ProfessorBainbridge.com

Free Exchange on Al Gore's Carbon Offsets and Papal Indulgences

One of The Economist.com's bloggers opines:

THE meme starting the rounds of the conservative half off the blogosphere?ironically, one ripped off from the far left?is that Al Gore's carbon offsets are the equivalent of papal indulgences.

That doesn't strike me as a particularly compelling argument.  Assuming that indulgences actually worked, which seems very unlikely, poor people unable to afford them ended up burning in hell for eternity.  On the other hand, poor people unable to purchase carbon offsets end up . . . using just as much electricity as they would otherwise. ...

Before deciding The Economist decides whether a particular theological principle actually works or not, it might be helpful if they understood the principle. The Catholic Encyclopedia explains:

... an indulgence is a remission of the temporal punishment due to sin, the guilt of which has been forgiven.

To facilitate explanation, it may be well to state what an indulgence is not. It is not a permission to commit sin, nor a pardon of future sin .... Least of all is an indulgence the purchase of a pardon which secures the buyer's salvation or releases the soul of another from Purgatory.

What do we learn from this? First, poor people never faced the choice between buying an indulgence and "burning in hell for eternity." The sacrament of reconciliation was always available at no cost. (Granted, during the pre-Reformation period when the abuse of indulgences was at its worst, some of those hawking indulgences made outrageous claims to the contrary, but these falsehoods were never doctrine.) Second, persons granted an indulgence were not receiving an exemption from "burning in hell for eternity," as the grant of an indulgence presupposes "that the sin has already been forgiven." (Ditto.) Instead, an indulgence simply relieves the recipient of temporal punishment for sin, which otherwise "must be fulfilled either in the present life or in the world to come, i.e., in Purgatory." For example, an indulgence may obviate the need for acts of penance.

Finally, although the sale of indulgences famously was one of the abuses triggering the Reformation, it should be noted that modern Catholic theology emphasizes indulgences obtained through acts of devotion. For example, a plenary indulgence is granted to those who recite the Rosary in a church or a family group.

Having said all that, however, I agree with The Economist.com's anonymous blogger that indulgences make a lousy analogy for carbon offsets.

The Law Review Submission Mess

One of my colleagues reports:

I just went through the process of submitting an article to the law reviews, and can tell you that you are in for some nasty surprises.

Expresso will work reasonably well for the law reviews who accept it. But the elite law reviews have established their own websites and each imposed their own requirements. Those requirements are often inconsistent with the requirements of others. These are the most troublesome problems:

1. Some will take nothing but a Microsoft Word document.
2. Some require cover letters, abstracts, and resumes and they must be submitted separately. Others will accept those documents only if you combine them with other documents. Combining documents in Word is a very tricky operation, because styles bleed from one document to the next.
3. Yale and Stanford do blind review. They say they will redact your article if you don't, but threaten substantial delays.
4. One requires double spacing.
5. Harvard and Yale "recommend" submitting to them 10-14 days before submitting to others, under threat that otherwise they will not complete your expedited review in time.
6. Everyone seems to have word limits, absolute or preferred. But the limits range all the way from 25,000 to 37,000.
7. Texas wants hard copy.

The law reviews have made a hash of the manuscript submission process, which once more raises the question of why legal scholarship remains dependent on the whims of twenty-something second and third year law students. Personally, I plan to stick to books and symposia articles until the law reviews get together and coordinate their requirements.

Private School Pinkos

I used to think that universities were the last bastion of Marxism. It turns out, however, that there's at least one elementary school in Washington where Marxists still hold sway.

Recall that Marx taught that "The theory of the Communists may be summed up in the single sentence: Abolition of private property." At the Hilltop Children's Center in Seattle:

... the students had been building an elaborate "Legotown," but it was accidentally demolished. The teachers decided its destruction was an opportunity to explore "the inequities of private ownership." According to the teachers, "Our intention was to promote a contrasting set of values: collectivity, collaboration, resource-sharing, and full democratic participation."

The children were allegedly incorporating into Legotown "their assumptions about ownership and the social power it conveys." These assumptions "mirrored those of a class-based, capitalist society -- a society that we teachers believe to be unjust and oppressive."

