Michael S. Greve Website

Michael S. Greve is a professor at George Mason University School of Law. From 2000 to August, 2012, Professor Greve was the John G. Searle Scholar at the American Enterprise Institute, where he remains a visiting scholar. Before coming to AEI, Professor Greve cofounded and, from 1989 to 2000, directed the Center for Individual Rights, a public interest law firm. He holds a Ph.D. and M.A. in government from Cornell University, and completed his undergraduate studies at the University of Hamburg. Currently, Professor Greve also chairs the board of the Competitive Enterprise Institute and is a frequent contributor to the Liberty Law Blog. Professor Greve has written extensively on many aspects of the American legal system. His publications include numerous law review articles and books, including most recently The Upside-Down Constitution (Harvard University Press, 2012). He has also written The Demise of Environmentalism in American Law (1996); Real Federalism: Why It Matters, How It Could Happen (1999); and Harm-less Lawsuits? What's Wrong With Consumer Class Actions (2005). He is the coeditor, with Richard A. Epstein, of Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy (2004) and Federal Preemption: States' Powers, National Interests (2007); and, with Michael Zoeller, of Citizenship in America and Europe: Beyond the Nation-State? (2009).

Halbig and Obamacare: What We Have Learned (Part II)

Herewith, as promised in Part I, a few additional thoughts on Halbig’s lessons. My humble observations aren’t intended as nuanced legal analysis; there’ll be time enough for that as the cases progress. Today’s subject is the broader context of how the doctrines and institutions that have sustained administrative law are coming apart at the seams.

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Halbig and Obamacare: What We Have Learned (Part I)

ObamacareTwo-plus weeks have passed since the D.C. Circuit’s panel decision in Halbig v. Burwell and the Fourth Circuit’s opposite decision in King v. Burwell, a substantially identical case.[1] The King plaintiffs have filed their cert petition; and the government has asked for rehearing en banc in the D.C. Circuit; and the initial agitation has subsided. It’s a fine time to highlight a few lessons that, in my estimation, we have already learned. I offer three sets of observations: today, I’ll focus on the interplay between constitutional and administrative law and on the advocacy network that produced Halbig and its companion cases; tomorrow, I’ll analyze the institutional pathologies and ideological derangements that account for the contretemps.

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Adversarial Corporatism: Additional Thoughts

I am deeply grateful to Brian Mannix and to Peter Conti-Brown for their thoughtful, indeed profound comments on my “adversarial corporatism” post. I am equally grateful to Richard Reinsch and the Liberty Forum for hosting this exchange. To paraphrase the Boss, we learn more from three minutes on this blog than we ever learned in school.

Peter has this exactly right: the post was a first cut at developing a conceptual framework for the contemporary regulatory state and its perplexing m.o.—more than a thumb sucker, but way less than a worked-out theory. And Brian may well be right that the moniker is apt to give rise to misunderstandings. (I’ll stick with it for now, but I’m not wedded to it.) Thus, my replies here serve not to defend any firmly held view but rather to pick up some of Peter’s and Brian’s many useful arguments and observations.

How to Think About This Stuff

“Adversarial Corporatism” argued that government’s seemingly disjointed modes of conduct vis-à-vis many industries (especially financial institutions)—huge subsidies at one end, heavy-handed prosecutions and fines at the other—are two sides of the same coin: having conferred gargantuan subsidies at one end, government has to confiscate a portion of the proceeds at the other. Peter suggests two principal alternative explanations. One, government’s crisis responses ex ante (bailouts) and ex post (prosecutions for illegal conduct, and mitigation) could both be public-interested, and disconnected. Two, seemingly disjointed policies might indeed be connected but be (better) explained by coalitional politics, rather than a model of government-industry relations.

Option one is conceivable—but barely. I wholeheartedly agree with Peter that one can’t simply assume (in the way of more naïve “capture” or public choice theories) that all government is a racket. That said, rents conferred for (ostensibly) public-regarding reasons remain rents, and fines collected, or settlements exacted, under amorphous standards and in a process that bears no discernible relation to compensation or deterrence—and which in my estimation bears no resemblance to anything that deserves to be called law—remain exactions. One could say that in a system of fractional reserve banking the public interest requires a lender of last resort, which must be the government. And one could say that the ex post prosecutions serve the public purpose of heaping opprobrium on the folks who abuse the ex ante socialization of losses. But now we’re in Greve-land: the phenomena are related. We’re also in Mannix-land: the problem here is the re-marriage of capital and political power (or, as Brian says, of violence).

