Are government job cuts undermining economic recovery?

Phil Izzo explains here that "[a]ccording to the [Labor Department's] household survey, which is where the unemployment rate comes from, there are nearly 950,000 fewer people employed by the government than there were when the recovery started in mid-2009. If none of those people were counted as unemployed, the jobless rate would be 7.1%, compared with the 7.7% rate reported on Friday. * * * No other sector comes close to those job losses over the same period. Construction is in second worst place, but its 225,000 cuts are less than a third of the government reductions. To be sure, construction and other sectors performed worse during the depths of the recession, but no area has had a worse recovery."

Has the Obama Administration lived up to its promise to be "the most transparent administration in history"?

In time for Sunshine Week, the Center for Effective Government has issued this report on how the Obama Adminsitration is doing in meeting its pledge to be "the most transparent administration in history." According to the Center, there's good and bad. Here's a synopsis:

The Obama administration has dedicated more effort to strengthening government transparency than previous administrations. The president entered office offering a grand vision for more open and participatory government, and this administration used its first term to construct a policy foundation that can make that vision a reality, issuing an impressive number of directives, executive orders, plans, and other actions aimed at bolstering government openness. With the notable, glaring exception of national security, the open government policy platform the Obama administration built is strong. However, the actual implementation of open government policies within federal agencies has been inconsistent and, in some agencies, weak.

The Center makes 10 recommendations to improve government transparency, as follows:

Create agency environments that support open government

1. The administration should assign a senior official in the White House to oversee the implementation of open government policies and ensure that individual has the authority to carry out the attendant responsibilities of implementation.


2. Agency heads should develop and make public implementation plans for key open government policies and assign a senior official the responsibility for overseeing the implementation of the agency plan. Additionally, the interagency Open Government Working Group should serve as a central forum to explore ways to improve overall implementation of open government policies.

         3. Congress should play a more active role in supporting open government practices by passing    legislation to codify open government reforms, such as the DATA Act and reforms of FOIA and declassification. Relevant committees should improve oversight of current open government policies and implementation. Transparency needs to be established by law.

Improve the accessibility and reliability of public information

1. Agencies should modernize their IT systems to create and manage information digitally, and the administration should establish benchmark requirements for electronic records that all agencies must achieve over the next four years.


2. The administration should launch an aggressive effort to improve agency compliance with its guidance on fulfilling Freedom of Information Act (FOIA) requests – speeding up processing, reducing backlogs, and increasing disclosure. The Justice Department should work with agencies to avoid FOIA litigation whenever possible and argue positions that are consistent with the president’s transparency principles when in court.


3. The administration should make proactive disclosure of public information the norm and establish minimum standards for disclosure that all agencies should adhere to, such as releasing communications with Congress and posting FOIA request logs. Additionally, agencies should continue to expand the datasets posted online and release inventories of data holdings.

Reduce national security secrecy

1. The administration should establish a White House steering committee on classification reform, initiate an oversight review of agency classification guides, and pursue policy and statutory reforms to streamline the declassification process.


2. The administration should revise its state secrets policy to require independent court reviews of secret evidence and work with Congress to permanently reform the state secrets privilege through legislation. Additionally, the Department of Justice should issue a public report on Inspector General investigations into complaints of wrongdoing that were dismissed because of state secret claims.


3. The Justice Department should renounce the use of criminal prosecution for media leaks and protect the First Amendment rights of employees.


4. The administration should order an end to secret legal opinions, memos, and directives that are used to shield controversial decisions from oversight and legal challenge.

"60 Minutes" report on drug compounding

by Brian Wolfman

Federal prescription drug oversight was significantly deregulated by the Food and Drug Modernization Act of 1997 (FDAMA), which was signed by President Clinton on November 21, 1997. Among other things, section 127 of FDAMA eliminated FDA authority over drug compounding companies, leaving regulatory oversight to state law. In theory, compounding involves only the production of a particular drug to fit the unique needs of a patient by combining or processing already approved ingredients. For instance, a compounder might re-process an FDA-approved drug to eliminate an inactive ingredient to which the patient is allergic.

Before FDAMA was enated, then FDA Commissioner David Kessler testified against exempting compounders from FDA regulation. Current FDA Commissioner Margaret Hamburg wants FDA oversight restored.

Last night, "60 Minutes" aired an expose on compounding, focusing on one compounding company that, absent any FDA oversight, produced unsterile drugs that killed and permanently injured many people. To watch the story, go here or click on the embedded video below.

 

Do taxes on income from capital discourage investment and cause job loss?

In the new tax law that went into effect on January 1, capital income tax rates on certain high-income taxpayers went from 15% to 20%. When you add in the new 3.8% Medicare surtax on net investment income, which includes capital gains, you get an overall 23.8% capital income tax rate for high-income taxpayers. (High-income generally means $400,000 in annual income for single taxpayers and $450,000 for married taxpayers.) Some people claim that higher taxes on capital income will discourage investment, harming the economy and depressing employment.

