Wednesday, January 9, 2013

The Myth of the $1 Trillion Coin

As the United States federal government once again nears the maximum level of borrowing currently authorized by Congress, placing the task of authorizing new borrowing in a deeply divided Congress, a number of ideas to delay or bypass the crisis have emerged. This time around, one idea that has gained particular traction, including numerous articles and a White House petition, is that the U.S. Mint should produce a $1 trillion dollar coin, which it would then deposit with the Federal Reserve, buying back that amount of U.S. debt, and keeping the federal government under the debt limit.

The genesis of this idea is a (formerly) little-known provision of U.S. law which controls the manufacture of official U.S. coins. This law explicitly defines the face-value of every coin that can be minted, except for one: the platinum eagle. With regards to platinum coins, the law says simply:
The Secretary [of Treasury] may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
31 U.S.C § 5112 (k)

The statute's failure to define one single permissible denomination for platinum coins has led some to the conclusion that the President could simply direct the Treasury Secretary to mint a platinum coin in the denomination of one trillion dollars, averting the debt crisis before it begins. Is this a correct reading of the law? In a word: no.

I attribute this sort of legal reading to a general public which increasingly takes its interpretation skills from the technique employed in fiction by evil genies, cursed monkey paws, and hell's lawyers. And the $1 trillion coin reading bears all the hallmarks of the evil genie canon of legal interpretation: it gives words with established legal meanings new meanings (or no meaning at all); it flatly contradicts the clear intentions of the drafters; and, if applied, would almost certainly render the law unconstitutional.

Plain Meaning

The major limit on the platinum coins that the mint can produce is that, by the terms of the law, they must be either "platinum bullion coins" or "proof platinum coins." As an explanation of these terms shows, a $1 trillion coin simply can't be either one of these.

All coins have three potential sources of value: their face value, which is the denomination of the coin; their intrinsic, or metallic, value, which is the value of the materials contained in the coin; and their numismatic value, which is their value as rare collectors items.

"A bullion coin is a coin, the selling price of which is based on the value of the [metalic] content of that coin rather than its collector value, as with a numismatic coin." U.S. Gold & Silver Invs. v. Dir., U.S. Mint, 682 F. Supp. 484, 485 (D. Or. 1987); A.G. Berman, Warman's Coins And Paper Money 98 (4th ed. 2008) ("A bullion coin is a coin with a value in precious metal intended to be higher than its face value."); ("Precious metal . . . coins valued according to their metal content . . . in contrast to the numismatic value of rare coins."); ("Metal coins . . . [whose] price is directly connected to the underlying price of their metal."); see also ("A simple definition of a bullion coin is one in which there is little premium above the metal value of the coin, in other words, you are buying the coin for the commodity it contains."); ([E]arlier gold coins . . . metamorphosed into bullion coins with their withdrawal from circulation, which was probably because their intrinsic metal value had increased beyond that of their face value.").

Because its value is based on its metallic content, a bullion coin, like bullion itself, can be traded to capitalize on changes in the price of the base metal. Cf. Peterman v. Coleman, 764 F.2d 1416, 1422 (11th Cir. 1985) ("[T]ransactions in gold or silver bullion coin [provide] the opportunity to take advantage of changes in precious metal prices. . . .").

A bullion coin, therefore, does not take its value from its face value. It takes its value from its metallic value, which therefore must be higher than its face value. As the U.S. Mint itself describes this:
American Eagle Platinum Bullion Coins give investors an easy way to take advantage of platinum as a precious metal investment. . . . All American Eagles are legal tender coins, with their face value imprinted in U.S. dollars. Although their face value is largely symbolic, it provides proof of their authenticity as official U.S. coinage.
U.S. Mint: American Platinum Eagle

A platinum coin with a face value higher than its metallic value would not be a "bullion coin." Rather, it would be fiat money, backed by legal tender laws, just like the small change used in everyday transactions. This limit -- that a bullion coin must have a metallic value higher than its face value -- effectively forecloses on the $1 trillion coin. First, because, the mint would have to purchase that much platinum, preventing the scheme from working, and second, because such a coin would weigh several tons and have difficulty fitting in a room.

The other option given by the statute, besides a "bullion coin," is a "proof coin," but this provides no more flexibility. "Proof coins" originated as high quality samples of a broader coin run, used to test the dies and archive the images. In modern times, they are produced in greater numbers and sold to collectors, but they retain their relationship with the larger run.

Here is how the U.S. Mint describes its proof coins:
The term "proof" refers to a specialized minting process that begins by manually feeding burnished coin blanks into presses fitted with special dies. Each coin is struck multiple times so the softly frosted, yet detailed images seem to float above a mirror-like field.
U.S. Mint: Proofs

As far as I can tell, "proof coins" always have the same denomination and metallic content as the non-proof series of which they are a part. In other words, the authorization to make platinum bullion and proof coins, includes only an authorization to make proof coins that themselves have the qualities of otherwise-existing bullion coins. Thus, the proof coins must also have a metallic value higher than their face value.

(UPDATE: Tom Maguire of JustOneMinute goes through the U.S. Code to demonstrate this very relationship -- that proof coins are always attached to a permissible run of bullion or circulating coins.)

In short, 31 U.S.C § 5112 (k) does not really give the U.S. Mint authority to make coins of any denomination, so long as they are platinum. Rather, it gives the U.S. Mint the authority to make a particular kind of product -- platinum bullion pressed into a coin shape and vouched for by the U.S. Mint -- and to make versions of that product in various weights, and therefore, values.

Intent of the Drafters

All of this is confirmed by the intent of the drafters of 31 U.S.C § 5112 (k). The provision was passed as part of an omnibus spending bill, but it began life as the Commemorative Coin Authorization and Reform Act of 1995, introduced by Rep. Mike Castle (R-Delaware). The provision accompanied other legislation concerning coins valued for their value to collectors, and both of the Representatives who spoke in favor of it referred to this purpose. The motivating desire behind the alteration was the high price of current bullion coins, and the desire of some collectors to be able to buy lighter-weight (and thus less expensive) platinum bullion coins. There was also a concern that specifying the coins to be manufactured would leave the mint holding coins it could not sell easily. The legislation addressed both concerns by letting the Secretary set production weights based on market demands.

Rep. Castle's comments introducing the bill confirm his understanding that the coins would be valued based on metallic content, and not face value. Of the relevant language he says:
Title II permits the issuance of platinum and gold bullion coins by amending section 5112 of U.S.C. title 31. The Secretary of the Treasury would have the authority to determine the quantity, variety, and physical specifications of these coins. The price would be that of the bullion plus cost of manufacture, with a reasonable profit added for proof versions.
H13948 (House of Representatives Dec. 05, 1995).

Castle's discussion of the price of a bullion coin confirms our understanding of what a bullion coin is. The government would not "sell" a coin with a face value greater than its metallic content -- it would "spend" it -- and it certainly would not sell it for a price lower than its face value. When a reporter recently contacted Castle, he confirmed that a $1 trillion coin is a complete perversion of his intent.

The Constitution

If all this were not enough to confine its meaning, reading 31 U.S.C § 5112 (k) the wrong way would render it unconstitutional. This is because the power to coin money is a power assigned to Congress, which it cannot simply hand over to the Executive branch. Congress can give the executive branch some discretion, but it cannot delegate the power wholesale. This means that if the Congress directs the executive to exercise some discretion, it has to specify what purpose is to be pursued, and what the limits of its authority are. As the Supreme Court has said:
Article I, § 1, of the Constitution vests all legislative Powers herein granted in a Congress of the United States. This text permits no delegation of those powers. [So] when Congress confers decision-making authority upon agencies Congress must "lay down by legislative act an intelligible principle to which the person or body authorized to act is directed to conform."
Whitman v. Am. Trucking Ass'ns, 531 U.S. 457, 472 (2001) (quoting J. W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 409 (1928)) (internal alterations omitted). And
[T]his Court has deemed it "constitutionally sufficient" if Congress [1] clearly delineates the general policy, [2] the public agency which is to apply it, and [3] the boundaries of this delegated authority.
Mistretta v. United States, 488 U.S. 361 (1989) (enumeration added).