Option two—alternative explanations are available—is, like, so totally true. And especially with an eye towards possible remedies for a state of affairs lamented by well-nigh all, quite a bit hangs on getting the analysis right. In that spirit, three observations:

First, Peter’s proposed coalitional explanation may be entirely consistent with, or complementary to, the adversarial corporatism model: adversarial corporatism is the way in which a fractious coalition manages its conflicts. This kind of connection is nothing new. The APA, as originally written, was a way of cementing the New Deal coalition and of organizing government-industry relations. (Read an AdLaw case like Universal Camera or a FedCourts case like Lincoln Mills through that lens: you’ll see the interplay, and the Supreme Court’s conscious effort to harmonize the system.) New Deal corporatism cut in the unions. Adversarial corporatism cuts in “Baptists,” meaning groups that nominally represent values rather than actual constituents. Thus, Brian rightly notes the affinity between “Adversarial Corporatism” and Bruce Yandle’s model of “Bootlegger and Baptist” coalitions. (My only caveat is that there are no true Baptists left: our political system has been ferociously efficient at monetizing the “values.”) If Peter wants to argue that the coalitional explanation is more foundational, I’m inclined to go along. In fact, my initial piece ended on precisely the point that any meaningful reform will hang on breaking the coalitions.

Second, I’ll do Peter one better and propose yet another theory: what I call “adversarial corporatism” may be a feature of a more pervasive trend toward executive government. One of the hallmarks of New Deal corporatism was that you couldn’t really “capture” an agency unless you had already “captured” the congressional (sub)committees. That is no longer so—inter alia, because our agencies now send money to Congress, rather than the other way around. Congress could limit or claw back rents by means of legislation—except that it can’t. Instead, it confers that authority on the executive. If that analysis is right, reform ideas should focus on restoring a functional Congress and party system. And again, there may be a connection between executive government and our corporatism (as there is in many Latin American countries). Like I said, I haven’t figured this all out to my own satisfaction, let alone others’.

Third, I am troubled—as I think Peter and Brian are—by a surfeit of occasionally wild rhetoric (“Cronyism! Extortion!”) and a corresponding lack of meaningful , reliable data. Government agencies collect many billions of fines each year: does anyone know how much? For exactly what? Where the money goes and to what end? To what effect, either on the economy or the incentives of regulated parties, government officials, or legislators? Short answer, no. It’s high time to find out. The empirics will help to sort fact from fiction, and plausible (if partial) theory from rank speculation or agitprop.

Postscript

As I noodle over this stuff on my annual vacation in Krautland, Karl Albrecht died on July 16 at the age of 94. Germany’s second-richest man, he was the architect and owner of a vast retail chain. His Aldi stores (Aldi stands for “Albrecht Discounts”) spread across Germany and abroad, including the U.S.. Trader Joe’s is owned by a separate part of the Aldi empire created by Karl’s brother Theo, deceased in 2010 at the age of 88.

For all that, few Germans had heard of Mr. Albrecht. Newspaper obits described him as “reclusive”–fiercely loyal and generous to his family and friends but wary of the media, politicians, and the corporate elite. He never gave media interviews (except one). He never hung with the fashionable, polo-playing riff-raff in Kampen auf Sylt (Germany’s version of Martha’s Vineyard). He declined the Bundesverdienstkreuz (Germany’s highest official honor) because it would have forced him to shake hands with politicians (as if he owed them anything ). His home was in Essen’s most upscale neighborhood—a modest abode, though, compared to the nearby home of the Krupps, whose castle stands as a monument to Germany’s ill-fated, nasty marriage of capital, industry, and government.

On all accounts, Aldi’s fantastic success depended on the Albrechts’ keen sense of the demands of a re-emerging German middle class. But there’s also another side to that story. Born and raised in a small shopkeeper’s household, Karl Albrecht said in his last and only interview (with the Frankfurter Allgemeine Zeitung), the brothers wanted to “go big”—on toilet paper, noodles, whatever. But they didn’t want to do it the corporatist, Krupp or Deutsche Bank way. Their genius was to do on the producer side what they did on the consumer side: ramp the Mittelstand’s ethos of thrift and independence up to national scale without government assistance or “partnership.” It bears mention in this context that Mr. Albrecht’s employees laugh at Germany’s elaborate welfare state protections, or for that matter the unions: you earn so much more at Aldi, provided you actually work.

The Albrecht saga, I think, is worth pondering. For example, it suggests that it is possible to build a big yet independent company even in a thoroughly corporatist political economy. On a darker note, it suggests that that strategy may work for some industries but not all. It’s hard to believe that the Albrechts could have evaded corporatism’s embrace if they had peddled not produce but energy, steel, or consumer credit.

