Are we at war with Russia?

Not yet. The NATO treaty provides:

The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs … will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.

Article 5. But what is an “armed attack”? The protocol admitting Turkey to the pact says:

For the purpose of Article 5, an armed attack on one or more of the Parties is deemed to include an armed attack … [1] on the territory of Turkey, … [2] on the forces, vessels, or aircraft of any of the Parties, when in or over these territories…

But neither the protocol nor the treaty define “armed attack.” The Russian warplane did not not fire on Turkish forces but it did violate Turkish airspace and it did so despite many earlier protests by Turkey at similar incursions. The question is then whether the violation of airspace is an “armed attack.”

Like nearly every term in international law, the term “armed attack” has no agreed-upon definition. Not every use of force constitutes an armed attack. As the International Court of Justice has noted,  “As regards certain particular aspects of the principle in question, it will be necessary to distinguish the most grave forms of the use of force (those constituting an armed attack) from other less grave forms.” Yet it continues “Every State has the duty to refrain from the threat or use of force to violate the existing international boundaries of another State.” Isn’t sending a military jet a “use of force” that violates Turkey’s boundaries? On the other hand, the jet did not drop bombs on Turkey or try to, as far as we know. For this reason, I suspect that nearly everyone would regard the incursion as a violation of international law but not as an armed attack per se. Meanwhile, Turkey’s response would be deemed a lawful countermeasure and not itself an act of war.

So we are not at war with Russia, but what if Russia retaliates by bombing Turkey? Article 5 supplies wiggle room. Each of the other NATO members is required only to take “such action as it deems necessary” which may, but need not, include the use of armed force. That is the law. Politically, the story may be different.

The “take my word for it” theory of separation of powers

With Congress supine and feckless, law professors committed to the rule of law have taken to arguing that executive-branch lawyers can be trusted to ensure that the president does not break the law. That’s the argument, for example, of Trevor Morrison, the dean of NYU Law School; Jack Goldsmith also made this argument, more or less, in his book, Power and Constraint.

But what if a “deeply-sourced” journalist named Charlie Savage writes a 700-page book that shows that executive branch lawyers, in almost all cases, failed to stop the president from breaking the law? Then you double down:

Here’s Jack:

What never shows up in books like Power Wars, and what the public never sees, are the scores of times that lawyers preempt operations and policies – in a phone call, conversation, or preliminary meeting – that are clearly out of bounds.  Nor can we ever see the stream of dreamed-up and potentially useful operations and policies that never make it to a conversation because the policymaker knows that the answer will be “no” and thus never asks.  In these and related ways, law hems in the President’s decisonmaking by limiting the policy options that reach his desk.  A complete assessment of the effect of law on senior national security decisionmaking would need to compare the questionable approvals and fudges we see against the much-harder-to-perceive instances that law constrains by limiting possible courses of action.  Reporters cannot easily get at this latter type of information.

And here’s Oona Hathaway (also a former executive-branch lawyer):

Savage must get his information from sources, and those sources often have an agenda or a limited view of the issue at hand. (They are also, it bears mentioning again, often breaking their legal and ethical obligations not to disclose classified or confidential information.) That means that the glimpse he is offered is necessarily a skewed one. Add to this the fact that those who talk to Savage are, it seems, largely those at or near the top of the totem pole. Officials who labor day-in-and-day-out on the issues Savage covers — and who have an immensely important role in shaping options and strategies — receive almost no mention. It’s hard to fault Savage for this — he can’t possibly speak to everyone, and he clearly spoke to a huge number of insiders. But it does mean that he has a partial view of how the lawyering process works that doesn’t necessarily reflect the gritty day-to-day reality inside the agencies, where options and rationales are developed by lawyers, many of whom have been at the job for decades.

And, of course, Harold Koh, most pithily (albeit in Savage’s paraphrase), who says it is

easier to take purist stances from the faculty lounge than from a position of responsibility.

All of this bears only one interpretation. For the public and commentators who wonder whether the president is constrained by law, the answer is: “trust us,” the executive-branch lawyers.

Love your lawyer day: Federal Reserve legal division edition

I ran across this memo from the merry band of pranksters at the Federal Reserve legal division. The memo explains why the Fed could legally buy unsecured commercial paper during the financial crisis–that is, make unsecured loans to businesses–even though under the relevant legal authority the loans must be “secured to the satisfaction” of the Fed.

The lovable lawyers make two arguments. Argument 1 is that the Fed didn’t actually make loans to the businesses. It made loans to a special purpose vehicle that the Fed created. The SPV then turned around and loaned the Fed’s money to the businesses. The Fed’s loan to the SPV was secured by the commercial paper that the SPV acquired from the businesses in return for its (the Fed’s) money.

According to this theory, any unsecured loan to anyone can be converted into a secured loan simply by creating an SPV. You can do it yourself. Just create an SPV, lend money to the SPV, direct the SPV to lend that money to Mr Anyone in return for an IOU from him, and then call the IOU collateral for your loan to the SPV. Voila, an unsecured loan to a person with no assets turns into a secured loan.

Argument 2 is even more clever. The lawyers grudgingly admit that their first argument might be considered specious (they don’t use exactly that word) since as a matter of function the SPV doesn’t do anything at all. So in Argument 2, the lawyers observe that the Fed charges the unsecured CP issuers an “insurance fee” or premium of 1% above the normal interest rate. The “insurance fees” from all the unsecured borrowers are aggregated into an “insurance fund,” which can then pay out to the Fed if any borrower defaults. This insurance fund gives the Fed “security.”

Of course, an unsecured loan always carries a higher interest rate than a secured loan does. That higher interest rate–or call it the “insurance fee” if you want–has precisely the function of protecting the creditor from the extra risk from lending to a borrower who cannot offer collateral. So by the Fed’s logic, any unsecured loan is a secured loan as along as the interest rate for the unsecured loan is higher, as it always is. In short, there is no such thing as an unsecured loan; all unsecured loans are secured.

Happy Love Your Lawyer day!

Bernanke’s memoir

You can buy it here. I found it interesting but also disappointing, for reasons I can’t quite identify. Maybe because:

  • Bernanke extols Fed transparency–which he calls his legacy–but on numerous occasions he mentions cases where he and his colleagues hid their motives, thoughts, and actions. Why? To avoid spooking the market, to retain leverage while bargaining with banks, to allow banks to borrow without being stimgatized, etc. All good reasons, but suggesting that transparency is a more complex ideal than he lets on.
  • While Bernanke admits some errors, they are of the minor sort–having to do with leadership and presentation. He refuses to admit the biggest one: the failure to rescue Lehman, which he continues to blame on “the law,” as I note in Slate. So the error-admitting seems more like an exercise in establishing credibility than in admitting error.
  • Bernanke mocks the Old Testament types who want to punish financial institutions, but then expresses “anger” at AIG and ensures that it is punished. Which is it?

The most interesting thing I learned, or at least that I infer from the narrative, is that Bernanke wanted above all to ensure that the Fed did not take losses and pass them on to the Treasury. At the same time, he and others have criticized Sheila Bair for taking just such an approach to the FDIC insurance fund rather than focusing on the financial system as a whole. How much of the crisis response was driven by competing bureaucratic mentalities?

The bin Laden raid: where was the OLC?

The Times article describing the legal deliberations prior to the bin Laden raid mentions four lawyers: the CIA’s general counsel; the NSC’s legal adviser; the Joint Chiefs’ legal adviser; and the Pentagon general counsel. All of them, of course, did what executive-branch lawyers do: identify the most convenient legal categories needed for permitting the executive action.

More interesting, the OLC–which would normally be called upon to render the final opinion–was not included. Not just the OLC, but the entire Justice Department was frozen out. Why? Could it be that the OLC was less than cooperative when the White House sought a legal rubber stamp for the Libya intervention in 2011? Has the OLC been demoted for its insubordination?

The Executive Unbound, revisited

Since we published The Executive Unbound: After the Madisonian Republic in 2011,

  • the President has extended the 2004 AUMF to include ISIS and engaged in a “Forever War” without congressional participation;
  • taken military action in Libya, on grounds widely condemned as a transparent circumvention or violation of the War Powers Resolution, while ignoring the contrary views of the Office of Legal Counsel;
  • moved aggressively to regulate greenhouse gas emissions, through the EPA, under the authority of a statute enacted in 1970 that says little of relevance, after Congress refused to enact a regulatory scheme for climate change;
  • unilaterally announced sweeping immigration enforcement policies that effectively legalized millions of aliens, and that closely tracked the terms of a bill that Congress refused to enact;
  • unilaterally delayed rulemaking under the Affordable Care Act, despite unambiguous statutory deadlines, and funded implementation of the Act by diverting appropriations expressly devoted to other purposes;
  • missed dozens of statutory deadlines under Dodd-Frank;
  • refused to defend the constitutionality of federal statutes, and encouraged their invalidation by the courts;
  • used ‘waiver’ authority to dilute or undermine the work participation requirement of the Temporary Assistance for Needy Families program;
  • used ‘waiver’ authority in No Child Left Behind, which was included in the statute to allow state experimentation, to force states to adopt new education standards not embodied in the law;
  • justified recess appointments by a constitutional theory – upheld in principle although not as to particulars by the Supreme Court – that weakens the control of the Senate over the allocation of high offices in government;
  • defied an express statutory command, and by so doing obtained, for the first time in the Nation’s history, a Supreme Court decision recognizing exclusive and inherent presidential power to recognize foreign governments;
  • refused to enforce federal drug laws against marijuana users in states that legalized marijuana.

Sovereign is he who decides on the exception.

— Eric Posner & Adrian Vermeule

What’s the best use for Human Rights Watch’s budget?

For the past few years, I’ve been flogging the idea that money spent to enforce human rights would be more productively devoted to development aid. I make this argument in a book; and I have developed it in an article, just posted on SSRN, which argues that development agencies should not consider themselves constrained by human rights law or required to “promote” human rights, as this idea is sometimes put.

The argument is based on the premise that the “human rights regime” (which is hard to define in any event) does not actually improve the well-being of people in poor (or rich) countries. It’s too hard for outsiders–well-meaning NGOs and more ambiguously motivated governments–to figure out how to advance human rights in foreign countries, or even what that means. There is a huge amount of disagreement about what rights mean and require, and how priorities should be established in a world of limited budgets and attention spans.

A problem with my argument has always been that the same thing can be said about development aid. Although the picture is not as bleak as the human rights picture is, many economists don’t think that development aid does much good. The reasons are similar to the reason why human rights enforcement does not do much good: we (on the outside) often find ourselves flummoxed by foreign cultures, institutions, and values, which overturn the best plans.

Yet here is a paper by David McKenzie that reports the results of a randomized control trial where $36 million was randomly assigned to small businesses in Nigeria that applied for grants in a business-plan competition and reached the semi-final round. The winners received grants of around $50,000. Over the next several years, they hired many more people , innovated more, and earned larger profits than the control group. By stimulating economic activity, the donations did more than just transfer a fixed sum of money to people in a poor country.

Meanwhile, HRW’s budget was $65 million as of 2013. It’s an article of faith that HRW does good, but there is no evidence whatsoever. HRW’s donors should use this paper as an opportunity to exercise effective altruism and redirect their donations accordingly.

What does the collapse of European integration mean for international law?

The flood of refugees into Europe–which will likely end badly–shows once again the inability of European institutions to handle a crisis. The source of the problem is the abolition of border controls without the creation of a pan-European homeland security agency and other institutions for allocating resources and sharing burdens. Europeans wanted the convenience of a borderless continent without the risks to national sovereignty that would have resulted from the creation of an agency with coercive powers. The problem parallels the debt crisis, a result of the abolition of currency borders without the creation of a pan-European fiscal and banking authority. European integration, once seen as a juggernaut and a model for the world, has been in crisis since 2009. I have more on this in Slate.

But the question I want to ask here is what does this chain of crises mean for international law. Back in 2000, law professor Peter Spiro wrote a piece in Foreign Affairs criticizing a tiny gaggle of American international law academics who expressed doubts about what Spiro saw as the inevitable triumph of international legal norms. These “New Sovereigntists” hold thee positions:

The first impugns the content of the emerging international legal order as vague and illegitimately intrusive on domestic affairs. The second condemns the international lawmaking process as unaccountable and its results as unenforceable. Finally, New Sovereigntism assumes that the United States can opt out of international regimes as a matter of power, legal right, and constitutional duty.

While these New Sovereigntists were writing about the United States, not Europe, Europeans might be forgiven for regretting that they never took them seriously. Intrusion on domestic affairs? That’s what Eastern European countries think about refugee policy and the Southern countries about austerity. Unaccountable and unenforceable? That would include laws that were supposed to stop countries from accumulating too much debt and from allowing migrants to travel outside the country of arrival. The happiest countries are those which opted out of the eurozone, and the UK must be feeling pretty pleased that it’s not in the Schengen area. Sovereignty might have slumbered for a few post-Cold War years, but it is returning with a vengeance.

The rise of statistics in law

Rise of SS_23July15

These graphs show the frequency of the term “statistical significance” or “statistically significant” in judicial opinions and law review articles over time. The graphs should not be surprising and yet they should also be alarming for the legal profession. Few lawyers and hardly any judges have statistical training or more than a rudimentary understanding of statistics. This is all too evident in judicial opinions. Law schools are just beginning to catch up–by hiring people with statistical training–but haven’t figure out a way to give students usable statistical knowledge.

There are some helpful books–most recently, An Introduction to Empirical Legal Research by Lee Epstein and Andrew Martin. We highly recommend it. Holmes said that “For the rational study of the law the blackletter man may be the man of the present, but the man of the future is the man of statistics and the master of economics.” His prediction is finally coming true. But are our students prepared?

— Adam Chilton & Eric Posner

The UN Human Rights Council: “all the cops are criminals…”

Screen Shot 2015-07-16 at 4.01.54 PM

Here’s a fun chart, put together by my colleague Adam Chilton. The blue dots show the average human rights performance of all UN members. The red dots show the human rights performance of the members of the special UN human rights body that is supposed to monitor and enforce human rights law. Yes, the members of the human rights body do a lot worse than the average country. Why? Well, it makes sense if you are a human rights violator to lobby for a position on the human rights body, where you can protect yourself from criticism by forming coalitions with other abusers. (The scores for each country are from Chris Fariss’ data set.)

Screen Shot 2015-07-16 at 4.02.08 PM


But there is hope for non-skeptics. The UN abolished the much-despised UN Commission on Human Rights and replaced it with the UN Human Rights Council in 2006, and made some effort to improve the membership. As both charts show, the human rights performance of the members increased noticeably. Still, not as good as the average country.

King v. Burwell and ideological independence

Subject as always to confirmation bias, I’m going to interpret the votes in this case as further support for my argument that the Republican appointees are fragmenting. It’s striking that both Roberts and Kennedy joined the liberals.

partisan independence

See my earlier posts on this topic. What is the explanation? Here are a few (overlapping) possibilities:

1. Kennedy and Roberts are more ideologically moderate than the other Republicans.

2. Roberts is concerned about the legitimacy of the court.

3. Only the Republican appointees take the law seriously, and so are willing to disagree with each other. The Democratic appointees march in lockstep because they care about outcomes.

4. Sunspots; the alignment of the stars; tidal forces.

Partisanship and the supreme court: summary

Agrees with co-partisans Disagrees with co-partisans
Agrees with counter-partisans Bridge-builders: Kennedy, Roberts Traitors: ∅
Disagrees with counter-partisans Loyalists: Kagan, Ginsburg, Breyer, Sotomayor, Scalia, Alito Mavericks: Thomas

Something like this. Perhaps, Justice Stevens could be classified as a traitor (to his party–he was appointed by Nixon Ford but in later years voted with the Democratic appointees–which is not the same thing as saying that he was a bad justice, of course). Among the loyalists, Scalia and Alito vote in a less consistently partisan manner than the other four.

The table is based on my previous posts: here, here, and here.

Partisan independence on the supreme court

partisan independence

Define partisan independence as the ratio of cross-party agreement to cross-party disagreement. Partisan independence is highest for those who both frequently disagree with co-partisans and frequently agree with counter-partisans. Kennedy and Roberts lead the pack. In the second group are Scalia and  Alito. Thomas now clusters with the Democrats. While Thomas often disagrees with co-partisans, he also often disagrees with counter-partisans–the two tendencies cancel out.

Cross-party agreement in the supreme court

cross-party supeme courtHere is another angle on the relationship between partisan identity and agreement on the supreme court. Three clusters appear. Kennedy and Roberts are most likely to vote with counter-partisans–in their case, the Democratic justices. Thomas (a cluster of one) is least likely to vote with counter-partisans. The remaining justices–the four Democrats, Scalia, and Alito–fall in the middle. As before the 2014 term seems to magnify trends that are perhaps (with the benefit of hindsight) partly discernible in earlier years. Data from Scotusblog.

Partisan agreement in the supreme court

within party agreement sup ctThis graph shows that Republican-appointed justices disagree among themselves more often than Democrat-appointed justices, who march almost in lockstep. What accounts for the striking acceleration of the trend this year? While some of the most polarizing cases have not yet been decided, I’d be surprised if the final cases make much difference in the pattern. Data source: Scotusblog.

The perils of financial predictions

I’m reading a 2011 book called Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance by Viral V. Acharya, Matthew Richardson, Stijn van Nieuwerburgh, and Lawrence J. White. This is a serious book by reputable scholars. I’ve made it to p. 3, where they write:

[T]he chances are slim to none that either Fannie or Freddie will be able to pay back the funds [they received from the government]…. So where is the outrage?