When read correctly, 31 U.S.C § 5112 (k) presents no constitutional problems. The general policy is clear: the mint should produce "bullion coins" and corresponding "proof coins" for public consumption in accordance with the demand and marketability of such coins. (And this it does.) The decision-maker is clear. And the limits on the mint are real: because they are "bullion coins" the coins must have symbolic face values, and so the mint must buy precious metal (which is regulated elsewhere in the code) in order to produce coins.

But when read incorrectly, as granting the mint unlimited authority to make any platinum coin of any size, shape, and denomination, without limit, 31 U.S.C § 5112 (k) does present a constitutional problem. The "policy" to be pursued is entirely undefined and open-ended: the mint can make whatever coin it wants for whatever reason it wants. Indeed, the point of this interpretation is to allow the Executive branch to pursue a heretofore unimagined policy of skirting Congressional authority of the debt limit. And the substantive limits on this delegated authority are entirely lacking. If the mint can make one $1 trillion coin, it can make thousands of them; or it could make a $1 quintillion coin; or it could make none. It has effectively unlimited authority of U.S. money creation, so long as it possesses just a bit of platinum.

Though the occasions for striking down unconstitutional have been rare, courts routinely "giv[e] narrow constructions to statutory delegations that might otherwise be thought to be unconstitutional." Mistretta, 488 U.S. at 373 n.7; compare S. Dakota v. U.S. Dep't of Interior, 69 F.3d 878 (8th Cir. 1995) vacc'd 519 U.S. 919 (1996) (unconstitutional delegation without narrowing construction), with S. Dakota v. U.S. Dep't of Interior, 423 F.3d 790 (8th Cir. 2005) (adopting narrowing construction).

This means that even if the plain language of 31 U.S.C § 5112 (k) gave the executive branch unfettered authority to create whatever value of coinage, without a guiding and restricting purpose, a court would infer such a limiting purpose by looking to the larger context of the statute, which was to facilitate creation of "commemorative coins" to be sold to collectors. See S. Dakota v. U.S. Dep't of Interior, 423 F.3d at 795. ("The Court has made such narrow constructions by rejecting overly broad interpretations of certain words and giving the words content 'by their surroundings.'" (quoting Whitman, 531 U.S. at 474-75)).


In short, the $1 trillion coin violates the plain meaning of 31 U.S.C § 5112 (k), its drafters intent, and the limits of the Constitution. It began as a search for a magical loophole, and it finds this loophole only by ignoring key words of the statute. Plainly, it would never be upheld by any Court.

Monday, August 13, 2012

Re: Kleiman/Loury diavlog comment

Over at bloggingheads, a poster named Mark Kleiman writes the following about voter ID laws, to which my responses are shown.
Sorry, but you're simply wrong.
I'm not convinced that the parent post is written by Kleiman and not a troll trying to make him look bad, but I'll bite anyway. In fact, parent post is incorrect on every count, and here are the links to show it.
States don't require "voter ID." They require a driver's license to vote.
A list of Voter ID requirements by State, maintained by the National Conference of State Legislatures, can be found here. It indicates that in all States which require photo ID, a non-driver's-license form of State-issued photo ID is available and acceptable. In several cases, this form of non-driver's-license photo ID is explicitly called "voter ID." Pennsylvania and Indiana also accept some expired driver's licenses and state IDs. Under firmly established precedent having nothing to do with poll taxes, a State could not restrict voting to those with a driver's license, because capability to drive, which is required to obtain a driver's license, is not related to the state interest in securing the integrity of the vote. (See the linked case below for a discussion of the applicable precedents.)
And they charge for a driver's license.
A resource maintained by the Brennan Center for Justice, which can be found here, indicates that in all states which have passed voter ID laws recently, provision is made for issuance of a qualifying ID without charge. Some States additionally provide a birth certificate without charge for voter ID purposes.
Now, you and I agree that such a system amounts to a poll tax. But the 5-4 Republican majority on the Supreme Court didn't see it that way. How surprising!
The Supreme Court addressed the constitutionality of voter ID in Crawford v. Marion County Election Bd., 128 S. Ct. 1610 (2008). That case involved an Indiana law which required voters to present one of a number of types of government-issued photo IDs, among which was a free State ID, or else sign an affidavit that obtaining a photo ID was a financial or religious hardship. The law also allowed a provisional ballot to be cast and then counted if the voter subsequently produced ID within a several-day window.

The law's challengers were unable to produce an individual who was prevented from voting, as so the case proceeded as a facial, rather than as-applied, challenge.

None of the Justices found that the law was an unconstitutional poll tax, but they disagreed about whether the law ran afoul of the Court's broader voting rights jurisprudence grounded in the Fourteenth Amendment. A Six-Justice majority, with Justice Stevens writing the principle opinion, found that the requirement was constitutional. Among the facts it cited were that over 99% of Indiana residents already possessed the required photo IDs.

In Crawford, majority of the Justices who are still sitting signed on to opinions which indicated that a more burdensome law would be unconstitutional.

* * * *

Of note also: Kleiman says that 25% of African Americans lack valid photo ID.

That statistic comes from a study conducted by the Brennan Center. That study's validity has been questioned. But assuming it is accurate, it should be qualified in two ways. 1) The study concerns photo ID meeting legal requirements, including being current (i.e. up-to-date address) and unexpired; but non-current and expired IDs can generally be used to obtain valid ID. 2) The study concerns residents, not registered voters; in fact many of those who lack valid ID were not registered to vote to begin with.

Friday, June 29, 2012

Will Sandy Levinson Teach NFIB v. Sebelius to Eastern Europeans?

[as-of-yet un-proof-read]

The Supreme Court's decision in the Affordable Care Act cases came down today. While I haven't had a chance to read the 100+ pages of opinions, anyone familiar with the case already knew what the opinions would contain, it was merely a question of which arguments would command a majority and which would command a minority — and so I'm going to give some initial thoughts on Chief Justice Roberts's decision despite not yet having read it.

One of the first things I am reminded of is an article by Professor Levinson entitled "Why I do not Teach Marbury (Except to Eastern Europeans) and Why You Shouldn't Either."

The gist of the article is that Marbury v. Madison, as traditionally taught, is not a terribly effective case. The case is said to have established the power of judicial review, but in fact, that power was assumed in the Federalist papers and had already been asserted by other courts. Furthermore, the actual legal analysis in Marbury is exceedingly specious — though not in a way that a first-year law student is likely to have the context to understand or identify. For these reasons, Professor Levinson teaches his students using legal controversies that actually demonstrate difficult and contested principles of constitutional law.

But Levinson gives a caveat. He teaches Marbury when he lectures to students in newly emerging Eastern European democracies. The reason is that Marbury comes at the culmination of an interlocking set of constitutional crises that rocked the young American nation. Difficult conceptual and philosophical questions about the relationship between the common law and the federal republic became politically charged and polarized along party lines, famously resulting in the passage of the Alien and Sedition Acts by the Federalist-controlled Congress.

The conflict was effectively resolved when the Federalists were ushered out of power in a landslide election, but this only generated further issues. The young republic lacked an unwritten norm of alternation of power between parties and the concept of a loyal opposition party — indeed it lacked even a model to look to for such a norm. Having been defeated, but not yet removed from power, the lame-duck Congress passed a new judicial act, creating numerous new federal judgeships, which it stocked with Federalist supporters — the so-called Midnight Judges Act. The lame-duck Congress was also tasked with choosing Jefferson or Burr, who had tied in the electoral college, to be the next President; and they toyed with leaving it unresolved, so that Adams, or, in a twist, perhaps even Chief Justice John Marshall, might act as President. The retaliation by the rival Jeffersonians was severe. They attempted to impeach Justice Chase, and they repealed the Midnight Judges Act, ousting many Federalist-appointed judges who should have enjoyed life tenure. It was against this backdrop that Court was asked to order the Secretary of State to deliver a commission to a Marbury, who had been appointed to a judgeship by the same lame-duck Congress.