Foremost perhaps, the Aldi story suggests that (adversarial) corporatism has a cultural dimension. Just as there is something admirable about Karl Albrecht’s give-no-rip “reclusiveness,” there is something unseemly about the way in which our captains of finance and industry trumpet their weird partnership with government and its hangers-on, from enviros to the “fair housing” complex. Maybe they deserve pariah status—not for their supposed illegalities but for their cloying displays of “corporate citizenship.”

 

More Responses

The New Cronyism of the Old Rent-Seeking State

Michael Greve’s essay vividly describes some deeply troubling trends in the relationship between the government and the economy. It provides a much needed perspective at a time when politics and policy-making are nothing if not adversarial, and more casual observers succumb to the temptation simply to choose sides without asking how we came to this…

Read More

Does a Sophisticated Theory Miss the Facts?

Michael Greve introduces “adversarial corporatism,” a new conceptual lens through which to view the growing and contentious collaboration of industry and government. Adversarial corporatism takes the conventional story of crony capitalism and regulatory capture—a story appealing to critics on the left and the right alike—and adds a dose of a starker reality: the cooperation is…

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The Rise of Adversarial Corporatism

corporatism

Timothy F. Geithner, former U.S. Secretary of the Treasury and savior of the free world,[1] has lamented the intractable paradox of financial crises: government must lend freely to actors who by all rights should bear the price of their own reckless conduct and be wiped out. The post-crisis years have been marked by a related but somewhat different paradox: On the one hand, the government has recapitalized financial institutions, subsidized them, and drawn them closer to its ample bosom. On the other, it has hit those same institutions with an avalanche of prosecutions. Settling these cases is very costly; one estimate puts the largest six banks’ litigation costs since 2009 at over $160 billion.

A strategy of re- and de-capitalizing firms at the very same time does not make much intuitive sense. And, conservative pundits seem torn. They have harshly criticized the government’s bullying banks into multi-billion-dollar settlements. Poor J.P. Morgan, poor Jamie Dimon. But they also inveigh against “crony capitalism,” which happens to be what Mr. Dimon practices for a living.

What gives?

I suggest that the conflicting policies and laments converge on a single phenomenon. Prosecutorial aggression and “crony capitalism” are two sides of the same coin. Let’s call it “adversarial corporatism.”

In a 2001 book, Berkeley professor Robert A. Kagan described America’s regulatory style as “adversarial legalism”[2]. The term was, deliberately, slightly oxymoronic. “Legalism” suggests a Weberian, hierarchical bureaucracy. But that is not “the American way of law” (the subtitle of Kagan’s book), for we combine an emphasis on lawfulness and a fear of agency “capture” with a highly decentralized, rights-based, litigation-driven mode of regulation. The mismatch, wrote Professor Kagan, comes from combining grand social ambitions that require a high degree of social control with fragmented governmental institutions and public distrust of government.

Kagan hoped that those rival forces might yet be domesticated with a bit of good will and restraint on all sides. What has actually happened is the opposite. Grand ambitions have become grander yet. The environmental laws of the 1970s—Kagan’s paradigm—look quaintly modest compared to contemporary efforts to govern the entire health-care market, the financial markets, and indeed the planet. Meanwhile, agency “capture” has become an even more fully symbiotic relation between government and private interests. At the same time, the Naderite public interest lawyers of the 20th century cannot hold a candle to today’s adversarial forces: government prosecutors of all stripes, and trial lawyers. What was once hard-fought civil litigation has become (criminal) prosecution, largely conducted outside the judicial process. Over a wide range of economic activity, adversarial legalism has evolved into an actual oxymoron: “adversarial corporatism.”

Regulatory Regimes

“Corporatism” is often associated with Benito Mussolini’s forms of industrial organization. But there is also a more benign, democratic form of corporatism, practiced by postwar Germany, Austria, and other (mostly Western European) countries. Corporatism in this sense seeks to lock representative and democratic interest groups—“peak associations”—into binding agreements over, for example, labor conditions or workplace standards. The agreements may be embodied in legislation, or they may be produced through routinized negotiations (as with labor “tariffs” or prevailing wages). In that fashion, democratic corporatism seeks to dampen social conflict and bring economic stability.

