classical economics
for analysis,  forecasting
and policy design

Obama - Mentor Teacher

PRESIDENT OBAMA – MENTOR AND TEACHER
Two Things We Learned Last Week
By Wayne Jett © April 12, 2012

    President Obama told a press conference the Supreme Court should stand aside when Congress has enacted a law with broad support. He said court intervention in this democratic process would be “unprecedented.” On March 26, Obama confided to Russian president Medvedev that he (Obama) would have more flexibility in negotiating a nuclear arms treaty after the November election, when he wouldn’t have to campaign for office again. This informed the public in two important ways, neither of which has been noted by other commentators.

Obama’s Pitch: Fastball at the Chin

     On April 2, Obama said he is "… confident that the Supreme Court will not take what would be an unprecedented, extraordinary step of overturning a law that was passed by a strong majority of a democratically elected Congress.” This contains a little known kernel of truth, although Obama overstated his case, as he often does.

     The Court occasionally has permitted a federal statute to violate a right guaranteed by the Constitution. Almost certainly, Obama was taught this at Harvard, as were appellate lawyers educated there and elsewhere.

    This concept of “judicial restraint” – the Court should avoid interdicting democratic process even when the Constitution commands it – has been embraced tacitly by justices aligned with liberal and conservative politics. Rationale for such judicial passivity has included soliciting popular favor, comity among the three branches, and including adequate funding of the federal court system by Congress.

    You will not likely have heard or read this viewpoint in the vigorous debate aroused by Obama’s comment about the Court. Most have argued the president was ignorant of Marbury v. Madison, the 1803 decision of the Court which announced judicial power to declare a statute void for violation of the Constitution. No doubt, Obama was aware of this precedent.

A Skeleton in the Court’s Closet

    What Obama wants the Court to do in the Obamacare case is to repeat its conduct in Connolly v. Pension Benefit Guaranty Corporation, a decision handed down in the 1985-1986 session. Appellants in that case challenged a federal statute known as ERISA, passed nearly unanimously by both houses of Congress, which created new financial obligations from certain private parties to other private parties. The statute effectively ordered, in many thousands of instances, one private party to pay a large sum of money to another private party.

    The Taking Clause of the Fifth Amendment, a cornerstone of the Bill of Rights, prohibits any taking of private property for public use without just compensation. Even before Marbury v. Madison, the Court interpreted the Taking Clause as meaning that private property cannot be taken by government for private use in any case, even if just compensation is paid.

    In Connolly, the government’s arguments were so lacking in merit (viz., the Taking Clause does not apply to the federal government, money is not property, and the statute is mere economic regulation like the minimum wage) the opinion of the Court did not even address them. But the Court unanimously stood aside, stating its previous decisions had held comparable statutes to be valid under the Due Process Clause.

    These observations I write from memory, because I was counsel of record for the appellants in Connolly v. PBGC. I filed the complaint and argued the issues before four lower courts and the Supreme Court during nearly 11 years of litigation before receiving the final decision described above.

Shortly after Connolly was decided, Congress repealed the judicial statute which gave those appellants the right to a three-judge trial court and a direct appeal to the Supreme Court. Now a party seeking protection of the Taking Clause must litigate through the state or federal trial and appellate courts and then file a petition for certiorari asking Supreme Court review. The Court may deny review as a matter of its own discretion. The Court rarely – to the point of saying never – grants discretionary review of a Taking Clause case.

    Even in the direct challenge of Connolly, the Court tacitly refused to enforce private rights under the Taking Clause. Why? Because government, including the courts, wants power to take private property as it wishes. 

Redemption for the Court

     How does this inform us about the Supreme Court’s review of Obamacare? Past is prologue. Each new case presents opportunity for a new high-water mark as the justices perform their oaths to uphold and defend the Constitution.

     One member who heard the Connolly appeal remains on the Court: Justice Anthony Kennedy. Obamacare tests the limits of congressional power to regulate commerce, not the Taking Clause. But a courageous limit on government power here would bolster public confidence in checks and balances intended by the Founders.

     The Court presently includes four justices, and perhaps five, who are persuaded that the only path to legitimacy for constitutional enforcement is found by tracing original intent as revised by formal amendment. As time moves along, the “living instrument” metaphor for the Constitution is more easily recognized as licentious melting of limits on central power used so predictably for advantage of the ruling elite.

     President Obama took this topic from “inside Washington” and put it on the street in order to increase pressure on the Court to accede to his wishes. He did so on the next business day after the Court secretly voted on the Obamacare case. The outcome of the vote may have been leaked to him, and he would not have acted as he did if the vote had gone his way.

When Supporters are Deceived

     Obama thought he was speaking in confidence when he told Russian president Medvedev he needs “space” on negotiations regarding nuclear and missile defense limitations,  but a television camera and microphone remained “live” to record his comments. By “space” he means time until after November elections, when he will not have to campaign for votes again after his deal with Vladimir Putin becomes known to the public.

    If Obama’s political supporters knew what he intends to do with the Russians after re-election, would they vote for him anyway? Obama thinks they would not. Otherwise, why would he bother to conceal his intentions. Allowing Republicans to know makes no difference in the approaching election’s outcome, since Republicans will not vote for him. His supporters are the ones who must be deceived, or he fears losing their votes.

    Politics of deception worked in 2008, when Obama campaigned for the Democratic nomination and for the presidency as champion of the poor, the jobless and families living under threat of foreclosure. Upon election, he promptly delivered for Wall Street investment bankers and hedge funds which funded his campaign. Every appointment to offices of economic and financial power was given to operatives of those influential interests. Indeed, Obama himself is the primary official operative of those ruling elite.
   
Additional Points of Note

•    Universities in Greece held funds in the Bank of Greece, which converted the funds into Greek government bonds, apparently by order of the government – a government taking of private property without just compensation.

•    The president of Brazil asked President Obama to stop the “currency war” being waged by the Federal Reserve.

•    The president of United Mine Workers of America declared the coal mining industry is about to suffer the same fate at the hands of the Environmental Protection Agency as Osama Bin Laden suffered at the hands of U. S. Special Forces.

•    J. P. Morgan Chase’s Blythe Masters publicly stated that the bank has no net risk exposure on derivative investments, since such investments are made only on behalf of clients.

•    Within 24 hours of Blythe Masters’ statement, news broke that a single trader for JPMC amassed proprietary positions in credit default swaps so large as to drive prices or break the market. If, indeed, JPMC is amassing such derivative positions on behalf of a client, is that client the Federal Reserve itself? Or, is the Fed simply underwriting JPMC’s proprietary trading in derivatives?

•    J. P. Morgan Chase will pay a fine of $20 million for mishandling funds belonging to commodity clients of Lehman Bros., including failure to deliver the funds promptly upon demand by the Commodities Futures Trading Commission. Though CFTC declares laws requiring strict separation of customer funds must be observed at all times, JPMC used customer funds as collateral for loans to Lehman.

•    CFTC still says nothing about JPMC’s failure to deliver funds belonging to customers of MF Global and delivered to JPMC shortly before MFG’s bankruptcy. The trustee for MFG’s brokerage is not saying how much money is missing, nor is he demanding its return.  ~