ProfessorBainbridge.com

Brown screws Bainbridge and 20K other Californians

Regular readers will notice a minor design change: All Amazon-related links and ads have been deleted. I'm a longtime Amazon Associate. I never made big bucks at it; in some years, I didn't make enough to even get a 1099 form. It did pay my TypePad fees though.

Unfortunately, in a moronic attempt to raise tax revenues that has predictably backfired, Governor Jerry Brown and the Democrats in Sacramento have forced Amazon to put me out of business:

Gov. Jerry Brown has signed into law California's tax on Internet sales through affiliate advertising which will immediately cut small-business website revenue 20% to 30%, experts say.

The bill, AB 28X, takes effect immediately. The state Board of Equalization says the tax will raise $200 million a year, but critics claim it will raise nothing because online retailers will end their affiliate programs rather than collect the tax.

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites. ...

Board of Equalization Member George Runner blasted Brown for signing the law. "Even as Governor Jerry Brown lifted his pen to sign this legislation, thousands of affiliates across California were losing their jobs. The so-called 'Amazon tax' is truly a lose-lose proposition for California. Not only won’t we see the promised revenues, we’ll actually lose income tax revenue as affiliates move to other states."

I won't be moving to another state, but any chance the state had of getting income taxes from my Amazon sales just went out the window, so that's one tax loss they'll suffer, Meanwhile, while Brown and the bill's proponents say the bill will help small local retailers, this is one consumer who's going to go right along doing the vast majority of my shopping at Amazon.

From Wizbang:

This will be a huge blow to bloggers and freelance website owner/managers, who often depend on affiliate programs or click-through advertising as a primary source of the revenue that pays for website hosting and up-keep. 

And when websites start closing down, or when their owners dissolve their California companies and file for business incorporation in other states, the Mainstream media will once again be stumped by the UNEXPECTED failure of this bill to raise even a fraction of the revenue that was originally projected.

It has been said that insanity is repeating the same failures over and over again, hoping to achieve a different result.  I think we can now safely say (as if we hadn't suspected all along) that the government of California is truly insane.

Yep.

And from Walter Jacobson:

This is why Obama will not see the trillion dollars in new taxes he wants, even if such legislation were passed.  People change their business and personal practices once taxes reach a tipping point.

This why we can’t tax our way to reducing the deficit.  We can control spending, but we cannot control revenue because we cannot control people.

Yep, again.

Hadfield on the market for lawyers

USC professor Gillian Hadfield is a very smart legal thinker, even if she did choose to work at a school whose athletic teams are named after a brand of condoms. In an essay ruminating on the future of legal practice, which I highly recommend reading in full, she argues that:

I have spoken with dozens of general counsel, entrepreneurs, business leaders and experts in innovation about how well the American legal system is supporting the innovative enterprise powering the global economic transformation under way since the fall of the Berlin Wall and the birth of the Internet. They have been uniformly optimistic about the pace of innovation in their industries — but uniformly despondent about the legal tools available to them to support their efforts to ride the surging waves of the new global economy. One complained about the great “DNA gap” between lawyers and business thinkers. Another bemoaned the need to resort to a patchwork of law firms around the world to manage operations that are “global from day one” in a new economy firm. A third shared his frustration with lawyers who produce reams of paper — erudite analysis memos or long complex contracts — when what is needed, and fast, is targeted business advice or short documents that memorialize key commitments.

Such complaints are now new, of course. Mark McCormack's wonderful book The Terrible Truth About Lawyers made many of the same complaints twenty-odd years ago.

Hadfield argues that what we need to solve the problem is a new approach to the market for legal services:

It’s not that lawyers aren’t smart or committed enough to produce good quality legal services. The problem with the way in which U.S. markets for legal inputs are structured is that they are entirely closed off to the potential quality-improving and cost-reducing innovations that might be produced by people who are not already heavily invested in our existing ways of handling legal problems. Those existing approaches are the problem: too costly, too poorly informed about rapidly changing business and regulatory realities in a global economy, too risk averse, too slow and cumbersome.

So why not let people other than JD-trained, bar-examined lawyers and organizations that aren’t 100 percent lawyer-owned and -financed compete to supply advice about managing legal and regulatory risks, complete required document filings, design documents and organizational policies, negotiate contracts and manage legal disputes? Certainly, there are some things for which only the most experienced and conventionally trained lawyer will do. But there is also a huge landscape of legal work that could be better done by differently trained lawyers, lawyers trained out-of-state, lawyers working in partnerships with nonlawyers, and companies that are owned, managed and financed by business-minded folks, rather than (or in addition to) legally minded folks.

