In a victory for the First Amendment rights of public-sector workers across the country, the Supreme Court today found that requiring nonmembers to subsidize public-sector union activities violates the Constitution. This ruling of course follows the 4–4 split in a similar case two terms ago, where Justice Scalia would have cast the Court’s deciding vote. The addition of Justice Gorsuch thus made this outcome almost inevitable, and as expected he joined Justice Alito’s opinion recognizing the inherent unworkability of Abood v. Detroit Board of Education (1977). Today’s decision rejects that precedent’s arbitrary line-drawing between public-sector unions’ collective-bargaining and political activities, recognizing instead that efforts in both areas are inherently political because each directly influences government policy. While the Court generally avoids disturbing precedent, it has a duty to correct its own errors, particularly in cases where the difficulty of amending the Constitution leaves no other way to reinstate bedrock principles. The Abood decision was manifestly mistaken. Today’s decision at long last remedies this violation of all workers’ rights to the freedom of speech and association.

Sen. Dianne Feinstein has introduced the Bot Disclosure and Accountability Act, a proposal to regulate social media bots in a roundabout fashion. The bill has several shortcomings.

Automation of social media use exists on a continuum, from simple software that allows users to schedule posts throughout the day, to programs that scrape and share information about concert ticket availability, or automatically respond to climate change skeptics. Bots may provide useful services, or flood popular topics with nonsense statements in an effort to derail debate. They often behave differently across different social media platforms; Reddit bots serve different functions than Twitter bots. 

What level of automation renders a social media account a bot? Sen. Feinstein isn’t sure, so she’s relinquishing that responsibility to the Federal Trade Commission:

The term ‘‘automated software program or process intended to impersonate or replicate human activity online’’ has the meaning given the term by the [Federal Trade] Commission

If Congress wants to attempt to regulate Americans’ use of social media management software, they should do so themselves. Instead, they would hand the hard and controversial work of defining a bot to the FTC, dodging democratic accountability in the process. Moreover, the bill demands that the FTC define bots “broadly enough so that the definition is not limited to current technology”, virtually guaranteeing initial overbreadth.

While the responsibility of defining bots is improperly passed to the FTC, the enforcement of Feinstein’s proposed bot disclosure regulations is accomplished through a further, even less desirable delegation. The Bot Disclosure and Accountability Act compels social media firms to adopt policies requiring the operators of automated accounts to “provide clear and conspicuous notice of the automated program.” Platforms would need to continually “identify, assess, and verify whether the activity of any user of the social media website is conducted by an automated software program”, and “remove posts, images, or any other online activity” of users that fail to disclose their use of automated account management software. Failure to reasonably follow this rubric is to be considered an unfair or deceptive trade practice.

This grossly infringes on the ability of private firms, from social media giants like Facebook to local newspapers that solicit readers’ comments, to manage their digital real-estate as they see fit, while tipping the balance of private content moderation against free expression. Social media firms already work to limit the malicious use of bots on their platforms, but no method of bot-identification is foolproof. If failure to flag or remove automated accounts is met with FTC censure, social media firms will be artificially incentivized to remove more than necessary. 

The bill also separately, and more stringently, regulates automation in social media use by political campaigns, PACs, and labor unions. No candidate or political party may make any use of bots, however the FTC defines the term, while political action committees and labor unions are prohibited from using or purchasing automated posting software to disseminate messages advocating for the election of any specific candidate. It is as if Congress banned parties and groups from using megaphones at rallies. Would that prohibition reduce political speech? No doubt it would. How then can the prohibitions in this bill comport with the constitutional demand to make no law abridging the freedom of speech? They cannot.

Feinstein’s bill attempts to automate the process of regulating social media bots. In doing so, it dodges the difficult questions that attend regulation, like what, exactly, should be regulated, and foists the burden of enforcement on a collection of private firms ill-equipped to integrate congressional mandates into their content moderation processes. Automation may provide for the efficient delivery of many services, but regulation is not among them. Most importantly, the bill does not simply limit spending on bots. It prohibits political (and only political) speech by banning the use of an instrument for speaking to the public. Online bots may worry Americans, but this blanket prohibition of speech should worry us more.

Yesterday, the Supreme Court ruled that credit card provider American Express’ long-standing policy of including anti-“steering” clauses in its contracts with merchants was not anti-competitive.

Steering is the practice whereby merchants discourage customers from paying with comparably high-cost cards like Amex and to use Visa or Mastercard instead. Importantly, anti-steering agreements do not limit merchants’ ability to favor debit cards or cash in their dealings with customers. The majority opinion, drafted by Justice Clarence Thomas, argues that there was no evidence of consumer harm in the form of higher prices or reduced output as a result of Amex’ anti-steering requirements.

