Supreme Court Validates Obama’s Power Grab

Today the Supreme Court allowed itself to be intimidated. Afraid that ObamaCare as written would throw the sickest patients out of their health plans a second time, the Court rewrote ObamaCare to save it—again. In doing so, the Court has sent a dangerous message to future administrations: If you are going to violate the law, make sure you go big.

The Court today validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim.

ObamaCare will continue to disrupt coverage for sick Americans until Congress repeals it and replaces it with reforms that make health care better, more affordable, and more secure. Despite today’s ruling, ObamaCare remains unpopular with the American public and the battle to set in place a health care system that works for all Americans is far from over.

So Much for the Rule of Law

Justice Scalia’s final paragraph in his dissent today in King v. Burwell pretty much says it all. Read the opinion and weep.

Perhaps the Patient Protection and Affordable Care Act will attain the enduring status of the Social Security Act or the Taft-Hartley Act; perhaps not. But this Court’s two decisions on the Act will surely be remembered through the years. The somersaults of statutory interpretation they have performed (“penalty” means tax, “further [Medicaid] payments to the State” means only incremental Medicaid payments to the State, “established by the State” means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence. And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.

We’ll have more on the decision in due course.

Speaking of Greece…

If you think that the Fed isn’t involved in the Greek mess, you may want to think again. Paul-Martin Foss, our good friend at the Carl Menger Center, wrote a very nice post a few days ago concerning how the Fed may be getting itself tangled-up in an impending Greek default, through its swap lines with the ECB.

According to the Federal Reserve Board of Governors, those swap lines were first established in December 2007 “to improve liquidity conditions in U.S. and foreign financial markets by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions during times of market stress.”

Those original swap facilities, never meant to be permanent, were shut-down in February 2010. But — wouldn’t you know it? — similar facilities were announced in May 2010 in response to “the re-emergence of strains in short term funding markets in Europe.” Those facilities were also supposed to be temporary, but then, in October 2013 — what do you know! — they were made permanent. According to the Fed, that step

further supports financial stability by reducing uncertainties among market participants as to whether and when these arrangements would be renewed. This action results from the ongoing cooperation among these central banks to help maintain financial stability and confidence in global funding markets.

What has all this got to do with Greece? Here is Paul-Martin:

If you want to get a sense of the Fed’s involvement in Europe, watch the swap lines. Swap line data is published every Thursday afternoon on the Fed’s balance sheet, the H.4.1 release. If you look at the St. Louis Fed’s charts and data on swap lines, you’ll see the huge amount of swaps during the financial crisis, and then a smaller but still significant increase in swap lines during the first iteration of the Greek financial crisis back in 2012. While swaps have been relatively non-existent this year, there was a small blip back in April, likely Greek-related, and more importantly, another blip this week. While the amount, $114 million, is a drop in the bucket compared to what it has been in the past, this number needs to be watched. It could very well be an indicator of the Fed getting involved in Europe again. And if the doomsday scenario ends up taking place next week, expect that $114 million figure to skyrocket. The Fed seems to want the conversation to revolve around a possible upcoming interest rate hike, so it’s been relatively silent on the topic of Greece and its involvement in bailing out Europe. But even if the Fed doesn’t say anything about Greece, its money-printing to pump up the swap lines will do plenty of talking.

That was on June 19th. Well, the CMFA’s champion Fed watcher, Walker Todd (who you will be hearing from shortly on these pages) has been keeping a sharp eye on those swap lines. On June 11th — a week before the transaction showed up on the Fed’s own H.4.1 release — Walker reported that “Someone in Europe drew a small amount on a dollar swap with FRBNY”:

ECB website today has details below on a swap line drawing this week against the US dollar swap line with FRBNY. It says that there was one bidder; one wonders whom. Amount is $113 million. There has been no swap line activity for several months now. These numbers should show up on FRBNY next week (due to timing of swap drawings and time zone differences, there usually is a one-week lag between a drawing in Europe and the FRBNY report of the same drawing).

(The $1 million difference between the numbers mentioned by Paul-Martin and Walker reflects a Bank of Japan draw of that amount.)

The day after Paul-Martin’s post came out, Walker alerted us to another transaction that had not yet been reported by the Fed:

It won’t show up until next week in Fed statistics, but ECB statistics show that an unnamed entity (one suspects the same one as last week) borrowed again for a week under the dollar swap line for $115 million. The drawing was $113 million the last time I checked. As a purely hypothetical example, a Greek bank could be borrowing dollars under the swap line. Other than a token $1 million to $2 million that Bank of Japan borrows from time to time to reassure itself, this is the only borrowing outstanding under the Fed’s swap line, according to FRBNY statistics. The notable thing is that it is still there and growing.

Today the swap was rolled over yet again.

Stay tuned…

[Cross-posted from Alt-M.org]

Video: Teachers Victimized by IRS’s Illegal Taxes Call King v. Burwell a “Godsend”

Yesterday, I blogged about the 70 million Americans President Obama is subjecting to illegal taxes, who would be freed from those taxes by a ruling for the challengers in King v. Burwell. Many of the victims of those illegal taxes are teachers. Kevin Pace, for example, is a jazz musician and music professor in Northern Virginia who lost $8,000 of income in one year alone when the Obama administration unlawfully imposed ObamaCare’s employer mandate on his employer. 