Great idea. Anybody who even halfheartedly believes in markets ought to think that a freer market for legal services, in which non-lawyers can compete, will result in more innovation, lower prices, and more widely available services. Indeed, as Hadfield details, the UK is doing okay with a much more competitive legal market than we have in the USA.

Of course, as someone who benefits massively from the current monopoly law schools have on the production of lawyers who then have a near monopoly only the provision of legal services, I favor adopting her approach the day after I retire. But YMMV. ;-))

"Why Proxy Access (Sec Rule 14a-11) is Harmful to Corporate Governance"

Bernard Sharfman has posted Why Proxy Access (Sec Rule 14a-11) is Harmful to Corporate Governance:

A key aspect of the current proxy access rules is that they are, for all intents and purposes, mandatory. There is no opportunity to opt-in or at least opt-out. This one-size-fits-all approach to corporate governance is wealth reducing because it does not allow for private-ordering. In addition, federally mandated proxy access eliminates the benefits of our federalist system from this area of corporate governance.

But there is something even more fundamentally wrong with proxy access. That is, it is a very inefficient means to promote good corporate governance in a public company. As argued here, it is expected that proxy access will lead to increased error in the nomination of directors as decision-making is moved from the board of directors to shareholders who will make their nominations based on significantly less information and a shifting of the potential for certain opportunistic behavior, such as the extracting of private benefits from the corporation, from an independent board and nominating committee to certain shareholders who, unlike directors, are not subject to fiduciary duties. Moreover, even if proxy access can be argued to be good for corporate governance, Rule 14a-11 is not designed to be the optimal default rule.

 I'm in substantial agreement with his analysis.

"So What If Corporations Aren't People?"

Ilya Shapiro and Caitlyn W. McCarthy of the Cato Institute have posted So What If Corporations Aren't People?:

Corporate participation in public discourse has long been a controversial issue, one that was reignited by the Supreme Court's decision in Citizens United v. FEC, 130 S. Ct. 876 (2010). Much of the criticism of Citizens United stems from the claim that the Constitution does not protect corporations because they are not "real" people. While it's true that corporations aren't human beings, that truism is constitutionally irrelevant because corporations are formed by individuals as a means of exercising their constitutionally protected rights. When individuals pool their resources and speak under the legal fiction of a corporation, they do not lose their rights. It cannot be any other way; in a world where corporations are not entitled to constitutional protections, the police would be free to storm office buildings and seize computers or documents. The mayor of New York City could exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he'd like to move his office there. Moreover, the government would be able to censor all corporate speech, including that of so-called media corporations. In short, rights-bearing individuals do not forfeit those rights when they associate in groups. This essay will demonstrate why the common argument that corporations lack rights because they aren't people demonstrates a fundamental misunderstanding of both the nature of corporations and the First Amendment.

It cites yours truly at several points, which is always an indicia of high quality work. ;-))

Consolidation in the law school industry

You have a mature industry with about 175 or so producers collectively having massively excessive production capacity relative to demand. The industry nevertheless continues to produce at full capacity. What happens next?

The price the industry members receive for their product should fall. In response, industry members should cut their prices until demand and supply equilibrate. But then what happens to the excess productive capacity?

Obviously, some of the weaker players should close up shop through bankruptcy or liquidation. But many managers are reluctant to pull that trigger. So in many industries we observe a wave of mergers intended to consolidate the industry into a smaller number of players, each of whom then downsizes while staying in business. Example:

In the airline industry, over-capacity and high fuel costs have wiped out recent profits. Incumbent airlines have locked themselves into their existing, failing business model, and have not succeeded at imitating the success of low-cost carriers such as Southwest or Ryanair (witness the recent grounding of United’s Ted).

With few exceptions, they have also proven unable to enter the profitable business of operating regional feeder airlines. Prisoner to sunk costs in airplanes and hubs, union contracts, travel agents, and other inflexible elements of their business model, their only option has been to remove capacity and raise fares through consolidating their industry.

With that background in mind, consider this post from Brian Tamanaha:

The New York Times released a chart yesterday showing that law schools are churning out far more lawyers than the number of available legal positions. That is old news, of course. What's worse is that the oversupply promises to continue. In 2010, Georgetown enrolled 591 first year JD students, Harvard enrolled 531, Fordham enrolled 477, and NYU enrolled 476. Large classes are not limited to top schools: New York Law School took in 641, John Marshall (Chicago) enrolled 539, and Suffolk enrolled 531. (Let's not talk about the 808 first year students taken by Florida Coastal and 1,583 by Cooley.) Law schools now pump out about 45,000 graduates annually at a time when the Bureau of Labor Statistics projects about 28,000 new lawyer positions per year.