Professor Levinson teaches the case to Eastern Europeans, he says, because they can understand the context of this story better. It is a story about the dilemma faced by a judge in a young transitional regime. Marshall concocts a tenuous legal rationale for declaring that the Court has the power to invalidate laws and to order executive officials to do things while simultaneously avoiding doing so in the case at hand. He hands Jefferson a political victory in order to secure a beneficial precedent and legitimacy for his institution.

Certainly today's Court faces nothing so dramatic, but it is plausible that similar (though diminished) pressures still exist, and that they may manifest in similar effects. I note that the outcome of the Affordable Care Act cases awards a political victory to progressives, but, at least given that fact, establishes precedents that are remarkably friendly to conservatives, even though the rationale for addressing those issues is a bit of a stretch.

So entertain a thought experiment with me: is there a parallel to be drawn between Chief Justice Marshall's famously "creative" opinion and today's decision by the present Chief Justice?

In terms of policy, the outcome of the Affordable Care Act cases is a setback for conservatives. Conservatives had two goals in this litigation: they wanted limits placed on federal power, but they also wanted to see constitutionally-sound aspects of the Affordable Care Act struck down as a by-product of announcing those limits.

There was never any question that something very similar to the Affordable Care Act could have been passed without being vulnerable to a constitutional challenge, and that conservatives would still have objected to it on policy grounds. If significant portions of the law had been struck down along with the constitutionally-vulnerable provisions, Congress would not have been judicially constrained from re-enacting the Affordable Care Act, but the political will to pass it would have been gone. Purely in terms of substantive health care policy, then, this decision is a win for progressives and a loss for conservatives.

In terms of legal precedent, the outcome of the case is considerably better for conservatives. Given that the individual mandate was upheld, the actual holdings of the case are the best that can be imagined. Indeed, on the whole, conservatives might find the actual holdings to be better than had been expected even if the Court had struck down the mandate.

First, a majority of the Court endorsed the challengers' theory on the limits of Congressional power under Commerce and Necessary and Proper Clauses. This is highly significant for two reasons: first, because it was always a difficult argument to advance, and second, because it represents the culmination of a significant shift in our understanding of the limits on enumerated powers.

There are essentially two ways of looking at the Court's expansive New Deal-era precedents concerning the limits of enumerated powers. One view is that these precedents are either faithful to the underlying principles of constitutional law, or that precedents simply are constitutional law. In this view, future cases should apply the spirit of these New Deal precedents, the result of which is that the federal government has effectively unlimited power. The second view is that these precedents are not faithful to the underlying principles of constitutional law, but have become too settled to overturn. In this view, future cases should be apply the letter of these New Deal precedents, the result of which is that the federal government can keep doing things it has already done, but that when the Court can draw a line between what it has previously allowed and what Congress wants to do, it should cabin its old and incorrect precedents and refuse to allow the expansion of federal power.

The difficulty for the challengers in this case was that it required the Court to accept both that the second view was correct, and that the line that they proposed to draw between the mandate and previously sanctioned exercises of federal power was a reasonable, workable line. Before this case, no one knew whether there were even five Justices who accepted that the view that the New Deal precedents should be cabined. And even if there were five, they would all need to be convinced that the challengers' proposed line-drawing should be accepted. And the word I mean really is "should," not "must." This type of cabining of erroneous precedent is fundamentally a matter of judicial prudence, not textual interpretation. One cannot really claim that it is mandated by the Constitution, since the Constitution is (understandably) silent on the issue of when it should or should not be trumped by erroneous precedent.

That five Justices found the mandate to fall outside the commerce power is unprecedented confirmation that a majority of the Court really does view the New Deal precedents as wrongly decided, and really does approach Enumerated Power issues with the aim of cabining those precedents. The Court, in Lopez, and in Morrison, has given indications of this before, when the Justices limited the "substantial effects" doctrine to economic matters. But in each of those cases it was possible to conceive of the results as mere interpretations of the previous doctrine. Furthermore, in Raich, the Court was asked to carve exceptions into its existing precedents, and it refused. This case, then, represents the first time the Court has unambiguously held an act of Congress to be outside the Commerce power simply because the Court could draw an intelligible line cabining the Court's prior precedents.

Second, a large majority of the Court struck down a provision of the Affordable Care Act which would have forced States to participate in an expansion of Medicaid or else forego funding for both the expansion to the program and the existing program. Many observers thought that the State challengers would lose badly on this issue, and the fact that they did not should be welcome news for conservatives. The Court has long said that there is some theoretical limit to what Congress can do to use its power over the purse to coerce States into enacting federal policy, but that limit has seemed very elusive. The high mark for any limit was Justice O'Connor's lone dissent in South Dakota v. Dole, which would have found that the program at issue failed under the Court's test. Not only has the test been seen as toothless, the challengers actually need the Court to expand upon that test in order to prevail.

That the challengers in this case did succeed is a major development. A theoretical limit that has never applied is easy to dismiss or manipulate. A limit which has been applied is much harder to turn into a nullity. It is quite possible that, having been applied, this doctrine will grow into a real limit on federal power over the States. This issue is less glamorous that the individual mandate, but on a practical level, it is much more important, because federal coercion on the States is frequent, significant, and often invisible.

Third, it is not meaningless that the mandate was upheld as an exercise of the taxing power, rather than the spending power. When Congress must admit that it is engaging in taxation (which it must now do if it passes similar laws) it will be subject to significant political constraints in the form of public aversion to taxation. That aversion may even bear fruit in this election now that Republicans will be able to force Democrats to defend the law as a tax.

The Court's holding will also have consequences for the study of law. Conservatives have argued both that existing precedents interpreting the Tax Clauses are overly permissive, and that even under these erroneous precedents, the individual mandate is not a tax. Though they are now little-studied, the Court has actually issued quite a number of decisions on the limits of Congress's taxing power. These decisions came during the last era in which the Court was still imposing significant limitations of Congress's power under the Commerce Clause, and they have lain largely dormant during the era in which the Court has applied a broad vision of the commerce power.

Because there are more of these precedents, the holding in this case has less power as a precedent. Accept for a moment the premise that under existing precedents the individual mandate really is not a tax, and that if all the Justices were truthful, a majority of them would agree to this. Because there are many Tax Clause precedents, that hypothetical majority could plausibly strike down similar laws in the future simply by appealing to the other precedents. The same could not be said of Commerce Clause jurisprudence. There are very few cases striking down laws as exceeding the Commerce power, and they are each very different cases, so every new precedent counts for a lot. In short, if a Justice felt politically compelled to achieve a particular result, but wanted to minimize the precedential impact of the decision, the Taxing power, and not the Commerce power, would be the way to do it.

At the same time, the invocation of the taxation power to uphold a piece of federal legislation will draw a greater spotlight to the Court's taxation power cases. Currently, most 1L Con Law classes either entirely omit discussion of these cases, or else relegate them to a few paragraphs of background reading. The attitude is that they will simply never be relevant, and so the result is that students never learn the history of the expansion of the taxation power during the first half of the twentieth century.

The same could once be said of the expansion of the commerce power during roughly the same era. The limits of the power were never litigated, and so it was enough to say that everyone assumed there basically were no limits to the power. That changed when the Court struck down the laws at issue in Lopez and Morrison. Students now grapple with understanding the expansion of the commerce power, and that means they are exposed to many a case whose reasoning withers under scrutiny. Even students who are not conservatives now accept that there is something wrong with this, and that shift in the legal culture probably facilitates the shift in thinking about the Commerce Clause that has occurred on the Court and with the public.

The fact that the Tax Clauses have become relevant again should mean that students will start to study the taxation power precedents. It will take time, of course, but if more cases hinge on the limits of the taxation power, then the legal academy will have no choice but to include them in the curriculum. It is not implausible to think that shining a light on these cases may lead to a reaction against them, which could give energy to efforts to cabin or contract these precedents.

It isn't possible to know why the Chief Justice voted to uphold the individual mandate, or to know why he chose to uphold it through the taxing power. Nor is it possible to know whether the other four Justices who joined that reasoning would have rested their arguments upon that ground if there had not been a fifth vote to uphold it. Those who believe the taxation power argument is a strong one are unlikely to be convinced by theories about an ulterior motive. But it must be said that the taxation clause argument was unexpected. The lower courts did not take the argument seriously, and most observers believed the Justices were skeptical of it at oral arguments. And if the premise is granted that there is a reason, other than legal merits, why the Chief Justice voted to uphold the mandate, there are reasons readily available.

