Constitution R.I.P.

Admittedly, blatantly unconstitutional acts by our government are not a new phenomenon.  Examples from the earlier days of our Republic include John Adams's Sedition Acts of 1798 (a direct violation of the First Amendment, although duly approved by Congress), and Abraham Lincoln's Emancipation Proclamation of 1863 (where did the President get the unilateral power to abolish slavery?).  But there were notable differences between these acts and today's versions.  In those days, such acts ignited powerful debates about abiding by the Constitution, and became significant factors in elections.  The Sedition Acts played no small part in the defeat of the Federalists and the election of Jefferson in 1800, and the Acts were then allowed to expire by their own terms shortly thereafter.  Lincoln himself recognized the need for promptly replacing the Emancipation Proclamation with a constitutional amendment, campaigned on that issue in 1864, and the Thirteenth Amendment (abolishing slavery) was well on its way to ratification at the time of his death.

Today?  The constitutional violations come fast and furious, and it's like almost nobody even notices that it's happening.  In the midst of a presidential campaign, the candidates studiously avoid the issue.  Also studiously avoiding the issue is the progressive press.  This Constitution thing is so tiresome!  How is the government supposed to implement perfect fairness and justice in the world, let alone "save the planet," if it can't do whatever the hell it wants?  So it falls to a few cranks, such as yours truly, to point out the obvious.  For today, let's take a few recent examples.

Clean Power Plan

Suppose you are the President, and you think that the greatest crisis facing the world is the crisis of global warming caused by mankind's sinful use of fossil fuels.  In your heart, you know that the government can solve the crisis, but only by (for starters) taking over the electricity-producing sector of the economy and shutting down all coal-fired power plants as well as the entire coal mining industry. You also know that the majority in Congress thinks this is nuts and won't pass any new legislation to help you out.  And then there's the Constitution.  It gives you no legislative powers whatsoever (Article I, Section 1: "All legislative Powers herein granted shall be vested in a Congress of the United States"), and prescribes that you must execute the laws as written (Article II, Section 3: "[The President] shall take Care that the Laws be faithfully executed . . . .")  How to proceed?

Easy!  You just have to find something -- anything! -- in the existing U.S. Code to claim to support you.  That gives you hundreds of volumes of impenetrable text to select from.  Who cares if nobody remotely thought any of this would give you the authority to force the closure of all coal-fired power plants and the entire coal mining industry?  And thus we light upon Section 111(d) of the Clean Air Act (most recent major amendments in 1990 -- before we knew that carbon dioxide was a "pollutant"):

The Administrator shall prescribe regulations . . . under which each State shall submit to the Administrator a plan which (A) establishes standards of performance for any existing source . . .  which is not . . . regulated under section [1]12 of this title . . . .  

But wait!  Power plants are already regulated under Section 112.  How can you possibly use this section to regulate power plants?  I won't try to give you the government's incomprehensible and convoluted response.  You can read it for yourself here.  

This case is currently before the D.C. Circuit on a challenge to the government's authority to proceed brought by some 27 states plus various utilities and coal companies.  Oral argument before the en banc circuit is scheduled for September 27.  This is one of those cases where it seems that how a judge views the case entirely depends on the party of the President who appointed him.  The Democrats have a majority of the judges on the D.C. Circuit.  Does it matter to any of them that the statute on which the government claims to rely forbids this action by its clear terms, and the Constitution gives the executive no authority to legislate?

Obamacare

Well, if there's one thing that's clear in the Constitution, it's that the Congress has the "power of the purse."  (Article I, Section 9: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . . .")  And then, for good measure, there's 31 U.S.C. § 1301(d) (“A law may be construed to make an appropriation out of the Treasury . . . only if the law specifically states that an appropriation is made”)  But of course, that's unless the government claims it really, really "needs" to spend the money to make some statute "work."  