One is reminded of Thomas Sowell's quip that "Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.”

At least it's a private school, where the teachers presumably are being paid by parents rather than taxpayers. Given the school's whopping rates of up to $1200/month, of course, the parents must have pretty good capitalist jobs.

Still, I feel for sorry for these kids. Somebody needs to tell them what Winston Churchill said:

Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.

Workaholic Lawyers

I've occasionally blogged about the ever-increasing workload of top lawyers, much of which is self-imposed. But this is ridiculous:

According to this WaPo story, Libby defense lawyer Alexandra Walsh of Baker Botts gave birth to her third child last Friday. One of Washingtonian magazine’s 2006 “40 Top Lawyers Under 40,” Walsh was reportedly BlackBerrying about work matters a little more than an hour after giving birth.

An Executive Perk After My Own Heart

From Footnoted.org:

... let?s lift our glasses to the executives at UST (UST), who in the proxy they filed yesterday, disclosed a very interesting perk: a wine allowance!

Though the amounts aren?t all that significant ? the top dollar is $6,500 for Chairman and CEO Vincent Gierer and that seems to also include the cost of security services, no doubt to protect the wine cellar stocked with $8.99 bottles of Columbia Crest Merlot ? it?s the idea of a wine allowance that seems a bit amusing. And the wording, which says the wine allowance is ?to foster the use of the company?s wine products at events they host? seems interesting as well. Wouldn?t executives want to do this anyway? Keep in mind that Gierer?s total compensation last year was over $6 million, so presumably he can afford to buy wine without an allowance. UST executives aren?t the only ones drinking up. Non-employee directors also get a $5K ?wine allowance? as well.

UST owns Ste. Michelle Wine Estates, which "annually sells nearly 31 million bottles produced in Washington state and California under the Chateau Ste. Michelle, Columbia Crest, Snoqualmie, Red Diamond, Northstar, Villa Mt. Eden and Conn Creek labels, while also producing one of the nation's best-selling super-premium sparkling wines, Domaine St. Michelle."

UST also owns the U.S. Smokeless Tobacco Company, which "is the leading producer and marketer of the only growing segment of the U.S. tobacco industry, moist smokeless tobacco. The company's leading brands, Copenhagen and Skoal, each represent over $1 billion at retail." Curiously, it appears that UST's executives do not get an allowance for smokeless tobacco. Enquiring minds wonder why.

Al Gore's Carbon Footprint

One of the Economist's anonymous bloggers (probably Megan McArdle, but she wouldn't be allowed to confirm or deny it) takes a serious look at the kerfuffle over Al Gore's enormous electricty bill, concluding:

Huge numbers of people in the rich world have to fly less, drive less, consume less, and live in smaller houses.  If Mr Gore really wants to encourage this (as I do), then he should try leading by example.

Economist Tyler Cowen agrees that the carbon offsets Gore endorses (and uses to justify his own energy expenditures) don't work.

Activist Shareholders Push for a Say on Executive Pay

Today's W$J reports:

... activist investors have submitted shareholder proposals at roughly 60 companies seeking an advisory vote on executive pay, according to Institutional Shareholder Services. Targets include Citigroup Inc., Wells Fargo & Co., WellPoint Inc. and Northrop Grumman Corp.

The vote would be nonbinding, but activists hope that public censure, or the threat of it, would prompt directors to curb outsized awards and better link pay with performance.

It's hard for me to think of a worse idea for changing corporate governance. In the first place, as I detail in my article The Case for Limited Shareholder Voting Rights:

[Most] shareholders lack incentives to gather the information necessary to actively participate in decision making. A rational shareholder will expend the effort necessary to make informed decisions only if the expected benefits of doing so outweigh its costs. Given the length and complexity of corporate disclosure documents, the opportunity cost entailed in making informed decisions is both high and apparent. In contrast, the expected benefits of becoming informed are quite low, as most shareholders’ holdings are too small to have significant effect on the vote’s outcome. As we saw in Part I, corporate shareholders thus are rationally apathetic.