Whenever the Court decides high-profile political issues, it faces some pressure to avoid the appearance of making its decisions based upon politics. The Chief Justice, particularly, may have been worried that a decision to strike down a signature piece of Democratic legislation, upon a vote of five Republican appointees against four Democratic appointees, would have damaged the legitimacy of the Court.

The Chief Justice may also have felt that such a party-line vote would lead to a fragile precedent, which would be viewed as nakedly political, and thus easily abandoned by future Justices. It need not go unremarked that Roberts did not need to opine that the mandate could not be upheld under the Commerce Clause in a decision upholding it on another ground. But it may be that Roberts wanted reach this holding and felt that a newly recognized limit on the Commerce Clause doctrine would be better protected by a decision which ultimately upheld the mandate.

In other words, the Chief Justice, like another Chief Justice before him, may have upheld an action of the political branches in an attempt to more fully assert the ability to impose limits on the political branches in the future.

Wednesday, October 12, 2011

Re: Darwinism and Libertarianism (Matt Welch & Robert Frank)

Reason Magazine's Matt Welch and Economist Robert Frankdiscuss Frank's new book and various aspects of libertarian thought in a diavlog at What follows is some of my reactions to some of the critique Frank brings.

Since I think it's useful to situate Frank's critique within the intellectual project he is address, I'll start with an (imperfect) sketch of libertarianism itself:

How can we can we create the best possible society for ourselves? Libertarians note that what different people judge to be best for themselves depends on differing values and they judge that what is best for all individuals is the aggregate of what is best for each individual, valued (presumptively) as that individual would value it. By that judgment, what is best is the greatest possible value of "goods" (tangible and intangible) as measured by the revealed preferences of those who consume them — i.e. maximization of total wealth as measured by market value. Or better, as measured by the preferences of hypothetical individuals in a state of stochastic ignorance, such that values are informed by some reasonable amount of aversion to the risk of distributional inequalities. Hypothetical valuations can't be measured, however, so practically speaking, this means maximizing total wealth, then making adjustments and transfers.

The great intellectual project of libertarianism, then, is to grapple with the question: what are the set of institutions that will produce the greatest amount of value, so defined? The key contribution of the tradition is to identify and conceptualize three fundamental challenges to this task.

  • The first challenge is that producing the greatest value requires knowledge to which no one person has (or ever will have) access, most importantly the composition of people's preferences, but also local knowledge about the relative scarcity of particular resources, and the effectiveness of forms of production. The corresponding insight, however, is that order that cannot be designed can instead emerge — the knowledge we require can be collected, weighed and transmitted by the price mechanism of voluntary exchange in a market. If we can assume that frictionless exchange takes place between entirely rational individuals, then the only institution we need in order to attain wealth maximization is a free market with contract and property rights; the price mechanism will emerge and create private incentives that efficiently allocate productive resources.

  • The second challenge is that transaction costs exist. We cannot assume frictionless exchange, because the time and energy required to negotiate exchange can be substantial and is unevenly distributed. And we cannot assume entirely rational individuals because rationality is a context-specific human faculty that must be acquired through experience. This leads to what are classically identified as "market failures," where a market alone, narrowly conceived, will not efficiently allocate productive resources. More on that in a bit.

  • The third challenge is that no system of contract and property rights, indeed no stable set of rules, can merely be posited. Rules and enforcement are themselves the product of institutions in which individuals respond to private incentives. In other words, governance is merely another type of social institution like any other.
It is the second challenge, that of market failures, that Frank's critique relates to, so let's expand on that. The four classic failures are: market power, asymmetric information, public goods, and externalities. Each is presented in binary terms — failure or no failure — but in fact they all exist on a spectrum. Every single good in every single market has some each of these qualities to some degree.
  • Market Power/Monopoly/Monopsony: where production is not allocated efficiently because one firm has the power to restrict the exchange of goods, so that the price will not settle where the value to the marginal seller is equal to the marginal buyers, but will settle where the firm with market power can make the most profit.

  • Asymmetric Information/Bounded Rationality: where one set of parties to a transaction — buyers or sellers — has greater capacity to assess the merits of an individual non-uniform transaction than the other, so that informed parties will systematically withdraw from transactions that will be more beneficial to the uninformed party, leading the expected benefit to the uninformed party to go down. The classic example is the market for "lemon" used cars: quality used cars are worth more than the average price, so people keep them while continuing to dump their bad ones, which further lowers the average quality of cars and thus the average price buyers will pay, rinse, repeat.

  • Public Goods: where a good is non-excludable and non-rivalrous, which means that everyone can use it and no one has to pay for using it, then no one has an incentive to try to put it up for sale. The classic example is a lighthouse: one ship using it doesn't stop others from using it, but you also can't selectively shut it off for the ships that don't pay. Of course, as it turns out, the market, in a larger sense, does create lighthouses without any government intervention, so this gives a preview of the limited sense of "market" we are using when we say that market failures require an additional institution to fix them.

  • (Property Rights) Externalities: where the practical ability of a person to use property is mismatched with the practical ability of the person to exclude others from use of the property. For example: the tragedy of the commons, where a good is rivalrous, but non-excludable — like a pasture everyone is allowed to graze on or air everyone is allowed to pollute — so it gets overused. There is also tragedy of the anti-commons, where a good is non-rivalrous, but excludable — so it gets underused.

The key thing that makes each of these things market failures is that they cause the private price of the good to be mismatched with the true cost of the good, so that they incentivize private behavior different from the behavior that will produce the most social good.

But there is another way that the market failures have been conceptualized. That is, as instance of externalized costs more generally — i.e. whenever the consequence of a transaction between two parties makes a third party better or worse off, but that effect isn't captured by the price because there isn't a recognized right in the effect on the third party. This captures a certain independent moral intuition about externalities — do no harm — but it also broadens the category far beyond market failures. Indeed, it includes the very thing that makes a market healthy, the fact that new producers drive prices down because they do not capture the harm done to their competitors by their entry into the market.

It is this latter conception that Frank appears to have in mind, in part because it is the analogy that can directly be made from biological theory. If I recall my history of biology correctly, Frank's analogy about the peacock is drawn from the group-selection debate, and it reflects the insight that competition for mates can select for adaptations that aren't really beneficial to individual peacocks. But indeed, this reflects the fact that no adaptation is ever selected to benefit the individual organisms. The evolution of the genepool isn't a mechanism for generating peacock welfare; peacocks are just a way that peacock genes use to make more of themselves. The emergent order of evolution is directed neither at the interests of peacocks in general nor at the interests of individual peacocks, it is directed at the interests of genes. Peacocks are the objects of the emergent order of evolution. You can't really say the same thing for the emergent order of the market. It is concern for the welfare of individual market participants that is the basic "selection" mechanism in a market. The objects of the emergent order of the market are productive resources, not humans per se.

But with that in mind, let's examine the collective action problems that Frank is pointing to and analogizing to a classical market failure. The peacock story represents competition for a positional good. A classical good will see increased production when its price goes up, but a positional good will not see increased production as the result of increased price. Competition to attain these goods is thus a zero-sum game and will only drive up their price. Thus someone who bids for a positional good will, in some sense, impose a cost on other bidders. If all the bidders got together and internalized these costs, they would instead collude to purchase the positional good for a much lower price. In the peacock story the supply of mates is basically fixed, and therefore positional, and tail size is the cost of bidding — in an all-pay auction, no less.

The story about the finance job seekers and their custom suits is another example analogous to an all-pay auction for a positional good. In this case the "good" is actually the finance job (conceptually a bit contorted, I know) and the pricy suit is the cost of bidding. Now, actually, the finance job isn't positional, because there would be more of them if the price changed, but we can say that it is positional with respect to the pricy suit. If all the job seekers agreed to buy the same cheap suit, the same number of jobs would get filled. The fact that the group of bidders could get the same collective result while spending less money means that in some sense there is a "rent" — payment beyond that necessary for the good to be caused to come into being — being collected.