And thus it seems that under the Obamacare statute the government has been spending some tens upon tens of billions of dollars without Congressional appropriation.  The details are laid out in the May 2016 opinion by Judge Rosemary Collyer of the D.C. District Court.  The issue relates to Section 1402 of the Affordable Care Act, dealing with something called "cost sharing reductions," under which insurers provide reduced deductibles and co-pays to qualifying enrollees in return for subsidies from the government.  The problem is that the statute contains no language permanently appropriating the money for the subsidies.  As you would expect, the Obama administration submitted budget requests asking Congress for appropriation of the money.  But Congress did not include any money for this purpose in its appropriations.  So the government just went ahead and spent the money.  They did not seek any kind of permission from anyone.  They just went ahead and spent it.  Tens upon tens of billions of taxpayer dollars.

Judge Collyer describes the government's position as follows:

The Secretaries rely on 31 U.S.C. § 1324, which expressly appropriates money for Section 1401 premium tax credits. In order to explain their paying Section 1402 reimbursements out of a permanent appropriation for IRS refunds, the Secretaries posit that Sections 1401 and 1402 are economically and programmatically integrated. A contrary reading of the amended appropriations statute, they contend, would yield absurd economic, fiscal, and healthcare-policy results. 

So that's it:  Forget this obsolete "appropriations" thing.  We can spend whatever money we want, just as long as we have determined that not to do so would produce "absurd results."  But aren't ninety percent of the statutes passed by Congress "absurd"?  Anyway, this one also is headed to the D.C. Circuit, and then likely on to the Supremes.  Will it be as politically pre-determined as the Clean Power Plan case? 

Paris Climate Accord

You will be happy to learn that over the Labor Day weekend, President Obama went to China, and while he was there the United States "ratified" the Paris Climate Accord.  Or maybe it was "formally ratified."  Or at least you would think that was true if you read most of the media reports of the event.  For example, there was Reuters ("The United States has joined China to formally ratify the Paris agreement to curb climate-warming emissions. . . ."); or Scientific American ("U.S. and China  formally commit to Paris Climate Accord"); or The Guardian ( "U.S. and China agree to ratify Paris climate deal").

But wait!  Under the Constitution, doesn't "ratification" of an international commitment require a two-thirds vote in the Senate?  (Article II, Section 2:  "[The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur.")  Well, it seems that Obama just skipped this step.  It was completely obvious that the Senate wasn't going to have any part of this thing, and a two-thirds vote was completely out of the question.  The "ratification" they are talking about consisted of nothing more than Obama himself putting his John Hancock on the document.  

Granted, there are such things as "executive agreements" between nations.  But don't they cover only routine, administrative, and short-term matters?  This one purports to commit the United States to achieve a 25 to 28% reduction in "greenhouse gas emissions" by 2025, and then to continue to make further reductions after that -- commitments that could cost the U.S. economy easily hundreds of billions of dollars.  In the range of international agreements entered into by the United States, this one is at the highest end in terms of scope and burdens of the commitments undertaken and time period covered (essentially, forever).  Here is an analysis by the Heritage Foundation of whether this agreement meets the usual criteria for determining what is a treaty.  Conclusion: it's not even close.

Meanwhile, what did China commit to?  Are they going to reduce their "greenhouse gas" emissions 25 to 28% by 2025?  You won't believe this, but what China is supposedly "committing" to is not a reduction at all, but rather only to have their emission "peak" by 2030.  Between now and then they are planning to increase their emissions by somewhere around 50%, by which time theirs will be well over double ours.  They will be building literally hundreds of new coal power plants, even as we shut all of ours and close down our coal industry.  And when 2030 comes, are they really going to do anything -- or will this whole "climate change" fad be past and forgotten?  Really, this couldn't be funnier -- if you are President Xi of China.  Watch your main geo-political rival commit economic suicide without your having to do anything.

At least the good news here is that the next President (not Hillary, but some hypothetical sane one at some time in the future) will likely just walk away from this absurdity.  (Or, if he/she is more nuanced, submit the document to the Senate and have it voted down.)

But meanwhile, the extent to which our government just pays no attention whatsoever any more to the Constitution is just breathtaking.  I'm half expecting that the next move will be to award a few more Senators to California and New York.       

The Solution For The Failure Of Socialism: Double Down!