Who then are these "activist shareholders" and what do they want? Tellingly, most of the activists are union pension funds, state and local government employee pension funds, and various corporate social responsibility investment funds. So now we turn to my article, Shareholder Activism and Institutional Investors, in which I wrote that:

... these are precisely the institutions most likely to use their position to self-deal—i.e., to take a non-pro rata share of the firms assets and earnings—or to otherwise reap private benefits not shared with other investors. With respect to union and public pension fund sponsorship of shareholder proposals under existing law, Roberta Romano observes that:

It is quite probable that private benefits accrue to some investors from sponsoring at least some shareholder proposals. The disparity in identity of sponsors—the predominance of public and union funds, which, in contrast to private sector funds, are not in competition for investor dollars—is strongly suggestive of their presence. Examples of potential benefits which would be disproportionately of interest to proposal sponsors are progress on labor rights desired by union fund managers and enhanced political reputations for public pension fund managers, as well as advancements in personal employment. … Because such career concerns—enhancement of political reputations or subsequent employment opportunities—do not provide a commensurate benefit to private fund managers, we do not find them engaging in investor activism.

This is not just academic speculation. The pension fund of the union representing Safeway workers, for example, used its position as a Safeway shareholder in an attempt to oust directors who had stood up to the union in collective bargaining negotiations. Nor is this an isolated example. Union pension funds tried to remove directors or top managers, or otherwise affect corporate policy, at over 200 corporations in 2004 alone. Union pension funds reportedly have also tried shareholder proposals to obtain employee benefits they couldn’t get through bargaining.

Public employee pension funds are even more vulnerable to being used as a vehicle for advancing political/social goals unrelated to shareholder interests generally. Recent activism by CalPERS, for example, reportedly is being “fueled partly by the political ambitions of Phil Angelides, California’s state treasurer and a CalPERS board member, who is considering running for governor of California in 2006.” In other words, Angelides allegedly used the retirement savings of California’s public employees to further his own political ends.

In sum, we have here an "advisory" vote being sought by folks whose motives are inherently suspect. What private benefit do the activists seek? Class warfare? The ability to harass executives at companies subject to  collective bargaining? The possibilities are endless.

One thing seems reasonably certain, however, which is that these proposals have very little to do with good governance.

Assisted Suicide in California: Would Catholic Hospitals and Nursing Homes Have to Participate?

First Things blogger and Discovery Institute fellow Wesley Smith reports:

If the new bill to legalize assisted suicide in California (A.B. 374) becomes law, Catholic nursing homes will be legally required to permit assisted suicide to be committed within their premises, even though doing so would be a profound violation of Catholic moral teaching. In-patient hospice facilities would be similarly coerced, despite assisted suicide being a direct affront to the hospice philosophy and the medical standards under which programs operate. Other California medical facilities and group homes could also be forced to comply. Only acute-care hospitals escape the proposed tyrannical duty to cooperate in ending patients’ lives.

Smith then launches into a convoluted reading of AB 374 to justify his interpretation. In doing so, however, Smith overlooks a key provision of the proposed legislation, which states in Section 7198 (d):

No health care provider shall be under any duty, whether by contract, by statute, or by any other legal requirement to participate in the provision to a qualified patient of medication.

The phrase "provision to a qualified patient of medication" is the bill's euphemism for assisted suicide. The phrase "health care provider" any "licensed health care facility." On its face, this section would allow a Catholic nursing home to refuse to participate in an assisted suicide.

There are legitimate arguments to be made against assisted suicide. Unfounded scare tactics like this one, however, discredit the entire pro-life movement.

While I don't buy Smith's reading of the statute, there is one wrinkle in AB 374 that is potentially troubling. Section 7198 (b) states:

No professional organization or association, or heath care provider, may subject a person to censure, discipline, suspension, loss of license, loss of privileges, loss of membership, or other penalty for participating or refusing to participate in good faith compliance with this chapter.

Arguably, this provision could undermine the exemption provided by 7198 (d). Suppose a Catholic nursing home or hospice adopted an institutional policy against providing assisted suicide. An employee of that nursing home violated the policy and assisted in a patient's suicide. On its face, subsection (b) appears to prohibit the nursing home from imposing any penalty on such an employee. As such, the exemption provided by subsection (d) is rendered nugatory.

