Recent losses at JP Morgan, and Jamie Dimon’s position on the board of the New York Federal Reserve Bank, have renewed debates as to who should be eligible to sit on the boards of the twelve regional Federal Reserve Banks. In yesterday’s on-line New York Times, Simon Johnson raises additional, and important, questions as to the appropriateness of Dimon’s presence on the NY Fed’s board.

Senator Bernie Sanders (I‑VT) has also introduced a bill, S. 3219, that would remove bankers from the regional Fed boards. Representative Barney Frank (D‑MA) would go as far as removing the regional bank presidents from the Federal Open Market Committee (FOMC)—although I suspect this has more to do with wanting inflation than anything else. Frank has even proposed replacing those members with additional members appointed by the president of the United States, as if the current Fed is not already too aligned with the White House.

Rep. Frank has called his proposal to pack the Fed with White House loyalists “increased democratization” of the Fed. Frank is, of course, correct to say that regional Fed presidents who sit on the FOMC “… are not subject to a confirmation process by elected officials, and instead are chosen by regional Federal Reserve Bank directors who effectively are appointed by large commercial banks in each region.” [Emphasis in original.]

Here’s my modest proposal to “increase democratization” at the Fed, but to do so in a manner that actually gives more voice to the American public: have the governors of states within the various Fed regions appoint some, or even all, of the board members of the regional Feds. In districts, such a Philadelphia or Cleveland, the governors could appoint multiple members, with over-lapping terms, so that board would have a reasonable minimum size.

To truly increase the “democratization” of the Fed, we should also remove the various vetoes that the DC-based Federal Reserve Board has over regional Fed Bank governance. For instance, Section 4–4 of the Federal Reserve Act requires approval of the DC board of regional bank president appointments. That allows the Fed to reject anyone who might challenge the status quo. Under any circumstances, having the Fed Board appoint a third of the directors (class C) of the regional banks is also problematic. Rather then represent Washington’s interests, all regional directors should be either appointed or elected within the region, and without the need for Washington’s approval.

These modest changes could improve the accountability of the Fed, helping the break the dominance of the current Cambridge-Wall Street-Washington group-think that has so badly undermined the Fed. Of course none of this should deter us from exploring alternatives to the Fed.

Supporters of the Obama health law are incorrectly reading the Supreme Court’s ruling as a victory.

First, the ruling severely limited the Obama health law’s Medicaid expansion, effectively giving states the green light to refuse to expand their Medicaid programs. Coupled with the fact that the statute already enables states to block the other half-trillion dollars of new entitlement spending, the law is in a very precarious position.

Second, the Court ruled 5–4 that the individual mandate is not a legitimate use of the Commerce Power. That too is a defeat for the government, even if it is of no immediate consequence.

Third, while the Court upheld the individual mandate as a tax, that ruling may be vulnerable to legal challenge.

Chief Justice Roberts wrote, “The Federal Government ‘is acknowledged by all to be one of enumerated powers,’ ” and, “The Constitution’s express conferral of some powersmakes clear that it does not grant others.” So it is interesting that Roberts did not specify exactly what type of constitutionally authorized tax the mandate is.

As Cato chairman Bob Levy wrote in 2011, that’s not an easy thing to do:

Assume, however, the Supreme Court ultimately disagrees and finds that the penalty for not purchasing health insurance is indeed a tax. Nevertheless, say opponents of PPACA, the tax would be unconstitutional. They underscore that taxes are of three types—income, excise, or direct. Each type must meet specified constitutional constraints. Because the mandate penalty under PPACA does not satisfy any of the constraints, it is not a valid tax.

Income taxes, authorized by the Sixteenth Amendment, must (by definition) be triggered by income. Yet the mandate penalty is triggered by the nonpurchase of insurance. Except for an exemption available to low-income families, the amount of the penalty depends on age, family size, geographic location, and smoking status. So the penalty is not an income tax.

Excise taxes are assessed on selected transactions. Because the penalty arises from a nontransaction, perhaps it qualifies as a reverse excise tax. If so, it has to be uniform across the country (U.S. Const., Art. I, sec. 8). But the penalty varies by location, so it cannot be a constitutional excise tax.

Direct taxes are assessed on persons or their property. Because the penalty is imposed on nonownership of property, perhaps it could be classified as a reverse direct tax. But direct taxes must be apportioned among the states by population (U.S. Const., Art. I, sec. 2). The mandate penalty is assessed on individuals without regard to any state’s population. Hence, it is not a lawful direct tax.