And yet as we know, Fannie and Freddie have paid back the government (or, more precisely, the government has made money on its investment in preferred stock).

Here is the paradox or irony or whatever you want to call it. During the financial crisis, we learned that the CDOs and other mortgage-backed securities that everyone thought were safe were based on assumptions about housing prices and underwriting standards that turned out to be wrong. Their market value plunged as people stopped trading them. The government saved the day by lending widely so people could hold onto these securities until maturity or reduce their exposure to them.

The proper inference was “these securities are hard to value.” The actual, wrong response was “these securities are worthless [or close to worthless].” Of course, if the securities are hard to value, we don’t know whether they are worthless or not. And yet it seems that nearly everyone draw exactly the wrong lesson. People had as much unwarranted confidence in their valuations of the securities after the crisis as they did before; they simply changed what they thought the valuations were–from high to low. And they were wrong again.

Has the Supreme Court become less ideological?

Or, maybe I should have asked: Have the Republicans on the court become less ideological?

Justice Same-Party Agreement, % Opposite-Party  Agreement, % Propensity to Same-Party Agreement
Roberts 74.5 82.3 0.91
Kennedy 73.8 84.8 0.87
Scalia 76.5 74.3 1.03
Alito 77.3 75.3 1.03
Thomas 73.5 62 1.19
Breyer 92.7 82.5 1.12
Ginsburg 91.3 75.2 1.21
Sotomayor 91.3 74 1.23
Kagan 90.7 77.3 1.17

The numbers in the second and third columns are averages derived from Scotusblog (scroll down to the bottom). The last column is the second column divided by the third, so >1 means greater agreement with co-partisans.

Roberts and Kennedy are more likely to agree with the Democrats than with the other Republicans. I don’t think this has happened before. Last year, Roberts agreed with his co-partisans 88.8% of the time, and his opposite-partisans 81% of the time. For Kennedy, it was 86.8% and 82.25%. The Democrats and Thomas follow the ideologically polarized pattern of prior years.

The human development index

The human development index (HDI) was developed in the wake of Amartya Sen’s critique of development policy that is oriented toward GDP growth. Sen argued that development policy should promote freedom as well. The authors of the HDI included various measures of freedom (or mostly: of human well-being) like political rights, literacy, and health. As the graph below shows, however, a policy of promoting GDP is not much different from a policy of promoting HDI, especially given how noisy both these measures are.hdi

Law Profs. with PhDs & Data Collection

A guest post by Adam Chilton:

UCLA law professor Lynn LoPucki recently posted an article examining 120 empirical papers that were published in 15 leading law reviews and the Journal of Empirical Legal Studies. LoPucki coded these articles to see who was writing them, and what kind of data they used. The paper’s primary finding is that articles in the dataset written by law professors without a PhD were more likely than those with a PhD to code original data instead of using existing dataset sources. From this fact, LoPucki concludes that there is a “reduction in coding resulting from the hiring of more J.D.-Ph.D.s” that is undesirable for the legal academy. 

I have two thoughts about this interesting finding. First, I don’t think that we can infer from LoPucki’s paper that law professors with PhDs actually code less data. The reason is that LoPucki’s units of analysis are papers and not professors. It could be the case that law professors with PhDs code new data for a lower percent of their empirical articles, but still collect new data for a much higher absolute number of papers. LoPucki’s claim could be true–and I don’t have data to suggest otherwise–but I don’t think that it’s demonstrated in his current paper.

Second, I’m not persuaded by the claim that the measure of a good empirical legal studies paper is whether it codes original data. To be fair, LoPucki’s argument is not that coding original data is necessarily important for all disciplines. Instead, his argument is that  coding original data is important for legal scholarship because it typically requires direct engagement with legal materials like cases or statutes.

I think that for all empirical papers–whether written by law professors or economics professors–the question of whether to collect original data or use existing data sources should depend entirely on what data are already available. For some topics it would be a waste of resources to reinvent the wheel, and for other topics collecting new data may be absolutely necessary. I think that an empirical legal paper is valuable if it credibly brings new evidence to an important topic, not if the dataset was coded specifically for the paper.

Martin Schmalz: How passive funds prevent competition

Guest post by Martin C. Schmalz, University of Michigan.

Last week, Nelson Peltz’s hedge fund Trian lost a proxy fight at DuPont. The outcome of the battle received much attention, among others because the “passive” investors Vanguard, BlackRock, and State Street were instrumental in making his bid fail – they voted against him. Commentators have ex-post rationalized the failure of the campaign with gaps in some of Peltz’s arguments, his personality, and other factors. Curiously, nobody seems to have taken a look at how Peltz’s and the “passive” funds’ economic incentives differed. This note takes a first look at those, and comes to rather interesting conclusions.

According to Trian’s presentation filed with the SEC, the primary goal of Peltz’s campaign was to help DuPont achieve “best in class revenue growth.” He points out that DuPont’s performance in recent years was satisfactory only because of a positive industry-wide trend, but not if measured relative to DuPont’s competitors. Note for later that the first peer mentioned for comparison in the presentation is Monsanto. A second point of critique concerned DuPont’s lack of aggressive investment in R&D and other measures to gain market share. Third, Trian criticizes DuPont’s CEO for selling a large fraction of her shares in DuPont under the tenure of the index funds, a move that weakened her incentives to make DuPont perform well as an individual firm and strengthen the firm’s relative competitive position. Fourth, Peltz criticizes that DuPont willingly violated a Monsanto patent, then chose to pay $750m more than required in a settlement, and entered a licensing agreement with Monsanto until 2023, effectively pre-committing future cash flows to the competitor. Peltz also criticizes DuPont for “paying competitors” for such licenses more generally.

Peltz’s arguments make perfect sense according to the conceived wisdom reflected in corporate finance textbooks, which assume that all shareholders are undiversified: Peltz’s motion for an increased use of relative performance evaluation, for steeper CEO incentives and against wealth transfers to competitors at the expense of DuPont’s shareholders – textbooks would consider all of these measures value-enhancing improvements of DuPont’s corporate governance. Also, Institutional Shareholder Services (ISS), a proxy advisory firm, supported Peltz’s campaign.

As we know since last week, these arguments left DuPont’s largest shareholders – the diversified investors Vanguard, BlackRock, and State Street – unimpressed. They voted against Peltz, leading to a rejection of his bid, and a multi-billion dollar drop in DuPont’s stock price (indicating the market also thought DuPont would have been more valuable with Peltz on the board). So why did the mutual funds not share Trian’s goals?

To answer that question, it is instructive to see who DuPont’s competitors are. A quick browse gives a first indication why Peltz considers Monsanto to be DuPont’s primary competitor:  Monsanto and DuPont are the two firms dominating the seeds market, and Monsanto is DuPont’s next-largest competitor in the fertilizer and pesticides market.  Conversely, these two markets generate almost all of Monsanto’s revenue.[1]

schmalz tables 1 and 2

Peltz believes competing harder would increase DuPont’s value. For example, DuPont could decrease prices in the seeds market, and thus increase its market share. The stock market, as indicated by the stock price reaction amid the news of Peltz’s failed bid, appears to agree. The lower market prices for seeds would also lead to greater output and ultimately lower product prices for consumers – for short, greater economic efficiency. However, it would hurt Monsanto’s shareholders if DuPont were to compete more aggressively: DuPont’s increase in market share would come at the expense of Monsanto’s. So who are Monsanto’s shareholders?

It turns out that the same “passive” funds that helped reject Peltz’s bid at DuPont are – in the same order – also the dominant shareholders of Monsanto. In fact, with the exception of Peltz’s Trian Fund, the two firms’ top shareholders are almost identical.

schmalz table 3

The “passive” funds have no reason to object against cash transfers from DuPont to Monsanto – it’s just a transfer from one pocket to the other. Of course, Peltz (and everyone else who has a sufficiently steep interest in DuPont’s value) should object. That is the first source of imperfectly aligned incentives between the passive funds and Trian.

The more important insight, however, is that the common shareholders of the two firms would suffer from increased competition. Because prices would be lower, so would be the combined revenue and profits of DuPont and Monsanto. That outcome is in strict discord with the economic interests of Vanguard, BlackRock, and State Street. That is the second – and socially important – source of disagreement between the economic interests of Trian and the mighty mutual funds.

Here is one last nugget. Guess which company among DuPont’s competitors experienced a major change in stock price while DuPont’s price dropped in response to the news that Peltz’s bid failed. From market close on Tuesday to opening on Thursday, Monsanto’s shares gained 3.5%.

It appears that a dispassionate look at different shareholders’ economic incentives supplies a rather simple rationale for why the passive funds did not themselves enforce relative performance evaluation, protest the weakening of DuPont’s CEO’s incentives, encourage more R&D and gains in market share, and so forth.[2] Doing so simply isn’t in their economic interest. Peltz’s campaign, by contrast, aimed at increasing DuPont’s value in isolation, by strengthening DuPont’s relative competitive position. Predictably, the mutual funds voted against him.[3]

Before we conclude, pay attention to the dog that didn’t bark: Peltz’s failed campaign sends a strong signal to activists with similar goals as those Peltz tried to advance. If not before, then now they know: the combination of the index funds’ economic interests and voting power makes it unlikely that a campaign aimed at tougher competition will pass the ballot – so it might not be worth it to target a firm with these goals in mind in the first place.[4] That is how common ownership by “passive” funds can cause anti-competitive outcomes. If we want lower product prices, and higher output and efficiency, then taking a close look at the power and industrial organization of the asset management industry might be a good place to start.

[1] I haven’t gotten around to finding data on DuPont’s other product markets, which is why the following analysis is limited in scope and the external validity of its conclusions.

[2] Of course, this analysis does not prove that the passive funds voted against Peltz because he wanted DuPont to outperform the peers held by the passive funds, or because he criticized the voluntary wealth transfers to Monsanto and the lack of steep CEO incentives. Yet, whatever the reasons why the passive investors voted against Peltz, be it their economic incentives or other considerations, it is undisputable that their vote did prevent a campaign aimed at tougher competition. They thus caused less competition, compared to what it otherwise would have been.

[3] This outcome was indeed predicted. In this paper, my coauthors José Azar, Isabel Tecu, and I wrote: “owners generally need to push their firms to aggressively compete, because managers will otherwise enjoy a “quiet life” with little competition and high margins. Only shareholders with undiversified portfolios have an incentive to engage to that effect, while only large shareholders have the clout to do so. However, the largest shareholders of most firms tend to have diversified portfolios and therefore reduced incentives to push for more competition, whereas smaller undiversified investors don’t have the power to change firm policy without the support of their larger peers.”

[4] Opportunities abound for activist campaigns that didn’t or will never happen: very many U.S. firms are commonly owned by a similar set of diversified mutual funds as those owning DuPont and Monsanto. Here are a few examples.

Citizenship for sale

In Slate, I criticize the US citizenship-for-investment (effectively, citizenship-for-sale) program, while defending other countries that have dabbled with this approach.

I wasn’t able to find much research on the EB-5 visa program. It’s a good topic for someone to write about.

The Failure of Constitutional Torture Prohibitions

Torture ProhibitionsA guest post by Adam Chilton and Mila Versteeg:

As the graph above shows, about 84% of countries now have prohibitions against using torture enshrined within their constitutions. Given the recent revelations that even wealthy and democratic countries like the United States have engaged in torture, it’s worth asking whether these constitutional prohibitions have helped to actually reduce torture.

In a short article on the Washington Post’s Monkey Cage blog, we explain our recent research that finds that constitutional torture bans have not reduced torture. Although the available data on rates of torture around the world obviously isn’t perfect, a few widely used datasets have been developed. After analyzing these datasets, we’ve found that countries with torture prohibitions torture more than those without, and that rates of torture do not go down after torture prohibitions are adopted.

Although our Monkey Cage post relies on raw data to make our argument, in our academic article on the topic we use a variety of more sophisticated empirical methods. We specifically rely on a new method developed by the political scientist Yoanthan Lupu designed to address the endogeneity concern that plagues human rights research: decisions to adopt human rights protections are systematically related to human rights practices. Although Lupu uses this method to study human rights treaties, we use it to study constitutional rights. The basic idea is that we first estimate countries’ constitutional preferences using a technique known as ideal point estimation, and then match countries together based on those preferences and a range of other variables. We are then able to estimate the effect of torture prohibitions on torture rates.

When using this method, and a range of more conventional regression techniques, we do not find any evidence that constitutional torture prohibitions have reduced torture. Moreover, not only do the estimated effects of constitutional prohibitions never achieve statistical significance in the dozens of regression models we use in our paper, the estimated effects are consistently substantively small as well. Our findings thus suggest that if we want to reduce levels of torture around the world, we have to find a better way to do it than just enshrining torture prohibitions in constitutions. If you’d like to learn more about our research on the topic, our paper is available on SSRN.

Why you should write for the New Rambler Review

The New Rambler Review takes its name from Samuel Johnson's The RamblerMany academics consider it a professional obligation to write reviews of new books in their field. The reviews are published in academic journals which are hidden behind firewalls, so that they can’t be read by the public. And because most academics don’t read journals in other disciplines, an interesting book with cross-disciplinary appeal can easily be overlooked.

This is a wasteful legacy from the dead-tree era, and the NRR aims to fix it. The NRR is accessible to everyone with a browser. More to the point, if you read a book and are curious what experts think about it, you can find an NRR review just by googling the book. Not only that, the review is likely to appear on the invaluable first page of the Google search results.

Take, for example, Michael Glennon’s new book, National Security and Double Government. This is a book that anyone might read. If you type “Glennon National Security Double Government” into Google, you’ll find the NRR review of it by Clifford Bob on the first page of the search results. You won’t find this review, which appeared in the academic journal Public Choice. Even if you do, you won’t be able to read it unless you belong to an academic institution with a site license or are willing to shell out $39.95 (!).

So if you see a book that you think the public should know about, would like to review it, and want people to be able to find and read your review, contact us.

More on mutual funds and antitrust

Last week, Glen Weyl and I published a piece in Slate that argued that mutual funds and other institutional investors were cartelizing the airline industry, and very likely other industries as well. Our piece was based on an academic paper by Azar et al., which found evidence that a merger between two major institutional investors with large stakes in the airline industry caused ticket prices to rise. To remedy this problem, we proposed restrictions on mutual fund investment within industries. (No, we did not propose banning mutual funds.)

Mathew Klein at the Financial Times and Matt Levine at Bloomberg disagree. (Klein: a “wacky idea.” Levine: “I tweeted about Posner and Weyl’s article and the reactions were, I think it is fair to say, uniformly incredulous.”) Joshua Gans does agree, and provides an extremely lucid account of the underlying theory. A few responses:

  1. We don’t oppose all mutual funds, just those that cartelize industries. Mutual funds that buy shares of firms across industries, rather than within industries, get a pass. The gains from further diversification within industries after the benefits from diversification across industries are obtained, are tiny. Moreover, small funds can buy shares within industries without harming anyone. The key is balancing the gains from diversification and the costs of cartelization.
  1. As Piketty shows, most capital is owned by the wealthy, and is far more concentrated than labor income or consumption. Reducing the returns on capital would not harm middle-class owners of capital very much, and would be offset by the reduction in prices of goods and services they buy. In an ideal world, middle-class mutual fund investors would instruct the funds not to cartelize the industry at their own expense, but obviously they cannot do that. They rationally chase the highest returns, in the process causing harm to each other.
  1. While we proposed regulation of 401(k)s, this was not meant to be an exclusive remedy. The problem is cartelization; the most natural response is enforcement of antitrust law. But a starting point is removal of a tax subsidy that benefits mutual funds that try to cartelize industries.
  1. The decline of airline prices over time does not refute Azar’s argument. The prices are still higher than they would be if the market was less concentrated. But the airline industry is not the issue. That’s just where Azar and his coauthors looked for evidence. If they are right about airlines, then the problem is general to the economy. The real puzzle is: where are the antitrust authorities?

Shaming is back!

Law professors of a certain age will remember that back in the 1990s, there was a debate about whether courts should impose shaming sanctions on offenders. This debate was caught up in larger discussions about the relationship between social norms, nonlegal sanctions of all sorts, and the law. But there was always an academic quality to this debate. It seemed at the time that shaming could not be an effective tool of social control in a huge, mobile, mostly anonymous society. So we all imagined shame and other social sanctions in confined settings: neighborhoods and communities, merchant and professional groups, and so on.

That was then. One Internet later, everything has changed. I discuss on Slate.

The Most Good You Can Do

In Slate, I discuss Peter Singer’s new book, The Most Good You Can Do. I like Singer’s utilitarian outlook, and I like the way he follows its logic into all kinds of dark corners, though I like less his attempt to prettify it in order to make it seem appealing to ordinary people.

Despite offering a surprising paean to capitalism (see p. 50 if you don’t believe me), Singer doesn’t take institutions very seriously, which I think is a problem in much of his writing (above all, in One World). Institutions coordinate people’s behavior for the common good; the sort of uncoordinated giving through philanthropic organizations for the benefit of impoverished foreigners won’t work, at least not at a large enough scale to make a difference, or that is at any rate the lesson I take from the foreign aid literature. Foreign countries have their own cultures, institutions, practices, and values. Agency costs exist in charitable organizations just like in for-profit organizations. All of these things spell trouble for “effective altruism” if understood to be committed to searching out those with the highest marginal utility per dollar. That said, by all means give your dollars to GiveDirectly or the other charities recommended by GiveWell if you want to maximize aggregate well-being, conditional on not too many other people doing the same.

