Federalism, Free Markets, and Free Speech

2not even-handed justiceThe Supreme Court decision in Citizens United v. FEC strikes down as unconstitutional a federal law that prohibits corporations and unions from using general treasury funds to make independent expenditures that expressly advocate the election or defeat of candidates for office.  The majority opinion, written by Justice Kennedy, ignores hundreds of years of Supreme Court history in interpreting the subjects of federalism, free markets, and free speech.  In its place, Justice Kennedy presents a textualist interpretation of the First Amendment that is divorced from any history or context.  Justice Kennedy engages in the sort of “faux originalism” (syn. “fake,” “artificial,” “false”) that has been criticized by Judge Richard Posner.  Kennedy places a historical glaze on his own personal values and policy preferences, and calls the result the “original understanding” of the First Amendment.

As such, Citizens United v. FEC stands with District of Columbia v. Heller, the Second Amendment case decided in 2008, as an example of the Justices slapping the “originalist” label on a profoundly un-originalist interpretation of the Bill of Rights.  It is appropriate to view the two cases together.  Both are exercises in raw political power employed in order to accomplish conservative objectives.  Both ignore hundreds of years of understanding about the meaning of the relevant constitutional provisions, in favor of a meaning derived by taking the words of the Amendment out of context.  And both embrace interpretations of the constitutional Amendment at issue that are inconsistent with the meaning ascribed to that same language by the intellectual father of originalism, Robert Bork.  In the same way that modern scholars deride the “Lochner era” as a misguided period in American Constitutional Law, I believe that future scholars and judges will recognize and reject the intellectual dishonesty of the “Heller era.”

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The Second Law of Thermodynamics and “Say on Pay”

sharris-deptofentropyIn one of his characteristically thoughtful blog postings (available here), Ed Fallone argues that market regulation follows the Second Law of Thermodynamics, which states (to paraphrase) that in any closed system, disorder will reign over time.  Ed argues that this principle holds true for federal securities regulation, where technological and market changes have made the comprehensive statutory scheme of market regulation obsolete.  With respect to non-financial institutions, he proposes (consistent with the Obama administration’s proposal) replacing our current scheme of detailed disclosure rules with regulation that focuses on the consumer (the investor), and the consumer’s need for multiple products to choose from as well as information to make product comparisons.

It does seem to make sense to consider the needs of investors in creating legislation aimed at protecting investors.  But in my view, any new regulatory scheme aimed at protecting investors should leave to the states the regulation over business organizations’ internal affairs.

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Contract Rights Under Assault

Barack_Obama_pledges_help_for_small_businesses_3-16-09In 1789, as the inchoate American government was climbing out of the mountainous debt left over from the Revolutionary War, a thorny political problem emerged.  While most of the chattering class was consumed with the debate over whether the states’ war debt should be federalized, another far more visceral controversy arose.  Because the Continental Congress lacked funds during the war, the Revolution was funded partly by wealthy private citizens who invested in bonds.  As a result of the lack of governmental money, many American soldiers were given worthless IOUs at the end of the war, as states scampered for a way to give the patriots their back pay.  Many of these soldiers panicked, and sold their IOUs to speculators for as little as fifteen cents on the dollar.  The problem was, once the federal government began repaying the debt, the value of the bonds soared.  So who should get the money: the patriots who fought bravely for their country and only sold the IOUs because of fear they would get nothing from their government, or the speculators?

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