Down in Venezuela, things just get worse and worse.  Writing yesterday in Canada's Globe and Mail, Alberto Vargas Llosa describes how Venezuela's dictator Nicolas Maduro has only one solution to propose, which is to "double down."  The title is "As despair spreads in Venezuela, Maduro doubles down."  Seems that they took blowout government spending, price controls and industry nationalizations as far as they could.  But now they have run out of other people's money, and they are moving into the military repression phase.  Excerpt:

The more the country sinks into despair, the worse the repression and militarization. . . .  The military, which already controls more than half the ministries, oil giant PDVSA and a bank, now commands the crippled economy. Mr. Maduro has given exceptional powers to General and Defence Minister Vladimir Padrino Lopez, who is in charge of food distribution. The government, which had already reduced the National Assembly’s opposition majority to impotence, has now barred from office every elected official who signed up to recall Mr. Maduro.

And how is the economy doing?

The country’s GDP has had 10 consecutive quarters of negative growth. (The annualized rate is now minus 12 per cent.) Investment is down 26 per cent from 2015. Consumption, which had fallen precipitously, is down another 16 per cent this year.

Well, thank God that we don't have that kind of thing in the United States!  But wait, should we check in on what's happening with Obamacare?  A fair description is that Obamacare is in the relatively early stages of the Socialist Death Spiral.  Millions of individuals ordered to purchase mis-designed and overpriced government insurance products are declining to do it.  Insurers are rapidly exiting markets where they have figured out that they can't make money.  Those remaining are often increasing premiums in the range of 20 - 40%.  Can this thing possibly survive?

And if you look around, you will find that progressives all think they have they answer.  We just need to double down!  At FiveThirtyEight on August 31, we have "Insurers Can Make Obamacare Work, But They Need Help From Congress."  Excerpt:

Congress needs to make fixes, the most important being subsidizing more of the premiums paid by middle-class customers — the kind of midcourse adjustment that Congress routinely makes for Medicare but which has been politically impossible for Obamacare.

Some more money from the Infinite Credit Card will surely do the trick!  Or try Jeffrey Young at the Huffington Post on July 6, "If Obamacare Is Here To Stay, It's Going To Need Some Fixing.  Here Are 5 Ways How."  The short version of all five is, just spend more of the free government money and order that everybody must have affordable healthcare.  

Cover More Of The Uninsured. . . .  Make Health Care More Affordable. . . .  Expand Medicaid In More States.   

Nothing to it!  Oh, and throw in a big dose of price controls:

For people with health insurance policies that require them to pick up a bigger share of their medical costs out-of-pocket, these new miracle drugs are largely unaffordable. . . .  “Right now, there’s no control over what those costs should be,” [Ron] Pollack [of FamiliesUSA] said. “There probably ultimately will need to be some kind of control in prices.

Yes, price controls -- they sure have worked out well in Venezuela!  Well, at least we're still in the more handouts and price controls phase of doubling down on socialism.  The military repression phase seems so far away!

Political Corruption, Money In Politics, And The Clinton Foundation

The revelations just keep coming, new ones seemingly every few days.  The first one I can remember came to light back in April 2015, when it emerged that, in a series of transactions from 2009 to 2013, Russian state nuclear energy agency Rosatom had taken control of uranium mining firm Uranium One (including major uranium mines in the U.S.) with approval of the Hillary Clinton State Department.  According to the linked New York Times article, the deal had been "orchestrated" by Canadian mining financier and Bill Clinton buddy Frank Giustra.  Giustra had contributed $31.3 million to the Clinton Foundation.  The Chairman of Uranium One (Ian Telfer) contributed $2.35 million.  And then there was the $500,000 "speech" fee to Bill personally.