There is a tension in the book between Singer’s relentless utilitarianism and human psychology. If you take Singer-the-philosopher seriously, then basically anything you do kills someone in the developing world. X number of ice cream cones means so much money less for malaria nets that will save the lives of children in Africa. Here is a philosopher who finally takes opportunity costs seriously! Singer simultaneously thinks that you should forgo the ice cream cones and somehow absolves people who don’t go this far, recognizing that the psychological burden of effective altruism is immense if taken to the extreme. Everyone has limits, he admits.

It’s clear why he does. Singer is afraid to scare off people who are willing to donate 10 or 20 percent of their income by telling them that they are not acting ethically unless they donate 80 or 90 percent of it. Singer’s style of utilitarianism may be philosophically impeccable, but it is a loser when it comes to motivating people. He tries to get around this by saying that the 10-percenter is more ethical than a purely selfish person, so one can take comfort in that. But people really want to know whether they are behaving ethically or not–yes or no–not where they fall on a scale, and Singer can’t answer that question to their satisfaction.

International Water Law: Egypt, Ethiopia, and the Nile

A guest post by Daniel Abebe:

To many people, water law might not sound like the most exciting area of international law but it is becoming an increasingly important issue. The dispute between China on one side, and Vietnam, Laos, Cambodia, and Thailand on the other, over the Mekong River affects access to water for millions of people in Southeast Asia. In more volatile parts of the world, Iraq, Syria, and Turkey have not agreed on dividing the Tigris and Euphrates Rivers, while the Jordan River is subject to dispute among various countries in the Middle East. Perhaps most prominently, Egypt, Ethiopia, Sudan, and other countries in the Nile River Basin, have failed to agree on the equitable division of the world’s longest river, the Nile. As populations grow and economic development demands greater access to water resources, these disputes will likely become more intractable.

But just a few days ago, the leaders of Egypt, Ethiopia, and Sudan signed an initial agreement in which they pledged to better share the Nile River’s waters and, according to Egyptian President Al-Sisi, realize “mutual gains for everyone and avoid damage to any party.” Although the key details have not been negotiated, the impetus for the agreement was Ethiopia’s decision to construct the Great Ethiopian Renaissance Dam on the Blue Nile, the Nile’s largest and most important tributary originating in Lake Tana, Ethiopia. In Egypt, Ethiopia, and the Nile, The Economics of International Water Law, I analyze the dispute, describing the complex legal, political, economic, and national security issues that have made reaching a comprehensive agreement on the Nile between Egypt and Ethiopia so difficult. The importance of the Nile to both countries is clear. For example, since the Great Ethiopian Renaissance Dam has the potential to reduce the Nile’s downstream water volume — and the Nile provides 96% of Egypt’s freshwater and the Nile Valley hosts 98% of Egypt’s 85 million people — Egypt had been vehemently opposed to its construction. Ethiopia, on the other hand, wants to exploit its water resources — Ethiopia provides over 85 percent of the Nile’s volume but utilizes less than 1 percent of the Blue Nile — to provide hydro-electric power to a growing population. Any final agreement would not only have to delineate a mutually agreeable division of the Nile’s waters, but also include mechanisms for implementation, monitoring, enforcement, and compensation for violations between two non-democracies with a long history of mistrust. In short, stay tuned. If you want to learn more about the dispute between Egypt and Ethiopia over the Nile or potential approaches to resolving it, the paper is available on ssrn.

Visiting International Organizations & the Mechanisms of International Law

31382A guest post by Adam Chilton:

There are three pillars of international law: international human rights law, international humanitarian law (also know as the laws of war), and international economic law. Over the last week, I tagged along with a group of overachieving University of Chicago Law School students who decided to spend their spring break in Geneva visiting the international organizations most directly associated with each of these three branches of international law. When visiting these institutions, I was struck by how clearly each of their approaches to hosting visitors illustrates the mechanisms that scholars argue they use to change countries’ behavior.

The United Nations Human Rights Council (“HRC”) is a committee made up of 47 countries that tries to monitor the human rights practices of all countries that are members of the UN. The HRC meets in a large assembly room in the UN building in Geneva. The HRC’s room has seating areas for both the press and the public to watch their meetings, and webcasts all of the proceedings live. When we met with the HRC spokesman, he spoke about how social media engagement is one of the primary ways the Committee accomplishes its goals. The message was clear that HRC’s goal is to raise awareness of human rights abuses by engaging the public.

The International Committee of the Red Cross (“ICRC”) is the international organization that tries to monitor and promote compliance with International Humanitarian Law. Similar to the HRC, the ICRC headquarters in Geneva have public-facing spaces designed to make the work performed by the ICRC accessible to visitors. This includes a museum that documents the work of the ICRC and that outlines the major violations of the laws of war over the last century. The ICRC also runs courses for visitors on the basics of International Humanitarian Law. The ICRC’s goal is to clarify what is required of states during war, and to make the rules and violations well known.

The World Trade Organization (“WTO”) is an international organization that administers the international trading system. Unlike the other two organizations, the WTO does not offer daily tours or have an elaborate welcome center. Instead, visiting the WTO is a bit like visiting a law firm. You have to check in at a reception desk, and wait for an official to escort you into the building. We met with five WTO officials over two days. The officials were incredibly generous with their time, but I found it notable that not one discussed the importance of raising public awareness or how they utilize social media. Instead, the constant message was that the WTO system is increasingly weighed down by its own success. In short, too many countries are using the WTO dispute resolution system to adjudicate trade disputes and the organization is stretched thin trying to handle all of the cases.

For all three institutions, the way they engage the public reflects the mechanisms that scholars have agued that these bodies of law use to influence state behavior: international human rights law tries to raise awareness of abuses to create domestic political pressure for countries to improve their rights practices; international humanitarian law tries to clarify the obligations of states during war to create a common understanding of what practices are acceptable; and international economic law channels disputes into legal processes that are then enforced by reciprocal suspension of economic concessions.

Debate about the right to be forgotten

You can watch a debate about the right to be forgotten between me and Paul Nemitz (pro) and Jonathan Zittrian and Andrew McLaughlin (con) here. Nemitz is a top EU privacy official with extraordinarily deep knowledge of privacy matters, while Zittrain is an internet law expert and McLaughlin is the CEO of Digg with extensive government and NGO experience.

I like to think our side landed some blows, but measured by audience reaction, our clock was thoroughly cleaned (is that the right expression?). Nemitz emphasized the political dangers of a world in which information about everyone is available on the Web, and hence available to the government, which can use it to monitor and control the public. I emphasized the personal costs in a world in which one’s identity is defined by search results that reflect a slip-up from decades ago.

I suspect that Nemitz’s argument made little headway with the New York audience because government repression based on surveillance is just not a part of historical memory in America, unlike in Europe. And my argument was probably too abstract (despite my uncharacteristic effort to pluck heartstrings). Although there are famous examples of people who lose jobs and suffer other harms because of some indiscretion that makes its way on the web, I think this worry seems remote to most people, at least so far, and there is a tendency to blame people for their indiscretions, however minor and whatever the consequences.

On the other side, McLaughlin and Zittrain warned of the dangers of censorship, and the risk that the right to be forgotten would be enforced in an arbitrary fashion. They also skilfully painted a dynamic and optimistic portrait of the Web as self-correcting; the harms that the right to be forgotten would address in blunderbuss fashion will eventually be addressed by the Web itself, as search engines and other institutions respond to public demand for more nuanced and fairer search results. Regulation at this point would short-circuit these developments.

The bottom line is that in America (unlike in Europe), even in the upper west side of New York, people trust corporations more than they trust the government.

The Doctrinal Paradox & International Investment Law

A guest post by Adam Chilton

When multi-member courts have to decide cases that involve multiple connected issues, the outcome of the case can change based on how the court counts the votes. This well documented phenomenon is known as the Doctrinal Paradox. Although it’s possible to explain the paradox more formally, it can easily be explained with a simple example borrowed from the philosopher Philip Pettit.

Imagine that a three-judge panel has to decide liability in a torts case. To determine whether there is liability, imagine that the judges first have to decide whether the defendant caused the harm, and that they then have to decide whether the defendant had a duty of care. The judges’ votes on these two issues will then determine whether they think there is liability. Now imagine that the judges vote in the following way:

Issue 1:

Cause of Harm?

Issue 2:

Duty of Care?



Judge A




Judge B




Judge C








In this case, there are two votes in favor of each sub-issue, but only one judge that thinks the defendant should be found liable. If the court counts the votes issue by issue, the defendant would be liable (this is known as “issue-based voting”). If the court instead goes with the overall votes of the judges, the defendant would not be liable (this is known as “outcome-based voting”). In these scenarios, how the case is resolved is entirely dependent on which aggregation method the court uses to count the votes.

A few years ago, Dustin Tingley and I wrote a paper explaining that the conditions for the doctrinal paradox are increasingly present in international adjudication generally, and that this problem is likely to arise during international investment arbitration specifically. Although we were pretty confident that this was an issue that investment arbitrators would eventually have to resolve, we weren’t sure which aggregation rule would prevail.

Dustin and I were just notified that a doctrinal paradox has recently occurred in an international investment arbitration, and that our analysis was brought up in the proceedings. In Alapli Elektrik B.V. v. Republic of Turkey, the arbitrators had to decide whether they had jurisdiction to hear the case. The facts of the dispute are complicated, but essentially there were multiple arguments made by the defendant for why the panel did not have jurisdiction to resolve the case. One of the arbitrators disagreed with every one of the defendant’s jurisdiction arguments, and thus thought that the panel had jurisdiction. The other two arbitrators concluded that the panel did not have jurisdiction to hear the case, but they reached that conclusion for different reasons. Given this distribution of votes, issue-based voting would result in a finding that the panel had jurisdiction, but outcome-based voting would result in a finding against jurisdiction.

Alapli Elektrik B.V. v. Republic of Turkey demonstrates that the choice of aggregation rule can change the outcome of international adjudications.  Ultimately, the panel elected to go with outcome-based voting (a decision that was affirmed during an annulment proceeding), but this isn’t binding on all future international courts or even investment arbitrations. There are principled reasons for selecting either aggregation rule, and it might be worth the time of scholars to debate which method is most appropriate for international adjudications. If you want to learn more, our paper is on SSRN and the annulment decision is publicly available here.

The Influence of History on Human Rights

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A joint post by Adam Chilton & Eric Posner:

In a new working paper–The Influence of History on States’ Compliance with Human Rights Obligationswe argue that scholars studying human rights could learn a lot from development economics.

There are considerable differences in countries’ levels of respect for human rights. Human rights scholars trying to explain these differences have focused on current variables. These current variables include things like whether countries have ratified international agreements or included specific protections in their constitutions.

There are also considerable differences in countries’ levels of wealth. Development economists trying to explain these differences have focused on the influence of history. For example, development economists have examined the influence of geographic factors, technological adoption hundreds of years ago, and the development of high-quality institutions centuries ago on countries’ current GDP.

If the legacy of history is a powerful predictor of economic differences between countries, it follows that history should explain the differences in countries’ respect for human rights. The graphs above illustrate this point. The graph on the left plots countries based on their latitude and GDP Per Capita in 2010. As the graph clearly shows, there is a strong,  positive relationship between these two variables: countries further from the equator are wealthier. The graph on the right plots countries based on the number of years since they adopted women’s suffrage and their current levels of women’s economic rights (this data is from the widely used CIRI human rights dataset). Once again, there is a strong, positive relationship: the same countries that respected women’s rights a hundred years ago respect women’s rights today.

In our paper, we develop this argument by testing the relationship between historical variables used in the development literature and current human rights practices. The results provides evidence suggesting that a number of the variables from development economics are powerful predictors of respect for human rights. If you’d like to learn more about our argument, method, or results, the paper is now available on SSRN.

King v. Burwell: my prediction

Okay, I’ll say it. I predict that the plaintiffs will win  by a vote of 5 to 4. Not that they should. Why?

1. While I agree with the government that Chevron deference is warranted, this doctrine is too squishy to constrain a majority of the Court. Academic research shows that Supreme Court justices don’t take Chevron very seriously.

2. And while I think the government’s interpretation is better than the plaintiffs’, I don’t think the plaintiffs’ interpretation is crazy. This sort of thing–where the relevant statutory language taken in isolation seems clear and is allowed to trump context even if context provides powerful evidence that the language was not intended–happens all the time in the courts. Whatever you think of textualism and how it should be done, the conservative justices won’t have to engage in embarrassing linguistic gymnastics to find for the plaintiffs.

3. And, finally, as I explain in Slate, justices who hate Obamacare and see it as an extension of the hated New Deal administrative state will, even if they try to be conscientious, find the plaintiff’s interpretation more persuasive. This is the well-known power of motivated reasoning. Not that I’m subject to motivated reasoning, or am I?

New Rambler Review

Announcing The New Rambler, an online review of books. Its mission is to publish high-quality reviews of intellectually ambitious books, in the spirit of The New York Review of Books, The Times Literary Supplement, and the back half of the (old) New Republic.

Our first few reviews are up. We’ll be adding new reviews every day or two for the next few weeks.

Check out the site, and let one of us know if there is a book that you’d like to review or see reviewed.

More thoughts on Judge Hanen’s opinion on DAPA

At Slate. I thought the opinion was interesting but unpersuasive. Josh Blackman, by contrast, likes the opinion but not because of what it says:

Judge Hanen, however, showed his hand by explaining that the president had engaged in a “complete abdication” of the law. Rather than enforcing the law, Hanen saw Obama’s actions as making law: The executive is “is not just rewriting the laws; he is creating them from scratch.” This is the role of Congress, not the president.

So Blackman thinks that Judge Hanen’s real objection to DAPA is based on the Constitution, not the APA. He may well be right. But then why didn’t Judge Hanen rule on the constitutional merits? Probably because if he had, the opinion would have been even weaker than it was.

Libya, humanitarian military intervention, and the “responsibility to protect”

From Thomas G. Weiss, RtoP Alive and Well after Libya, Ethics and International Affairs (2011):

Perhaps Libya will make policy- and decision-makers realize that between 1999 and 2011 we witnessed not too much military intervention to protect human beings but rather not nearly enough. The international action against Libya was not about bombing for democracy, sending messages to Iran, implementing regime change, keeping oil prices low, or pursuing narrow interests. These may result from such action, but the dominant motivation for using military force was to protect civilians. A collateral benefit is that the (to date) encouraging nonviolent and democratic revolutions in Tunisia and Egypt may have greater traction. Now that the Arab world is no longer a democracy-free and human rights–free zone, Qaddafi’s “model” for repression will no longer be interpreted as an acceptable policy option by other autocratic regimes.

From the Economist, Jan. 10, 2015:

Meanwhile Libya’s ungoverned spaces are growing, and with some 6,000 km of border the country’s problems are hard to quarantine. Each month 10,000 migrants set sail for Europe. Libyan arms in the hands of groups allied to al-Qaeda in the Islamic Maghreb triggered the collapse of order in northern Mali two years ago; some of those who subsequently fought against the French there have now returned to Libya, where they are reportedly running jihadist training camps. On January 3rd, IS claimed to have extended its reach to Libya’s Sahara too, killing a dozen soldiers at a checkpoint on a jihadist transit route to the Sahel. The conflict is as likely to spread as to burn itself out.

How Judge Hanen was able to rule against President Obama’s immigration program

He redefined non-enforcement of law (which is generally discretionary and non-reviewable) as the conferral of a benefit, namely, “three years of immunity from [the] law” and “legal presence status” (p. 87). While the president can underenforce statutes based on his constitutional authority, he can’t confer these “things,” these benefits, on unauthorized aliens without statutory authority.

But there are no such things. The beneficiaries of the program do not receive “immunity” in a legal sense because the president can change his mind and prosecute or deport them. “Legal presence status” similarly just means non-enforcement.

The grain of truth in Judge Hanen’s opinion is that “legal presence status” does typically trigger a right to a driver’s license under state law. That is a benefit. The government replies that states could refuse to issue driver’s licenses to aliens who are legally present under the program. The judge is (I think, rightly) skeptical of this argument. But he is rightly skeptical only because the Supreme Court has held that the president’s non-enforcement decisions in the area of immigration take precedence over state law. Which gets us back to where we started: legally speaking, the program is a non-enforcement program, unreviewable for that reason.

A Framework for Bailout Regulation

A new paper, written with my colleague Tony Casey. The abstract is below.

During the height of the financial crisis in 2008 and 2009, the government bailed out numerous corporations, including banks, investment banks, and automobile manufacturers. While the bailouts helped end the financial crisis, they were intensely controversial at the time, and were marred by the ad hoc, politicized quality of the government intervention. We examine the bailouts from the financial crisis as well as earlier bailouts to determine what policy considerations best justify them, and how they are best designed. The major considerations in bailing out and structuring the bailout of a firm are the macroeconomic impact of failure; the moral hazard effect of the bailout; the discriminatory effect of the bailout; and procedural fairness. Future bailouts should be guided by principles that ensure that the decisionmaker properly takes into account these factors.