In this article, Chris Sanchirico of Penn Law School concludes otherwise. Here's the abstract:

One of the main arguments against raising capital income tax rates is that doing so discourages savings and investment and hinders economic growth. However, academic research on taxes and growth suggests that this argument has no real basis. And the primary alternatives to capital income taxation — labor income taxes and increased government borrowing — carry their own potentially adverse effects on growth.

More on the Proposed Safe Lending Act

by Jeff Sovern

Earlier in the week I linked to a Times editorial, Bleeding the Borrowers Dry, about the practice of online payday lenders of lending to consumers in states that bar the kinds of high-interest rate loans payday lenders provide.  Here is a link to my letter in the Times about the prospects of a bill that would block payday lenders from charging higher rates than allowed in the state the borrower lives in. 

FTC Pursues Phone Text Spammers

The Times report is here.  An excerpt:

The messages, which typically promise gift cards to national chain stores or other prizes, are sent to random phone numbers and usually direct recipients to a Web site where they are asked for personal information like Social Security numbers or credit card numbers, agency officials said.       

Rarely, if ever, do consumers receive any actual reward, said C. Steven Baker, the commission’s Midwest region director. Instead, the Web sites often take users through multiple screens that ask them for more detailed information or entice them to sign up for free trials of products, then charge them for shipping and handling.

* * *

Roughly 60 percent of mobile phone users have received one or more spam text messages in the last year, [Baker] said, and about 15 percent clicked on the link included in the message.

Federal law  bars the use of automated dialing machines to send text spam, which as a practical matter means that such spam is illegal, because it takes so much time to send texts manually that text spam becomes uneconomic. 

Reuters: States probing top U.S. banks over debt collection

by Jeff Sovern

Here.  An excerpt:

As with the mortgage cases, the investigation focuses on the banks' poor paperwork and their weak tracking of the debts.

When they sold delinquent credit card debt to the buyers, often at only a few cents on the dollar, they allegedly failed to provide them with the evidence that the borrowers owed the money. It is unclear, however, if the incomplete information was used to pursue borrowers who were not delinquent.

* * *

Investigators are finding that the banks often did not provide buyers of the debt with evidence that individual credit card accounts were delinquent. Instead the banks only provided basic information about how much money they thought was owed and who the borrower was, without providing original contracts, past statements, or other additional documentation.

I would be curious to know the cause of action  My guess would be a UDAP violation.  The FTC and CFPB are also looking into the matter; perhaps the CFPB could use its power to curtail abusive practices.  One interesting feature about this is that consumers are not parties to the sales of the debts, yet they are the ones who are injured.  The probe raises a host of questions: for example, if creditors are obliged to furnish the underlying information when selling the debts, presumably their costs will increase.  Will they respond by raising prices to debt buyers?  And will those higher prices make the purchase uneconomic for the debt buyers?  If debt buyers have the paperwork, will they use it to prove their claims, thus depriving the rare consumers who are represented by counsel or otherwise well-advised of a successful defense that the debt buyer can't prove the claim?  Will debt buyer claims end up being for lower amounts because the paperwork doesn't substantiate the amounts they have been claiming?  Or will the only change be better-substantiated default judgments?

Two Conceptions of Concepcion

Arpan Sura and Robert A. DeRise, both of Arnold & Porter, have written Conceptualizing Concepcion: The Continuing Viability of Arbitration Regulations.  Here's the abstract:

Section 2 of the Federal Arbitration Act (“FAA”) provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” In AT&T Mobility Limited, LLC v. Concepcion, a sharply-divided Supreme Court held that the FAA preempted a California unconscionability rule that effectively guaranteed plaintiffs the right to class action arbitrations. A wildly controversial decision, Concepcion has left courts and litigants uncertain about whether longstanding state and federal regulations on the arbitration process remain viable. To take but a few examples, may the draftor of an adhesive contract select the arbitrators unilaterally or eliminate all of a plaintiff's rights to discovery? State and federal courts have traditionally not permitted such behavior. But to date there has been no systematic analysis of the impact of the Concepcion Court’s expansive reasoning on such regulations.

This article — the first of its kind to do so — fills that void. We argue that Concepcion has entrenched, and in many ways rewritten, the fundamental principles of arbitration jurisprudence. What made Concepcion a bellwether was not its narrow holding on class actions, but rather its unprecedented analysis of when and how the FAA trumps other laws. In earlier opinions, the Court had suggested that the FAA would trump rules that were not “generally applicable” but instead were applied to discriminate against arbitration. But in Concepcion, the Court devised a new test that held that the California rule was preempted because it conflicted with the “fundamental attributes of arbitration” — informality, efficiency, reduced costs, and speed.