If it is to be adopted at all, an issue on which I am not currently expressing an opinion, AB 374 should be amended to include (1) a clear exemption for religiously affiliated health care providers and (2) allow religiously affiliated health care providers to sanction employees who violate an institutional policy against participating in assisted suicide.

The principal sponsors of AB 374 are Patty Berg, Lloyd Levine, and Fabian Nunez. I've sent them each a copy of this blog post, FWIW.

W$J on RomneyCare

If competence is supposed to be a big part of the case for Mitt Romney's 2008 presidential bid, an op-ed by Sally Pipes in today's W$J calls into serious question a centerpiece of that argument:

When then-Gov. Mitt Romney, a Republican, introduced a universal health-insurance plan in the Bay State early last year, it was widely acclaimed. But less than a year after passage, RomneyCare is in the intensive care unit, soon to be wheeled into hospice.

The first signs of trouble appeared last August. In a filing to support general obligation bonds, officials projected that the new plan would increase state government health-care spending by $276.4 million in 2007. That's $151 million more than what the public had been told the plan would cost. Meanwhile, the state's new bureaucracy, busily signing up people for free care, has run into trouble finding affordable plans for those who have to pay. The premiums for subsidized plans would consume up to 6% of a person's income -- prompting calls from activists and echoes from politicians that they should be exempted from the individual mandate. So much for universal coverage.

Which leads us to wonder: which direction will Romney flip now?

Suze Orman's Bad Advice

After financial guru Suze Orman's recent interview with the NYT Magazine, most of the news media and blogosphere focused on Orman's announcement that she's a 55 year old virgin lesbian. In contrast, Larry Robstein no tices something important:

... here's what Suze Orman, "one of the most widely read financial gurus of our time," does with 96% of her estimated 25 million in liquid net worth:

Save it and build it in municipal bonds. I buy zero-coupon municipal bonds, and all the bonds I buy are triple-A-rated and insured so that even if the city goes under, I get my money. I take a little lower interest rate to make sure my bonds are 100 percent safe and sound.

Oy. Is this the message America's investors are getting ? that they should strive for zero risk (not that Suze has zero risk unless you assume interest rates are stable forever), and that they get this from insuring individual securities rather than from diversification?

It should go without saying, of course, that Suze's sexuality is irrelevant to assessing her merits as a financial guru. In contrast, her incredibly risk averse attitude towards investing calls those merits into serious question. To be sure, Will Rogers famously quipped that "it's not the return on my money I care about it, it's the return of my money." But Rogers was a humorist, not a financial advisor.

For most people, the sort of very low risk investments Orman uses would be wildly inappropriate. You'd never generate the sort of returns you need to grow a retirement nest egg or college fund. Heck, you might not even keep up with inflation.

Update: It would seem Orman's not alone:

Investors with more than $5 million want guaranteed returns. They consider themselves conservative or moderately conservative when it comes to investment risk tolerance and they are most fearful of venture capital, hedge funds, private equity, limited partnerships and international investments -- in that order.

If you want a more balanced perspective than Orman's, I recommend:

Alban Vineyards Reva Syrah (Edna Valley) 2004

A big wine, with tons of forward fruit on both the nose and palate, and long legs. Blackberries, grilled game meat, and black pepper. It likely would reward cellaring, but is so much fun to drink now. Try it with rich preparations of duck, venison, or lamb. Grade: A-/A

Snark Hunt

• Mrs. Clinton is like the little girl who steals the boy next door's candy and hits him on the head with a hammer. He runs, "Mommy, she stole my Snickers and hit me on the head!" She turns to the mother, hammer in hand, and gestures at the boy. "This...is the politics of personal destruction." -- Peggy Noonan
• ... one more reason to hate Barbra Streisand: she hates dogs. -- The Economist
• Lost ... has jumped the shark.  Almost everything that was good about it has been replaced by everything that?s now bad about it. -- Sasha Stone

I think I'll Stick to my Day Job

I occasionally daydream about writing The Great American Fantasy Novel. After reading John Scalzi's post The Money Entry 2007: Science Fiction Income, however, I think I'll stick to writing books about law. Well, at least during the day time.

Expressive Conduct: First Amendment Rights for Foie Gras Sellers?