King v. Burwell and ideological voting

Adrian Vermeule has argued that under the Chevron rule, the Supreme Court should defer to the government’s interpretation of the relevant portions of the ACA because the disagreement among lower court judges indicates that the statute must be ambiguous. Of the nine judges (six appellate, three district court) who have voted or ruled on the merits of the challenge, six agree with the government and three agree with the plaintiffs. If we believe that the judges acted in good faith, then their disagreement about the meaning of the statute is itself evidence that the statute is ambiguous, triggering Chevron deference to the government’s interpretation if it is reasonable.

But what if we don’t believe that they acted in good faith? The judicial behavior literature sometimes gives the impression that judges are algorithms through which presidents ensure ideological outcomes that they prefer. If judges just vote their ideology, then disagreement does not mean that the statute is ambiguous; it just means that the judges have different ideologies. (N.B.: the literature does not come to such an extreme conclusion, but it gives credence to the widespread view that ideological leanings of judges matter, particularly for high-profile, ideologically charged cases.)

So what do the data show? I compile the relevant information in the table below.

Judge Winner Nominating Pres. Court
Spencer Government Reagan E.D. Va
Friedman Government Clinton E.D.C.
White Plaintiffs Bush E.D.Ok
Griffith Plaintiffs Bush D.C. Cir.
Randolph Plaintiffs GHW Bush D.C. Cir.
Edwards Government Carter D.C. Cir.
Gregory Government Clinton/Bush 4th Cir.
Thacker Government Obama 4th Cir.
Davis Government Obama 4th Cir.


Surprise! All the judges voted consistently with their ideological priors, as measured by the president who nominated them–with one quasi-exception and one real exception.

The quasi-exception is Judge Gregory. Clinton appointed him during a recess, and then Bush nominated him. He voted in favor of the government. The other is Judge Spencer, who was nominated by Reagan and ruled in favor of the government.

One ought to consider the argument that, taking into account ideology, Judge Spencer’s ruling is the only one that is credible because his opinion was the only one that was clearly counter-ideological. Judge Gregory–as someone who was acceptable to presidents from both parties–might also be considered credible for just that reason.

On my version of the Vermeulean vote-counting approach, then, the government also wins. Of course, supporters of the ACA probably shouldn’t take much comfort in this analysis. If judges normally vote their ideology, then more likely than not the Supreme Court will ignore both my and Vermeule’s analysis and vote 5-4 in favor of the plaintiffs.

Political Opposition to Chinese M&A Attempts


A guest post from Adam Chilton:

When do attempts by Chinese firms to acquire American companies generate political backlash in the United States? In a paper that was just published, The Political Economy of Inward FDI: Opposition to Chinese Mergers & Acquisitions, I explored this topic with Dustin Tingley, Chris Xu, and Helen Milner.

As the above figure from our paper shows, investments from China in the United States have increased dramatically in the last 15 years. During that time, Chinese firms have attempted or completed Mergers & Acquisitions with over 500 American companies. These M&As have even included Chinese firms taking over large publicly recognized American companies like IBM’s Thinkpad division and Smithfield Foods. Although some of these transactions have gone largely unnoticed, others have generated considerable backlash from both the public and government officials.

To test what factors predict political opposition to these deals, we utilized a dataset of 569 attempts by Chinese firms to complete M&As with American companies between 1999 and 2014. For each transaction, we searched a number of news databases to determine whether each transaction generated political opposition. We then collected information on a variety of factors about the companies involved and the relevant industries for each transaction so we could test what factors are associated with M&As generating political opposition.

We found that political opposition is more likely when the American companies targeted by Chinese firms are in security sensitive industries or economically distressed industries. We also found evidence of reciprocity: opposition is more likely when the American companies face restrictions from acquiring firms in the same sectors in China. If you’re interested in learning more about the results, or the methods and data we used, the paper is available on SSRN.

More on speech and sex codes in universities

Not many people liked my Slate piece, which defended speech and sex codes in universities. Here’s a representative response by Robby Soave at Reason. My argument was that college students need protections that adults can do without because they are (usually) young, and (often) not mature enough (yet) to flourish without them. They go to college because they need an education, and one thing they need to learn is how to interact with people. You can find my reasons in the original piece.

Soave admiringly quotes Greg Lukianoff, president of the  Foundation for Individual Rights in Education (FIRE). FIRE has done some good by bringing to public attention many of the abuses that universities engage in, but the group has a bizarre, self-contradictory mission, which is to demand that private universities (as well as state universities) comply with the First Amendment. This mission is self-contradictory because private universities are not governed by the First Amendment. So what we have is an organization that is dedicated to advancing the First Amendment trying to control how universities exercise their First Amendment rights.

The people at FIRE are aware of this problem.  FIRE gives a pass to any university that states “both clearly and consistently that it holds a certain set of values above a commitment to freedom of speech.” But this means that while FIRE holds itself out as a pro-speech organization, it is really a pro-clear statement organization. It says it goes after universities that say they support freedom of speech while also imposing speech codes. Of course, the universities are not lying or pretending; their codes are on the web, and anyone can see them. FIRE doesn’t explain why, if it has no problem with universities that exercise their First Amendment rights by promoting (say) religious rather than free-speech values, it does have a problem with universities that balance free-speech values with other values.

Anyway, here’s the quote from Lukianoff that impresses Soave so much:

MR. LUKIANOFF:  ….  Essentially, just to summarize it, the way I’ve heard it made in the past is essentially that what we’re really saying is that 18- to 22-year-olds are children. And they must be therefore treated the same way as K through 12 are. They can’t handle the real world. They can’t handle the duties of citizenship. It’s an argument that I’ve definitely heard.

And if you’re saying that basically we should—that maybe below-graduate-level study should be ruled the same way high school students should be—I would disagree with you.

But that’s definitely an argument that people should make that straight out, but you run into a couple moral and philosophical problems with that.

One of them is the moral and philosophical underpinnings of the 26th Amendment.  Essentially, we have decided in this country that 18-year-olds… that is considered the age for majority.

We also send our 18-year-olds to war.  Unless you’re actually also willing to make the argument that nobody below the age of, I don’t know, 22 should go to war, and we repealed the 26th Amendment, we’ve got a serious problem.


MR. LUKIANOFF:  I just want to make one last point, and do not forget that some of the greatest contributions of colleges and universities come out of their graduate and Ph.D. programs. And so what I’ve watched is people try to argue that because of the presence of some 15- to 16-year-old super-geniuses at some of these campuses, that we should be therefore limiting speech on college campuses, forgetting that [that] would also limit the speech of 45-year-old Ph.D.’s.

 There are an awful lot of lapses of logic and factual errors in such a short quotation. The argument that 17-22 year-old students should be subject to restrictions does not entail that those restrictions should be the same ones that apply to kindergardeners or even 12th-graders. The 26th amendment does not establish the age of majority but the voting age. The age of majority remains subject to the discretion of state governments, as do related laws like the age of consent. Although currently nearly all states treat 18 as the age of majority, they don’t have to, and they haven’t always.

“We” did not decide anything through the 26th amendment. It was ratified in a different era, by people in the thrall of the youth movement who were reacting against the authoritarian tendencies of the day. As I argued in Slate, people have been reconsidering some of the unquestioned truths of the 60s. The most obvious manifestation of this is the drinking age, which is 21. “We” may trust youngsters to vote and serve in the military but we don’t trust them to handle alcohol wisely. Finally, universities are perfectly capable of distinguishing undergraduates from graduate students, and relaxing rules for the latter.

It takes a particular type of legalistic mind to believe that some magic number–say, 18, or 21, or whatever–distinguishes “children” and “adults.” And not a very good one. All of law is shot through with rules and exceptions that make presumptions about maturity but allows them to be rebutted, recognizing that people mature at different rates, and may be mature enough to be trusted with some things (votes) but not others (alcohol), depending on their upbringing, their surroundings, and no doubt biological processes as well. The 18-year-olds who enter the military do not enjoy freedom of speech but are subject to extreme discipline and rigorous training that ensures that they act appropriately in a military environment.

I want to make a final, more speculative point. There are many religious universities which impose quite strict codes on their students. Notre Dame, for example, appears to ban premarital sex as well as all kinds of offense-giving that it believes is inconsistent with Catholic teachings. BYU prohibits cursing and regulates clothing and grooming. Students have always been free to self-select into such institutions, and have in great numbers. The current panic about university-imposed restrictions on personal behavior was not a reaction to the religious institutions. It did not begin until secular universities began to worry about offense-giving to racial and sexual minorities. Conservatives who claim to be worried about freedom of expression are really objecting to the corruption of the youth–17-22 year-olds who conservatives believe are too immature to resist bad arguments and influences–by people whose moral values they disagree with.

As for the libertarians at places like Reason, they would do well to reflect on what exactly their libertarianism entails. Freedom of speech or the right to choose how and where to be educated? If students are mature enough to choose universities that subject them to religious or modern hate-speech style restrictions or none at all, then libertarians should cheer them on. If students are not mature enough, then libertarians should agree that university codes are not objectionable. We can then argue about what those codes should be, but my main argument stands unrefuted.

Guest Post: Evelyn Blacklock on King v. Burwell–text and context

Evelyn Blacklock, a student at Harvard Law School, writes in with these insightful comments on statutory interpretation in King v. Burwell.

Although it involves a complex statutory scheme, King v. Burwell asks the Court to answer a relatively straightforward question: is the IRS’s interpretation of the ACA reasonable?  The Court’s task is to identify the statute’s range of reasonable interpretations and determine whether the IRS’s interpretation falls within that range.  If it does, the IRS wins, even if the Court thinks it is a second-best interpretation.

As many have noted, King will therefore test the Court’s approach to contextual interpretation.  To identify the statute’s range of reasonable interpretations, the Court must consider the contested provision, § 36B, “both on its own and in relation to the ACA’s interconnected provisions and overall structure so as to interpret the Act, if possible, ‘as a symmetrical and coherent scheme.’”  So much is not controversial.  The real question is how the Court will use context.  As the lower court opinions demonstrated, there are different ways to approach contextual interpretation.

One way is to consider how the relevant context might inform the meaning of the contested provision.  The Fourth Circuit in King v. Burwell took this approach: the court admitted that a “literal reading” of § 36B seemed to favor the challengers’ interpretation (limiting tax credits to state Exchanges), but it also examined related provisions to see if they “shed any more light” on the question.  Both § 36B(f), the “reporting” provision, and section 1312, the “qualified individuals” provision, seemed to assume that tax credits would be available on state and federal Exchanges.  Given those and other contextual signals, King concluded that the IRS’s interpretation—allowing tax credits on both kinds of Exchanges—fell within the statute’s range of reasonable interpretations.

The D.C. Circuit in Halbig v. Burwell, meanwhile, took a different approach.  The court considered the same context, but inverted the inquiry: rather than ask whether context “shed any more light” on § 36B, Halbig asked whether the literal reading of § 36B—limiting tax credits to state Exchanges—would render those other provisions, which arguably assumed the availability of credits on federal Exchanges, absurd.  The court concluded that the challengers’ reading might render related provisions odd, but not utterly absurd, and rejected the IRS’s interpretation.

Halbig’s approach seems a strange way to go about determining interpretive reasonableness.  As a (very simplified) example, suppose I live in an interpretive community where “milk” usually means “whole milk.”  I have a recipe that calls for “milk.”  It so happens that this recipe appears in a cookbook of low-fat recipes.  I interpret this particular recipe as calling for “skim milk.”  Is my interpretation reasonable?  To answer that question, it would be natural to consider whether the rest of the cookbook seems to assume the use of low-fat ingredients; that contextual information might not be conclusive evidence of the meaning of “milk,” but it would surely be a point in favor of the reasonableness of my interpretation.  It would be odd, on the other hand, to gauge the reasonableness of my interpretation by starting with the assumption that “milk” must mean “whole milk” unless that reading would render the rest of the cookbook absurd.  The first approach uses context to determine whether my interpretation might fall within the total set of all reasonable interpretations; the second instead uses context only to confirm that a presumptively ideal interpretation is not unreasonable.  The second approach actually tells us nothing about whether my interpretation is reasonable—it tells us only that at least one other interpretation is acceptable.

Put another way, rather than use statutory context to test the reasonableness of the IRS’s interpretation, Halbig found a point estimate of statutory meaning and then effectively imposed a presumption against finding any wider range of reasonable interpretations beyond that point unless outright absurdity resulted.  As the government put it in its petition for rehearing en banc, “‘absurdity’ was the wrong test.  The majority erred by purporting to discern the plain meaning of one provision before considering all relevant provisions of the Act.”  (Or as a recent brief noted: “[C]ourts must interpret a provision in the first instance in light [of] its context and place in the statutory scheme. . . . [T]he question here isn’t just whether Petitioners’ reading of Section 36B renders absurd the various [related] provisions . . . . Rather, the question is this: What does the ACA, read as a whole, say about tax credits when you take into account all its provisions?”)  Halbig’s approach shifts the inquiry from whether there is a range of reasonable interpretations to whether the court’s initially favored interpretation—what it perhaps sees as the best interpretation—makes the rest of the statute unreasonable.  So long as it doesn’t, the court’s interpretation wins.  The court will not accept second-best, but still reasonable, interpretations unless the agency can rebut a presumption in favor of the court’s point estimate by clearing absurdity doctrine’s high bar.

None of this is to suggest that the statute is simple or that the IRS must necessarily win.  The suggestion, rather, is that when courts face a question of interpretive reasonableness, and when reasonable meaning depends on context, courts should not short-circuit the inquiry by examining context only after establishing a preferred interpretation, and then only in order to gut check that preferred interpretation.

Richard McAdams’ The Expressive Powers of Law

Cover: The Expressive Powers of Law in HARDCOVERBack in the 1990s, there was a lot of interest among law professors about the interaction between law and social norms. There were several conferences. I wrote a book about it. Even the New Yorker published an article about it. There had been a general sense that traditional economic models then being used in law and economics took too much for granted–suggested that the government could in an uncomplicated way lay down the rules for people to follow and then sanction them if they violate those rules. In fact, people often act in orderly ways and generate public goods for themselves without resorting to law. They may not even know about the law. Robert Ellickson wrote a famous book about this phenomenon. If all this is so, the question is how.

Game-theoretic models–then newish among lawyers (although decades old), now familiar–seemed to offer explanations. And they had interesting implications. Scholars quickly realized, and showed with these models, that poorly designed law, if it did not respect or work off of social norms, could damage them, possibly, or in other ways generate perverse consequences. Maybe people would be less likely to trust the government and follow its laws if the government tries to change the social norms they care about. On the other hand, the models provided no guarantee that social norms would be efficient, contrary to Ellickson.

The literature seemed to have run out of steam a number of years ago. The game-theoretic models turned out  to be not very tractable. They seemed to be able to explain too much. (Game theory is good at showing that cooperative behavior is consistent with rationality, less good at showing that it is entailed by it.) Or maybe we don’t need (as well as can’t have) a general theory of social norms. It’s enough to know a lot about whatever particular area of human behavior you’re writing about.

Richard McAdams has published a new book called The Expressive Powers of Law. It is in some ways a throwback to the earlier literature. It puts a great deal of emphasis on the way that “focal points” can structure people’s behavior when people are otherwise trying to coordinate with each other. The government can manipulate focal points, and in that way influence people’s behavior for the better. But in the complex informational environment in which people operate, there are limits to how much the government can do. The strength of the book lies in the careful way that it explores those limits, and throws cold water on some excessively ambitious claims about how the government can “send a message” in order to influence behavior. This excellent book is well worth a read.

Toward a Pigovian State

It is well-known that Congress and regulators do not use Pigovian taxes in order to deter pollution and other negative externalities. It is less well-known, or perhaps not known at all, that regulators possess the authority to impose Pigovian taxes. They just don’t use it. Why not? My colleague Jonathan Masur and I document the regulatory landscape and try to answer this question in a paper now available at SSRN.

Vigna & Casey: Bitcoin and regulation

Vigna and Casey rightly reject claims by some bitcoin enthusiasts that bitcoin shouldn’t be, or can’t be, regulated. It can and will be, and indeed already is subject to regulation in many jurisdictions, as the authors document. But they can’t help arguing that bitcoin poses a challenge to government.

Anyone who remembers the 1990s will recall the argument that the Internet poses a challenge to government. The argument then was that the government would not be able to censor people because of the decentralized structure of the Internet. Freedom would flourish, despots would fail. You can’t turn the Internet off; nor can you change its rules.

But the government can go after the “joints” of the Internet—the ISPs, the search engines, the social media sites, and they do. Authoritarian governments have discovered that the Internet provides a valuable means for social control. Ordinary people don’t take all the precautions that are theoretically possible, benefit from the convenience of large intermediaries, and in this way make themselves vulnerable to legal sanctions if they use the Internet to break the law, or–in authoritarian countries–merely criticize the government.

The same will surely be true for bitcoin. Ordinary people are not going to use “dark wallets.” They will turn to the institutions that they trust—yes, banks, or brand-name Internet companies like PayPal and Google—and the government will use these institutions as levers for regulating, just as it has for other types of Internet usage.

The authors suggest that bitcoin took hold in the wake of the financial crisis. Because people could no longer trust “money,” they would put their trust in bitcoins. If people really thought this, they made a serious error. The financial crisis was not caused by fiat money (or, as the authors insist on putting it, “centralization,” meaning the Fed). It was caused by bad investments; and one can just as easily make bad investments with bitcoins as with dollars.