On the last point, Roberts agreed: “A tax on going without health insurance does not fall within any recognized category of direct tax.” But then what kind of constitutionally authorized tax is it?

The dissent suggests the Court has given this issue scant attention:

Finally, we must observe that rewriting [the mandate] as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps it is not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression that deserves more thoughtful consideration than the lick-and-a-promise accorded by the Government and its supporters. The Government’s opening brief did not even address the question—perhaps because, until today, no federal court has accepted the implausible argument that [the mandate] is an exercise of the tax power. And once respondents raised the issue, the Government devoted a mere 21 lines of its reply brief to the issue…At oral argument, the most prolonged statement about the issue was just over 50 words…One would expect this Court to demand more than fly-by-night briefing and argument before deciding a difficult constitutional question of first impression.

There is even less discussion about what type of constitutionally authorized tax the mandate is.

I’m not a lawyer. But it seems to me there may be room here for the same individual citizens who brought this case to again file suit against the federal government for trying to impose an unconstitutional tax. It may seem unlikely that Roberts would reverse himself on the Tax Power issue. Then again, since he never specified what type of constitutionally permissible tax the mandate is, perhaps voting to strike the mandate would not be reversing himself.

Overriding a veto from Gov. John Lynch, the New Hampshire legislature on June 27 enacted SB 406, establishing the nation’s first “early offer” system for medical malpractice claims. The law establishes incentives for defendants to make offers early in the litigation process that cover plaintiff’s economic losses such as medical bills and lost wages. The early-offer process is at claimants’ option only; claimants are free not to request such an offer. [Kevin Pho; supportive website; trial lawyers’ opposition website]

Importantly, the new procedure also contains pioneering elements of loser-pays in both directions. If a claimant chooses to accept a defendant’s early offer of economic-loss expenses, the defendant will pay an additional sum to reflect a scheduled assessment of pain and suffering, plus the reasonable costs of attorney representation. However, if the claimant invokes the early-offer process but then turns down the offer as inadequate, there is a real risk of a fee shift in the opposite direction:

XII. A claimant who rejects an early offer and who does not prevail in an action for medical injury against the medical care provider by being awarded at least 125 percent of the early offer amount, shall be responsible for paying the medical care provider’s reasonable attorney’s fees and costs incurred in the proceedings under this chapter. The claimant shall certify to the court that bond or other suitable security for payment of the medical care provider’s reasonable attorney’s fees and costs has been posted before the court shall consider the case.

At TortsProf, Christopher Robinette explains in some detail (contrary to an error-filled screed in a Litigation Lobby outlet) why this adds up to a generally good deal for claimants (who, of course, are free not to trigger the process if they disagree) as well as making the system fairer. “Early-offer” proposals have been championed over the years by Jeffrey O’Connell, the distinguished University of Virginia torts scholar, and by Philip K. Howard of Common Good, among others. More on loser-pays here.

[cross-posted from Overlawyered]

[Research assistance: Cato Institute intern Byron Crowe]

America’s political elite is nauseating for many reasons, but perhaps most of all when they blame others for problems that are caused by misguided government policies. A stark example is the way they attacked the Facebook billionaire who moved to Singapore because of punitive taxation and class-warfare policy.

Today, let’s look at an example that affects almost everybody rather than just a handful of rich people. Many people in Washington sanctimoniously say that American households and businesses are too focused on the short term and that we don’t save enough.

But as I explain in this CBNC interview, tax and spending policies from Washington have undermined the incentive to save.

Allow me to elaborate on three of my examples.

1. Look at this post comparing the red ink from America’s bankrupt Social Security system with the huge levels of private savings generated by Australia’s system of personal retirement accounts.

Good politicians would respond by copying Australia and reforming Social Security. But good politicians are like unicorns.

2. Or look at this chart showing the extensive double taxation in our tax code, as well as these international comparisons of how America over-taxes dividends and capital gains.

Good politicians would respond by junking the tax code and adopting a flat tax, which has no double taxation of income that is saved and invested. But good politicians are like the Loch Ness Monster.

3. And consider the fact that the Obama Administration has just imposed a regulation that will discourage foreigners from depositing money in American banks, thus driving capital from the U.S. economy.