When the First Amendment prohibited Congressional interference with free speech and the 14th Amendment extended that prohibition to the states, the question was bound to arise as to precisely what the Founders meant by "speech." Over the years, courts have made clear that "speech" includes writings. Some forms of expressive conduct have been worthy of constitutional protection. On balance, that has to be right. As my colleague and friend Eugene Volokh has written:

My view is that burning a flag, like waving a flag, is a conventionally understood form of communication, and both should thus be treated as "speech" no less than, say, handwritten materials (which are literally neither "speech" nor "press"), elephant or donkey pins worn around campaign season, paintings that have no words, and the like.

Two recent news items got me thinking about this issue. First:

[New York] city's 80-year-old cabaret law banning dancing by patrons in ordinary bars and restaurants is legal, the state Supreme Court's Appellate Division ruled Thursday. The Gotham West Coast Swing Club and several people had sued, saying the law violated their constitutional right to free expression. But the appeals court backed the law, which was enacted in the Prohibition era to crack down on speakeasies. "Recreational dancing is not a form of expression protected by the federal or state constitutions," the court wrote.

But, according to the plurality of the SCOTUS in Barnes v. Glen Theatre, Inc., “nude dancing of the kind sought to be performed here is expressive conduct within the outer perimeters of the First Amendment, though we view it as only marginally so.” What's the difference? Would the Gotham West Coast Swing Club have won if they claimed they were "swingers" who danced nude as an expression of their sexuality?

Second:

Hot Doug’s is in hot water with the city. The Northwest Side hot dog joint, known as much for its thuringer as it is for specials like gyros sausage with creme fraiche tzatziki, is the first restaurant in Chicago slapped with a $250 ticket for offering — in sausage form — the outlawed delicacy, foie gras.  ... Even after the ordinance took effect in August, Sohn continued serving it occasionally, and about 6 a.m. Friday, he posted the day’s specials on his restaurant’s Web site, including “Foie Gras and Sauternes Duck Sausage with Truffle Sauce Moutarde and Armagnac-Truffle Chicken Mousse” for $6.50.

A representative of the Health Department showed up at the restaurant, 3324 N. California, before he even opened his doors at 10:30 a.m., Sohn said.

Here we have conduct that is clearly expressive. Indeed, it is an explicitly political message being sent; namely, that the foie gras ordinance is dumb. I thought political speech was supposed to be at the core of the First Amendment. To be sure, there's the problem that you could turn any regulatory violation into a First Amendment issue by claiming you broke the rule as a protest, but still ....

So the First Amendment protects flag burning and stripping but not swing dancing or selling foie gras? Am I the only one who finds that a little odd?

DeLong Tries Again

Brad DeLong recently posted "an off-the-cuff list of ten "constitutional moments" when American judges had changed the law. Fourth on his list is: The post-Civil War empowering of corporations with exorbitant privileges of citizenship and limited liability at the expense of government regulators and creditors." I pointed out that DeLong was wrong on two scores. First, limitied liability was created by statute not judicial action. Second, the post-Civil War cases in which the Supreme Court held that the corporation is a legal person for purposes of certain Constitutional purposes followed from the legislative history of the 14th Amendment.

In a sarcastic post DeLong takes issue with my second argument. Accordingly, I take it he concedes that he was wrong about limited liability, although he seemingly can't quite bring himself to admit it. Hence, I left this comment on his site:

So you concede you're wrong about limited liability?

Deleting this comment will be taken as an implied admission.

The second line admittedly is a little snarky, but as one of the commenters to my first post remarked:

I think elementary fairness requires that you not allow Brad DeLong to post here, since he doesn't allow critical comments on his own website. Just delete his comments.

And if you see him, tell him that his bad behavior is the reason I stopped donating to my alma mater.

Hence, a preemptive strike.

Turning to the merits, when you push through all the sarcasm, what are DeLong's substantive arguments? DeLong complains that I rely on the legislative history of the 14th Amendment. It's an odd jurisprudence that says one should must either rely solely on the plain text or open the floodgates to policy arguments, however, which seems to be the gist of his position.