The United States came uncomfortably close to importing Mussolini’s corporatism; the New Deal’s National Industrial Recovery Act was explicitly modeled on it. The Supreme Court unanimously struck down the act in Schechter Poultry v. United States (1935). And yet, in the postwar era, we still ended up with something akin to democratic corporatism. Regulatory agencies such as the Federal Communications Commission, the Securities and Exchange Commission, and the Food and Drug Administration superintended sectoral industry cartels, shielding them against “ruinous competition” and against attack by state regulators or private parties. Transportation, agriculture, and utilities were regulated in the same fashion. The National Labor Relations Board maintained a rough balance between labor and capital. Banking and finance, too, were organized along corporatist lines.

New Deal corporatism pursued the same objectives as its European counterpart: social and economic stability. Here as in Europe, it rested on a rough social consensus—in our case, the New Deal consensus. The law that organized this universe was not the Constitution but the Administrative Procedure Act of 1946 (APA). The APA governed an array of (typically) bipartisan, “independent” agencies. For traditional rule-of-law protections, administered by independent courts, the APA substituted administrative process and deferential judicial review.

That system crashed and splintered in the 1960s, for well-rehearsed reasons: misgivings about the capture of regulatory agencies; the system’s inability to accommodate broad but diffuse demands for environmental and consumer protection; a lack of transparency and accountability. The system became more pluralistic. A much wider range of interests gained access to agencies, as the courts and the Congress pried the doors open for consumer advocates, environmental groups, and competing economic actors. The APA underwent a radical transformation, and the administrative process became much more contentious and judicialized. This, roughly, is the world described by Robert Kagan in 2001.

That world is no longer ours. We have acquired a new style of regulation—adversarial corporatism. Its most pristine embodiment is the Wall Street Reform and Consumer Protection Act of 2010, otherwise known as Dodd-Frank for its main congressional sponsors.

In an instructive overview of Dodd-Frank, law professor David A. Skeel has argued that the statute is a throwback to New Deal-style corporatism. It establishes “(1) government partnership with the largest financial institutions and (2) ad hoc intervention by regulators rather than a more predictable, rules-based response to crises.” Adds Skeel: “The partnership works in both directions: special treatment for the Wall Street giants, new political policy levers for the government.”[3]

Evidence is not hard to come by. The ultimate government “partners,” Fannie Mae and Freddie Mac, played a key role in the 2008 meltdown that the reform law was supposed to address. Still, after a brief period in federal receivership, Fannie and Freddie emerged largely unscathed and are making money again (which the U.S. Treasury siphons off). Moreover, to these old-time Government Sponsored Entities (GSEs), Dodd-Frank has added a stable of new ones. They are called “Systemically Important Financial Institutions” or “SIFIs” for short. They, too, operate with a huge embedded subsidy. (By some estimates, their advantage vis-à-vis smaller institutions works out to close to 100 basis points.) A lot of money can be made by being systemically important. But you must stay close to the regulators and be nice to them. Former Morgan Stanley CEO John Mack famously articulated the new first law of finance: “Your Number One client is the government.” Goldman Sachs CEO Lloyd Blankfein has chimed in: “We’re not against regulation. We partner with regulators.”

Of course they do: they always have. There’s a serious argument that the relation between government and banks must be corporatist. On one side, the government needs to borrow money. On the other side, fractional reserve banking requires a lender of last resort—the government. Hence the mutual embrace.[4] The use of regulatory and lender-of-last-resort leverage is called “fiscal repression.” It is a pristinely corporatist mode of operation; but it is old hat. So what is new?

It is that the partnership is a pact among devils, or at any rate an arrangement that is calculated to make the parties look that way. The government is every bank’s number one client because it is the true source of profits. Those come in the form of embedded subsidies and of regulatory goodwill, which a bank may cultivate by, for example, serving as a holding pen for former and future government officials. (This is Citigroup’s business strategy.) But there is a second reason to cultivate the government: it, unlike most clients, can destroy you. It will threaten to do so on a regular basis, and it will shout from the rooftops that you (banker) ought to be in jail. Instead of charging or prosecuting individuals, however, the government prosecutes firms and exacts large sums of money. Billion-dollar settlements have become almost routine.

These shake-downs are a perplexing feature of what is, after all, supposed to be a “partnership.” Several features are worth noting:

First, while settlements are haggled out behind closed doors, the results are the stuff of press releases and newspaper headlines. The opposite is true of conventional corporatism, which operates on the principle that publicity is what happens when the system breaks down.

Second, the settlements and fines in these proceedings bear little, if any, relation to the supposed abuses. While there was a lot of bad behavior in the run-up to the financial crisis, the practices that did the real harm had much more to do with horridly misaligned incentives than with the sudden emergence of a criminal class. And no one seriously pretends that the prosecutions or the settlement amounts correspond to culpability, mens rea, or demonstrable harm to consumers. The settlements usually take place far away from any courtroom, and long before any trial. They are political bargains.