But why is this strange suit nonsense happening at all? It's not even like the finance employer is getting the money from all these suit purchases! Well, let's go back to one of our classical market failures: asymmetric information. The potential employee has a pretty good idea how much work he is willing to do and what his talents have been, whereas the potential employee does not, and it is costly to make a hiring mistake. In order to prevent a "lemons market" failure, the potential employees need to effectively signal their worth. One way is to convey actual useful information. But another is to use one of Anthony Kronman's primitive contracting devices: hostage-taking, collateral, union or hands-tying. Buying a really fancy suit that is very affordable if the applicant can hold down a finance job, but very imprudent if he cannot, is a form of hands-tying. The applicant is saying, in effect, "you can trust that I'm telling the truth when I vouch for my quality, because if I am not, I stand to take a big loss."

So, in fact, the suit example isn't a failure of the market, it is an institution that is helping to correct a market failure. That means we need to re-examine the question of whether, if the applicants all decided to buy the same cheap suit, things would still be the same. The suit competition is actually conveying information that is useful to the market, and therefore increases societal wealth. Our collective action problem is only a collective action problem if we define the relevant group in a particular and limited way. There's nothing that needs to be done by the government to stop the applicants from purchasing pricy suits, because until some better alternative comes along, they need to signal a costly pre-commitment regardless of what the government's suit policy is.

Of course, there is a distinction to be made between a government intervention done to correct a market failure and an intervention intended to benefit government. It's not bad that there is a rent being collected somewhere, but if someone is going to collect it, why not the government? There is nothing special about the intrinsic qualities of the $2k suit that the finance applicant is buying. All it needs to do is effectively convey that he spent $2k on it. If the government slapped a 100% tax on suits, he would buy the suit that otherwise costs $1k, and it would still effectively convey that he spent $2k on it.

There is a long intellectual history of trying to figure out how to finance government through taxes on economic rents, both inside and outside of the libertarian tradition. The most famous example being Henry George, who advocated a single tax on the unimproved value of land, a pretty simple scheme. Frank's "progressive consumption tax" is potentially another simple scheme — like the FairTax it is basically a flat tax plus an income-based transfer payment. The problem with any more complicated scheme is that you start needing to know a lot about the microeconomic structure of the market you are meddling in, which goes back to the problem of decentralized knowledge.

Tuesday, October 4, 2011

First reactions to the killing of al-Awlaki

I'm going to try to get my act together enough to do something more substantive, researched and annotated on this subject in the future, but for now here are some preliminary thoughts, written as much as an attempt to organize my own thought for further inquiry as anything else. It's possible I am misremembering facts, and very possible my views may evolve as I ponder this more. So as you read, adjust salinity accordingly.

There are two basic legal justifications that need to be provided: 1) what authorizes the use of force in Yemen? 2) what authorizes the use force against al-Awlaki? Each needs to be answered in both a domestic and an international context (though violations of international law may not be self-enforcing, they have domestic ramifications).

In general, the first question is the simpler one. It appears that Congress has authorized the use of force abroad when directed against al-Qaeda, and it appears that Yemen has authorized the use of force by the U.S. within its sovereign territory. There are some subtleties and permutations that could be brought out, but they are less interesting.

The second question is more complicated, so I’ll start with the purely domestic issue, which is whether there is authority under the Constitution to use force against someone like al-Awlaki. The Constitution gives Congress the power to legislate on matters of foreign commerce, as well as to punish offenses against the law of nations, each of which is construed broadly and thus give the United States broad authority to regulate the conduct of people beyond its borders when that conduct is performed by American citizens or touches the interests of the United States.

But these powers do not authorize the use of force, they authorize the enactment of laws. Now, enacting laws may lead inevitably to enforcing them through the use of force. But there is a limit implicit in Article I lawmaking authority made explicit by the Fifth Amendment: due process of law. At a bare minimum, due process means procedural safeguards for aspects of fundamental fairness, including notice and hearing, at an adversarial proceeding, administered by an impartial magistrate, based on a validly enacted law, applicable to the defendant's conduct at the time of the crime; with additional protections in all American criminal proceedings, and even more in the Federal context. And unlike some other rights-bearing provisions of the Constitution, the Due Process Clause is not limited to citizens; it applies to “both citizen and stranger.” So it is clear that Congress could not authorize the killing or confinement of a person (or class of persons) without a trial in a duly constituted Article III court with all the protections above, at least not normally (more on that shortly).

But keep in mind the implicit limits of due process. It applies to consequences imposed by law, not necessarily by government actions in general. For instance, when the police arrest you, this is most certainly a deprivation of your liberty, but it is not one subject to the limitations of due process discussed above. Instead, it is treated as a seizure of your person, which must comply with the reasonableness requirement of the Fourth Amendment. The same goes generally for the use of force against a person, even lethal force. There are limits to when the police can take your life, liberty or property in the course of executing the laws, but they are different limits (both greater and lesser) than due process.

With that understanding in mind as background, we can start to look at the relevant areas where the normal rule that Congress may not authorize killing or confinement without a full Article III trial does not apply. These exceptions all have textual hooks in the Constitution, but none of them are themselves found in the text of the Constitution. They are known through persistent historical usage, and their basis in the Constitution may be ambiguous or contested. (Some of what I say about them will have to gloss over these ambiguities.) Examining some of these exceptions will illustrate the legal principles that we care about; for our purposes the relevant exceptions are: punishment and discipline of U.S. military personal, maintenance of order under martial law, and (most relevant) the use of force (in various ways) against legitimate military targets (notably, enemy soldiers) as an incident to war.

The first exception, discipline of U.S. forces, is the simplest and most strongly attested to: the first Congress provided for punishment of U.S. servicemen by court martial, which are not Article III courts, and do not sit with vicinage juries. All subsequent revisions of the law have maintained the practice. Article I specifically bestows the power to make rules for the governance and discipline of the armed forces, and the Fifth Amendment explicitly exempts wartime offenses from its grand jury requirement. It is strictly limited, though. For instance, spouses of serve-members residing on military bases abroad cannot be subject to military trial under the exception.

The second exception, martial law, allows the summary trial and punishment of offenses by military authority. The basic idea is that “when the civilian courts are closed” the military can take over basic governance. The easiest way of understanding this exception is as a negative implication of the Suspension Clause, which guarantees the availability of habeas corpus relief except under limited circumstances. I often see habeas referred to as a due process right, but historically speaking (and for the current problem) that’s not really the best way to understand it. Habeas is, strictly speaking, a narrow and formalistic procedural remedy, not any kind of substantive right. It is a command, addressed to someone holding a person in captivity of some sort, to justify that captivity.

If you were held in a jail, you could invoke the writ; if you were held in prison, you could invoke the writ; if you were kept in military service, you could invoke the writ; if you were held as a POW, you could invoke the writ; you could even invoke the writ against another private person holding you captive (rare, but it happened). Of course, your captors might have a perfectly good justification: that you were being held for trial; that you had been lawfully convicted of a crime (though you could contest the sufficiency of the proceedings that convicted you); that you had been lawfully drafted; that you were an enemy belligerent. Your right to be free (or lack thereof) and your ability to invoke a habeas remedy were disconnected. In some sense, then, the suspension of habeas didn’t mean that you lost the right to a civilian trial, etc., just that you had no way of enforcing that right in any way. Thus a military court could detain you without charges, or convict you in a summary fashion, and you had no way of stopping them.

Aside from the history and nature of habeas in the English system, the main testament to this exception comes from the Civil War era. There, the courts recognized this authority, but also carefully circumscribed it, limiting when and where habeas could be suspended. The issue returned again during World War II when we both executed Nazi saboteurs and also established military governments in the conquered Axis powers in order to try war crimes offenses. (I will critique some of these decisions, but on different points.) In my opinion, this martial law exception is at least an element of why crimes like aiding the enemy have historically been able to be tried by military commission in the United States, even though aider is not necessarily a violator of international law or a legitimate military target.