Next, DeLong relies on a dissent by Justices Black and Douglas. Black and Douglas claimed that "There was no history, logic, or reason given to support" the view that "a corporation is a 'person' within the meaning of the Equal Protection Clause of the Fourteenth Amendment." But Black and Douglas were dissenters. By definition, their views of the relevant "history, logic, or reason" did not prevail at the time. Nor have they prevailed subsequently.

Then DeLong goes back to one of the relevant cases, in which he claims the Supreme Court did not decide the issue.

To evaluate all this, let's remember what the dispute is about. DeLong claims that the post-Civil War "empowering of corporations with exorbitant privileges of citizenship" was a case in which "American judges had changed the law" without a grounding in legislation or the Constitution.

There are two things wrong with that claim. The first is just a semantic quibble, but given the tone of DeLong's response, I'm in a mood to quibble. Contrary to DeLong's claim, the courts never empowered corporations with "privileges of citizenship." The second clause of the 14th Amendment - the so-called Privileges and Immunities - states that: "No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States." But it is settled that the Privileges and Immunities Clause does not protect corporations, because corporations are not deemed citizens for purposes of the 14th Amendment. Western and Southern Life Ins. Co. v. State Bd. of Equalization of California, 451 U.S. 648, 656 (1981). Conversely, however, "It is well established that a corporation is a 'person' within the meaning of the Fourteenth Amendment." Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 881 (1985). What DeLong presumably meant to say was that judges had empowered "corporations with exorbitant privileges of" personhood.

Second, and more important, contrary to Justices Black and Douglas, and hence to DeLong, the Supreme Court did not simply invent the corporation's legal personhood by unadorned judicial fiat. The Supreme Court was persuaded by Roscoe Conkling's recounting of the relevant legislative history in Conkling's arguments in San Mateo County v. Southern Pac. R.R., 116 U.S. 138 (1885). Conkling had been a member of the Joint Congressional Committee that drafted the 14th amendment and in Southern Pacific argued to the Justices that it had been the intent of Congress for the word "person" to include "legal" persons (corporations) as well as "natural" persons within the protective scope of the due process and equal protection clauses of the amendment. The Court accepted Conkling's argument.

Conkling's version of Congressional intent is now contested by some scholars, hence my "off the cuff" reference to the "not uncontested" history. But that's irrelevant to the argument DeLong and I are having. If the Court didn't create the corporation's legal personhood by unabashed judicial fiat, but rather based its decision on its understanding of the text and legislative history of the provision, even if that understanding was wrong, I win.

This post generated a LOT of comments, which I've moved from the old site:

AUTHOR: Matt

DATE: 02/22/2007 08:00:51 PM

In general I like Delong.  I think his writing on economics is often very interesting and useful (I mean his blog writings- I've not read his academic work), his writing on the shabby job done by the media in covering various topics (especially bad writing in relation to economic topics) is usually right on and very useful, and some of his other posts are good, too.  But, sometimes he's very off, usually on things that are outside of his area.  His writing on philosophy, for example, is at best that of a smart amature.  The same for his writing on law.  But, what's really annoying is that it's almost impossible for him to admit that he's wrong on anything, even when those who are specialist in the field point it out.  And while he doesn't delete _all_ criticism he does very often delete comments that are not especially nastly (no more nasty then he himself is) but are critical of his views. It's a bad and a bit shameful habit.  This seems pretty clearly to be one of those cases. 

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COMMENT:

AUTHOR: Brad DeLong

DATE: 02/22/2007 08:39:27 PM

I don't complain that you rely on the legislative history of the Fourteenth Amendment. I complain that you get the legislative history of the Fourteenth Amendment wrong. Congressional committees draft, congress passes and thus proposes, and state legislatures ratify--you can't just look at the understanding of the drafters, especially if they keep it secret, and especially especially if they later on misrepresent what that understanding is. The Supreme Court chose to read the first and third occurrences of "persons" in the Fourteenth Amendment as referring to human beings, and the second as referring to human beings plus corporations. It could have chosen otherwise without breaking a sweat.

 

I do think you're largely right on limited liability--but not completely. The problem I have with your position is that I can't help but think that general incorporation laws with limited liability attached "impair the obligations of contracts." The Supreme Court chose not to say "wait a minute" as states created this new organizational form which impaired the obligations of those who would otherwise have been general partners to the enterprise's creditors. It could have chosen otherwise without breaking a sweat.