Third, and most strikingly, “settlements” settle virtually nothing. In New Deal corporatism, as noted, administrative agencies and congressional subcommittees shielded regulated industries from legal and political attack. Adversarial corporatism, in contrast, resembles a protection racket that exacts payment and then invites rival gangs to open fire on the local saloon. A settlement with one federal regulator will rarely stop investigation and prosecution by another federal regulator; or prosecutions by state attorneys general and treasurers; or consumer class actions or derivative shareholder actions; or actions by those allegedly hapless victims of mortgage shenanigans, Fannie and Freddie and the Federal Housing Administration. State and federal agencies compete for the spoils. None of them has the means or the motives to bring closure.

It seems highly unlikely that Dodd-Frank’s architects deliberately designed a grand profits-for-pariah-status bargain. Congress does not work that way, least of all under tumultuous conditions like those that obtained in 2008. Moreover, it is misleading to think of “the government” as a unitary actor. The U.S. Department of Justice could not get a U.S. attorney in New York or Sacramento to stand down even if it wanted to, and the federal government’s ability to block enforcement proceedings by officials in the 50 states is nil.

For all that, adversarial corporatism does have a functional logic. At the time of Dodd-Frank’s enactment, the political system could see no way to bury GSE’s, to break up SIFIs, or to wring the subsidies out of the system. Corporatism, however, requires a private quid for every government quo, especially in the wake of a financial crisis that was widely viewed as Wall Street’s fault. The quasi-criminalization of an entire area of the private sector was the only quid that the political system could exact, and so it did.

Banditry

Is government-by-prosecution really a new regulatory style, or just a temporary banking thing? As noted, the banking sector is and has always been a particularly likely candidate for corporatism. And perhaps the adversarial climate will give way to corporatist comity once the post-crisis mop-up is over and the bankers have been cured of their mistaken belief, acquired in “de-regulatory” times, that they are independent actors. However, that prospect seems unlikely.

Adversarial corporatism extends far beyond the financial sector; it has taken hold across a wide range of industries. The tobacco industry, for example, operates under a state-sanctioned cartel and an explicit profit-sharing agreement with state governments (called the 1998 “Master Settlement Agreement”), in exchange for de facto immunity from private lawsuits.[5] The pharmaceutical industry is another example. It operates under a regulatory regime with strong oligopoly tendencies. The firms pay for regulatory approval at the front end; at the back end, state and federal regulators, along with trial lawyers, capture a big portion of the rents by means of “law enforcement.” (Many of the largest settlements on record have been between pharmaceutical firms and federal agencies, especially the Departments of Justice and Health and Human Services.)

The Affordable Care Act works on a similar principle with respect to health insurers. The act turns health insurance into a product that cannot survive in an open market and then promises to keep that product viable by means of subsidies and compulsion. That, too, is a “partnership” between business and government. It, too, will become a permanent perp walk.

All these arrangements reflect the reality that every corporatist system must have some way of recapturing an acceptable portion of the government-produced rents. For de jure GSE’s, the arrangement is made explicit: Fannie and Freddie must kick back their profits to the Treasury. De facto GSE’s aren’t subject to that requirement. Thus the need for some other way to siphon off the profits. That is where law enforcement, so-called, comes in. Legal action is, it appears, more convenient than conventional methods such as taxes or rate regulation. Financial settlements and payments are in lieu of penalties in name only. They are better viewed as dividends, payable to the banks’ number one client. And like any investor-client, the government will insist that dividends be paid promptly and reliably.

Is this a stable institutional arrangement? There are reasons to think not. The key arguments for corporatism, as mentioned, are economic stability and social consensus. (New Deal agencies were supposed to protect and stabilize their industries, not destroy them.) A corporatism that is adversarial is incompatible with either goal. It aims, after all, to keep financial institutions and their investors in a state of permanent uncertainty, and to stir up resentments.

The difference between conventional corporatism and its adversarial cousin is reminiscent of Mancur Olson’s famous distinction between “stationary” and “roving” government bandits: Stationary bandits seek to enforce exclusive dominion and will exploit their base only to the point of maximizing long-term gains. Roving bandits have a much shorter time horizon. They come, loot, and leave the scraps to the next occupier. That, roughly, is our system: once multiple federal agencies are through with J.P. Morgan or Glaxo, state AGs and trial lawyers pick over the remains. Such a regime simply isn’t built for the long haul.