Financial crises would occur in a bitcoin-based financial system just as they did under the gold standard. Centralization (in the government) is needed to address financial crises; so if bitcoin makes centralization impossible, we would be in deep trouble. Fortunately, it does not. As I argued earlier, a bitcoin-based financial system would operate through banks and other intermediaries, and the government would regulate bitcoin by regulating them, just as the government regulates Internet users by regulating ISPs, search engines, and social media sites.

Moreover, as the authors point out, bitcoin investors have already realized that bitcoin will become more stable, trustworthy, and hence profitable if the government regulates it. As money pours into the system, the pressure for regulation will increase rather than diminish.

Guest Post: Ukraine and Russia–You Break It, You Bought It

The following guest post comes from Joseph Blocher and Mitu Gulati, Duke Law School.

Let’s begin with a point of agreement: Ukraine’s financial condition is bad. Its currency is in free fall, its foreign hard currency reserves have collapsed, its economy is shrinking, and it is fighting a war. Absent a big IMF-EU bailout soon, Ukraine will default.

That $ 15-20 bn bailout that Ukraine needs, however, does not appear to be forthcoming.  There are many reasons for this, but a big one is probably that western politicians know that a large portion of Ukraine’s debts are owed to Russia—including a $3 bn bond debt that matures in 2015. In other words, bailing out Ukraine would effectively mean transferring funds to Vladimir Putin. The bailout will probably come eventually, but it will not be the full amount Ukraine needs to pay its creditors. In the meantime, how can Ukraine (a) make up for the shortfall, and (b) make the bailout more palatable to western taxpayers?

We suggest that Ukraine respond to the Russian debt claims by arguing that it is entitled to a set-off for Russia having taken large portions of its territory. This argument will likely to made before an English judge, since the $3 bn debt is governed by English law.

As we explain in our article, traditional international law essentially gives that English judge two extreme and unappealing options.  Either Ukraine had an exclusive right to determine Crimea’s fate regardless of the Crimeans’ wishes (the standard rule of territorial integrity), or Crimea was so egregiously oppressed that it had an exclusive right to determine its own fate (the principle of self-determination or remedial secession).

This is a disappointing menu of options, and seems particularly ill-suited to the Ukraine-Crimea-Russia crisis. We accept the idea of remedial secession, but it seems unlikely that Crimeans suffered the extreme humanitarian abuse necessary to justify it. And the traditional rule that nations can buy and sell regions as they see fit seems antiquated and in conflict with the right of self-determination that the UN Charter gives to “all peoples.”

There has to be an in-between category, one that covers situations where a region is systematically disfavored but not horribly. In this in-between scenario, where the people of a region are clearly denied equal rights and representation (a standard we borrow from the Charter), we suggest that those people should have a right to look for a better sovereign partner.  Further, the current sovereign should not be allowed to bar their exit. But, unlike in the scenario where the people are being abused so badly that they get to exit for free, there should be compensation owed to the former sovereign. Put another way, when a nation oppresses a region—albeit not egregiously—we would protect its sovereignty with a liability rule rather than a property rule. The “damages” due to the parent nation (in this case Ukraine) would be set by the market (i.e., bids from outside nations), with a right of appeal to an international body like the ICJ.

For purposes of illustration, let us assume that, prior to the Russian seizure of Crimea, Ukraine was denying representation and equal rights to the people of Crimea, but not (as some Russian sympathizers have suggested) oppressing them so severely as to trigger the right of remedial secession.  This would trigger our liability rule. In such a scenario, a transfer might be legitimate (if the Crimeans actually chose Russia from among all other suitors), but still not free. Ukraine must be compensated for the loss. And because Russia is Ukraine’s largest creditor, that compensation could take the form of an offset.  Alternatively, a stay could be issued on the ability of Russia to enforce its debt claims until the compensation amount is decided. The end result would be a legitimate, compensated transfer of territory that reduces the incentives for further violence on either side.

Of course, it is somewhat complicated to apply this rule post-hoc, since Russia has already taken Crimea, and no bidding ever occurred. But—assuming that Crimeans genuinely prefer to be part of Russia, which is a plausible but not uncontestable assumption—this is a challenge for the valuation, not for the application of the concept.

Going forward, we think that a market for sovereign control could help lessen the incentives for conflict. Under the current regime, Russia had every incentive to stir up trouble within Crimea, then justify military intervention so as to protect the Russian-sympathizing population there. But such intervention carried both risks and costs for Russia, which wants its acquisition to be recognized as legitimate under international law. A market would have given Russia an alternative: direct that military spending into a financial offer, which could lead to a voluntary and more legitimate cession. It is nowhere near a silver-bullet solution. But surely anything that provides some marginal deterrent to the next crisis is a step in the right direction.

Vigna & Casey: Bitcoin and economic decentralization

The authors argue that bitcoin reflects a wave of decentralization, and will advance decentralization as well. However, they are not very clear about what decentralization means. They use the term to refer both to the elimination of big firms, including monopolists, and the elimination of certain functions of government. This is puzzling because often it is government centralization (antitrust laws) that counters economic centralization (monopolies). I will discuss the first meaning here.

Vigna and Casey think that if bitcoin became a worldwide currency, banks would go out of business. This is wrong. Banks would stay in business; they would accept bitcoins as deposits and make bitcoin-denominated loans. We know that this is the case because banks existed on the gold standard; indeed, gold was the original basis of fractional reserve banking (by goldsmiths who stored gold for customers and made loans backed by a portion of that gold). Theory tells us this as well. People won’t want to hold bitcoins in their wallets if they don’t plan to use them immediately. They will deposit them with banks, and banks will turn around and lend most of their bitcoins to borrowers while retaining reserves to service the short-term depositors. Banks exist not because of some property of fiat money; they exist because people with short-term money surpluses gain by lending them through an intermediary who can check the creditworthiness of borrowers and monitor repayment.

The effect of technological change like bitcoin on economic centralization is unpredictable. The home computer was supposed to be a great decentralizer: anyone could afford one and so computing power was no longer monopolized by giant firms like IBM. But then came Microsoft. The Internet was supposed to decentralize, but then came Google and Facebook. Bitcoin might weaken banks (because people wouldn’t need check-writing services and credit cards), but it also might strengthen banks or bank substitutes (because people need a service to keep track of their bitcoin transactions, and to insure them against mistakes and fraud).

Vigna & Casey: Bitcoin and the law

Vigna & Casey argue that the technology underlying bitcoin may make the legal system unnecessary (though they later express some reservations about this argument). Whatever their view, bitcoin (or what they mean is the technology underlying bitcoin) will not do away with the law.

The authors suggest that a credit default swap could be automated using bitcoin technology; this would eliminate the need to rely on lawyers, judges, and bureaucrats. The authors make an important error. Let’s use the more familiar example of life insurance to show why. If the insured party dies, 99.999% of the time lawyers and judges do not need to be called upon. The insurer simply pays the beneficiary. Automating this process would reduce transaction costs by exactly zero.

Now consider a more difficult case. The insured party disappears while on a trek in the Amazon, or on an around-the-world boating trip. Must the insurer pay the beneficiary if death is ambiguous? Or suppose that the policy excludes liability in case of suicide, and the death of the policyholder looks like a suicide but it is not clear. What then?

There is no way around this problem: if the language of the policy is unclear, or the facts are unclear, someone must make a judgment. This cannot be automated.

Similar problems arises with CDSs. Sometimes, it is not clear whether the underlying bond has defaulted or not. In those cases, the legal system is needed. And where the legal system is not needed because the contract language is clear and the facts undisputed, bitcoin technology provides no advantage.

Maybe someday AI will enable computers to make judgments currently entrusted to lawyers and judges. Until that happens, bitcoin technology will not replace the legal system.

Vigna & Casey: Bitcoin and trust

Vigna and Casey make much of the claim that bitcoin is trustless. If I buy a cup of coffee using bitcoins, the café doesn’t need to trust me, or a bank. The blockchain ensures that I own the bitcoin I send. Under the current system, one must trust banks; and if a bank doesn’t trust you, then you can’t use a credit card and are shut out of the system.

But there are many reasons to be skeptical of this account, and also of its import. First, one cannot access the network and store coins without using an intermediary. People can download wallets, but ordinary people—as opposed to experts—will worry that the wallets cannot be trusted, indeed, may not know where to go on the Internet to find safe and reliable wallets. Thus, as V&C describe, intermediaries have been developed so that ordinary people can use bitcoins. These intermediaries are just companies with websites that offer bitcoin-related services. But people need to trust these intermediaries, and intermediaries will charge them one way or another. So it turns out that bitcoin is a version of our payment system that cuts out some intermediaries but by no means all.

Second, as V&C describe, bitcoin itself relies on trust. One must trust that the code has been well-designed, and that the five guys with access to it will use their access wisely to tweak the code when it falls short (as it already has). One must trust that these guys and others like them, their chosen successors, will continue to develop the bitcoin to address new, unpredictable challenges as they arise. One must trust that they can ensure that no one ultimately corners the bitcoin supply. Trust is not eliminated; it is just displaced to a new set of people, who will supposedly act in our interest. If bitcoin ever becomes a currency, these five guys will be seen as the J.P. Morgan of bitcoin—a private individual who everyone depends on to save the system. This situation will not be tolerated any more than Morgan was; the code will be entrusted to the government.

Third, trust is not, in fact, a big issue currently. People trust banks except during financial crises, and (as I will discuss) a bitcoin economy would be subject to financial crises as well. Trust returned to our financial system quickly after the financial crisis, thanks to government intervention.

So it’s not true that bitcoin does away with trust. And if bitcoin reduces reliance on trust a bit, there is little reason to think that matters.

Part I here.

Vigna & Casey’s The Age Of Cryptocurrency

age of cryptocurrencyThis book, written by two Wall Street Journal reporters, is the first journalistic account of the rise of bitcoin and related cryptocurrency technologies. The authors write well and clearly, and the book is illuminating. And the authors try hard to bring journalist objectivity to the extreme claims of bitcoin proponents. But they mostly give in. One can only cringe at sentences like this one:

 We may well be on the verge of a profound societal upheaval, perhaps the most significant since the sixteenth century…. (p. 278)

 We’re not. Or if we are, it’s not because of bitcoin. Even if the most extreme and implausible claims of bitcoin proponents (or “evangelists” as they are aptly called) came true, and bitcoin became a worldwide currency, we’d just be back in the nineteenth century, when countries were on the gold standard, albeit a digital version of it. Bitcoin just is the gold standard with bits rather than gold. (The authors, who gently mock goldbugs, don’t seem to realize that they are themselves “bitbugs.”) To be sure, transactions would be cheaper—we’d save some of the 1 to 3 percent that we now pay to use credit cards. That would help out a lot of people, but most people wouldn’t notice. And we wouldn’t worry about inflation (but we would worry about deflation and financial panics). Maybe life would be a bit better, or (as I suspect) a bit worse, but it wouldn’t be much different.

The book revolves around a number of themes: the role of trust in the financial system; the forces of decentralization; and the relationship between cryptocurrencies and the law. These are interesting issues, and all deserving of careful thought. But while the authors have sensible things to say about them, and try to carefully weigh the arguments on each side, in the end I believe they come down on the wrong side on nearly every issue. I will post some observations about this book over the course of this week.

Who is the meanest supreme court justice of all time?

Scalia, right? Nope. Scalia barely cracks the top ten, behind Alito, Kennedy, Thomas, and even Breyer. The actual measure is “friendliness” rather than meanness, and these guys have among the lowest friendliness scores, which is the percentage of positive words used by justices in their opinions minus the percentage of negative words. (Negative and positive words taken from here.)

The friendliness score comes from A Quantitative Analysis of Trends in Writing Style on the U.S. Supreme Court, a new paper by Keith Carlson, Michael Livermore, and Daniel Rockmore, and it contains all kinds of other fun stuff, like the influence of law clerks on judicial writing style. The authors are pioneers in the use of textual analysis to analyze supreme court opinions. One of their findings is that opinions of modern justices are a lot less friendly than the opinions of earlier justices. (They are also written at a lower grade level.)

The friendliest justice–by a long shot–is John Jay, reflecting perhaps his experience as a diplomat. But he wrote very few opinions. I’m therefore handing the title to #2, Oliver Ellsworth. And the meanest? An obscure, one-term justice named Thomas Johnson. [N.B.: an earlier version of this post confused him with William Johnson. The ABA Journal correctly identified him.]

Guest Post: More on absolute bans on torture

Guest post by Ryan Doerfler, Bigelow Fellow and Lecturer in Law, The University of Chicago Law School:

I too find the position Eric discusses (absolute prohibition against torture plus judicial leniency for justified instances) puzzling, or at least frustrating.

My sense is that there are two explanations for the position.  The first, which Eric discussed, has to do with incentives or, as I would put it, epistemic reliability (maybe these are the same at the end of the day).  The argument here is an application of the more general argument for rule utilitarianism: Because individuals will overestimate systematically the considerations speaking in favor of particular sorts of action (e.g., torture, lying) if allowed to reason on a case-by-case basis, better to adhere to absolute prohibitions as a bulwark against bad reasoning.  As is obvious, one would have to do the math to determine whether an absolutist regime is preferable to a case-by-case regime in a given instance since there will be errors under both.  The suggestion of judicial leniency in the case of torture indicates that even those advocating an absolute prohibition do not think the math comes out favorably if the prohibition is really absolute.

Thinking about non-repeat players, I guess I do not think of the suggestion as arbitrary.  Plausibly, the tendency to overestimate the considerations speaking in favor of torture are greater in the heat of the interrogation chamber than in the cool of the courtroom.  And, so long as would-be torturers are unaware of the prospect of judicial leniency (plausible, in the case of non-repeat players), one might get decent results under this regime (e.g., one would torture only when the apparent need to torture was so great as to warrant personal sacrifice) without human sacrifice.  This is all speculative, of course, but at least not implausible.  The problem is that, in the real world, would-be torturers are almost all repeat players (or at least members of repeat-play institutions).  Hence, the prospect of judicial leniency would be well known.

The other explanation for the position, I think, has to do with the impulse to preserve both absolutist (e.g., ‘Thou shalt not kill’) and non-absolutist (‘Thou shalt not kill, unless …’) moral intuitions.  My sense is that this impulse has not to do with accuracy or expected outcomes but instead with bedrock intuitions about moral decency or something like that (e.g., a common attitude is that one should cringe at images of killing or torture, even if the killing or torture in question is justified).  That impulse manifests in various places in moral philosophy.  Where it is plainest, though, is in discussions of so-called “dirty hands” cases, i.e. cases in which a particular action is justified but somehow morally problematic, regrettable, etc.

I have always found this idea hard to understand (e.g., If an action is justified, how could it be regrettable?).  But, for whatever reason, it has real popular appeal.  One high-visibility, non-scholarly example is the television show 24.  On the one hand, 24 is written in such a way that the audience can be expected to think of Jack Bauer’s actions as justified (as Justice Scalia said, what jury is going to convict him?).  On the other hand, the show is written such that (and the showrunners are expressly of the view that) Jack Bauer must suffer so that the rest of us can be safe.  I suppose one could interpret this as a metaphor for the psychological costs torturers must incur, which are real.  More plausible, though, is that the underlying attitude is that Jack Bauer in some way should suffer for what he has done, even though what he has done is justified.  Again, I think this is confused.  But it is a pervasive sentiment.  What Jack Bauer does is right … but also wrong.  Good … but also bad.  Alas.

[N.B.: there is an ancient literary and artistic theme that the person who saves the community by breaking its norms must himself be expelled from the community, or otherwise suffer and be made an outcast. This person must be a hero who follows a higher morality and accepts the sacrifice. I think philosophers like McMahan unconconsciously reproduce this logic, not realizing that institutions cannot themselves be designed to permit the exceptional act. In real-life institutions, if you tell agents they will be punished for doing X, and they believe you, they won’t do X. — EP]

Uber and the law of large numbers

An interesting article here in the NYT about the “Uber model.” Uber drivers enjoy flexibility–they can drive whenever they want–partly because the app connects them to customers but mainly because there are so many drivers. People who want rides can get them because of the high probability of a nearby riderless Uber car. The author argues that this model can be applied to many other settings, including legal services and medicine. A doc with a bit of spare time can make himself available via app and you might consult him if you happen to be nearby.

The relevant law here is not the law of taxi or doctor licensing but the law of large numbers. It’s what ensures that someone is nearby when you need him, even though drivers and doctors have all kinds of other unpredictable commitments, given a large enough pool. I tell my students that the most important law in banking regulation is the law of large numbers. It’s what makes it possible for a bank to offer money in a steady way to borrowers when the bank’s own lenders–short-term depositors–might need their money on a moment’s notice. The Uber model is, at bottom, the bank model.

If torture can ever be morally justified, why should the ban on it be absolute?

In the NYT, the philosopher Jeff McMahan argues that torture is almost always morally wrong, but he believes that in certain cases–when it is used to prevent a greater evil like killing or mass killing–it is morally permissible or even morally obligatory. Yet he believes that torture should be banned even then. That doesn’t seem to follow. If McMahan’s moral position is correct, shouldn’t the law permit torture just in those conditions when it is morally permissible, and otherwise ban it?

As far as I can tell, his answer is that morally justified torture may be so rare that it can be safely ruled out by an absolute ban. That may well be right; maybe that is the lesson of the Bush torture debacle. But it does seem puzzling. Consider shooting-to-kill. Shooting-to-kill is also a horrible thing to do to people (worse than all but the most extreme forms of torture), and it is rarely justified. Yet police officers are permitted to shoot-to-kill in order to prevent greater evils. Even after recent events suggesting abuse  and discrimination in police shootings, no one wants to impose an absolute ban on them.