 

Now I like both of these choices. I think the equal protection clause has been used to enforce a healthy level of generality in governmental taxation and regulation of business--and that we as a country would be worse off if California taxed railroads on different tax bases depending on whether their rails crossed a county line or not. I think that the agency and fraud problems created by the misuse of limited liability are more than balanced by the continuity, flexibility, and diversification benefits made possible by our current private use of the corporate form.

 

But they are choices. There is nothing in the ratification of the Fourteenth Amendment that tells the Supreme Court that it should rule that corporations are entitled to the equal protection of the laws. There is nothing in Article I Section 10 that tells the Supreme Court to treat state general incorporation laws with limited liability any differently than Marshall treated New York's bankruptcy law.

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COMMENT:

AUTHOR: Internet Ronin

DATE: 02/23/2007 06:55:17 AM

The snark was well-deserved. DeLong's reputation for rewriting history on his website is widespread. He definitely ranks in the top tier of those who can dish it but can't take it. His pattern of behavior on his blog reveals just how narrow his mind has become. Although one can always hope that DeLong would benefit from a few lessons in common courtesy, it is unlikely to happen as he is far too busy being self-reverential. A small man with a shriveling mind and a good example to others of how not behave.

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AUTHOR: Bwad deWong

DATE: 02/24/2007 02:50:30 PM

Waaaah! Waaaaah! Waaaah!

 

Pwofessow Bainbwidge is pickin' on me!

 

Bwad

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COMMENT:

AUTHOR: Ric Locke

DATE: 02/24/2007 05:08:01 PM

Codswollop, Brad.

 

Legal incorporation does not "impair the obligations of contracts." It simply creates a new entity to engage in contracts. The fact that some people are too ignorant or too careless to take note of that simply brings up "ignorance of the Law is no excuse."

 

Personhood and limited liability have been features of the corporate form -- indeed, the definition of the corporate form -- since the Companies of Friends chartered by the British Crown. To suggest that the framers of the Amendment were unaware of several centuries of precedent is to disparage them well beyond any rational assessment.

 

Regards,

Ric

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COMMENT:

AUTHOR: Robert Schwartz

DATE: 02/24/2007 08:04:23 PM

"I can't help but think that general incorporation laws with limited liability attached 'impair the obligations of contracts.'"

 

Spoken like somebody who does not understand the law at all. First of all allowing general incorporation does not impair the obligation of a any contract.

 

First, it is not necessarily the case that a corporation will be organized to carry on an existing enterprise. A person who enters into a contract with a corporation, whatever its history, has a contract with that corporation and not any of its shareholders, officers nor directors. He gets what he bargained for not more nor less. Nothing is impaired.

 

Even if an enterprise were carried on by a non-corporate entity, and a corporation were to acquire its assets later, the acquisition does not in any way discharge the obligations of the persons who had been obligated before the acquisition. This fact can create some ticklish issues in acquiring businesses carried on by a non-corporate entity. But once again there is no impairment,  none at all.

 

"The Supreme Court chose not to say "wait a minute" as states created this new organizational form which impaired the obligations of those who would otherwise have been general partners to the enterprise's creditors."

 

The use of the corporate form in business enterprise was not an innovation of the 19th century. It had begun in the Mother country with the incorporation of the Bank of England in 1600 followed by such ventures as the East India Company (1602), the Virginia Company and the Plymouth Company (both 1607). So the corporate form was used for commercial enterprises in North America from the first English settlements.

 

The 19th century innovation was allowing private persons to create a corporation without requiring a special act of a legislature. That innovation helped channel the capital (much of it from Europe) necessary to build the United States. But, general incorporation did not change the law of contracts or of corporations.

 

Nor can it be said that a corporate shareholder is general partner with limited liability. Corporations and partnerships may both be business associations, just as pigs and birds may both be warm blooded vertebrates, but a corporation is not a subspecies of partnerships anymore than a pig is a subspecies of bird. The rights and obligations of corporate shareholders differ dramatically from those of partners. A partner has unlimited liability, but he has far reaching rights to participate in the management of the enterprise. The obligations of a shareholder are limited, and his rights are limited too.