The Court notes that the credit-card market is a market for transaction services and is two-sided, involving two distinct and interdependent sets of customers: merchants (who sell goods and pay fees to credit-card providers) and buyers (who use credit cards to pay for merchants’ goods).

Two-sided markets require a somewhat more sophisticated analysis in antitrust cases because of the interdependence of each side. For example, in a one-sided market, increasing merchant fees might be regarded as evidence of an abuse of monopoly power. In a two-sided market, such a fee increase can in fact be pro-competitive if it leads credit-card providers to offer better service to the other side of the market (buyers) thus increasing their purchases from merchants.

The peculiarities of two-sided markets have been noted by a long line of economists, including the 2014 Nobel Prize laureate Jean Tirole. His analysis, among others, was cited by Justice Thomas in his opinion.

Indeed, the evidence suggests that competition in the credit-card market is thriving. Take-up of cards has boomed since the 1970s. There is an endless variety of offerings among the various providers, with different (or no) annual charges, a diverse menu of rewards programs, and of course a range of interest rates on outstanding balances. In March, Amex in fact announced that it would cut its merchant fees to better compete with lower-cost providers. Since 2004, Amex fees have dropped by 10 percent.

However, even allowing that anti-steering agreements are not anti-competitive, could it be true nonetheless that anti-steering agreements hurt particular groups of consumers? Brookings’ Aaron Klein thinks so. In a piece published in the wake of yesterday’s ruling, he argues that “[the U.S.] payment system […] rewards the wealthy while penalizing the poor” and “functions as a hidden method of increasing income inequality.”

Klein’s argument is that anti-steering agreements lead merchants to increase prices. But because only Amex cardholders secure the countervailing benefits – in the form of rewards programs and an increased ability to use their cards in daily purchases – and because Amex cardholder incomes tend to be higher than average, there is a regressive impact on lower-income households. They get the higher prices induced by Amex fees but cannot share in the benefits.

Leave aside for a moment that anti-steering agreements, as Justice Thomas observed, only apply to credit cards and not to other forms of payment, which means that merchants can in fact price-discriminate by setting minimum purchase thresholds and surcharges for using credit cards (as many do). Even ignoring this possibility, which Klein leaves unacknowledged, his claim of regressivity is not as straightforward as might at first be apparent, for several reasons.

1. Merchants’ decision to sign anti-steering agreements is voluntary.

Merchants do not forcibly sign anti-steering agreements with Amex. They only do so if they believe it is in their benefit to accept Amex cardholders, which is a function, first, of the fees charged by Amex compared to other card networks, and, second, of the share of purchases paid for with Amex cards which would not happen if the merchants refused to take Amex.

The emphasis is important because many cardholders multi-home, meaning that they hold Visa or Mastercard as well as Amex for instances in which one might not be accepted. My dry cleaner does not take Amex but that has not yet deprived her of my custom.

Thus, merchants will only agree to the anti-steering conditions if the income earned from Amex purchases which could not otherwise be earned exceeds the cost of higher Amex fees. Many merchants will find accepting Amex worthwhile, but some will not. Indeed, there are still many outlets where all credit cards but Amex (and possibly Discover) are accepted.

In a competitive market with many providers and low switching and search costs (all of which broadly characterize most American retail markets), merchants will ask for the same price, adjusted for convenience factors such as the acceptance of Amex cards. Those who buy at Amex-positive outlets will pay a premium for it, while those who forgo the opportunity to buy with Amex can opt for other providers, who – other things being equal – will offer lower prices.

2. Amex cardholders and non-cardholders are different people, buying different things.

As Klein’s piece notes, lower-income households tend to have fewer credit card options, if any, than higher-income households. But to infer that the worse-off are therefore subsidizing the better-off because all pay the same price, but only cardholders get the rewards, is one simplification too many.

Households with different incomes differ not only in their likelihood of holding an Amex card, but also in the kinds of stores they patronize and the kinds of products they buy. This means that merchants have some means to make Amex cardholders internalize the price externality they would otherwise impose on non-cardholders, by passing on the Amex fees mainly, or exclusively, to those products that Amex cardholders buy.

Any pass-through will be crude because there is always overlap between the products bought by each of the two groups, but the homogeneous price increase for all customers posited by Klein is unlikely to reflect merchants’ reaction in practice.

3. There may be progressive redistribution among Amex cardholders.

Klein objects to the supposedly regressive impact of anti-steering agreements on those who do not hold Amex cards. But the existence of Amex rewards programs made possible by the anti-steering rules may be progressive, that is, it may redistribute benefits from higher-income to lower-income cardholders.