And that one was before the long-buried Hillary emails started coming out in response to FOIA requests.  In the past couple of months, we now have, as further examples:

• ABC News reported in June 2016 that Chicago securities trader Rajiv Fernando, a guy with no particularly relevant experience, got himself appointed to the government's International Security Advisory Board.  He had donated "between $100,000 and $250,000" to the Clinton Foundation.
• Last week we learned from the Daily Caller that in 2009 the Crown Prince of Bahrain, having gotten nowhere in efforts through official channels to get a meeting with Madame Secretary of State, tried going through Clinton Foundation channels.  He promptly got the meeting he wanted.  His contribution to the Foundation?  $32 million.
• And now this week it emerges that if you wanted to get invited to official State Department functions during Hillary's tenure, and seated next to the right people, the way to do it was to make a generous contribution to the Clinton Foundation.  Judith Rodin of the Rockefeller Foundation wanted to go to a State Department dinner and sit next to Joe Biden?  No problem.  She contacted Doug Band of the Clinton Foundation, who contacted Huma Abedin of Hillary's State Department staff, and voila! it was done.  Rockefeller Foundation contribution to Clinton Foundation?  $25 million.  The linked Washington Examiner story from August 29 includes numerous other examples of same.

OK, you kind of knew this was how it worked, but this is seeing it taken to whole new levels of payments, pervasiveness, and brazenness.  This can't possibly be OK, can it?  Let's have a review of the relevant law.

Just over two months ago, in June, the case of Bob McDonnell, former governor of Virginia, came before the U.S. Supreme Court.  The funny thing is that, in many written and televised discussions of the Clinton Foundation situation that I have seen over the past few weeks, few have mentioned the McDonnell case at all, and those few only in passing.  Here is a copy of the decision.  McDonnell had accepted a series of personal gifts from a businessman interested in getting his product studied by the University of Virginia.  The total amount of the gifts (some were in kind) was in the range of $200,000 -- really, ridiculously small time compared to the Clintons.  In return, McDonnell set up several meetings with university officials in a position to green light the studies the guy wanted done.  But the officials never gave the approval and the studies were not done.  Nevertheless, federal prosecutors prosecuted McDonnell, and he was convicted of multiple counts of bribery; and the conviction was affirmed by the Fourth Circuit Court of Appeals.  But the Supreme Court reversed -- unanimously.  The Court held that the mere act of setting up meetings was not an "official act" as defined by the federal bribery statute, and not a sufficient quid pro quo to support a conviction under that statute.

If you think about that, you will realize that this recent precedent makes a criminal prosecution of Hillary for these Foundation transactions rather difficult.  In the large majority of what has come to light to date, Clinton did more or less the same thing that McDonnell did -- facilitate meetings for big donors.  The big exception is the Russian uranium deal, where a major transaction actually occurred to the significant benefit of Hillary's donors.  Of course, this is the one of the listed incidents on which email traffic (that might establish a quid pro quo) has not yet surfaced.

But, you ask, what about campaign finance restrictions?  Surely it can't be OK to give tens of millions of dollars to a "foundation" of someone you completely know is shortly going to be running for President -- particularly when it was obvious to everyone that contributions to the Clinton Foundation were being used to keep the campaign-staff-in-waiting employed, and to support the personal lifestyles of the three Clintons, including private and first-class air travel and top hotels.  For example, this Politico article from 2014 reports that the Clinton Foundation raised $145 million in 2013, of which almost $9 million was spent on travel expenses.  There's this classic line:

The Board recognizes that, due to extraordinary security and other requirements, William J. Clinton, Hillary Rodham Clinton, and Chelsea Clinton may require the need to travel by charter or in first class, the determination of which will be made on a case-by-case basis.

No, actually the campaign finance laws don't cover this subject at all.  That's some $2 billion in contributions to the Foundation, of which tens of millions went to support the Clintons' personal lifestyle and proto-campaign, and none of it counts at all against the "campaign finance" restrictions.  Hey, it wasn't yet a "campaign"!  Keep that in mind next time you hear Hillary talking about the need to "reverse Citizens United" and "get money out of politics."  You can be one-hundred-percent sure that any "reform" put through by Hillary would not touch any of her own sordid activities.

So there you have it!  And let's just add one more thing to the mix:  Hillary's entire economic plan for how to supposedly "improve the economy" consists of one government spending program after another.  Who do you think is going to get those multi-tens-of-billions-of-dollar government contracts for uneconomic "green energy" and "infrastructure" projects?  Do you think that contributions to the Clinton Foundation, or for that matter, to the Clinton campaign, might give anyone a leg up?