Even so, there are potent reasons to suspect that adversarial corporatism may be here to stay:

  • Regulatory agencies at all levels of government have become profit centers for cash-strapped legislatures, and returns on agencies’ law-enforcement investments have become an important margin of regulatory competition. Agencies will be loathe to surrender their legal powers; legislators will be reluctant to demand they do so.
  • Adversarial corporatism rests on broad political coalitions. The architects of the tobacco cartel were careful to cut trial lawyers and public health groups in on the bargain. State AG settlements routinely divert funds to a coterie of advocacy groups. Health insurers and providers “partner” with Medicaid and Medicare lobbyists. And in a truly breathtaking account (cited in note 4), Charles W. Calomiris and Stephen H. Haber have documented the unholy coalition of big banks and an entirely bank-financed non-profit “fair housing” sector. Like all such coalitions, that between Wall Street and urban interests is firmly entrenched in Congress. (In the 1970s, my friend Alex Pollock has noted, the Senate Committee on Banking and Currency became the Committee on Banking, Housing and Urban Affairs.) And the coalitions are well connected to both major political parties. President Clinton promoted the banking-fair housing coalition as did President Bush. President Obama does, and the same will be true of the next President.
  • As an economic matter, multi-billion dollar legal liabilities have become part of firms’ overall profit picture. At one level, this seems odd since government-imposed liabilities are almost random events. But then, stock markets find no great difficulty in pricing legal risks, and an entire cottage industry has grown up to arbitrage them.
  • As a matter of elite social mores, profits-for-prosecution has become accepted. At Baltusrol Country Club, moving your ball in the rough remains a grave offense. Running a quasi-criminal enterprise may be more like a condition of admission. (If the government isn’t after you, you’re probably not very rich or important.)
  • Adversarial corporatism is self-reinforcing in public opinion terms. The Wall Street Journal’s editorialists have summed up Dodd-Frank and its implementation with the headline, “Government Has Won.” Meanwhile soi disant progressives are just as convinced that the capitalists have won. Not one culprit in the 2008 meltdown has gone to jail, they cry, and the banks are raking in unprecedented profits. Both camps are in a way correct, and both can marshal mountains of evidence. Both choose to see only one side of a fiendish bargain that is not easily explained.

The Corporatist Conundrum

For any number of reasons—economic, political, social—adversarial corporatism is a very bad way to run a country. Can anything be done about it?

Law and courts?

Excessive hope on this front is probably misplaced. True, many government prosecutions of alleged corporate misconduct would not pass muster with a jury or judge. However, few if any targeted companies can afford to play hardball. Thus, the parties bargain in the shadow of the law, and over time, the deal-making becomes routinized. To paraphrase the divine Tina Turner, “What’s law got to do with it?”

External shocks?

That might not work, either. The 2008-2009 financial crisis should have been a wake-up call. Yet the forces that knowingly walked us into the disaster—banks, housing advocates, Fannie and Freddie and the FHA—walked away from it with more money, power, and privileges than before. Dodd-Frank did not retard adversarial corporatism; it enshrined it.

A call to reason, social responsibility, and the greater collective good?

That was Robert Kagan’s proposed cure for adversarial legalism and its ills. It went unheeded. Adversarial corporatism will likewise prove immune to appeals to the greater good, and for the same reason: for the professional players, it’s a positive-sum game. As has been said, they have a friendly dealer (the government) and a few hundred million suckers at the table, who can’t get up: taxpayers. For the pros, the rational strategy is to pretend that it’s a real fight and a competitive game; to raise the stakes; and to squabble over the proceeds among themselves, somewhere down the road.

Will the game end when all the suckers sit naked?

No. The house will print money and lend it, as it does whenever there is a crisis and, nowadays, even when there isn’t one. The game will end only when the card sharks start shooting each other—in other words, when the coalitions that sustain adversarial corporatism break.

I’ll entertain any reasonable proposal conducive to that end. But I’m not holding my breath.

[1] Timothy F. Geithner, Stress Test: Reflections on Financial Crises (Crown, 2014).

[2] Robert A. Kagan, Adversarial Legalism: The American Way of Law (Harvard University Press, 2001).

[3] David A. Skeel, The New Financial Deal: Understanding the Dodd Frank Act and Its (Unintended) Consequences (John Wiley and Sons, 2011).

[4] Charles W. Calomiris and Stephen H. Haber, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (Princeton University Press, 2013).

[5] If you must know the gory details, see Michael S. Greve, “Compacts, Cartels, and Congressional Consent,” 68 Missouri Law Review 285 (2003).