To see how this can be the case, consider that Amex cards tend to come with a “welcome bonus” involving, usually, a disproportionate amount of rewards (air miles, or gas points, or something else) for the first $1,000 spent on the card. These rewards are presumably as costly for Amex to give as any other rewards, so that the welcome gift must be subsidized from Amex’ ongoing business. The more households spend on their card above and beyond the first $1,000, the more they are subsidizing other cardholders. Furthermore, because card expenditure is broadly correlated with income, it is plausible that higher-income cardholders subsidize lower-income cardholders, for whom the first $1,000 are a bigger share of lifetime card expenditure.

This redistribution would offset the regressivity of steering restrictions on other buyers, to the extent there is any.

4. Innovation depends on a share of initial customers’ paying higher prices.

Innovations are always costlier at first. F.A. Hayek noted in The Constitution of Liberty that, without intending it, the rich who can afford new innovations help to make them progressively more accessible by encouraging investment and competition in the provision of the innovative good or service. From the personal computer to the smartphone to the transatlantic passenger flight, modern life is rich with examples of such gradual expansion in people’s access to new goods and services.

Credit cards are no exception. Justice Thomas noted that, since the 1950s when credit cards were first introduced, merchant fees have dropped by more than half. Because of the network effects characteristic of two-sided markets, every decrease in fees has likely disproportionately increased the amount of merchants accepting cards and the number of cardholders. The result is higher welfare for all and more widely shared affluence.

But this virtuous cycle depends on the ability of competitors to offer different price and quality options to prospective customers. Amex’ business model of higher merchant fees in exchange for more generous rewards programs is one form that such competition can take.

Klein concludes his piece by noting that financial technology can resolve the “inefficiencies of the current payment system [which] cry out for new financial technological solutions.” In this he is doubtless correct, if the history of financial innovation is anything to go by. Yet, to blame American Express for the remaining imperfections in the payment system would not just be wrong — it would be counterproductive.

[Cross-posted from Alt‑M.org]

In a decision that many First Amendment faithful might find too good to be true, in NIFLA v. Becerra, the Court delivered a solid victory for freedom of speech and against government agents who would force people to speak state-approved messages. Despite the hype to the contrary — and activists from both sides on the courthouse steps — this was NOT an abortion case. The Court was able to separate the First Amendment principles at stake from that fraught subject.

Reiterating its previous rulings on similar provisions controlling speech based on its content, the Court held that any content-based speech regulation — in this case a California law that compels delivery of particular scripts regarding the availability of abortion services (but that could equally be applied to speech about adoption and prenatal services) — is presumptively unconstitutional. To regulate the content of speech, the government must show that it has the most important of reasons for regulating the speech in question, and that it is only prohibiting or mandating speech to the extent necessary to achieve that highly important and specific purpose. California failed to show that “compelling” interest, namely why it was necessary to single out pro-life pregnancy centers and conscript them into delivering the state’s message about low-cost abortion services.

Curiously, instead of showing why its law might be able to survive strict judicial scrutiny, California argued for an almost nonexistent level of scrutiny based on the clinic employees’ status as “professionals.” It also argued that the script the pro-life centers were forced to recite conveyed merely “factual” information. Justice Clarence Thomas, in his majority opinion, explained that there is no separate category of “professional speech” that deserves lesser First Amendment protection — and attempts by the U.S. Court of Appeals for the Ninth Circuit to create and enshrine such a category were misplaced and wrong.

As we argued in our brief, if government had a freer hand to commandeer “professional speech,” then a vast amount of speech could be compelled based on nothing more than an unsupported whim that the information might be “helpful” to those who hear it. Just like describing the California law as a regulation of “professional speech” couldn’t save it, neither could arguing that the disclosures were merely factual and uncontroversial, instituted to combat consumer misinformation. Even under that deferential standard, Justice Thomas wrote that compelled speech cannot be “unjustified or unduly burdensome.” California offered nothing more than hypotheticals to justify the need for its law, but the font size and number of languages it requires are not just burdensome, but threaten to drown out any message the crisis-pregnancy centers may want to convey.

This was an absolute win for the First Amendment. Not only did the Court refuse to create a new category of speech and designate it to receive less than full constitutional protection, it also repudiated the idea that the deferential standard the Court established in Zauderer v. Office of Disciplinary Counsel (1985) — to allow certain compulsions of purely factual information in a commercial context — can save compelled disclosures that impose a burden on the speaker and are anything less than uncontroversial.

In his brief concurrence to the Court’s opinion today in Trump v. Hawaii, the decision Ilya discusses just below, Justice Kennedy adds an important point about limits on presidential power, even where the president has wide discretion, as here. Thus, he writes:

There are numerous instances in which the statements and actions of Government officials are not subject to judicial scrutiny or intervention. That does not mean those officials are free to disregard the Constitution and the rights it proclaims and protects.