McMahan, like other philosophers (such as Henry Shue, who is mentioned in the piece) who both want to ban torture but believe that it is sometimes morally justified, can’t bring himself to enforce the absolute ban with absolute strictness. Instead, courts should be allowed to exercise leniency. Yet McMahan appears to believe that the agent cannot be excused. Some punishment (a very light punishment?) must be imposed.

But why exactly? Why would you punish (even lightly, as in this famous German case) someone for engaging in a (by hypothesis) morally permissible or even morally obligatory act of torture? The answer seems to be that if you don’t, then other agents will engage in torture that is morally wrong. I confess I have never understood this argument. Doesn’t the logic of it suggest that we should prohibit the police from morally justified shootings because if we don’t, police will engage in morally unjustified shootings?

Or taken from the other side, if leniency is permitted, why shouldn’t we worry that the prospect of leniency will encourage agents to engage in wrongful acts of torture? After all, if non-punishment of morally justified torture will encourage wrongful torture, as McMahan claims, why wouldn’t lenient punishment of morally justified torture also encourage wrongful torture? The effort to split the difference by banning torture but providing for leniency seems arbitrary.

Let’s go back to police shootings. Possibly, torture can be distinguished. One distinction is that police shootings are usually (almost always?) morally justified, whereas acts of torture are almost never morally justified. But do we actually know this? The reason that police shootings are usually morally justified, or seem to be, is that the police are given training, and police shootings are always investigated carefully. There is no comparable institutional infrastructure for torture. Maybe if there were, acts of torture would seem as morally justified as police shootings (although no doubt much rarer).

Arguments like McMahan’s, which are scattered throughout the philosophy literature, always seem to be based on psychological (about how people respond to incentives) and institutional assumptions (about how organizations operate) that are not articulated.

More flip-flops

At Slate. This is based on the paper I’ve written with Cass Sunstein. The Slate piece discusses some surveys that we did (the paper provides more detail). If you have any comments on them (or the paper), please email me. We could do some more surveys if you have ideas.

Foreign Sovereign Immunity & Comparative Institutional Competence


A Guest Post by Adam Chilton and Christopher Whytock:

Discretion to make political or legal decisions is frequently given to one branch of government based on the belief that it is better suited to make a particular kind of decision than another branch. For example, much of administrative law is premised on the idea that administrative agencies are better positioned to make decisions about how to carry out their missions than judges. When these claims of comparative institutional competence are made, however, they are rarely based on systematic empirical evidence. This is in part because there are rarely opportunities to evaluate what happens when two different branches of government are tasked with making the kind of decision.

 In a paper published last week, Foreign Sovereign Immunity and Comparative Institutional Competence, we empirically evaluate one comparative institutional competence claim by taking advantage of a situation where Congress moved the authority to make a certain kind of decision from the State Department to the courts. That situation was created by the passage of the Foreign Sovereign Immunities Act (FSIA) of 1976.

There is a longstanding principle of customary international law that governments should not be subject to suit in the courts of a foreign country. In 1952, however, the United States adopted a new, restrictive theory of when sovereign immunity should be granted. This paved the way for foreign governments to be sued in American courts over their “commercial activities” (like breaking a contract with an airplane manufacture) but not their “public acts” (like passing legislation that limits what kinds of airplanes are allowed to fly in their airspace).

Of course, whether any particular action taken by a foreign government constitutes a commercial activity or a public action is not always clear. When suits against foreign governments arose, initially it was the State Department that was forced to make these calls. It was not long though before critics began to argue that the State Department was making politically motivated decisions—for example, that immunity was awarded to important countries even though a specific suit was clearly based on commercial activities that should prevent immunity from being granted. In 1976, Congress responded to these criticisms by moving the authority to make foreign sovereign immunity decision from the State Departments to the courts.

To leverage this change in authority, we built a database of immunity decisions made before and after the passage of the FSIA. By controlling for the facts underlying each dispute and the characteristics of the parties involved, we are able gain some traction on how these two different branches of government have made foreign relations decisions. In contrast to previous studies that evaluated a small number of cases qualitatively, our study does not reveal evidence of systematic bias in the State Department’s immunity decisionmaking, while it does identify potential political influences on the courts’ decisionmaking. Although there are admittedly some limitations to our data and approach, these results still challenge the frequently made argument that the State Department is worse at making legal determinations free from political interference than other branches of government. If you want to read more about our method and results, you can find the paper at SSRN.


Institutional flip-flops

People constantly accuse politicians, judges, and commentators of flip-flopping on institutional issues. Republicans who objected to filibusters of Bush’s nominees now defend the practice as applied to Obama’s–and the Democrats who defended filibustering then attack it now. Most of the liberal commentators who accused Bush of abusing executive power have now fallen silent, while the earlier Republican defenders of Bush have now, under Obama, discovered the dangers of the imperial presidency. Justices who appeal to the majesty of democratic rule in the course of upholding a statute today turn around and strike down a statute despite majority support for it tomorrow. And so on.

Many flip-flops reflect meaningless political posturing, but so do many of the accusations of flip-flopping. An apparent flip-flop can turn out to be nothing of the sort once one pierces the often sloppy rhetoric. Perhaps real flip-flops can be justified as the result of learning, at least to a limited extent. But beneath the surface, there is much of interest. Flip-flopping can result from an ambiguous or unsettled institutional norm. People are not just posturing but trying to get the norm settled in a way that advances their interests.

Much more can be said, and is said, in a new paper that I have written with Cass Sunstein, available at SSRN.

Reply to Coates on financial cost-benefit analysis

Glen Weyl and I have been going back and forth with John Coates on the question whether financial regulators should use cost-benefit analysis. Weyl and I defended CBA of financial regulation here and here. Coates wrote an article criticizing CBA here. Our response is now posted, as is his reply to our response. Below is our reply to his response to our response to his response to our earlier arguments.

In his (latest) response, Coates usefully narrows the focus to the crucial issue: is there any reason to think that CBA of financial regulation and CBA of other types of regulations (like safety or environmental regulations) are different? Weyl and I agreed with Coates that lots of efforts to perform CBA of financial regulations have been shoddy, but that’s just because the methodology is at an early stage. Early environmental CBAs were shoddy as well, but they have improved greatly over the years, thanks to pressure from the White House, which ultimately forced regulators to enlist economists to help them improve environmental CBA.

Weyl and I think that, on theoretical grounds, CBA should be a lot easier for financial regulations (which are, after all, all about money, with tons of data) than environmental regulations (which involve many difficult-to-monetize valuations). Coates makes the opposite argument. In his latest reply, he makes the following points.

1. Coates rejects our merger guidelines as an example where cost-benefit principles have informed market regulation. His major point seems to be that those guidelines are not themselves instructions to perform CBAs, or the result of formal CBAs that were reviewed by courts, and that they are implemented loosely rather in a rigid way. We just don’t understand the force of this argument. The guidelines are the result of economic analysis (Weyl participated in writing them), and they basically enable the government to do cost-benefit analyses of mergers by creating certain economically informed presumptions. Mergers generate the same kind of problems about cost and benefit estimation that financial regulation does. At a minimum, this suggests that these valuation problems are not insuperable.

Coates also says that academics and practitioners admire the guidelines because they prefer rules (“constrained discretion”) over ad hoc judgments. But there is no reason to think that rules in general are better than discretion. Bad rules are worse than discretion, at least if discretion is used in good faith. The guidelines are good both because they are rules (or presumptions) and they are good rules grounded in economic principles.

2. Coates also repeats his argument that (if we understand it correctly) the natural sciences play a greater role in other forms of regulation than in financial regulation. The merger guidelines example was intended to show that this assumption is false: “market regulation” under the rubric of antitrust law is social science all the way down. But let’s consider his argument from safety regulation: the rear-facing camera. Coates argues that the main issue is one of natural science and engineering, which makes it easy to determine whether a mandate is cost-benefit justified.

A simple response to this argument is just to acknowledge that some kinds of regulation are easier than others. We certainly do not deny that. We do doubt whether the camera mandate is as simple as he says. Everything depends on how people respond to the new technology, and we know that how people respond to new technology is often difficult to predict. And, of course, safety regulations raise difficult issues about valuing human life. But the broader point is that many types of regulation seem easy just because we’ve already advanced down the learning curve. That will be true for financial regulation just as for any other type of regulation.

3. Finally, Coates seems to back off from his claim that financial regulation is special, and to argue that, across all areas of regulation, we need to distinguish between areas of regulation that have what he calls “non-stationary” (which seems to mean rapidly evolving) features and those areas that do not. And so his critique may turn out to apply to regulation of drugs, for example, or regulation of any activity where technology is changing at a rapid pace. Maybe he thinks that non-stationary features dominate the financial system but not other systems, but he doesn’t show this. Weyl and I are much more optimistic, based on recent developments in academic economics, including IO and antitrust, where (to repeat) the object of regulation is an incredibly non-stationary phenomenon–the market itself.

But if Coates is right, what does this mean? He advocates regulation based on “conceptual CBA,” which as far as we can tell, means CBA based on guesses rather than reasonable estimates.  We suspect that a more plausible response to his skepticism is not regulation but deregulation. If the government cannot explain why it is imposing costly constraints on the market, then regulation will be difficult to defend politically as well as legally.

Podcast on Charlie Hebdo and freedom of speech

I discuss this topic with Jonathan Rauch, with Jeffrey Rosen moderating. Rauch and I disagreed about (almost) everything.

1. Should The Times have republished the latest Charlie Hebdo cover?

Rauch: yes, because of its news value.

Me: no, if The Times reasonably feared retaliation against its reporters. I also say that the news value of the cover is minimal because anyone can see images of it on the web.

2. Did European media that failed to republish the offending Charlie Hebdo cartoons act wrongly?

Rauch: not if they reasonably feared retaliation, but still it would have been better if everyone had republished in order to strengthen free speech norms.

Me: not if they reasonably sought to avoid provoking additional violence, against themselves or others.

3. Does the Charlie Hebdo attack show that European hate-speech laws are a bad idea?

Rauch: hate-speech laws cannot be enforced neutrally, resulting in hypocrisy and chilling effects. Hate-speech laws do not improve safety.

Me: if hate-speech laws had been enforced against Charlie Hebdo, then this attack would not have happened. So at a minimum, there is some evidence that they reduce violence. Rauch is right that hate-speech laws cannot be applied “neutrally.” But they can be enforced sensibly, to censor low-value speech that offends groups to the extent that violence may result.

4. Should Europe adopt U.S.-style free-speech law?

Rauch: yes, noting that we have more social peace in the United States than in Europe, and arguing that the First Amendment may account for this. People have no incentive to use violence to force the government to censor offending speech because they know that the First Amendment blocks the government from accommodating them.

Me: [bungling my description of French law, but anyway–] no, the U.S. is an outlier, strongly suggesting that what works for us (or currently works for us) is not ideal for other countries. Specifically, First Amendment law in the United States reflects various pragmatic compromises among groups in a pluralistic society that are different from the compromises that must be made in other countries, which have different groups with different views and interests. Our tendency to think that U.S. law reflects universal principles should be resisted.

5. Will the Charlie Hebdo attacks strengthen freedom of speech in France?

Rauch: yes, as illustrated by the marches and rallies, the outpouring support for Charlie Hebdo.

Me: no, the government will crack down on hate speech in order to reduce violence, and in a (perhaps futile) effort to repair the frayed bond between French Muslims and the state.

The Charlie Hebdo attack and liberty-liberty tradeoffs

Terrorist attacks generate a familiar pattern in public debate. First, conservatives (and often middle-of-the-road types) argue that the government’s failure to stop the terrorist attack shows that counterterrorism policy is too weak. Then, liberals (and often other middle-of-the-road types) argue that we should not strengthen counterterrorism measures if doing so will sacrifice our civil liberties to security. This sets up a debate about security versus liberty. Typically, civil libertarians argue that there really is no tradeoff (an argument I have never understood), or (more plausibly but I think wrongly) that the government will inevitably put too much weight on security and not enough on liberty. An important subtheme, one that resonates with American historical experience and mythology, is that the people who put more weight on security are cowards who sell our liberties too cheaply.

Thus, the rhetoric. In truth, there is liberty on both sides of the equation. People who fear terrorist attacks lose some of their liberty as they avoid airplanes and public places; and the people who die in those attacks lose their liberty along with their lives. Nonetheless, it is undeniable that the civil libertarian position is understood to place greater weight on due process than on security, and that position has very powerful resonance in our society, perhaps because of distrust of the government.

The Charlie Hebdo attack has not followed this pattern for an interesting reason. The attack, both by design and in effect, was targeted at a liberty–freedom of expression. In this respect, the attack is unique among all the terrorist attacks since 9/11, none of which singled out freedom of expression as a target among all the western vices. The planned French crackdown on civil liberties thus sets up a clearer, harder-to-deny, liberty-liberty tradeoff: liberty from surveillance, arbitrary detention, and the like, versus liberty to speak one’s mind. It’s harder for a civil libertarian to argue that “mere” security is at stake, that principled people must oppose stricter counterterrorism measures.

This tradeoff has not yet received much attention, though it is implicit in the debate about whether Charlie Hebdo’s speech was really worth defending. Civil libertarians should ask themselves: if greater censorship in France made the French safer, with the result that they don’t need to give police greater surveillance and detention powers, would they be better off or worse off?

This is the most important policy question that has emerged from the attack. Why has no one asked it?

The Supply Side of Compliance with the WTO

blog post

A guest post by Rachel Brewster and Adam Chilton:

One of the primary questions studied by scholars of international law is whether countries comply with their international legal commitments. For example, scholars study whether countries comply with treaties they have signed that regulate the conduct of war or mandate the protection of human rights.

In most of these studies, the focus is on assessing whether the national government of a given country complies with some obligation. Of course, national governments are comprised of many institutions and, depending on the obligation, different institutions must take actions to comply with international law. A topic that has received little attention, however, is how the likelihood that the country will comply with international law is affected by which particular institution is required to take action on behalf of the national government.

In a recently published paper, Supplying Compliance: Why and When the United States Complies with WTO Rulings (available here), we argue that when the United States loses trade disputes, the particular domestic institution required to act is an important predictor of whether (and when) the U.S. will comply with the ruling. In fact, it was the most important factor.

Our paper empirically studies this topic by analyzing compliance with legal challenges brought against the United States at the World Trade Organization (WTO). The WTO allows members to bring disputes against other members that arguably aren’t complying with various trade agreements. Since the WTO was created twenty years ago, countries from around the world have brought over one hundred cases against the United States. In cases that the United States has lost, different branches of government have been required to take act to cure the violations. For example, the President responded to some complaints by issuing executive orders and Congress responded to other complaints by amending sections of the tax code.

The dataset we built for our project includes all WTO complaints made against the United States before 2012. For each complaint, we tracked down the policy changes that the United States made after the dispute. We also collected data on the characteristics of the countries that filed the complaints and the topics of the disputes. After controlling for a number of variables, we found that the United States was more likely to comply (and to comply more quickly) with a WTO decision when the executive alone could bring the country into compliance than when Congressional action was needed.

Although there are a number of confounding factors that may influence this result, as well as limits to the generalizability of our findings—both of which we discuss in the paper—we think these results suggest that having a complete understanding of compliance with international law requires paying more attention to the specific domestic institutions that are involved.

The case for Uber-regulation

I make the case in Slate, which is that the market for short-term, on-demand car rides is inherently monopolistic. That is in fact why taxi regulation exists, and always has, virtually everywhere. The Slate piece arose from some initial thoughts in this blog post, further stimulated by Ilya Somin’s criticisms of that post. One point of disagreement centers around how to interpret people who consent to and then complain about surge pricing. Somin thinks they are irrational. I think they are reasonably concerned that they are being overcharged. The underlying problem is the high cost of search in this market, as explained in the Gallick & Sisk JLEO paper I cite. There is an interesting sense in which Uber’s disruption of the taxi market replays an earlier disruption in the 1920s when mass-produced automobiles threatened to unravel taxi pricing with the introduction of part-time drivers who skimmed off the best fares.

Tyler Cowen on quadratic voting

Cowen believes that QV would encourage extreme preferences:

I would gladly have gay marriage legal throughout the United States.  But overall, like David Hume, I am more fearful of the intense preferences of minorities than not.  I do not wish to encourage such preferences, all things considered.  If minority groups know they have the possibility of buying up votes as a path to power, paying the quadratic price along the way, we are sending intense preference groups a message that they have a new way forward.  In the longer run I fear that will fray democracy by strengthening the hand of such groups, and boosting their recruiting and fundraising.  Was there any chance the authors would use the anti-abortion movement as their opening example?

There are two possible interpretations of this argument.

First, QV would encourage people with extreme preferences to engage in activities that are disruptive of democracy. But the opposite is more likely the case. The problem with one-person-one-vote-majority-rule is that minorities are shut out unless they can organize. This is why minority groups so often resort to civil disobedience, protest marches, strikes, and boycotts. They can vindicate their preferences in the political arena only by making life miserable for the majority. By contrast, QV allows them to vindicate their intense preferences, and in such a way that partly compensates the majority.