So what are you going to do about it?  I have only two ideas:

1. You don't have to vote for this woman.
2. You need to recognize that government spending of money and allocation of the resources of society is inherently corrupt.  Government spending will always preferentially go to those who have curried the favor and greased the palms of the relevant government functionaries.  There is no conceivable collection of anti-bribery laws, or campaign finance laws, that can improve this situation other than a little at the margins.  The only significant improvement can come from shrinking the government and letting the private sector expand.  

At least Hillary has done us the favor of showing us how this game is played at the highest levels.       

Delusional Thinking On Renewable Energy

In a post last week, I noted that I have found it impossible to locate anyplace where advocates of increased use of "renewable" wind and solar energy present "remotely honest numbers" as to what this will cost the consumer as renewables move toward becoming the principal sources of electricity.  Everywhere costs of wind and solar generation facilities are compared to costs of fossil-fuel generation facilities on the basis of some form of "levelized" cost per unit of capacity, in a game to pretend that a KW of electricity that I can turn on and off when I need it is the same as a KW that may show up at 3 AM when I am asleep and then go dead at 4 PM when I am trying to run my air conditioner and use my computer.  This game seems to work when the renewables are 5% of total sources, and even 10%, and maybe even 15%.  But at some point, as the percentage of non-dispatchable renewables increases, somebody needs to confront the challenges of putting together a system that works 24/7 for everybody without any glitches.  If wind and solar are to be the main sources of the energy, and the system is to meet demand all the time, that has to mean multiple layers of extra capacity, plus full fossil fuel backup, plus some kind of massive storage capacity in the form of batteries or something else.  What will that cost?  Will somebody please tell us?  Or at least, will somebody please address the question instead of just sweeping it under the rug?

This issue becomes increasingly acute as federal and state governments ramp up what they call their "renewable portfolio standards."  You may remember President Obama in mid-2015 announcing a goal for the country of 20% electricity generation from renewables by 2030 excluding hydro -- a goal which would seriously push the envelop of what can be achieved without getting into building serious duplicate and backup capacity plus massive storage.  (The linked page from the Greenpeace site advocates that the goal should not be President Obama's 20%, but rather at least triple that, or 60%.)   Meanwhile, many states have set even more ambitious goals.  California's RPS is 33% from "qualified renewables" ("certain hydro" allowed) by 2020, and 50% by 2030.  New York's is supposedly 30% by 2015.  (But we cheat massively by having the gigantic Niagara Falls hydro plant that works all the time, and by excluding the state-owned New York Power Authority and Long Island Power Authority from the mandates.)

Anyway, not meaning to pick on the Wall Street Journal, but they have a big front page story today headlined "Texas' Latest Gusher: Wind And Sun," touting the supposed great success of Texas in developing non-dispatchable renewable electricity, mostly from wind.  According to the article, Texas is now up to having "more than 19,000 megawatts of renewable capacity," which is "enough power for nearly 4 million Texas homes."  And, although solar is just getting off the ground, there are huge plans to expand solar capacity over the next decade or so.  So what are the benefits?  Per this article, the big ones are "jobs" and "new sources of income" for landowners:

Wind projects, including construction of power lines, created jobs in rural counties and gave landowners new sources of income. The state now has more than 100,000 people working in renewable energy, according to the Texas Workforce Commission, which is responsible for jobs creation.

But hey, you're the Wall Street Journal, so you know that "creation" of government-subsidized jobs is actually a form of wealth destruction -- right?  Actually, there's no indication in this article that anyone understands that.  Well, can we at least get some kind of indication of how much this gambit is costing?  The answer is no.  There is almost no information in the article about costs, and particular no recognition or discussion at all of the cost consequences of non-dispatchable renewables ramping up toward 20% and then 30% of electricity production.  The closest we come to a discussion of costs is a mention that consumers in Houston can choose their source of power between "green" and "non-green" and stating the difference that they will see in their bills:

Residents of Houston currently can pick from 107 different rate plans offering 5% to 100% renewable power. In general, they are willing to pay a bit more to go green. Top-rated Reliant, a unit of NRG Energy Inc., charges 7.1 cents a kilowatt-hour for the plan that’s all renewable versus 5.9 cents for one that’s 5% green.   