The third exception is the most relevant, but also the one that gets the most complicated. War requires killing enemy soldiers and may legitimately involve actions that have the collateral effect of harming civilians, and it is obvious that due process doesn’t apply to the battlefield. What precisely are the legal principles that produce this result is not immediately clear however, and if we are going to reason by analogy, it is important to understand these principles. Is war effectively one giant exigency that justifies killing? is war, instead, a massive breakdown of civil order that justifies non-enforcement of due process rights? or is the power to wage war it’s own affirmative power that allows for the use of force, restricted by its own internal constraints, but not restricted by external constraints like the Fourth or Fifth Amendments? The historical understanding, as expressed by the great treatise writers and confirmed by founding-era and civil war history, is the last interpretation -- that the power to wage war is restricted by the law of war, but not by civilian laws.

The prime place to look for evidence of this is to the practice of the American military of instituting military courts lacking basic procedural protections to try people either not subject to military regulation or martial law. The practice is conventionally traced back to the trial of a British spy by a Board of Officers under General George Washington, and to a similar incident in which foreigners aiding the Seminole Indians were tried under General Andrew Jackson, but its widest use was during the Civil War, when military commissions were used to summarily try both irregular combatants (i.e. civilian fighters) and regular Confederate soldiers who committed the type of law of war offences that we now call war crimes (i.e. perfidy, targeting civilians, etc.).

What is striking in reading accounts of the Civil War commission by the great military treatise writer, Col. Winthrop, is that these trials are consistently justified as lesser exercises of the greater power to simply kill these people whenever found. There is no hint of there being a right to some due process when one of these enemies is captured, it is simply an administrative convenience, or a courtesy of carefulness, that justifies a formal inquiry. Underscoring this is that Washington’s Board of Officers was not a judicial body, and Jackson’s commission issued a guilty ruling and a recommendation against capital punishment, the latter of which Jackson promptly ignored. In other words, a military trial was advice given to a commander who already had power over the prisoner, not a procedure needed to justify the imposition of governmental authority.

What limits there were to this power seem to basically the same as the limits on the use of force under the law of war. In the case of enemy war-crimes perpetrators, the power seemed to be quite broad, reflecting the legitimate objective of warfare of making your enemies comply with the law of war. In the case of irregular combatants -- essentially civilians who have shed their protection under the law of war by taking up arms -- Winthrop’s paradigmatic cases are irregulars actually caught in the act of combat, destruction or pillage. Which is to say the power to try these people appears to match the power of soldiers following the law of war to target those combatants at the time of capture. (Giving credence to this legitimate-target-at-the-time interpretation: spies, another type of non-uniformed combatant, could not be tried for their previous activities once they returned behind their own lines.)

Where the matching ceases, however, is with regular soldiers who were captured. Under the law of war, disabling a lawful enemy’s capacity to fight is a legitimate end, not killing him per se. Thus, when an enemy soldier is captured or sick, it is not permissible to kill him. The implication, then, is that by contrast, it is perfectly legitimate at all times to kill irregular combatants. And, indeed, there is a multitude of colorful language in the primary sources referring to such “banditti,” “jayhawkers,” “bushwackers,” “filibusters,” etc., as mere criminals, scoundrels, and lowlifes, deserving to be killed. Regular soldiers were gentlemen; irregulars knaves. The harshness, was justifiable as an effort to protect civilians by severely punishing anyone who blurred the boundary between combatant and non-combatant, and also as a mechanism of keeping all armed violence under the control of a military command structure which could be held accountable for atrocities.

I should note that Ex Parte Quirin actually advances a different theory: that the power to conduct military commissions actually comes from Congress’s power to punish offences against the law of nations, which I mentioned all the way up at the top of this post. I don’t think this is right, though: it under-powers the power to wage war and it overpowers the Offences Clause. The theory of international law that prevailed at the time of the Framing held that quite a lot of things were offenses against the law of nations -- basically any act that diminished the interests of other nations -- passport violations, currency fraud, potentially even ordinary torts against aliens. It is unimaginable that all these things could have been punished by something other than a full Article III trial. Further, Quirin’s formulation puts it in the odd position of asserting that the German saboteurs were war criminals merely on account of being enemy agents outside of uniform. But traditionally, being un-uniformed was not an affirmative crime under the law of war (unless it amounted to perfidy), but instead resulted in a loss of privileged status for the combatant. The German saboteurs could permissibly be charged with a domestic crime under the law of war (whereas a uniformed foreign enemy could not be) but they had not committed an international offense.

Okay, so back on track after that meandering exposition: what does this mean for al-Awlaki? al-Awlaki is an American citizen in a territory not under U.S. control who is part of a group that has declared war on the United States. That group operates without immunity under the law of war because it has no regimented command structure and because its members operate in civilian guise. Members of the group are also war criminals because they have intentionally attacked non-military civilian targets. If al-Awlaki had had these characteristics as a citizen of a Confederate State during the Civil War, it would be clear that he would be a legitimate military target several times over, even if incapacitated. As an enemy belligerent , he could be targeted on the battlefield. As an irregular, he could killed instead of captured, even when capture was feasible, and he would have no right to release once the Confederacy surrendered. Further, any crime he had committed, would be punishable outside of normal judicial process.

So, how well does the analogy translate to al-Awlaki in the present day as an al-Qaeda member in Yemen? Pretty straight-forwardly, but not without some nagging concerns, which all seem to flow from the fact that al-Qaeda is being analogized to a nation, when in fact it is not. It’s not that the law of war hasn’t dealt with belligerents who are not part of a nation’s military before -- as the discussion of irregular combatants fighting for the Confederacy demonstrates -- it’s that the law of war hasn’t dealt with this type of conflict before.

Classically there were two kinds of conflicts: international conflicts (conflicts between states) and non-international conflicts (conflicts within a state). The war with al-Qaeda is a strange beast, conceptually: a conflict that is not international, in the sense of between two states, but not non-international, in the sense of confined to one state, as in a rebellion or civil war. As a factual matter, this is not completely unprecedented, but it was previously conceived of differently. Again, an example from the Civil War will illustrate. Early in the war, Britain had recognized the existence of the Confederacy, but declared itself neutral in the conflict. Nevertheless, Britain failed to stop its ports from being used by its private subjects to supply and outfit Confederate warships in violation of its neutrality. After the war, the U.S. successfully sued Britain in arbitration for allowing enemies of the Union to operate within Britain’s borders.

There were thus Confederate belligerents acting throughout the world, but their conduct was conceived of in relation to states. Regular Confederates were legitimate targets while serving in the official army, and they would cease to become legitimate targets once discharged from service or once the Confederacy surrendered. Irregular fighters in the States had far fewer rights, but it was basically the case that once they stopped fighting, they could slip back into civilian status; criminal liability for their actions would persist, but their status as military targets would not be perpetual. (At least that’s how I read it; the Gitmo prosecutors disagree, though.) Irregular fighters or allies abroad would be neutrality violators, which would create an obligation for their host country to prosecute them, but that would presumably be in civilian court. (As it was, for instance, for Henfield, an American prosecuted for violating America’s neutrality with Britain during the French Revolutionary conflict with Britain.) No matter who you were, there was a path back to normalcy for you, even if normalcy might still mean you could be criminally prosecuted in a regular court.

It’s hard to see how that works for al Qaeda. It’s not a nation, so it can’t really surrender in the classical understanding. And there is no separation between a civilian population owing loyalty, but can’t be intentionally targeted and an official military that can be targeted. If you buy Federal War bonds, you are a patriot and a civilian; if you give money to al Qaeda, you are materially supporting terrorism. If you work at a defense contractor, you are a civilian, who is sometimes at a targetable facility; if you serve al Qaeda in a non-combat fashion, you are an unlawful enemy combatant. If you are an American serviceman, you can end your tour and take off your uniform; if you are an al Qaeda member you have no uniform to take off. These problems are attributable to the very nature of al Qaeda itself, so there’s no need to shed a tear for the terrorists, but all the same, it is a challenge for the legal framework we are trying to use to legitimate and control the use of deadly force against (at least potentially) other American citizens.