 

To claim that shareholders (or any other corporate constituency) should be held liable as partners is to completely ignore the difference in their respective rights. No one who really understands the underlying laws, contracts and arrangements would suggest such a thing.

 

Furthermore, there is no alternative reality where investors with shareholders rights are content to be taxed with unlimited liability. If the corporate form or something much like it were not available, investors would put their money into Treasuries not productive enterprises.

 

I must also observe that the rest of DeLong's list is not much better. I won't put any effort into trying to parse the list as it is kind of incoherent. I will however say that it demonstrates a basic failure to understand the law and the courts.

 

PB COMMENTS: Well said. I agree.

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COMMENT:

AUTHOR: Jay Currie

DATE: 02/24/2007 10:58:17 PM

I have often been surprised at how difficult it seems to be for economists to grasp the reality of basic company law as opposed to lawyers who are usually able to get the fundamentals of Econ 101. When I took Law and Economics jointly with some economics grad students they seemed to have real trouble accepting the notion that legal rights and obligations were created, well, legally.

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COMMENT:

AUTHOR: Stuart Buck

DATE: 02/25/2007 08:21:42 AM

I left this comment at DeLong's site, but given past experience, I'm well aware of his pattern of deleting perfectly civil comments with which he disagrees.  <a href="http://stuartbuck.blogspot.com/2005/08/roberts.html" rel="nofollow">http://stuartbuck.blogspot.com/2005/08/roberts.html</a>  Thus:

 

 QUOTE FROM DELONG: I do think you're largely right on limited liability--but not completely. The problem I have with your position is that I can't help but think that general incorporation laws with limited liability attached "impair the obligations of contracts."  ENDQUOTE

 

Another comment that seems to reflect an elementary misunderstanding of constitutional law.  The Contracts Clause only applies (if at all) to "pre-existing contracts".  <a href="http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&vol=503&invol=181" rel="nofollow">http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&vol=503&invol=181</a>  I.e., A has a contract with B, and the state passes a law allowing A to escape liability on that pre-existing contract.  (See also McCracken v. Hayward, which noted that the "obligation of a contract" "depends on the laws in existence when it is made," and that the Contracts Clause question is whether " any subsequent law affect[s] to diminish the duty, or to impair the right." <a href="http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/43/608.html" rel="nofollow">http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/43/608.html</a> )

 

The Contracts Clause would never have been implicated, to my knowledge, merely because a state law allowed people to incorporate and form new contracts that had limited liability in some respect. 

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COMMENT:

AUTHOR: Stuart Buck

DATE: 02/25/2007 08:43:25 AM

Another post, just in case DeLong deletes it:

 

 

And of course, I forgot to mention one of the most famous cases in the history of constitutional law: Ogden v. Saunders, which held that the Contracts Clause applies only "retrospectively."

<a href="http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=25&invol=213" rel="nofollow">http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=25&invol=213</a>

 

"It is thus most apparent, that, which ever way we turn, whether to laws affecting the validity, construction, or discharges of contracts, or the evidence or remedy to be employed in enforcing them, we are met by this overruling and admitted distinction, between those which operate retrospectively, and those which operate prospectively. In all of them, the law is pronounced to be void in the first class of cases, and not so in the second."

 

 

As the Court explained, any other holding would basically mean that states were not allowed to regulate contracts at all.  That is, if the Contracts Clause applied insofar as a state law affected *future* contracts:

 

"it is very apparent, that the sphere of State legislation upon subjects connected with the contracts of individuals, would be abridged beyond what it can for a moment be believed the sovereign States of this Union would have consented to; for it will be found, upon examination, that there are few laws which concern the general police of a state, or the government of its citizens, in their intercourse with each other, or with strangers, which may not in some way or other affect the contracts which they have entered into, or may thereafter form. For what the laws of evidence, or which concern remedies-frauds and perjuries-laws of registration, and those which affect landlord and tenant, sales at auction, acts of limitation, and those which limit the fees of professional men, and the charges of tavern keepers, and a multitude of others which crowed the codes of every State, but laws which may affect the validity, construction, or duration, or discharge of contracts?"