While it goes unstated, it is clear that such a small price differential must be derived from comparative "levelized" costs of each source, without any recognition at all of the extra costs imposed on system operation by the non-dispatchable sources.  Oh, and by the way, if you choose to get all your power from the "renewable" sources, can you still turn on the lights at midnight on a completely calm night?  Of course you can.  In short, this is completely delusional.

Checking other sources, it's almost impossible to find anyone to say a negative word about Texas's increasing reliance on non-dispatchable renewables -- that is, unless you read between the lines.  This glossy brochure from the Energy Reliability Council of Texas basically contains mostly optimistic platitudes.  Then at page 14 we learn that previously "forecasters had estimated wind generation during peak demand at 8.7 percent of installed capacity, based on probabilistic calculations," but now they are going to up those estimates to a range from 12% to 56% of installed capacity depending on location in the state and time of year.  So guys, if you're going to get up to half your electricity supply from wind, how much excess capacity are you going to have to build?  Four times?  Eight times?  Twelve times?  Sorry, they won't say.  And even if you are going to have twelve times excess capacity, how do you avoid the problem of a complete calm where you will still need full fossil fuel backup capacity -- just as much fossil fuel capacity as you would need if you didn't have a single windmill?

Or consider this about the Texas "success" from the U.S. Energy Information Administration:

Texas leads the nation in wind-powered generation capacity more than 16,000 megawatts; in 2014 Texas generated over 39 million megawatthours of electricity from wind energy. 

Sounds great.  But, clever people that we are, we can do a little simple math:  multiply the 16,000 MW by 24 and 365 and you get an annual rated capacity of 140 million MWh; but they only generated 39 million MWh.  That's less than 28% of the supposed capacity averaged over the entire year.  So how much excess capacity do you then need in order to build a system where you get the majority of your electricity from wind?  Four times?  Eight times?  Again, nobody will say.  And don't forget the backup capacity from fossil fuels!

The good news is that reality is rapidly catching up.  It can't happen too soon as far as I'm concerned.  

There's Nothing More Frightening Than Rule By The "Smart"

Just a few short days ago I was pointing out that if you consider who some of the "smartest" people are (as measured by top credentials from top universities), you will quickly realize that allowing such people to have significant political power is "very frightening."  As a couple of examples, I used late 1970s top MIT Economics Ph.D.s Paul Krugman and Olivier Blanchard, who have used their credentials and their respective perches at Princeton/NYT and MIT/IMF to perpetrate on the world every kind of economic fallacy to justify expansion of government,  to undermine world economic performance, and to keep the people in check.

And now in this weekend's Wall Street Journal we find the prime real estate in the Review section given over to one Kenneth Rogoff for a lengthy piece advocating that the governments of the world phase out the use of cash.  The title of the article is "The Sinister Side of Cash."  It seems that Rogoff is just out with a new book ("The Curse of Cash"), and this big article gives him the chance to peddle it.

Who is this guy Rogoff?  You've already guessed correctly:  he is yet another contemporary of Krugman and Blanchard in the MIT Economics Ph.D. program of the late 70s.  (Rogoff actually took a year off -- to play chess! -- and got his Ph.D. in 1980.)  He's also a big-time professor of economics at Harvard.  And also one of Blanchard's predecessors as Chief Economist of the IMF.  Hard to be more of a genius than that, right?

And of course, what geniuses like Rogoff know more than anything is that their great genius gives them the ability to envision a far more perfect world than this imperfect thing we've been suffering with so far.  Naturally the visions of these geniuses are all variations of the same thing, namely some kind of government program to more closely monitor and/or control the people.  The geniuses know that there is no downside in such programs, first because the programs have been designed by themselves, and second because government programs are administered by all-knowing and perfect government functionaries, who are people like us and can always be trusted to do the right thing.