In an ordinary industry, such a fall in demand would trigger the wave of consolidation described above. But legal education is no ordinary industry. First, law schools get paid by their inputs rather than being paid for their outputs. A fall in demand for our outputs thus does not put direct price pressure on law schools. Instead, we only feel supply-demand pressure if the number of inputs falls. In other words, law schools suffer financially not because their graduates can't find jobs but because they have too few applicants to fill their spaces.

Over capacity could deter applicants, as Tamanaha explains:

With tuition high and job prospects low, it seems likely that the number of law school applicants will continue to fall--although it's hard to say how far or for how long. One concrete indication of a continued drop is the google trend line for LSAT searches (check it out here), which shows a steady downward trajectory since the peak in 2004. (Tellingly, the applicant uptick in 2009 and 2010 barely disrupts the overall trend.)

If the drop in applicants continues, while enrollment stays up, schools will reach deeper in the pool to fill their classes, bringing in students with lower qualifications. A significant decline like this has happened before, in the early eighties and the nineties. The consequences for each school will depend upon its standing in the overall law school hierarchy and in the local legal market. But every school will feel it (although much less at the top). Schools would be prudent to anticipate a cumulative drop in applications of perhaps a third from their high. (Even if the reduction does not go that far, the number will be misleading because prospective students now apply to more schools than in the past.)

The 2010 acceptance numbers suggest that many law schools are already in a worrisome spot. That year, twenty schools accepted between 45% and 49% of the students who applied; twenty-two schools accepted between 50% and 59% of applicants; and seven schools has an acceptance rate of 60% or higher (Cooley was the highest at 83.3%). Added together, nearly a quarter of law schools in the country accepted close to half or more of their applicants—and this was before the latest decline in the number of applicants.

If that happens, law schools will start to feel a pinch from the problem of industry over capacity. Unfortunately, the M&A solution is barred because law schools are protected by takeover defenses far stronger than those possessed by any corporation:

• Law schools are in a regulated industry with lots of barriers to competition
• University presidents think it is prestigious to have a law school, so as to be a complete research university (see, e.g., UC-Irvine's illogical decision to start a law school)
• Influential local figures support "their" law school (ditto)
• Legislatures protect law schools from closing (see, e.g., UC Hastings)
• Most basically, you can't buy stock in a law school

The point should be obvious. Unless law schools voluntarily start consolidating and downsizing, which seems about as likely as yours truly winning the Miss America pageant, we face a long-term prospect of ever increasing competition for fewer and fewer applicants. Long before the day comes that there are fewer applicants than available seats, we will be in very big trouble. Budgets will have to be slashed to pay financial aid to attract students. Admission standards will have to go down. Relations between deans, faculty, and students will be increasingly fraught.

What we have here is a classic collective action problem. Unfortunately, what we don't have is a market in which to develop solutions to that problem.

 

Is the debt ceiling unconstitutional?

HuffPo:

Growing increasingly pessimistic about the prospects for a deal that would raise the debt ceiling, Democratic senators are revisiting a solution to the crisis that rests on a simple proposition: The debt ceiling itself is unconstitutional.

"The validity of the public debt of the United States, authorized by law... shall not be questioned," reads the 14th Amendment.

And they just now figured that out? Convenient timing.

I don't see why the quoted language would render the debt ceiling unconstitutional. The 14th amendment refers to the "public debt" as "authorized by law," which would seem to contemplate a law setting a limit on the amount of debt that is authorized. Next it says that the validity of the debt shall not be questioned. A default doesn't question the validity of the debt. To the contrary, a default acknowledges that the debt is valid, but can't be paid at the moment.

In any case, the article goes on to quote my friend and UCLAW colleague Adam Winkler at length:

Adam Winkler, a law professor at the University of California, Los Angeles, said that the 14th Amendment option has recently been much discussed in the field.

"Without any clear case law about the debt ceiling in particular, no one knows exactly how the courts would rule on that issue, about whether President Obama could ignore the debt ceiling," he said. "If he wanted to continue to service the public debt, he'd probably get away with it."

Which leads to a related question: Who's to stop him?