The other thing that makes this legal analogy difficult is that, as far as I can tell, America doesn’t really have a tradition of treating our conflicts as governed by the law of war for non-international conflicts -- we have previously treated them either like international conflicts or like domestic criminal matters. The distinction between international and non-international conflicts comes not from American history, but from the Geneva Conventions. Under the Conventions, uniformed combatants in an international conflict are entitled to full combatant immunity (unless they commit war crimes) regardless of whether their nation went to war legally. Uniformed combatants in a non-international conflict, however, may be prosecuted under domestic law, but as a reward for following the law of war, they must be prosecuted by courts at least as protective as the courts the nation’s own soldiers would by tried under, which for the United States would mean a full court martial. To my knowledge, the United States has never applied this minimum standard in its own internal conflicts. In the Whiskey rebellion, perpetrators were either tried for treason in federal court, or else sent to state courts, each with the full battery of normal procedural protections (and extra protections in the case of treason). In the Civil War, members of the Confederate army were given the full combatant immunity possessed by combatants in an international conflict. We simply don’t have an established history of using military trials to punish someone for being the enemy.

That, of course, isn’t entirely on point for al-Awlaki, who we can be pretty confident actively considered himself to be personally involved in a military struggle with the United States, but it raises questions about how robust the war analogy is within our legal system. How far can or should it be stretched?

Monday, August 29, 2011

Overthinking "In Time"

A Parable about the Dangers of Artificial Scarcity in the Service of Urban Planning

Imagine a world in which everyone is eternally 25-years old. Think of how many young sexy actors you could put in this world. Think of the creepy incestual undertones of not knowing by sight whether you live with your mother or with your girlfriend, because either way she looks like Olivia Wilde. Think of the . . . monetary economics?

The Premise

Above is the extended trailer for the upcoming movie "In Time" written/directed by Andrew Niccol ("Lord of War", "The Truman Show") and starring Justin Timberlake ("The Mickey Mouse Club", "Dick in a Box"), a movie that could very well do for amateur economists what "The Matrix" did for undergraduate philosophy students. The premise of the movie is simple but powerful intuition pump for many ideas. As the trailer begins by telling us:

Time has replaced money as the unit of currency. At 25 years old, aging stops and each person is given one more year to live. Unless you replenish your clock, you die.

Through the eyes of our hero, Will Salas (played by Mr. Timberlake), we are introduced to a society with massive inequality. An impoverished underclass lives in a decaying and crime-ridden ghetto, working menial jobs and literally struggling to survive, living day to day, and earning little than it takes to keep themselves from running out of time. Mr. Salas is one of the have-nots, who at 28 is already slipping toward the end of his time, squeezed by rising prices, decreasing wages and an inability to escape his immediate situation and invest in his future.

But through the intervention of a mysterious stranger, Mr. Salas is is vaulted across the class divide from the world of the have-nots to the world of the haves. He takes us to the pristine world of New Greenwich, a beautiful place where the inhabitants have centuries or more of time. They live lives of leisure in palatial splendor, taking advantage of virtual immortality to gaining greater and greater wealth and power and while outside their gates the poor suffer, toil and die.

The poor get poorer while the rich get richer! Amid these revelations, Mr. Salas is accused of the murder of the mysterious stranger and to prove his innocence he must uncover the secret of the man's death. It is a secret that will go to the heart of this society, exposing the very origins of its social divide, and possibly our own society's with it!

But will it really? One thing I like about the premise of "In Time" is that it gives us enough material to ponder some interesting false leads. Enter the amateur economisting:

The Trap of Poverty?

Mr. Salas's situation at first appears to be some variety of the trap of poverty. He wakes up with less than a day on his clock every morning, so to survive until the next he must devote his energies to his immediate interests. He is not quite as bad off as the homeless man who is never going to be able to get normal job without an address, a set of clean cloths and the means to get himself to work every day. But Mr. Salas is not much better off. How is he going to think about going to college? How is he get new job skills? For that matter, how is he ever going to ever have the time to figure out what is in his best interests for the future?

But if this is the case, why can't Mr. Salas simply get a loan? In the real world, young people have access to private credit in order to pay for their educations. The debt can often follow students for a large fraction of their working lives, but it still makes sense financially for both creditor and debtor, because the student's earning potential is sufficiently increased that she can afford to pay a high rate of interest. If Mr. Salas could escape the trap of poverty by investing in his education, then it is in someone's interest to provide him with the means to do so.

Now, normally we think of interest rates as the "price of time" but since time literally has a price in this world, and it is a very high price for Mr. Salas, we can probably conclude that whatever loans he could get would also bear a pretty high interest rate. And this isn't terribly illogical: in a world where everyone is potentially immortal, then long term investments in human capital can bear extraordinary returns, and lenders are going to demand some of those returns.

If Mr. Salas has any potential at all, creditors should be trying to collect return from him. His situation might not actually be that much better off in the short-run, of course. Even if the loan is beneficial, he might live only slightly better for a long time while struggling to pay off his loan. And even if Mr. Salas doesn't take advantage of credit, there should at least be potential creditors out there jockeying for him. We should expect to see workers that "owe their soul to the company store" before we see workers drop dead on the factory floor because they run out of time. In fact, lending of some kind must exist; how else are the leisure class of New Greenwich earning the returns from the outside world that let them live in such luxury?

Increased Returns to the Lottery of Birth?

Another potential is that Mr. Salas simply can't be helped by personal investment. He is never going to have the intelligence or other capacities to make lots of money in the long term, so he is never going to get that loan. The ability to live forever has dramatically upped the ante on the natural lottery of life, which hands out talents, abilities and dispositions, creating natural and enduring class divisions based on merit. In other words, immortality has produced the distopia of Charles Murray's fears that reality never could.

But this story doesn't make sense either. As long as consumers are demanding lots of labor that is relatively rivalrous, then there is a real limit to what your in-born qualities can get you, even given a very long time. And in the trailer we see lots of people who seem to be well off who aren't leveraging immortality into huge gains relative to others: a cab-driver, venders, low-level municipal employees. One day the guy who invents robots to manicure the streets of New Greenwich may earn huge personal wealth, but it looks like there are human groundskeepers, who probably don't have more skills than Mr. Salas, yet who must live fairly well. At the very least, the criminal skills displayed by some in the underclass, and the inherited status of those in New Greenwich must indicate that this is not a world segregated by the lottery of birth.

So it seems that something must be going on here that is more than simply the introduction of immortality. Some real-world process must either be failing, or it be prevented from working.

Broken Institutions?

One possibility is that Mr. Salas truly would benefit from a loan, and there are financial mechanisms in place to give out loans to some people, but that there are social or cultural factors preventing him from effectively accessing those mechanisms.

A parallel here, for example, is with rural women in India who receive microcredit. In fact these women would be better off if they could just save their money in a bank and use it to make large purchases or engage in investments. Micro-lending doesn't really allow them to make capital investments, but it does function as a forced saving mechanism. They can make purchases first, then have an obligation to repay them that takes precedence over other claims that they, their families or their community might have on money that they would save to make the same purchases. They could more effectively save if their were good banking institutions that would, for instance, keep their account balances secret.

Whatever else is the case, this has to be at least partially true of the world of "In Time" because at least some aspects of its financial system are manifestly terrible. First of all, you don't just have to have a positive balance, you have to carry some money with you. At all times. It appears that there are banks in this world, but you damn well don't want to get caught waiting in a line at the bank with a year in your account and 20 seconds on you. For safety's sake you are going to want to have a few days on you at least. But since a few days is quite a lot of money in the ghetto, that means that people are pretty routinely carrying around their entire net worth with them on their arms, exposed for all to see.

As we learn in the trailer, there are plenty of people willing to steal from someone with too much time on his hands, and it's hard to imagine that you wouldn't be called upon to donate some time to friends and loved ones in times of need or emergency. There has probably developed some form of informal social insurance among the underclass that keeps people who live day-to-day alive when something bad happens, but the flip side of this is that anyone who manages to start saving any significant amount of time is probably going to be called on to make those donations. There is a real disincentive to saving up much more than a few days.