So what is the reason given to phase out the use of cash?  It's that the government money laundering laws, introduced in 1970 and tightened multiple times since, just haven't succeeded like they were supposed to in wiping out all crime involving money.  Now we learn that it wasn't the "laundering" of the money that was allowing crime to flourish, but the very existence of money in the form of cash:

There is little debate among law-enforcement agencies that paper currency, especially large notes such as the U.S. $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism. . . .  Cash is also deeply implicated in tax evasion, which costs the federal government some $500 billion a year in revenue.

I have previously covered the subject of criminalizing money laundering in two posts, The Joke Of Criminalizing Money Laundering (June 2015) and The Joke Of Criminalizing Money Laundering -- Part II (April 2016).  The short version is that the money laundering laws -- principally the Bank Secrecy Act of 1970, and amendments to same in the USA PATRIOT Act of 2001 -- were supposed to stamp out crime involving large amounts of money through deputizing the banks to spy on their customers 24/7 behind their backs and thereby enabling the authorities to "follow the money" to track down the crooks.  Forty-six years in, at a cost of massive expense to financial institutions and equally massive loss of freedom and privacy to the people, the government hasn't made the slightest dent in the big-money crimes (the biggest of which are the illegal drug trade and illegal gambling).  Indeed, it seems that a brand new heroin epidemic is exploding right now beneath their very noses.  Meanwhile they regularly prosecute banks and other financial institutions for failing at the impossible task of figuring out which of their customers are crooks, and they periodically prosecute some poor slob who had the temerity to use cash in large amounts for an otherwise perfectly legal purpose without reporting it to them (famous example: Denny Hastert).  And they cynically use the cry of "terrorism" (see, e.g., Rogoff quote above) to justify continuing and expanding the money laundering laws, as if those laws could be of any use catching terrorists (whose activities involve relatively small amounts of money) when they are useless in catching big drug dealers (whose activities involve much larger amounts of money).

And of course the answer of the geniuses like Rogoff to total government failure is always the same: double down!  We can finally succeed in stamping out this financial crime thing if only we hand over to the government yet more massive new powers, here the ability to track and trace everything the people do 24/7, down to the the smallest transaction.  (OK, in the article Rogoff says he would be willing to allow the continued existence of bills of $10 and smaller.  Thanks, Ken!)  All behind their backs, of course.  

To anyone with the slightest understanding of human nature and incentives, the results of Rogoff's program are completely predictable.  The professional criminals involved in big-time financial crime will find a substitute for cash.  Maybe it's Bitcoin.  Maybe it's another crypto-currency.  Maybe it's some other currency than dollars.  Maybe it's gold.  Maybe it's existing dollar bills in circulation (which could gradually become more valuable as they become scarcer over time.)  Maybe it's all of the above.  The big-time crooks have the need and the time to find the substitute.  You do not.  So the government gains absolutely nothing against the big-time crooks, but gets the ability to track and trace everything the regular people do.

So is your thought, so what?  What do I have to worry about if the government gets my monthly credit and debit card statements?  I'm law abiding!  That's what you think.  There are said to be over 4000 federal crimes alone (nobody has an exact count!).  Criminal defense attorney Harvey Silverqlate has a book titled "Three Felonies a Day," the title reflecting the number of crimes you are likely committing on a regular basis without knowing it.  For a small sampling of crimes that you may be committing, see this article "8 Ways We Regularly Commit Felonies Without Realizing It."    

Government flunkies would never do something so evil as flyspecking the financial records of their political opponents to find something to prosecute, would they?  Really, you owe it to yourself to pay attention to this issue -- and to use cash everywhere you possibly can.

A Ray Of Hope On The State/Local Pension Front?

The good people at Maggie's Farm today post a link to an article from California's East Bay Times reporting on the latest court decision concerning legislative attempts to address the state and local pension crisis.  The court decision in question issued from the California Court of Appeals on August 17.  It concerns a California statute effective in 2013, and the efforts of the pension board of Marin County to implement that statute.