Maybe a more attractive version of this argument is that people with intense preferences would lose the incentive to try to persuade the majority to agree with them. Under QV, they pay them off instead. But the difference between the two systems is marginal along this dimension. The cost of buying votes becomes expensive very quickly; so if persuasion can be effective, then minorities will adopt that strategy instead or (more likely) in conjunction with voting.

Second, Cowen might believe that QV would actually change people’s preferences, causing moderate people to become extreme. There are no good theories about how preferences change, so it is hard to evaluate this claim. Perhaps his idea is that under ordinary voting systems people with extreme preferences who are always outvoted somehow become persuaded that their preferences are wrong and drop them. Maybe. But it is just as likely that they give up on a political system that disregards their deepest commitments and search for extra-legal or disruptive means to vindicate them.

We can’t wish away people with intense preferences, and shouldn’t want to. Indeed, nearly everyone has intense preferences along different dimensions; that is why there is a sense in which our rights-based system, which provides judicial protection to minorities with intense preferences under certain conditions, is supported by the majority. But QV provides a better way to incorporate intense preferences into the social welfare function.

Is opposition to Uber’s surge pricing irrational?

Everyone says it is. Here, for example, is a representative statement from Ilya Somin. The argument is just that unregulated markets are efficient and therefore price caps are inefficient. Somin concludes that everyone opposed to surge pricing is irrational or ignorant.

I don’t oppose surge pricing but I don’t think Somin is right.

1. Although a practice may be efficient, it doesn’t follow that everyone is made better off by it. People rationally oppose surge pricing as long as they value the dollar savings resulting from a price cap more than the extra time they spend waiting for an Uber car or taxi to show up. These people oppose an efficient practice that happens to harm them. What’s so irrational about that? In fact, the contrary view would be irrational.

2. When surge pricing comes into effect, there is an undersupply of cars. This means that Uber has market power. Taxis can’t raise their prices, and Lyft apparently won’t match Uber’s price above a threshold. This means that for the class of people who will pay the surge price, there is no meaningful competition. It doesn’t take much imagination to believe that Uber–which takes infantile pride in its ruthlessness–will charge a price that eats up as much of the consumer surplus as possible, in the process pricing some passengers out of the market.

This is not an argument for banning surge pricing or even regulating it. It’s possible that Uber’s monopoly profits will bring in additional competition, or that the threat of additional competition keeps Uber in line, and that’s what we usually assume in antitrust law, so we let the Ubers of the world charge supracompetitive prices except in egregious circumstances. But people’s efforts to shame Uber into lowering its surge prices may not only be in their self-interest; they may serve social welfare as well.

3. Everyone thinks of Uber as an app that allows drivers and passengers to match. But also think of Uber as an efficient way of cartelizing drivers and obtaining and analyzing the data of passengers so as to maximize revenues. (Can Uber determine your price sensitivity based on past trips? Probably. Does it exploit that information by varying prices by passenger type? Maybe not. Yet.) True, Uber is a better cartel than the taxis. True also, many Uber drivers did not offer services before Uber organized them. But not everything Uber does is by definition a good thing.

Quadratic voting

Glen Weyl has uploaded a new version of his paper, Quadratic Voting (written with Steven Lalley), to SSRN, which now includes the completed proofs. Quadratic voting is the most important idea for law and public policy that has emerged from economics in (at least) the last ten years.

Quadratic voting is a procedure that a group of people can use to jointly choose a collective good for themselves. Each person can buy votes for or against a proposal by paying into a fund the square of the number of votes that he or she buys. The money is then returned to voters on a per capita basis. Weyl and Lalley prove that the collective decision rapidly approximates efficiency as the number of voters increases. By contrast, no extant voting procedure is efficient. Majority rule based on one-person-one-vote notoriously results in tyranny of the majority–a large number of people who care only a little about an outcome prevail over a minority that cares passionately, resulting in a reduction of aggregate welfare.

The applications to law and public policy are too numerous to count. In many areas of the law, we rely on highly imperfect voting systems (corporate governance, bankruptcy) that are inferior to quadratic voting. In other areas of the law, we require judges or bureaucrats to make valuations while knowing they are not in any position to do so (environmental regulation, eminent domain). Quadratic voting can be used to supply better valuations that aggregate private information of dispersed multitudes. But the most important setting is democracy itself. An incredibly complicated system of institutional self-checking (separation of powers, federalism) and judicially enforced constitutional rights try to correct for the defects of one-person-one-vote, but do so very badly. Can quadratic voting do better? Glen and I argue that it can.

Debate with Kenneth Roth about human rights treaties

You can read the debate here. Since having a blog means always having the last word, I add a few further responses to his last entry.

1. I don’t actually advocate the repeal of human rights treaties. It is enough to ignore them, or even just to recognize that they allow almost unlimited discretion because violation of them is unavoidable.

2. Ken argues correctly that the mere fact that a law (for example, the law against murder) is frequently violated is not an argument for repealing the law. But that’s not my argument. I think governments frequently violate human rights law for good reasons–having to do with the limits of their capacity and the rigidity of the law. I don’t think anyone has a good reason to violate laws against murder or rape.

3. Ken recounts a number of anecdotes where he says that treaty ratification led to a change in the behavior of states. I never claim that literally no one pays attention to specific treaty obligations, and several of his examples (the landmine treaty, the European Convention, and so on) go beyond the scope of my claims, which are restricted to the universal human rights treaties. Beyond that, while his anecdotes are compelling, I have seen too many examples of anecdotal arguments falling apart on close inspection to be willing to take them at face value.

4. Finally, in the battle of reductios, Ken argues that I must believe that countries should be permitted to enslave their workers because I reject economic rights embodied in the ICESCR. My actual argument is that if the ICESCR is interpreted as giving migrant workers in Qatar western-style employment rights, that could very well hurt many more people than it helps. In actual fact, the ICESCR is ambiguous, so it is HRW that is urging Qatar to recognize minimum wages or collective bargaining rights. Will this improve the lives of most workers or end up grievously harming many workers because of a reduction in the demand for labor? What bothers me is that HRW thinks or pretends that it knows the answer to this question, but it doesn’t.

Is the “norm” or taboo against torture dead (continued)?

torture bubbleAs I noted a few days ago, Christopher Kutz argues that the anti-torture norm is (or might be) dead. Another way of putting this claim is that the longstanding taboo against torture has lapsed. A practice is taboo if not only it is forbidden but open debate about it is forbidden. Anyone who challenges the taboo will be regarded as tainted or contaminated, as outside the community. Contrary to what we like to think, hundreds of taboos flourish in American society, as many I’m sure as in any of the tribal societies studied by early anthropologists from which the term was adopted. Our taboos surround not only religion, but also race, gender relations, and the treatment of children. Free speech is firmly entrenched in the law but anyone who thinks that one can speak freely about these topics without risking significant social sanctions hasn’t been paying attention. Taboos constantly change (many sexual taboos have lapsed, just in the last few decades), but while they prevail they are extremely powerful.

The process by which taboos break down is mysterious; Kutz doesn’t really explain why the torture taboo has eroded if it has. At least part of the explanation must lie with technological change that causes people to question traditional prohibitions. The invention of modern forms of birth control made many of the taboos surrounding sex, which may at some earlier time have been broadly functional (in the sense of protecting people from the burdens of unwanted children or quelling social conflict), seem nonsensical. Yet the erosion of those taboos (not yet complete) was complicated. People had to be motivated to challenge the taboos and endure social sanctions. Sexual desire is a potent motivation, and eventually the arguments could not be ignored. But if there is no strong incentive to challenge taboos–as may be the case with taboos that don’t ban behavioral anyone really wants to engage in (like cannibalism)–then they are likely to persist.

If the torture taboo is eroding, then the explanation must be different from change in technology. The torture technologies used by the CIA are decades, even hundreds of years, old. And as is common with many taboos, the prohibition was never complete–U.S. government has committed torture before (just as incest takes place despite the incest taboo); what’s new is that torture is openly discussed as a legitimate policy option, by some people. In the 1990s and earlier, the U.S. engaged in torture through proxies, and no one talked about torture used by American combat soldiers in wartime. What seems to have happened is that an unusual configuration of events–the 9/11 attack, the earlier enactment of torture laws that forced the CIA to seek legal cover through a Justice Department opinion, relatively new norms of government openness, and so on–forced torture out into the open, where it could no longer be ignored.

You can see the persistent taboo-like character of torture in the debates surrounding the CIA’s interrogation practices. Many of the critics feel compelled both to argue against torture (“it doesn’t work,” “it violates our values”), and to argue that this argument is unnecessary because torture is plainly wrong or off the table (“it’s not who we are”). But the mere making of the first argument, which often requires elaborate claims about how institutions work, contradicts the second. Torture (unlike, say, cannibalism or incest) then becomes a matter of debate, perhaps like any other policy. The real force of the much-derided ticking time-bomb hypothetical is not that it provides a policy justification for institutionalized torture, but that it explodes the taboo. If you agree that torture may be acceptable in this setting, then you can argue against its expansion to less extreme scenarios only by making complicated empirical and institutional arguments that can be debated by people who have different intuitions.

I wonder whether the prosecutions that the CIA’s critics desire would have the perverse effect, even if they are successful, of further unraveling the taboo. In a court of law, defense lawyers will argue that their clients acted reasonably, and to do so, they will elicit testimony that some interrogation practices that amount to torture are actually effective. Whether or not this testimony is persuasive, the mere fact that it is introduced and debated will help remove torture from the realm of the taboo. Like so many (actually nearly all) police practices, there is just no reliable evidence of efficacy, in one direction or the other, and in such cases courts tend to defer to the judgment of experts. Whatever the outcome of the prosecutions, the efficacy of torture becomes merely an empirical question, deserving of further study perhaps, one about which reasonable people may differ–in which case it can’t be taboo.

This is, I think, what happened in the gay marriage cases, which helped destroy another taboo that until recently was extremely powerful. The importance of the evidence introduced in those cases was not so much that it supported the case for same-sex marriage but that it showed the question of same-sex marriage is an empirical one. Once empirical doubts are recognized, they cannot displace powerful equality norms.

Vermeule replies to Baude: A Pre-Chevron mind?

From Adrian Vermeule:

Thanks to Will Baude for his thoughts on our paper project (see here and here for our puzzles and conjectures). It’s interesting that the proposal for judges to take into account the votes of other judges provokes a kind of instinctive resistance. But it’s not clear what exactly the objection is. Some possibilities:

(1) Will seems implicitly to assume that “textualists” and “purposivists” inhabit different methodological universes, so that judges in one camp would obtain no information from considering the views of judges in the other. That’s not how interpretation works, however. Purposivist judges are certainly interested in text and canons, in part because those things supply evidence of the purposes that a reasonable legislator might have. Conversely, many textualist judges, like Holmes, have been willing to examine legislative history and other extra-textual sources as evidence that might shed light on the ordinary meaning of text.

But even when textualist judges eschew legislative history altogether, that does not mean there is no overlap between their approach to interpretation and that of purposivist judges. Schematically, it is not the case that textualist judges consider sources or arguments {A, B, C} while purposivist judges consider sources or arguments {D, E, F}. Rather closer to the truth is a schema in which textualists consider {A, B, C} while purposivists consider {B, C, D}, or even {A, B, C, D}. This implies that judges in both camps will often gain relevant information — relevant even on their own theories — from observing the votes of other judges, even judges in other camps. And, of course, most judges are not theoretical at all, and just consider all sources and arguments in a sort of promiscuous jumble.

(2) Will also seems to think it important that judges in each camp think their own theory “correct” (Will’s italics). Under the Chevron framework, however, even if I think I am correct, the question I have to answer is whether I think the other person’s view is not only wrong, all things considered, but is actually unreasonable. The whole point of Chevron is to create space for that distinction. It is a symptom of a pre-Chevron mind (sub-Chevron mind?) to conflate these two questions, assuming that if my view is correct, yours must be beyond the pale. There is an interesting, under-explored question whether Chevron implies that agencies should have a kind of meta-discretion to choose among reasonable theories of interpretation. But the fact that proponents of competing views think their views correct will not help us figure that out.

(3) Yet another separate question, which we flagged in our opening posts, is whether and under what conditions it is systemically desirable for a given judge to take any of this information into account. We think that is the critical question for the paper, which will attempt to sift out the conditions under which it is or is not desirable. Will points out that sometimes it is better for decisionmakers not to attempt to consider all available information; certainly that is true. But he seems to assume that throwing away this particular category of information is necessarily desirable in all settings. His confidence in that approach seems to outrun the available evidence and theory, as far as we can see. It’s an interesting puzzle why our proposal provokes such a reaction.

How norms die: Torture and assassination in American security policy

That’s the title of a paper by Christopher Kutz in Ethics & International Affairs. Kutz argues that that there was a “norm” against torture and assassination in American policy until 9/11. Although these norms were violated from time to time, this was done so surreptitiously, and generally speaking policymakers believed that torture and assassination were off the table as policy options rather than choices that could be subject to moral balancing. (I think he is more likely right about torture than assassination so I will confine myself to torture henceforth.)

Kutz believes that the anti-torture norm is (probably) dead; the best evidence of this is that public opinion polls suggest that most Americans think that torture is now acceptable in limited cases. There is no public pressure to punish the Bush administration torturers. Kutz makes the interesting point that in government the greatest opposition to torture came from the military and FBI where an honor-based ethic prevails. Civilian policymakers overruled or worked around these “professional cadres,” based on a utilitarian approach in a panic atmosphere where the consequences of failing to capture terrorists were thought to be catastrophic.

As I interpret Kutz, the anti-torture norm could prevail as long as there was no major threat to U.S. security. Once this threat materialized, all bets were off. But on this view, the anti-torture norm was not a very strong norm. Torture was just not an issue, it was never thought to be needed, and so anyone who proposed it as a policy would have been regarded as a sadist, and so no one did.

I think Kutz misses another dimension. In the nineteenth century, the Great Powers made a distinction between civilized powers (themselves) and “savages” (the rest of the world). The humanitarian norms that they observed applied only to limited wars among themselves; they were suspended when dealing with tribal groups, which they sought either to wipe our or to subordinate. In the twentieth century, the norms collapsed even among the Great Powers when wars became unlimited.

Thus, as I have argued in various places, what keeps norms in place is a strategy of reciprocity. Great powers fight limited wars with the expectation that peace will return; all sides gain if the war can be kept as a test of strength and a descent into barbarism is avoided. Governments abandon those norms in two cases: (1) when they see themselves as fighting to the death; and (2) when they confront opponents that don’t comply with them themselves. Al Qaeda was a toxic combination of both of these factors.

So another way to see the change in moral psychology that Katz describes is as a recognition that norms thought be universal–at a time (really, only the 1990s) when the United States considered itself fully secure–were in fact restricted to those the United States regarded as “civilized.” (“Terrorist” has become a quasi-synonym for “savage” as that word was used in the nineteenth century: a person who does not follow certain norms that restrict the use of violence.)

Kutz makes another interesting observation; I quote from the abstract:

While democracies surely do better than authoritarian regimes in adopting and internalizing certain kinds of constraints, in part because of a greater sensitivity to public mobilization around normative questions, that same sensitivity makes the long-term survival of these norms precarious. But in a democracy the values and arguments of those cadres [the military, etc.] are susceptible to being undermined by a combination of public panic and the invocation by policymakers of a public interest that can override the claims both of law and pragmatic restraint. Democracy, hence, can be at the same time both fertile and toxic: fertile as a source of humanitarian values and institutions, but toxic to the very institutions it cultivates.

I don’t think this is right. Authoritarian regimes routinely use torture against domestic political opponents; democracies hardly ever do. What the two regimes share is that they place little weight on the interests of people who live beyond their borders.

More on human rights clinics

Marco Simons writes a further response to my Chronicle article, in which I criticize university human rights programs and law school human rights clinics. One of my arguments was that the sponginess of human rights law allows it to be used by clinical professors to rationalize political activism. I did not say that all projects undertaken by human rights clinics are worthless, but I did express skepticism about many of them, which seemed not to teach students legal skills or advance any legitimate public goal.

Simons argues that I’m wrong about this:

And I also know that at least some of my projects led to benefits for clients. One of the cases I worked on was Doe v. Karadzic, which later led to a $4.5 billion jury verdict in favor of survivors of war crimes in Bosnia. Another major project was a Human Rights Watch report on corporal punishment in Kenyan schools, which was then rampant and highly abusive; two years later the Kenyan government banned the practice, and the ban was enshrined in the constitution in 2010. (Actually eliminating it remains a work in progress.)

Karadzic doesn’t have $4.5 billion or (as far as I know) any money. He’s languishing in jail in the Hague while awaiting the verdict in one of those endless trials that international courts specialize in (proceedings started in 2008). I doubt very much that Simons’ clients are going to recover a dime. Meanwhile, the Alien Tort Statute is on life support as judges gradually realize that these purely symbolic judgments are a huge waste of judicial resources.

I was curious about the Kenya example in light of Simons’ parenthetical and I found an article with the plaintive and revealing title, Why Are Kenyan Teachers Still Using Corporal Punishment Eight Years After a Ban on Corporal Punishment? The author surveyed Kenyan school teachers and here is the answer:

[The teachers] considered that the introduction of the ban on corporal punishment in schools had produced an increase in display of bad behaviour by pupils; for example, there was an increase in riots in schools leading to the closure of some schools. It seemed that once pupils knew corporal punishment had been banned they then started breaking school rules which they previously used to accept. The teachers were of the opinion that the use of corporal punishment was the most effective way of disciplining pupils and they argued that since corporal punishment inflicts pain, pupils avoided breaking school rules and displaying bad behaviour to avoid the punishment.