Good politicians would minimize the damage of anti-savings policies by keeping America a haven for foreign capital. But good politicians are like Bigfoot.

The moral of the story, just in case you haven’t picked up on the theme, is that bad things happen because politicians can’t resist expanding the burden of government when they should be doing the opposite. Which is why this poster is funny, but in a painful way.

P.S. I should have mentioned that some politicians think that we can boost savings by imposing a value-added tax! This is not only a perverse example of Mitchell’s law, but it’s also completely illogical.

A VAT does not change the incentive to save since current consumption and future consumption are equally taxed. But it does reduce the amount of money people have, thus reducing both private consumption and private savings.

Statists would argue that a new tax will reduce the budget deficit and thus reduce the amount of private savings that is being used to finance government debt. That’s only true, though, if you’re naive enough to think politicians won’t spend the new revenue. Good luck with that.

That’s the title of my latest op-ed on the ObamaCare ruling. Here’s an excerpt:

The Supreme Court’s health-care ruling displayed an unfortunate convergence of two unholy strains of constitutional jurisprudence: liberal activism and conservative pacifism.

Liberal activism, typified by the four Democratic-appointed justices, finds in the Constitution no judicially administrable limits on federal power. Conservative pacifism, a knee-jerk reaction to the liberal activism of the 1960s and ’70s, argues that we must defer to Congress as much as possible, presuming its legislation to be constitutional.

Neither approach considers that the Constitution’s structural provisions — federalism, separation and enumeration of powers, checks and balances — aren’t just a dry exercise in political theory, but a means to protect individual liberty against the concentrated power of popular majorities.

Read the whole thing.

After having my brain twisted into a pretzel reading yesterday’s ObamaCare decision, I was as disturbed as anyone. I mean, I had spent most of my life thinking I knew the difference between a “penalty” and a “tax,” and it turns out I was just fooling myself. Not to get too existentialist about this, but it has really made me question whether anything I think is real truly is.

Anyway, I eventually discovered what might be a small silver lining in the ruling, at least for education: the Medicaid section might have begun to place some, very nebulous, boundary on the ability of the federal government to bribe states into adopting federal rules. That has been the primary mode by which Washington has taken over elementary and secondary education—think No Child Left Behind, Race to the Top, No Child Left Behind waivers—and this ruling says there is a constitutional limit to what the federal government can do to coerce state action though spending.

Essentially, whether or not Spending Clause coercion is unconstitutional depends on whether it constitutes “undue influence” on states. For Chief Justice Roberts, that line was crossed when the Feds changed the rules for Medicaid and threatened states with the loss of all their funding if they didn’t follow the new strictures.

Obviously this doesn’t give us anything approaching a bright line on the limits to Spending Clause use. Such a limit surely can be found—no spending is allowed not connected to one of the specific, enumerated powers given to Washington by the Constitution—but Roberts writes that “Congress can use [Spending Clause] power to implement federal policy it could not impose directly under the enumerated powers.”

So why bother with enumerated powers? Got me…

Addressing education directly, the conservative justices noted that compared to Medicaid, federal education funding is a relatively small share of total spending, casting doubt on how applicable the ruling might be. In contrast, it was very gratifying to see those justices make a point I’ve made repeatedly, especially when discussing the absurd assertion that adopting national curriculum standards has been voluntary. Even if adoption were technically voluntary for states, taxpayers in those states have had no choice about paying the taxes that fund multi-billion-dollar carrots such as Race to the Top. Indeed, the conservatives write, were a state to fail to meet conditions attached to Spending Clause bucks, not only would it lose access to federal funds, it would likely have to raise its own taxes to make up for the shortfall, taxes that “would come on top of federal taxes already paid by the State’s citizens” for the spurned federal program.

The teensy bit of good news out of this ruling is that there is some limit to how coercive Washington can be under the Spending Clause, the clause that has been the linchpin of federal education policy. Unfortunately, the new problem is that were the Spending Clause avenue eventually cut off, Congress could probably just threaten the residents of recalcitrant states with some sort of financial penalty…er…tax. I mean, penalty…

Oh, my existentialist crisis!

The Cato Institute’s Roger Pilon, Ilya Shapiro, Michael F. Cannon, Michael D. Tanner and Trevor Burrus evaluate today’s Supreme Court ruling on the Affordable Care Act.