Responses

The New Cronyism of the Old Rent-Seeking State

Michael Greve’s essay vividly describes some deeply troubling trends in the relationship between the government and the economy. It provides a much needed perspective at a time when politics and policy-making are nothing if not adversarial, and more casual observers succumb to the temptation simply to choose sides without asking how we came to this…

Read More

Does a Sophisticated Theory Miss the Facts?

Michael Greve introduces “adversarial corporatism,” a new conceptual lens through which to view the growing and contentious collaboration of industry and government. Adversarial corporatism takes the conventional story of crony capitalism and regulatory capture—a story appealing to critics on the left and the right alike—and adds a dose of a starker reality: the cooperation is…

Read More

Adversarial Corporatism: Additional Thoughts

I am deeply grateful to Brian Mannix and to Peter Conti-Brown for their thoughtful, indeed profound comments on my “adversarial corporatism” post. I am equally grateful to Richard Reinsch and the Liberty Forum for hosting this exchange. To paraphrase the Boss, we learn more from three minutes on this blog than we ever learned in…

Read More

As Detroit Goes…

So the Motor City, through its emergency manager, has submitted to its numerous creditors a plan—still under wraps for now—to deal with its $18 billion debt. It’ll be interesting to learn what they propose to do about investors (screw ‘em, but how badly?); about pension costs; and about the city’s huge unfunded health costs. (Fearless prediction: a transfer of those costs to the feds, either through Medicaid or an ACA Exchange, will have to be part of any deal.) It will also be interesting to see just how the city proposes to pay its obligations going forward. That’s not just a numbers game; it’s about confidence. Not to be rude or anything but the city has proven to a certainty that it cannot govern itself. Who’s to say that once it emerges from Chapter 9, it won’t go back to fun and games?

In closely related news, State Budget Solutions has just issued its fourth annual report on state debts. Total debts clock in at an estimated $5.1 trillion, of which $3.9 trillion consists of unfunded pension obligations. (That number is based on market-value accounting; for reasons explained by Andrew G. Biggs here, that’s the right way to go about this.) Some states are in much worse shape than others; the report has the breakdown and the gory details.

The upside, in a manner of speaking, is that the eye-glazing numbers are becoming real and comprehensible. Here is AEI’s Mark J. Warshawsky in RealClearMarkets:

Two problems have become increasingly apparent and immediate: the legacy obligations promised to retirees and workers just about to retire, and the funding and nature of retirement benefits being accrued now and in the future by younger and future state and local government workers. The first problem is larger in size and concern because those retirees and long-service workers are legitimately worried that their retirement benefits promised by fiscally challenged sponsors and backed by severely underfunded plans are now highly uncertain and unsustainable and subject to arbitrary and chaotic cuts in the bankruptcy and political processes operating today. Moreover, many of these retirees, again owing to poor past choices by their representatives and employers, are not even covered by Social Security, and therefore extremely exposed to risks in retirement.

Loose translation: the wolf is at the door. You can fiddle with long-term plans and benefits for future employees all you want—the liquidity and solvency problems are here, now. What’s the answer?

One solution would be to offer these retirees and older workers a lump-sum payment representing a significant, but not necessarily full, share of the actuarial value of their promised benefits.

Yank this stuff off the states’ books and let the annuities be managed by outfits that know what they’re doing.

I’m not at all sure that this idea will fly, politically speaking. But then, what’s the alternative? What is being discussed, Warshawsky darkly notes, is a federal bailout either through Social Security or the Pension Benefit Guaranty Corporation—both of which, for what little it may be worth, also have solvency issues.

A year or so ago I would have said, “that can’t possibly happen.” I’d still bet against it, but I am no longer so confident.

Geithner’s Gangster Government?

Here and there I’ve noodled over the prospect that the U.S. might turn into Argentina. I did not mean it as a policy recommendation.

Geithner Testifies At House Hearing On International Financial SystemComes news that in 2011, then-Secretary Timothy Geithner called Harold McGraw III, Chairman of Standard & Poor’s Ratings Services’ parent company, to warn him that the firm would be held “accountable” for its downgrade of U.S. debt (prompted by the melee over the debt ceiling).

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Polarized States: A Quick Update

A few weeks ago I blogged political polarization among states, and the potential upsides. The topic has traction. Adam Freedman and the Manhattan Institute have a fine take here. And the New York Times has two feature-length pieces here and here. Mirabile dictu, these actually convey information.