"To have standing to challenge a governmental action, you must show that you have suffered some injury from that action, and it's hard for someone to show such an injury," Winkler said. "If Congress acted as a unified body, and claims that the president has usurped their authority, then it may have some standing."

"But," he cautioned, "it would have to be a joint resolution. And this Senate would almost certainly block it."

Delaware Supreme Court muffs Brophy claim

BNA (sub. req'd) reports that:

The Delaware Supreme Court June 20 revived claims by minority shareholders of Primedia Inc. that Kohlberg Kravis Roberts & Co. LLP, its controlling shareholder, bought up large blocks of preferred stock on the open market when the price was low and later caused Primedia to redeem the shares at full value (Kahn v. Kohlberg Kravis Roberts & Co. LLP, Del.. No. 436, 2010, 6/20/11). ...

In this lawsuit, the shareholders contended that KKR and certain Primedia officers and/or directors breached their duty of loyalty by causing Primedia to call hundreds of millions of dollars of preferred stock that it was not yet obligated to redeem, enriching KKR at Primedia's expense. The complaint was amended several times—most recently to add a Brophy claim that the KKR defendants breached their fiduciary duties to Primedia by purchasing the preferred stock at a time they possessed material nonpublic information.

Specifically, the court said, according to the complaint, KKR knew that Primedia's earnings would be better than previously forecast and that at some point, it—Primedia—planned to redeem its outstanding preferred stock. KKR allegedly traded on the information.

In June 2010, the Chancery Court granted a dismissal motion by Primedia's Special Litigation Committee. Citing Pfeiffer v. Toll, 989 A.2d 683 (Del. Ch. 2010), it concluded that because the corporation was not actually harmed, disgorgement was not an available remedy for the plaintiffs' Brophy claims.

BNA further reports that:

In a decision by Chief Justice Myron T. Steele, the court disagreed with the Delaware Chancery Court's interpretation of Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949), which addressed the availability of disgorgement as a remedy. ...

The court explained that in Brophy, a corporate employee acquired inside information that the plaintiff issuer was about to enter the market and purchase its own shares. The employee, who was not an officer, bought a large block of shares and resold them at a profit after the corporation's purchases caused their price to rise.

The court concluded that because the employee had a position of trust and confidence within the corporation, his relationship was analogous to that of a fiduciary. The defendant argued that the corporation failed to state a claim because it suffered no loss through the purchase of its stock, but the court disagreed. “Thus,” the high court recapped, “actual harm to the corporation is not required for a plaintiff to state a claim under Brophy.”

It explained that the Brophy court relied on principles of equity and restitution for the proposition that a fiduciary cannot use confidential corporate information for his or her own benefit. “Even if the corporation did not suffer actual harm, equity requires disgorgement of that profit.” ...

In June 2010, the Chancery Court granted a dismissal motion by Primedia's Special Litigation Committee. Citing Pfeiffer v. Toll, 989 A.2d 683 (Del. Ch. 2010), it concluded that because the corporation was not actually harmed, disgorgement was not an available remedy for the plaintiffs' Brophy claims.

Reversing, the state high court concluded that Pfeiffer—pursuant to which a plaintiff must show that the corporation suffered actual harm in order to bring a Brophy claim—“is not a correct statement of our law. To the extent Pfeiffer v. Toll conflicts with our current interpretation of [Brophy], Pfeiffer cannot be Delaware law.”

Pity. I thought Pfeiffer got it basically right, at least on this issue. As I explained at the time:

CSR and Branding

Do corporate efforts at "responsibility" count when motivated by a desire to brand their business rather than out of the goodness of management's heart? The question was prompted by a recent paper, which argues that:

In this paper, we ... critically engag[e] with marketing campaigns of so‐called ‘ethical’ bottled water. We especially focus on a major CSR strategy of a range of different companies that promise to provide drinking water for (what they name as) ‘poor African people’ by way of Western consumers purchasing bottled water. Following Fairclough's approach, we unfold a three‐step critical discourse analysis of the marketing campaigns of 10 such ‘ethical’ brands. Our results show that bottled water companies try to influence consumers' tastes through the management of the cultural meaning of bottled water, producing a more ‘ethical’ and ‘socially responsible’ perception of their products/brands.

Corporate social responsibility is a problem, IMHO, when, as Milton Friedman observed, a manager spend "someone else's money for a general social interest. Insofar as his actions in accord with his 'social responsi­bility' reduce returns to stockholders, he is spending their money." If on the other hand, the manager is engaging in corporate activity that is "responsible," "green," "sustainable," or any other buzzword for what left-liberals regard as socially ethical behavior, the manager is pursuing the proper corporate purpose, as Friedman defined it, "to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom."