And he adds:

Indeed, the very fact that an official may have broad discretion, discretion free from judicial scrutiny, makes it all the more imperative for him or her to adhere to the Constitution and to its meaning and its promise.

Put plainly, broad discretion does not afford the president access to any means toward the ends for which discretion is given. Kennedy illustrates the point with First Amendment religion and speech guarantees. He could also have invoked the Korematsu case the Court raised, as Ilya mentions. There the president enjoyed wide discretion to conduct the nation’s foreign affairs during World War II, but the means he employed in that case—incarcerating innocent Japanese-Americans—ran afoul of the Constitution’s due process guarantees, thus properly requiring judicial intervention in an area otherwise beyond the Court’s authority.

The Supreme Court upheld President Trump’s travel ban in a 5–4 decision. The travel ban undermines a core principle of the U.S. immigration system since 1965: that the law will not discriminate against immigrants based on nationality or place of birth. The president has rewritten our immigration laws as he sees fit based on the thinnest national security pretext, setting a dangerous precedent for the future.

The ban entirely lacks any reasonable basis in the facts. Nationals of the targeted countries have not carried out any deadly terrorist attacks in the United States, and they are also much less likely to commit other crimes in the United States. Nor are their governments less able or willing than others to share information or adopt certain identity management protocols. 

We now know that the report that supposedly provided the detailed, “extensive,” and “thorough” analysis of every country in the world was just 17 pages, giving barely a tenth of a page to summarize facts relating to 200 countries. It was great to see Justice Sotomayor raise this fact in her dissent (p. 19), possibly as a result of a letter that Cato adjunct Ilya Somin sent to the court summarizing a post that I wrote on the subject.

As a matter of policy, no president should be given such broad power to determine immigration law. While the travel ban currently affects only a small share of immigrants and foreign travelers, all legal immigrants should be concerned that the president will wield this power against them next. Congress should immediately intervene to preserve its power to determine immigration policy.

It’s no surprise that the Supreme Court allowed Travel Ban 3.0 to remain in place, particularly given that the justices allowed Ban 2.0 to go into effect a year ago and this one last fall. This third version specifically carves out those with green cards, provides for waivers for those with special cases (family, medical emergencies, business ties, etc.), and also was tailored based on national-security considerations, to which the Court typically defers. One can disagree, as I do, with some of the policy judgments inherent in this executive action, but as a matter of law, the president — any president — gets a wide berth here.

The Court considered the president’s statements regarding this policy but ultimately had to apply a deferential standard; given the legitimate justifications explicitly set out in the “proclamation” announcing Travel Ban 3.0, the Court could not preference campaign rhetoric and tweets over legal documents in this context. “While we of course ‘do not defer to the Government’s reading of the First Amendment,’ ” Chief Justice John Roberts’s majority opinion says, citing Holder v. Humanitarian Law Project (2010), “the Executive’s evaluation of the underlying facts is entitled to appropriate weight, particularly in the context of litigation involving ‘sensitive and weighty interests of national security and foreign affairs.’ ”

Moreover, Congress set out a very deferential statutory regime. The majority opinion explains:

By its plain language, §1182(f) grants the President broad discretion to suspend the entry of aliens into the United States. The President lawfully exercised that discretion based on his findings—following a worldwide, multi-agency review—that entry of the covered aliens would be detrimental to the national interest. And plaintiffs’ attempts to identify a conflict with other provisions in the INA, and their appeal to the statute’s purposes and legislative history, fail to overcome the clear statutory language.

As the chief justice goes on to say, the dissenting justices don’t even try to make a case on that score.

In short, we can and should debate this or any other aspect of the Trump administration’s immigration policy, but not all political disputes can or should be resolved in the courts.

One final note: the majority opinion’s penultimate page takes issue with Justice Sonia Sotomayor’s invocation of Korematsu v. United States in her dissenting opinion:

Whatever rhetorical advantage the dissent may see in doing so, Korematsu has nothing to do with this case. The forcible relocation of U. S. citizens to concentration camps, solely and explicitly on the basis of race, is objectively unlawful and outside the scope of Presidential authority. But it is wholly inapt to liken that morally repugnant order to a facially neutral policy denying certain foreign nationals the privilege of admission.

Most importantly, “Korematsu was gravely wrong the day it was decided, has been overruled in the court of history, and—to be clear—‘has no place in law under the Constitution.’ ” (citing Justice Robert Jackson’s dissent). This isn’t technically an overrule because that question wasn’t presented, but I would still advise lawyers not to cite Korematsu as good law in their briefing.