The first piece examines the national political strategies (on both sides) to shape state politics: hugely interesting. The pessimistic interpretation is that states are becoming mere staging grounds for national winner-takes-all combat. The optimistic interpretation: it’s good that the combatants have to fight state-by-state. It diffuses and compartmentalizes the conflicts.

The second piece is on the stark differences between Duluth (Minnesota) and Superior (Wisconsin), across the St. Louis river from each other and connected by a bridge. The article illustrates not only the pronounced, policy-driven differences among states that ought to be pretty similar but also federalism’s bundling effects: you get gay rights on one side and a favorable business environment on the other. You can’t have both.

The bundling effect is often mobilized to “demonstrate” that competitive federalism can’t be “efficient.” In blackboard models (of the “Tiebout” variety), this is true: you lose the equilibrium. But that has never struck me as a terribly useful line of inquiry. As one of my mentors (the late Aaron Wildavsky) used to say, “Life comes in bundles.” Children are a joy and a pest—you can’t have one without the other. You may want a car with the safety of a Sherman tank and the fuel efficiency of a Volt: you can’t have it. The trade-offs are everywhere, and no regulator can do anything about them. On federalism as on many other matters, the question is whether we get to choose the bundles or have the federal government decide the optimal mix.

Not even close.

District Court Upholds Obamacare Exchanges

Earlier today, Judge Friedman (D.D.C.) sustained an IRS rule to the effect that Obamacare’s subsidies and coverage mandates apply in all states with a health care exchange–not just those with a state-run exchange but also those with a federal or federally “facilitated” exchange. That is so, the judge held, despite statutory language that specifically refers to exchanges established by or ”a state.” The IRS (or for that matter HHS) is not a state but never mind. The opinion is here; news coverage here.

The judge’s opinion is (in my humble estimation) not a “let’s-save-Obamacare” blow-off: it wrestles with a serious problem of statutory interpretation—a Chevron problem. The judge says that the overriding purpose (universal coverage) is so blazingly obvious that in the context of the statute, the plaintiffs’ literal interpretation makes no sense. I think that’s mistaken (and I think I’d say that even if I weren’t affiliated with the Competitive Enterprise Institute, which helped to engineer this case), and I hope that it will be corrected on an already-pending appeal. But I think the real problem lies elsewhere.

All of AdLaw rests on the premise of Congress as a deliberative assembly that wants reasonable ends, reasonably pursued. Sometimes (Chevron says) Congress speaks with precision, and we courts follow; at other times, it delegates, and then we ask whether the agency acted within the statutory bounds, and reasonably.

That may make sense in the context of statutes that Congress actually thought about, like (say) the Clean Air Act at issue in Chevron (and now that I wrote that sentence, I want to shoot myself). But the ACA?? The basic design question—state or federal exchanges—has proved kind of important, don’t you think? But the harsh fact is that the Congress that enacted this statute had very specific intentions with respect to interest groups pay-offs (that’s why the ACA runs over 1,000 pages) but no discernible intent with respect to anything beyond that—except to cram it down our throats. The text could have committed the exchanges to Evita Peron or Mylie Cyrus: it still would have passed. Everyone knows that. The litigants and judges know it better than most; but none of them can say that.

The deep challenge here, and in an increasing number of cases, is to improvise public law rules for a nihilistic Congress and political process.

The NLRB Goes Down

The much-awaited argument in Noel Canning, arising over purported recess appointments to the National Labor Relations Board and the Consumer Financial Protection Bureau, was a bit of a yawner (transcript here). And it won’t be a big test of originalism, textualism, etc: If (as here) the government doesn’t have an argument from text, or structure, or history, or functionality, what does it matter? And if the Senate was in session anyhow, why are we arguing about recess appointments? You don’t have to follow the argument. Just count the lines in the transcript: the justices let Miguel Estrada, who made that argument on behalf of Republican Senators, drone on for five minutes at a time. That means they’ve made up their minds. Here, it means that the government loses, most likely on those grounds. Told you so.

To share another brilliant insight, or at any rate a speculation: Noel Canning may prove to be much less important than today’s (Jan. 14) case. The question is whether controversies over private rights can be committed to non-Article III tribunals—here, bankruptcy courts. In the last case over that question, the Court held that Congress can’t do that (and the Chief nearly threw a fit). The question now is whether parties in bankruptcy can divest federal (Article III) courts of their jurisdiction by consent.

Get the joke? Noel Canning was an NLRB adjudication over private rights. Constitutional? If “no,” why worry about the appointments?

Totally great FedCourts questions. But also a larger perplexity of constitutional law and litigation: you want it to be understandable. But all that matters, maybe, happens deep in the weeds.