So it doesn't count as CSR. Just as good advertising to bleeding hearts.

Bill Stuntz In Memoriam

Harvard Law review has posted a wonderful collection of essays in remembrance of HLS law professor William Stuntz. It was pleasant to read these recollections of a wonderful man and scholar. He was a good friend and a great person.

UCLA Anderson forecast is gloomy

The UCLA Anderson School economic forecast is out and it's grim reading:

The National Forecast

In his June 2011 report, UCLA Anderson Forecast Director Edward Leamer predicts “normal growth” for the U.S. economy through 2013, with “normal” defined as “3% GDP growth with payrolls growing at 150,000-200,000 per month and unemployment stuck at high levels.” But “normal” does not equate to a “recovery.” In the report, titled “No Recovery In Sight,” Leamer differentiates between normal growth and the type of growth necessary for real recovery from the recent recession. In a “recovery,” the economy would experience “5-6% growth with payrolls growing at 250,000-300,000 per month and unemployment falling noticeably.” The differentiation is not a matter of semantics. Leamer notes that a recovery is not simply a matter of the economy returning to where it was when the recession began; instead it’s a return to trend – a matter of the economy getting to where it would have been had there been no recession – and that requires more than 3% GDP growth.

...

The California Forecast

California’s forecast, authored by Senior Economist Jerry Nickelsburg, remains substantially the same as it was in March – a continuing period of slow growth with stress in the labor markets. In his report, titled “A Breather in the Process of Recovery,” Nickelsburg cites two key elements impeding California’s recovery. The first lies in the national forecast, which calls for slower growth in consumer spending. The second is a shift occurring in the residential construction sector.

The forecast calls for 1.7% employment growth in 2011, 2.4% in 2012 and 3.1% in 2013. Unemployment will continue to fall through the year, averaging 11.7% in 2011. Employment growth won’t push the unemployment rate below double-digits until the second quarter of 2013, reaching 9.2% by the end of that year. Real personal income growth is forecast to be 1.7% in 2011, and 3.3% and 3.8% in 2012 and 2013 respectively.

Preventing regulatory arbitrage

Jim Hamilton reports that SEC Chairman Mary Shapiro told Congress that she's trying to get foreign securities regulators to help prevent regulatory arbitrage:

SEC Chair Mary Schapiro said that the SEC has been actively engaged with international securities and market regulators through informal conversations and more formally through participation in various international task forces and working groups and encouraging coordination and limiting opportunities for regulatory arbitrage. In testimony before the House Financial Services Committee, she noted that the SEC staff has encouraged international securities regulators that are contemplating OTC derivatives market reforms to use the Dodd-Frank Act and its regulations as a model for developing robust and complementary regulatory regimes.

Because the OTC derivative marketplace already exists as a functioning global market with limited oversight or regulation, said the Chair, international coordination is needed to limit opportunities for cross-border regulatory arbitrage and competitive disadvantages, and to address unnecessarily duplicative and conflicting regulations.

What regulatory arbitrage means in this context is that transxaction planners will seek out the jurisdiction that allows them to raise the maximum amount of money at the lowest cost. Regulatory arbitrage wouldn't be a problem for Chairman Shapiro but for the fact that the Congress and SEC through Sarbanes-Oxley, Dodd-Frank, and the rest of our regulatory apparatus have created an incredibly onerous and costly system that discourages capital formation in the US and funnels investment to foreign markets  that are more competitive.

See my article Corporate Governance and U.S. Capital Market Competitiveness, which argues that:

During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.

Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.

This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.

 

The Misery Index is back and rising

IBD:

Conceived by economist Arthur Okun in the early 1970s, the Misery Index simply adds together the inflation and unemployment rates to create an effective indicator of real-world suffering.

It gained notoriety under President Carter, whose growth-choking, easy-money policies pushed the index to its post-World War II high. Now, under President Obama's equally disastrous economic policies, the Misery Index is making its return.

The annual inflation rate for May climbed to 3.6% as price spikes spread beyond oil and food. At the same time, May's unemployment rate edged up to 9.1%, yielding a Misery Index of 12.7.

That marks the fourth straight monthly increase in the index, which is now 62% higher than it was when Obama took office, and 57% higher than it was when the recession officially ended.

Obama's Misery Index average of 10.37 is higher than George W. Bush's (8.11) or Bill Clinton's (7.8).