It's been a while since I posted on the issue of the state and local pension crisis.  This post from January 2014 has a good background.  But this crisis is so slow-moving that the word "crisis" itself is rather ill-fitting, and it's hard to maintain any sense of urgency about the subject.  Still, this is a gigantic problem.  The California Court of Appeals decision cites various sources that put the overall size of the problem (all states) in the range of $3 to 4 trillion -- and it could be even substantially higher if you use lower interest rates to measure the future obligations.  But it's unlikely that any state or local pension plans will actually run out of money and start bouncing checks until well into the 2020s.  Nevertheless, plenty of these plans are already so deep in the hole that there is no clear way out short of fundamental restructuring of the pension obligations -- and then, many state constitutions (not to mention the federal constitution's Contracts Clause) have provisions that many courts have interpreted to prohibit or severely constrain the fundamental restructuring of obligations.  So the problem just slowly worsens and worsens, and generations of politicians take the opportunity to punt and leave the situation to their successors. 

Two of the states in deepest trouble are Illinois and California.  In recent years Illinois passed two statutes to deal separately with the situations of the Illinois State and the Chicago pension plans.    In both instances, the Illinois legislature made the bold step of cutting already-accrued benefits of the workers, taking the position that it could do so under its emergency police powers given the direness of the situation.  In two opinions of the Illinois Supreme Court, one from May 2015 and the other from March of this year, that Court rather angrily struck down the legislature's efforts as contrary to the Illinois Constitution.  The Illinois Court took note of the fact that the legislative changes would modify not just future accruals, but also already-accrued benefits.  But its decisions did not turn on that distinction, and appear to stand for the proposition that an employee who joins the system and works for even one day has a constitutional entitlement (under the Illinois State Constitution) to have no reductions in his pension accruals of any kind throughout an entire 40 year working career.

So, into this breach now leaps the California Court of Appeals in its case of Marin Association of Public Employees v. Marin County Employees' Retirement Association, et al.  A major case from California is particularly noteworthy because, at least up until this time, California has been known for what has sometimes been referred to as the "California rule" of state pension obligations, which is that, even in the absence of any state constitutional protection, any government employee who works for even one day as part of a pension plan can never have his ongoing pension accruals cut in any respect, no matter how trivial.  I'm not sure that that is an accurate statement of the pre-existing California case law, but certainly many advocates have taken the position that that is what the California cases have stood for.  

This new case arises in the context of a statute designed to address issues arising from what was perceived as abusive employee pension "spiking."  It seems that the pensions in question were calculated based on so-called "final average pay," and the employees would maneuver to get various things, otherwise not normally a part of pay, paid to them in cash in their final years in order to get those things included in the pension calculation and drive up the pension amount.  Examples mentioned in the opinion included unused sick days, unused vacation days, and payments for waiving health insurance.  The statute passed by the California legislature allowed pension boards to modify the definition of a term called "compensation earnable" in the pension formula to do away with these perceived abuses, in the process lowering the "final average pay," and thereby lowering the pensions that would be payable to employees who were planning to take advantage of the spiking games.  

So, is this OK or no?  It would not pass the test of the "California rule" as I articulated it above.  But this court parses the pre-existing California law at great length, and comes to a very different result.  The court expresses its holding through quotes from prior California Supreme Court cases, most notably this one:

[A] public pension system is subject to the implied qualification that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.

On that basis it upholds the actions of the Marin pension board.  Note that the modification to the definition was not prospective-only, so this opinion would give the legislature flexibility -- within very vaguely-defined boundaries -- to make changes even to already-accrued benefits.

Needless to say, the case is on the way to the California Supreme Court.  That court can of course do what it wants with this subject, and is certainly not bound by the decision of the Court of Appeals, let alone by its own prior decisions.  

Meanwhile, back in New York, nobody has had the guts to take on these issues yet.  As I pointed out in this post from January 2014, we have two old cases from our Court of Appeals, one from 1958 and the other from 1972, that would appear to hold that any changes to pension accruals that are adverse to a public employee, even one who has only worked for one day, violate a provision of our state constitution.  The 1972 opinion actually specifically addresses an attempt to change the way unused vacation days are counted in final average pay.  Sooner or later these issues will have to be addressed, but meanwhile we have the benefit -- or maybe it's the curse -- of having funded our pension plans much more honestly than places like California and Illinois (and New Jersey and Connecticut).  That just means that the crisis will hit later, not that we can avoid it forever.