A group called American Commitment has produced a short video telling the stories of two more victims of these illegal taxes. One says these illegal taxes reduced his hours worked by 40 percent, calling it “absurd” and “unfair.” Another says a ruling for the King v. Burwell challengers would be a “godsend” and asks Congress to “come to its senses and give me back my hours, please.”

The Trans-Pacific Partnership Takes Center Stage

The long process featured hyperbole, demagoguery, fallacy, posturing, horse trading, unexpected tactics, strange political alliances, and several reversals of momentum.  But congressional passage of the Trade Promotion Authority bill was only the warm-up act.  The Trans-Pacific Partnership (TPP) is the headliner, and the process of concluding, ratifying, and implementing it promises more drama.

The TPP is a prospective trade agreement between the United States and 11 other nations, which has been under negotiation for 6 years. The Obama administration made the TPP the economic centerpiece of its “pivot to Asia,” encouraged the participation of other countries, and expanded the scope of the negotiations.  Beyond reducing tariffs and other border barriers, the TPP will include rules governing labor and environmental standards, government procurement, intellectual property protection, investment, supply chains, state-owned enterprises, and much more. The scope of the deal is so broad that the final agreement will likely include 29 separate chapters.

For the better part of a year, the word from TPP negotiators has been that a deal was close and that the main obstacle to its completion was the absence of TPA.  Logically, U.S. trade negotiating partners would be unwilling to put their best offers on the table unless the president could guarantee them that the deal was final and would not be picked apart and amended by Congress.  With TPA now secure, that impediment is gone – and the credibility of those “TPP-near-completion” claims is about to be tested. Just last week, Australia’s Trade Minister Andrew Robb said the TPP was “literally one week of negotiation away from completing.” In about 8 days, that will be proven too rosy a promise.

In Calling on Government, Pope Francis Misses the Problem of Politics

In his new encyclical, Laudato Si, Pope Francis challenges people to adopt a new “ecological spirituality.” But his economic and policy prescriptions are more controversial than his theological convictions.

The Pope’s commitment to the poor and our shared world is obvious. Yet when he addresses policy, his grasp is less sure.

The Pontiff ignores the flawed nature of government. He is disappointed with its present failings, but appears to assume that politics, unlike humanity, is perfectible.

Most environmental problems result from the absence of markets and property rights. For instance, since no one owns the great common pools of air and water, “externalities” abound.

When possible, government should create quasi-markets or apply market incentives. In contrast, where government acts as property manager, it typically performs badly. For example, at the behest of business interests, Washington subsidizes grazing and timbering on its lands, opening up areas which otherwise would not be developed.

Charter School Growth, Reality vs. Prediction

A fun thing about making predictions is ultimately finding out how wrong you were, and why. The chart below depicts the actual growth in charter school enrollment from 2000 to 2011, presented in Richard Buddin’s paper “The Impact of Charter Schools on Public and Private School Enrollments.” Now, as the old investment ads exhorted “past performance is no guarantee of future results.” But such a definitive pattern cried out for a regression fit. The dashed blue line in the chart below represents the “predicted” growth of Charter schools since 2011 (which I calculated three years ago from the 2000-to-2011 data). But how good was the prediction? As a test, I have plotted the actual data for 2012 to 2015 as red dots, using this and this as sources.

Well. Not bad. The accelerating growth in charter school enrollment could be excellent news for children and families–expanding the breadth of their educational options. Or (in the long term) it might reduce the variety of educational choices if charters become re-regulated (and thus homogenized) after having “eaten” a substantial number of diverse and much freer private schools. As Richard Buddin showed, charter schools are drawing students away from the freer independent school sector. And as the news routinely informs us, there are regular efforts to pile regulations onto charters to make them behave more like conventional state-run schools. In 2011, I raised the concern that this cycle could reduce educational liberty.

Two things are likely to happen over time: more private schools will be forced by economic expediency to convert to charter status as the number of competing charter schools grows, and the charter law is very likely to accrete regulation as charters enroll a larger share of the total student population. After all, the conventional U.S. public schools of the mid-to-late 1800s generally had more parental power and more autonomy than do typical charter schools today, but they have succumb to ever more extensive and more centralized regulation. If charter public schools follow the pattern set by conventional public schools, and if private schools continue to convert to charter status, what will be the end result? We could well see a heavily regulated state education monopoly that enjoys not a 90 percent market share, as it does now, but a 95 or even 99 percent market share. The end point would be worse than the situation we have today. While it is possible that charter schools will not accrete regulation like other public schools have as they begin to enroll a larger share of students, there is no reason to be hopeful in that regard.

With attempts to regulate charter schools more like state-run district schools continuing to this day, reasons for hopefulness remain scarce.

This, admittedly is a long-run concern. And as Keynes observed, “In the long-run, we’re all dead.” While that is literally true of any given generation, policy must be made with a view to functioning well not simply for us, now, but also for subsequent generations, decades hence. Having spent years studying the history of education systems, it’s hard not to be concerned with the long-run.