President Steve Sweeney convened the legislators and economists in February to examine changes to state spending and taxes. Mr. Sweeney worried that the new federal limit on the deductibility of state and local taxes will make it harder for Democrats to soak the wealthy to pay for unsustainable promises to workers.

Lo, the state’s pension and retirement health benefit liability is four times the size of its annual budget, and pension payments are forecast to double over the next four years. “We want to make sure that government spending is efficient and effective,” Mr. Sweeney said.

Democrats recently raised corporate and individual income taxes—again—so it’s no surprise that the commission punted on serious tax reforms. But the commission’s recommendations on pension and health benefits could save taxpayers money, though still not commensurate to the problem.

One idea is to shift new workers to hybrid pension plans that include a modest pension as well as a defined-contribution component. State employees and retirees currently receive platinum-plated health benefits with a 97% actuarial value. The commission recommends shifting all employees and retirees to “gold” plans with an actuarial value of 80% that are comparable to what the most generous private employers offer.

Whatever New Jersey’s problems, Illinois’s are worse. Illinois’s population is actually declining and per capita income is about what it was ten years ago. On average the income of those leaving Illinois is $20K higher than those staying. No reform measure that results in future public retirees receiving lower pensions can meet constitutional muster. And although New Jersey is undoubtedly corrupt, no state matches Illinois’s record of public corruption.

Consequently, unless the legislature amends the state’s constitution, something that’s all but unimaginable, fewer people earning lower incomes will need to pay the state’s increasing obligations. Illinois’s political leaders have already rejected the voters’ “Hail Mary” pass to save the state.

Illinois may be the first state but it won’t be the last. Rhode Island, Connecticut, and New Jersey all face serious problems. Pretty soon it will be half of the states. Then all of them.


None Dare Call It Genocide

The editors of the Wall Street Journal are criticizing the Chinese government for its treatment of China’s Uighur population, too:

China’s ethnic Uighurs are disappearing. Over the last two years and with little world attention, the authorities have detained hundreds of thousands of the Muslim minority in the country’s northwest, leaving family members to wonder where they are and why they were targeted. A network of internment camps could hold hundreds of thousands, according to Adrian Zenz, a scholar who has studied the campaign, but officials deny the camps exist.

Information is now trickling out. A handful of prisoners released from the camps have fled abroad and described the mistreatment. Guards subject the detainees to re-education sessions urging them to renounce Islam and love the Communist Party. Resisters are abused or held in solitary confinement.

Many of the detained had been abroad or have relatives who are. Others seem to be picked at random. Some are released after a few weeks, while others are held indefinitely. The arbitrary nature of the detention increases the terror. The prominent Uighur ethnographer Rahile Dawut, who preaches tolerance and isn’t involved in politics, disappeared last December on a trip to Beijing from Urumqi and hasn’t been heard from.

These extreme measures are part of a wider program to control the northwest region of Xinjiang where Uighurs and the smaller Kazakh minority make up more than half of the population. Last year the region’s security budget nearly doubled and 30,000 new police officers were deployed to urban areas.

The authorities have also installed face-recognition cameras in public places. Residents must install tracking devices in their cars and monitoring software on their phones. A region-wide DNA database is under construction using blood samples taken during mandatory “health screening.”

The authorities say they are cracking down on Islamic fundamentalism. Some small-scale terrorist attacks may have been inspired by Islamic State or al Qaeda, and the Syrian government claimed that 5,000 Uighurs fought with Islamic State.

But Uighurs in general adhere to a moderate form of Islam and have long resisted radicalization. If that is changing, it is due in large part to the government’s punishment of any expression of Islamic faith. In recent years the authorities have forbidden Uighurs to fast during Ramadan, grow beards or give their children Islamic names. Officials search their homes for religious materials, and many mosques have been demolished.

Just in case we have forgotten who the Chinese authorities are.

Sanctioning individual Chinese officials or appealing to international accords to which China is signatory are laughably feeble measures. The Chinese Communist Party has violated so many of its international agreements it’s hard to know where to start. Let’s just say all of them.

There is plenty of hypocrisy on this subject to go around. Too many big U. S. companies are making too much money using China as a supplier. That’s the reason for all of the caterwauling about tariffs, particularly in the pages of the Wall Street Journal.

Not the least of the hypocrisy is on the part of Muslims. Islam is obviously under attack in China and Muslims have a religious obligation to defend their faith. But Uighurs are not Arabs.