 

Obama's ATM fable

If I've learned one thing in 20-odd years as a member of the legal academy, it's that you generally shouldn't take economic advice from constitutional law professors. Case in point, courtesy of ex-con law prof Barack Obama, as summarized by Jim Treacher:

Obama thinks ATMs cause unemployment—No, really, he does! That's not a joke headline. He said it out loud in front of the whole world and everything. On yesterday's "Today Show," Obama told Ann Curry his brilliant theory about why the economy hasn't been doing so well since he became president: "There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate."

That's right, the Smartest President Ever just said innovation is a job-killer. His next step, presumably, will be to demonize the Republicans for making such deep cuts to the Department of Buggy Whips. Hey, why is the President of the United States blaming machines for unemployment . . . on TELEVISION? Doesn't he care about all those out-of-work town criers?

As The Economist's Democracy in America blog observed:

ATMs have not in fact displaced bank tellers. According to this 2004 Charles Fishman article in Fast Company:

At the dawn of the self-service banking age in 1985, for example, the United States had 60,000 automated teller machines and 485,000 bank tellers. In 2002, the United States had 352,000 ATMs—and 527,000 bank tellers. ATMs notwithstanding, banks do a lot more than they used to and have a lot more branches than they used to. 

More recently, the  Bureau of Labour Statistics reports there were 600,500 bank tellers in 2008, and the BLS projects this number will grow to 638,000 by 2018. Mr Obama clearly picked a poor example. It's worth noting that the advent of the ATM also created demand for ATM maintenance workers.  According to the BLS, there were 152,900 "computer, automated teller, and office machine repairers" in 2008. I'm not sure how many of these are in the ATM repair biz, but the BLS expects a mild decline in this line of work due to increasingly reliable machines and declining replacement costs. Evidently, the relationship between technological advance and employment is complicated.

Exactly. Technological change probably has eliminated some jobs, but I'm willing to bet that Obama's job-killing policies have done far more damage.

Quoted re New York's proposed anti-competition wine law

From an article by Mathhew Shaffer:

Bill A06884, introduced by Democratic assemblyman Robin Schimminger, would “amend the Alcoholic Beverage Control Law to insure that alcoholic beverages distributed in this state pass through those authorized to sell the product.” Specifically, it would “require the manufacturer of an alcoholic beverage to identity [sic] the entities that are authorized to distribute, at wholesale, the product.” This is being done in order to “protect against counterfeit or ‘grey market’ goods and would serve . . . in the collection of state excise taxes.”

Stephen Bainbridge, UCLA law professor and wine blogger, tells me that this will mean that “a limited number of wholesalers will be exclusively entitled to import wine into the state of New York.” In the past, wine retailers and restaurants could “do grey-market purchases, to bypass the big wholesalers, and buy directly from the winery, or go to the auction market or private collectors.” But if the bill passes, “every bottle of wine sold in New York has to go through a licensed wholesaler.” There are only five such in New York State, and they would control “the flow of inventory from producers to retailers.” ...

Bainbridge notes that “the limited extent to which there is a counterfeit-wine problem tends to be in very old, very rare, expensive collectible wines.” The demographic that consumes these wines is a narrow slice of the electorate and one that most New York voters would think, if they ever thought about it, does not require the Assembly’s special solicitude.

But even so, does this market require regulation and surveillance? It surely does. But that surveillance is done within the market — by connoisseurs who take steps to make sure they don’t get conned on a four-figure purchase, and auctioneers and collectors who carefully guard their reputations. Professor Bainbridge notes that “wineries are making much more sophisticated labels and bottles that are much harder to duplicate,” and requiring auctioneers to provide “documentation of where and when auctioned bottles were bought.” In other words, the market is policing the market.

Clarence Clemons' stroke

From BruceSpringsteen.net:

By now, many of you have heard that our beloved comrade and sax player Clarence Clemons has suffered a serious stroke. While all initial signs are encouraging, Clarence will need much care and support to achieve his potential once again. He has his wonderfully supportive wife, Victoria, excellent doctors and health care professionals, and is surrounded by friends and family.

I thank you all for your prayers and positive energy and concern. This is a time for us all to share in a hopeful spirit that can ultimately inspire Clarence to greater heights.

-- Bruce Springsteen

Clarence's family appreciates your concern and wants to let you know that you can send him your wishes via e-mail to [email protected]

Very sad news. The Big Man has been such a huge part of the soundtrack of so many lives.