[As a result of the introduction of free primary school education, teachers] now had too many pupils in their classrooms which meant more children to attend to and more school books and papers to grade. In some schools, teachers who had been teaching a maximum of 40 pupils per classroom now had more than 100 pupils in each class. There was no more time to guide and counsel pupils let alone time for individual attention to any of the pupils. Teachers therefore saw corporal punishment as the only and most effective way of controlling the huge numbers of pupils in their classrooms.

The teachers also viewed corporal punishment as useful, especially in instances where a pupil was engaging in dangerous or negative behaviour that had to be stopped immediately for safety reasons.

The observation that parents had authorised teachers to use corporal punishment suggests parents were not informed about the negative effects of corporal punishment. Parents were encouraging teachers to break the law believing it was for their children’s own good.

Prosecution has been viewed as a last resort in instances where corporal punishment continues in schools despite prohibition (Committee on the Rights of the Child, 2006), but law enforcement can play a crucial role in protecting pupils from corporal punishment in schools. This, however, has not been the case in Kenya.

It’s hard to read this and not feel for the Kenyan teachers, who may be right or wrong but are certainly in a better position to understand how to maintain discipline in a 100-child classroom than a bunch of westerner busybodies with their psychological studies. I suspect that few Kenyan schools have armed guards and metal detectors, like in the U.S, or that Kenya has the resources to house troubled and violent children in special facilities as in the West.

Simons helped into existence a law that is not enforced, and that no one pays attention to, most likely because if people obeyed it the result would be riots and general chaos in Kenyan schools. Another victory for the human rights movement.

Why Obama won’t prosecute those responsible for torture

I explain the legal and normative problems with prosecution in Slate.

My colleague Richard McAdams pointed out to me another law that would frustrate prosecution, one that I missed and has not received much attention in the press. The Detainee Treatment Act of 2005 says:

In any … criminal prosecution against an … agent of the United States Government … arising out of the … agent’s engaging in specific operational practices, that involve detention and interrogation of aliens who the President or his designees have determined are believed to be engaged in or associated with international terrorist activity that poses a serious, continuing threat to the United States, … and that were officially authorized and determined to be lawful at the time that they were conducted, it shall be a defense that such … agent did not know that the practices were unlawful and a person of ordinary sense and understanding would not know the practices were unlawful. Good faith reliance on advice of counsel should be an important factor, among others, to consider in assessing whether a person of ordinary sense and understanding would have known the practices to be unlawful.

42 U.S.C.A. § 2000dd-1.

Mistake of law provides a defense for all CIA agents acting within the parameters of OLC’s legal advice.

ACLU’s Romero on pardoning Bush and others

Anthony Romero, executive director of the ACLU, argues in The New York Times that Obama should pardon Bush and all the others involved in the torture program. Not because he thinks they acted rightly. Quite the contrary: pardons

may be the only way to ensure that the American government never tortures again. Pardons would make clear that crimes were committed; that the individuals who authorized and committed torture were indeed criminals; and that future architects and perpetrators of torture should beware.

The logic is faulty; interrogators who use torture in the future will expect to be pardoned just like their predecessors. Whether you call non-prosecution a “pardon” or not, it amounts to the same thing. But what is most odd is that a civil libertarian believes that the president should tar people as criminals without giving them the benefit of a trial.

Romero, like the supporters of torture, do what people always do when Congress or the courts can’t, or won’t, do what they want. They turn to the president and demand executive action.


The Votes of Other Judges, Part II

The following post was co-written with Adrian Vermeule.

In our previous post, we set out some puzzles about how judges should take into account the votes of other judges. Here, we sketch out some tentative answers.

Imagine that each Justice reads the statute and the briefs, and reaches a preliminary conclusion about the meaning of the statue. The Justice also has a level of confidence (high, low, middling) about her own interpretation. For example, a Justice might believe that the meaning is X with a probability of 0.99, 0.9, 0.6, 0.5, or 0.1 (which is the same as saying that she believes the meaning is Y with a probability of 0.01, 0.1, 0.4, 0.5, or 0.9). A Justice with a high confidence level believes that the statute is clear; a Justice with a confidence level in the neighborhood of 0.5 believes that the statute is ambiguous.

A Justice should update her prior in light of the information that she receives from the other Justices. If voting is sequential, then each Justice should update based on the Justices who voted before her. If voting is simultaneous, then such updating is not possible immediately—but let us suppose that Justices can change their votes in a second round of voting. Each Justice should take into account not only the number of votes for each meaning, but the confidence level of the Justices who cast those votes. A Justice who votes for X with confidence level 0.51 is not as informative as a Justice who votes for X with confidence level 0.9. It may, however, be difficult to gauge confidence level—it is certainly more difficult to gauge confidence level than the vote itself. We can imagine that Justices may try to reveal their confidence level when they cast their vote (“I’m really not sure, but for the moment X seems more plausible to me”). This may not always be the case, but let’s assume it is. Now let’s go to the questions from last post.

(1) If the initial vote reveals a 5-4 split in favor of meaning X, and all justices (sincerely) claim to be confident, then they should all certainly update their views. How they update their views is complicated. If you are confident enough, then you should presumptively not update your views; but if enough people are arrayed against you, and they are confident as well, then you should. But in this example, it certainly seems that each Justice should decide that the statute is ambiguous (by which we mean, she believes that the meaning is X with probability only slightly higher than 0.5).

(2) The second case involves a 5-4 split, where the 5 believes that the statute clearly means X, and the 4 say that the statute is ambiguous. Let’s suppose that this means that the 5 attach probability 0.9 that the statute means X, and the 4 attach probability 0.5 that the statute means X. Given these precise numbers, the 4 should update their views and agree with the 5 (while the 5 should update their views only slightly); but different numbers would yield different results.

(3) This case—where 4 Justices believe the statute clearly means X, 4 Justices believe the statutes clearly means Y, and 1 Justice believes that the statute is ambiguous—raises a question about the difference between the “collective” or aggregate meaning of an opinion, on one hand, and the views of the individual Justices on the other. For an even clearer example, suppose that all Justices believe that the statute is ambiguous but incline toward X (say, confidence level 0.55). If they then observe each other’s vote and confidence level, and also believe that each Justice’s view is independently arrived at, then they should update their belief and conclude that the probability that the correct meaning is X is very high (almost certain), in virtue of the Jury Theorem. Should the Justices unanimously vote that the statute is ambiguous or that the statute is clear? We need to work this through.

We have assumed away some types of strategic behavior. A Justice might deliberately overstate her confidence level in order to influence the votes of other Justices. In response, Justices may rationally place less value on such “cheap talk” than otherwise, depending on how honest they think the other Justices are, which is something that they may learn over time through interactions with each other. Of course, strategic behavior by Justices is a more general problem, hardly unique to this setting. Consider the certiorari process, or the possibilities for strategic behavior opened up by the Doctrinal Paradox (the choice between aggregating judicial votes over discrete issues or aggregating votes over bottom-line judgments).

Another complication is that, even if entirely sincere, a Justice may conceal information by allowing herself to be influenced by other Justices. In the famous herd-voting models, if, say, the first three or four Justices happen to vote the same, then subsequent Justices will imitate them, believing that the collective view is more information than their own. A similar problem can arise with simultaneous voting. However, this is not a problem if Justices can and do credibly reveal their confidence level as well as the outcome they believe is correct.

There is much more work to be done, on all these questions. But our tentative judgment is that the potential costs of such a system, while real, do not necessarily and invariably justify throwing away relevant information — the information contained in the votes of other judges.

The Votes of Other Judges, Part 1

The following post was co-written with Adrian Vermeule.

An earlier entry on this blog discusses the puzzle of King v. Burwell: given that six out of the nine judges to vote on the merits have ruled in favor of the agency, isn’t it difficult to say that the agency’s view is clearly unreasonable? The issue generalizes. Under what conditions should judges take into account the information contained in the votes of other judges? We are currently working on a paper on the subject, and lay out some very preliminary and tentative thoughts here.

The issue generalizes well beyond judges, of course. It arises whenever a multimember decisionmaking body, or a hierarchy of such bodies, has to decide whether a legal standard is clearly satisfied. Disagreement among the voters is itself informative about whether the standard is met.  Thus a famous puzzle about juries, stemming from James Fitzjames Stephen, is whether majority rule can coherently be combined with the reasonable-doubt rule. The argument that it cannot goes like this: Imagine that the jury votes 7-5 to convict the defendant. Doesn’t the close vote itself suggest the existence of a reasonable doubt? Related literature in positive political theory involves the “swing voter’s curse” and strategic voting on juries under unanimity rule. But we will confine ourselves to the judicial setting for now.

The relationship between Supreme Court and the lower federal courts is fertile terrain for these issues. If N courts of appeal say that a statute clearly means X, and another N courts of appeal say that a statute clearly means Y, doesn’t that tend to show, all else equal, that the statute is ambiguous? Or in cases about qualified immunity, if some appellate courts say that a certain rule counts as “clearly established law,” and some say it doesn’t, does that mean it doesn’t? What if the second group says not merely that the rule isn’t clearly established, but that the opposite rule is clearly established?

But let us focus on the cleanest setting — voting within a multimember group of Justices at the Supreme Court. And we will use Chevron examples, in light of King v. Burwell.

Here are some cases of interest:

(1) At the conference after oral argument, five Justices say that the ordinary meaning of the statute is clearly X, four say that it is clearly Y. Shouldn’t all nine update their views and learn from the aggregate information contained in the votes of colleagues? Shouldn’t all entertain the possibility that the vote reveals the statute to be ambiguous?

(2) A harder case: At the conference after oral argument, five Justices say that the statute clearly means X, four say that it is ambiguous as between X and Y. Should the five obtain some information from the votes of the four, albeit not as much as in case (1)? After all, the four do not agree that the statute clearly means X. And how about vice-versa — should the four update their own views, in light of the views of the five?

(3) Four justices say that the statute clearly means X, four that it clearly means Y. The swing justice thinks the statute is ambiguous, so the agency wins. Two puzzles:

(A) What exactly is the judgment of “the Court,” for purposes of the Brand X rules? Is it that the statute is ambiguous, so that the agency may flip back and forth between interpretation X and interpretation Y as future administrations come and go?

(B) If so, is that a sensible result? After all, eight Justices viewed the statute as unambiguous (although they disagreed on its putatively unambiguous content).

So far we have assumed that all Justices are using a common interpretive theory (in the examples, we have assumed that the Justices are all trying to determine the ordinary meaning of the text). But puzzles also arise at the meta-level of competing approaches to interpretation. In case (1), suppose that the five Justices are purposivists who think that purposive sources clearly suggest X, and the four are textualist who think that the ordinary meaning clearly indicates Y (or vice-versa). Does that undermine the argument for ambiguity? Or should all nine Justices recognize that reasonable minds can disagree about the proper approach to interpretation, and then say that the agency has second-order discretion to choose among reasonable interpretive approaches? On that logic, the agency wins as well, not because the statute is ambiguous within any particular interpretive approach, but because there is second-order ambiguity in the choice of interpretive approaches.

The puzzles are endless. Clearly some sort of analytic framework is needed, and basic decision theory supplies one. We sketch out such a framework in our next post.

The Executive Unbound, environmental ed.

From the NYT:

President Obama could leave office with the most
aggressive, far­-reaching environmental legacy of any occupant of the White House. Yet it is very possible that not a single major environmental law will have passed during his two terms in Washington.

Instead, Mr. Obama has turned to the vast reach of the Clean Air Act of 1970, which some legal experts call the most powerful environmental law in the world. Faced with a Congress that has shut down his attempts to push through an environmental agenda, Mr. Obama is using the authority of the act passed at the birth of the environmental movement to issue a series of landmark regulations on air pollution, from soot to smog, to mercury and planet-­warming carbon dioxide.

Reply to critics of my Chronicle piece on human rights programs

In the Chronicle article, I raised questions about whether human rights programs and law school human rights clinics advance legitimate university goals. I found two substantive responses on the Web.

1. Marco Simons argues (“On the off-chance that anyone does think this is a critique worth listening to“) that my view “is rooted in his belief that human rights law, indeed international law in general, is incoherent and useless. Thus he believes that any effort to give students experience in the practice of human rights law is simply political advocacy, because human rights law can be used for any political purpose.

I don’t believe (and have never said) that international law is incoherent and useless. I do think that human rights law is pretty incoherent, but I allowed that a clinic experience could be valuable to students if it teaches them (distinctively) legal skills and generates benefits for a client (or is likely to). So the way to respond to my argument is to show that specific human rights projects satisfy these two criteria. Simons does not offer any examples (though he makes several unintentionally damning comments about other types of clinics in an effort to show that human rights clinics are no worse than they are).

2. Sital Kalantry provides a more substantive response. She makes many points; I will leave readers to evaluate them for themselves. I will only address a couple. Among other things, she argues that

Some projects of IHR clinics do not involve representation of an individual client in a court case. Instead, they are aimed at achieving change for large groups of people through means other than courts. Those tactics require the use of legal skills beyond the traditional set. In the real world, public-interest and human-rights lawyers achieve social change by mobilizing peoples and communities using media or technology. Filing shadow reports with international treaty bodies, holding thematic hearings at the Inter-American Commission on Human Rights, or drafting reports using the moral persuasion that human-rights principles offer can raise the awareness necessary for legal change to occur.

I am skeptical that any of these activities (particularly the last) do make any difference, but my more specific concern is that once clinics start training legal skills “beyond the traditional set,” anything goes. I also suspect that once a clinic (human rights or any other type) decides that it does not need clients, but can represent any group with which it sympathizes, the link to law becomes attenuated, and the temptation to use law school resources for political ends becomes irresistible.

She also says:

He wonders whether a resolution by the Chicago City Council—that domestic violence is a human-rights violation—would reduce domestic violence. The purpose of the resolution on domestic violence is (among other things) to bring the United States closer to its international obligations, including strengthening the enforcement of a recent Inter-American Commission on Human Rights decision that found the United States to be in violation of its obligations to protect domestic-violence victims and their families. But this is precisely why Posner thinks this project is pointless—because it attempts to draw the United States closer to its international law obligations.

I think this project is pointless because it is hard to believe that a City Council resolution without any legal force would have any effect on the level of domestic violence. I don’t see how the resolution brings the United States closer to its international obligations, which do not require all the cities in the United States to pass resolutions saying that they will change their behavior, but in fact requires them to change their behavior. (Exactly what binding treaty obligation requires the United States to reduce the level of domestic violence escapes me, but never mind.)

In a similar vein, she argues:

IHR clinics also “do good” by investigating and exposing human-rights abuses that would otherwise go unnoticed (like the report by the Stanford and NYU clinics describing the impact of drone strikes in Pakistan) and by pressuring governments to change their abusive policies by filing reports with numerous international and regional human-rights mechanisms.

I would accept this argument if the clinics also provided evidence that by exposing human-rights abuses and pressuring governments to change behavior, they regularly caused the governments to change their behavior–and in a way that is required by their treaty obligations rather than someone’s idea about what good policy requires.

Kalantry’s view, which is common among human rights advocates, is effectively that all policy arguments are legal arguments, and any kind of advocacy is legal advocacy. It then follows that when law students make any type of argument that a government somewhere should stop doing something that hurts people or do more to help people, they are engaging in human-rights legal practice for which they deserve academic credit.

Reply to Brian Beutler and Kevin Drum on Obama’s immigration order

Beutler and Drum doubt that Obama’s immigration order will set a precedent that a future Republican can exploit for the purpose of economic deregulation, as I argued in TNR. Beutler seems to doubt that (political) precedents can constrain political actors. Drum thinks that precedents can matter but doubts that they will matter in this case because the Obama order will set precedent for immigration law only.

I confess I don’t understand politics well enough to be able to predict whether Obama’s order will have a large effect or a small effect but I believe it will have some effect. Think, for example, of the centralization of power over regulatory agencies in the OMB under Reagan. Reagan took political heat for that decision but pushed it through not only because he was ideologically committed to deregulation but because deregulation at the time was popular among Democrats as well as Republicans. His successors, who maintained the structure Reagan put into place, did not take political heat. That is how precedent works. But, of course, its influence can be overcome by other factors.

It is easy to predict that in 2017, the hypothetical President Paul will argue that he can deregulate by non-enforcement because that is what Obama did, and Democrats who defended Obama are in no position to criticize him. Would such an argument work politically? One question is whether people are capable of making fine-grained distinctions between immigration enforcement and, say, environmental-law enforcement. Another question is just how different environmental-law enforcement really is from immigration enforcement. People who sift through environmental law will find great pockets of executive discretion, both in the statutes and as a matter of practice. But the influence of arguments like these, taking place in the arena of politics rather than a court of law, is hard to predict.

Against human rights programs in universities

I criticize them (especially law school human rights clinics) in a piece in the Chronicle of Higher Education, available here. My argument is that the political activism that takes place through these programs sits uneasily with university commitments to research and pedagogy. In the case of law school clinics, nearly any form of political activism can be justified as furthering “human rights law” because of the ambiguity of this term. Indeed, the term is, in practice, so capacious that clinics can engage in political activism under the banner of human rights law without teaching students any legal skills.

Kirkland and Ellis Distinguished Service Professor, University of Chicago Law School