The effect on credit could be similarly suppressive. If interest rates are so high that a boy from the ghetto is going to work off any reasonably loan for many decades while living on a thin margin, can you even trust that he'll stay alive long enough pay it off. If he decides to spend his time on leisure, you can't get that borrowed time back, and if he manages his finances poorly, then he could be dead decades earlier than expected, with no prospect of recovery. It could be effectively impossible to insure against that risk.

But this explanation isn't explosive. It doesn't really explain why the rich are so disproportionately rich, and no one wants to make action-packed thrillers about the challenges of developmental economics. No, there needs to be a master macro-explanation.

Monetary Policy?

One big candidate for a macro-explanation, of course, is monetary policy. It's where I and everyone to whom I showed this trailer initially went. At the beginning of the trailer we see prices rising, and as we go along we see that our mysterious stranger has been illicitly distributing time/money to people. Perhaps he is debasing the currency!

This is the danger of having a fiat currency. The central authorities — or a rogue player with access to the press — can inflate away the value of current holdings, and this most hurts people who have fragile cash holdings. Those fat-cats in New Greenwich probably have their assets in things whose value will rise with inflation, while the slum-dwellers like Mr. Salas carry all their assets on their arms. If inflation hits, they might experience dramatic price increases before they can renegotiate for higher wages.

But while it is fascinating to try to work through all the ramifications of using time as a currency, on second examination, the monetary explanation falls through. Mr. Salas's troubles aren't consistent with inflation, because far from his wages being static in the face of dynamic prices, they are effectively declining at the same time as prices are rising (the production quota has gone up). With inflation, we would expect to see both prices and wages rise. And this would probably be good for Mr. Salas if he could survive the transition, because it would mean that one of his fixed costs — the one minute cost per minute of living — would be relatively less of his income. In fact, we would think that, monetary effects aside, the society would be more wealthy that had more time.

That's because time isn't really a fiat currency. Time is a commodity in this society, and a particularly intrinsically valuable commodity at that. The complicating factor is that time does appear to be an artificial commodity. It must cost something to make everyone immortalizable at 25, but if it costs anything to maintain people every day thereafter, it doesn't seem like many resources are going toward this cost. The scarcity of time doesn't seem to flow from the scarcity of any of its inputs. You aren't going to be able to get more of it by making it more cheap to produce, and rises in its price won't induce people to make more of it. In other words, time in this world is an artificial commodity. It is a mechanism of rationing (hello, Ms. Palin, death panels!).

Urban Planning Gone Awry

The closest analogue in our world to time in the world of "In Time" is something like tradable pollution credits or taxicab medallions. The relevant authority decides that we only want so many of some thing to be done — be it harmful emissions or keeping of taxis in the city — and they sell the right to do that thing to that many people. The owners of those rights can sell and exchange those rights to others. In this case, the right is the very right to exist for another minute, hour, or day, and it is so important that not only is it exchanged, it is the very medium of exchange.

The system also bears some resemblance to congestion pricing, but there is a key difference between time in "In Time" and pollution credits or express-lane prices. The key is that space in the express lane is limited, as is the capacity of the air, water or ground to absorb pollution. And there are alternatives to driving in the fast lane or dumping pollutants — alternatives that are more expensive, but which will be incentivized as the price of the rationed activity goes up. The idea behind congestion pricing is to move people to behaviors that create less congestion. In contrast, there isn't really a viable alternative to continuing to live that will be incentivized. Raising the price of time won't move people from a more congestive form of existing to a less congestive form of existing, it will just put a cap on the number of people that will exist over a given time.

And is there really only a limited capacity of the world of "In Time" to accommodate the existence of people? There are characters that want you to think so — "Everyone can't live forever, where would we put them?" "For a few to be immortal, many must die." "You put enough time in the wrong hands [and] you upset the whole system." — but I don't buy it. The streets of New Greenwich don't look very crowded; the buildings don't look very tall; even in the ghetto, there seems to be room to build more capacity for people to live if you are willing to devote productive resources to it.

No, the world of "In Time" can only handle so many people in the same way as a suburban neighborhood where every house has a three-car garage can only handle so many houses. In other words, we are looking at something a lot like zoning laws: a preference for how to handle a crowding problem that has been artificially imposed, not the actual limits of capacity. We could build those cities taller, and more dense. We could let the cost of housing, food, and other necessities rise as congestion increases (and then let those costs fall as solutions to congestion are found). But the people in charge, the elite, would rather live in the type of nice, uncrowded cities that they are used to, at the expense of the lives of a few members of the underclass, than let people's actual preferences drive a different outcome, which would probably be for more people to get to still be alive, while devoting more of their resources to the problems of congestion.

Capitalism in "In Time" is Like Feudalism in the Middle Ages

But the system of artificially rationing time doesn't just stop at killing poor people, it will also cause the rich to keep getting richer and the poor to keep getting poorer on an entirely different magnitude than in our own. That is because time is simultaneously an overwhelmingly vital input to the factors of production, and an unevenly distributed rent-generating resource. The combination of these two factors means that the holders of time will be able to extract nearly all the surpluses of production, leaving little for laborers.

In a capitalist economy, what should normally happen when the owners of some form of capital are taking a disproportionately large portion of the surplus from production is that more of that capital will be formed. As more of the proletariate accumulate capital, or as more capitalists shift their holdings from one type of capital to another, the high-return capital will become less scarce, and will be able to demand a lower, more proportionate share of the surplus. But that isn't true when the necessary form of capital has a fixed supply that can't be increased in response to changes in its value.

The classic example of this is land. No matter how high the return on landownership, no matter how vital it is to production, the aren't making any more of it. That means that if you have an economy that is mostly based on subsistence agriculture, in which unimproved land is the primary input to production, then the owners of that land can claim nearly all the fruits of production beyond those needed by the workers to survive and plant again. If land ownership is concentrated in the hands a few powerful people who rent that land out, then the rich will keep getting richer and the poor will keep getting poorer. That, my friends, is feudalism. The serfs scrape by while the landlords hold nearly all the wealth.

In the world of "In Time" the wealthy capitalists of New Greenwich are timelords, so to speak. They may not literally rent out time (although it seems likely that they will do that too) they can issue pay their workers amounts of time barely above what it costs them to work. The vast sums of wealth that the rich of New Greenwich hold are actually a form of economic rent bestowed by government authorities. And of course, now that the rent-collectors are so powerful, they will inevitably become the governing authorities. In Medieval England, the King is just the highest landlord (and land-rent collector); in New Greenwich the King will be the highest timelord (and economic rent collector).

Sunday, August 14, 2011

No Blood for Dilithium!

+Nicholas Morgan wrote:
"Okay, does anyone else think the Prime Directive is the worst idea we could come up with?"

Nick, get wise man, you're just playing into the hands of those war-mongering fools in San Francisco! We're not going to intervene just when it's in our interests. Starfleet needs to justify its existence somehow, and they're not gonna get a budget with so many shuttlecraft and warp nacelles by coming in peace.

And who do you think is gonna get that no-bid contract to supply photon torpedoes to the fleet? Have you ever listened to Captain Pike's parting address? Those beeps were warning us about the Interstellar-Industrial complex!

I mean, seriously! How many quagmires are we gonna get ourselves into following the "Kirk Doctrine" of pre-emptive warfare? We know now that Qo'nos never had the capability to threaten us militarily, what with the explosion of their moon Praxis. And it turns out the Klingons were totally unconnected to the events of Seti Alpha V — that was the work of a small group of fanatic extremists that we created during the Eugenics Wars!

And what are we trying to accomplish by planet-building? Democracy has never flourished on Qo'nos. They've been ruled by monarchs and despots for centuries and they all worship this guy Kahless the Unforgettable, whose main accomplishment was to kill a lot of people and found a pan-Klingon empire. The Klingons are all blood-thirsty warriors in a sectarian society divided by so-called 'noble' houses that have blood-feuds going back generations! Haven't you seen the stories about their "honor" killings?

How many redshirts are we going to send to their graves before we wise up and stop with this mess? No matter how much we try to help these ridge-heads, they are never going to be grateful. They're certainly never going to join the Federation of Planets! The only reason we invaded in the first place is because Kirk was still mad about Klingons killing his son. I say we should figure out where we're not wanted and return to patrolling the neutral zone.