We argue that the Court’s newly-minted preemption analysis, in combination with its free-floating abstractions about arbitration’s “fundamental attributes,” threaten to jeopardize a bevy of facially neutral contract laws merely because they are applied to arbitration agreements. In formalizing what arbitration is and why it is important, Concepcion has unwittingly upended decades of statutory and common law that hinder arbitration’s “fundamental attributes.” This article describes how the Court arrived upon this precipice, shows how going over — taking Concepcion’s reasoning to its logical conclusion — disrupts a longstanding body of law, and suggests a lodestar to guide courts and litigants safely back from the post-Concepcion cliff.  

Meanwhile, Lisa Tripp of Atlanta's John Marshall and Evan R. Hanson have written AT&T v. Concepcion: With Only Four Votes for the Deciding Rational [sic], Is it Precedent?. Here's their abstract:

The Supreme Court’s 2011 decision in AT&T v. Concepcion is considered by many to be a landmark decision which has the potential for greatly expanding the already impressive preemptive power of the Federal Arbitration Act (FAA). It is a well-known case exploring the interplay between state law unconscionability doctrine and the vast preemptive power of the FAA. In spite of its significance as an FAA case, Concepcion’s real importance may lie elsewhere.

AT&T v. Concepcion is ostensibly a 5-4 majority decision with a concurring opinion. However, the differences in the majority and concurring opinions present a unique conundrum for lower courts. Although the Court is not divided in form, there being 5 Justices who joined the majority opinion, it is indisputably divided in substance.

Justice Thomas joined the majority opinion and provided the fifth vote, but wrote a concurring opinion that explicitly rejected the legal reasoning of the majority opinion in its entirety. The putative majority opinion authored by Justice Scalia allows that unconscionability can be a valid defense to the enforcement of an agreement to arbitrate, but in Concepcion, allowing California to apply its unconscionability doctrine (the Discover Bank rule), would frustrate the purposes and objectives of Congress in enacting the FAA. For these reasons the Scalia opinion finds the law is preempted.

Justice Thomas, in contrast, does not believe that unconscionability can ever be a basis to invalidate an agreement to arbitrate and he reaffirmed his emphatic position articulated in Wyeth v. Levine that “[t]his Court’s entire body of purposes and objectives preemption jurisprudence is inherently flawed. The cases improperly rely on legislative history, broad atextual notions of congressional purpose, and even congressional inaction in order to pre-empt state law.” Justice Thomas’s conclusion that the law was preempted turned on the text of the statute which he interprets as not allowing unconscionability-based defenses to preemption. Justice Thomas has reaffirmed his rejection of purposes and objectives preemption in cases decided after Concepcion. This means, looking at the substance of the opinions, that there are but four votes for the ratio decidendi articulated in the Scalia opinion and there is not a single common denominator that the Scalia and Thomas opinions share, except that they agree on the result.

The Concepcion Court is, in substance, equally divided. Four members found that California’s unconscionability doctrine frustrated the purposes and objectives of the FAA, four in the dissent thought the law did not frustrate the purposes and objectives of the FAA, and one found that the purposes and objectives of Congress were immaterial to the resolution of the case.

How should lower courts react to an equally divided court in this situation? The Supreme Court provided the answer over 100 years ago in Hertz v. Woodman: "Under the precedents of this court, and, as seems justified by reason as well as by authority, an affirmance by an equally divided court is, as between the parties, a conclusive determination and adjudication of the matter adjudged; but the principles of law involved not having been agreed upon by a majority of the court sitting prevents the case from becoming an authority for the determination of other cases, either in this or in inferior courts."

Under any rational reading of the opinions, there can be no doubt that “the principles of law involved [have not] been agreed upon by a majority of the court sitting” and this should “prevent[] the case from becoming authority for the determination of other cases, either in [the Supreme Court] or in inferior courts.” Although Hertz dealt with a situation where the votes were literally split, its point that it takes a majority to create a governing rule is inescapable. In looking at the substance of the Scalia and Thomas opinions, there simply are not five votes for any aspect of the controlling rational articulated by Justice Scalia in his putative majority opinion. Because of this, Concepcion must, like two other Supreme Court cases that are similar to it, Branzburg v. Hayes and United States v. Verdugo-Urquidez, be treated as not having a majority opinion for precedential purposes.

 

 

Did you know that this is National Consumer Protection Week? Now you do.

According to its sponsors -- dozens of consumer groups and government agencies -- "National Consumer Protection Week (NCPW) is a coordinated campaign that encourages consumers nationwide to take full advantage of their consumer rights and make better-informed decisions. NCPW 2013 will take place March 3 through March 9, 2013." Go to this comprehensive website for all sorts of information.

Ginger Chouinard Paper on Lesser-Known Credit Reports

Ginger Chouinard of New Mexico has written The 'Other' Credit Report: What You Don't Know Can Hurt You.  Here's the abstract:

Nearly 90% of financial institutions use ChexSystems or similar account screening reports in their account opening process, yet they are under no duty to disclose this to consumers until an account is denied due to information contained in the report. For those consumers denied accounts, it is too late. They had no idea information was being collected on their checking account usage, much less that it could be used to deny them an account in the future, and are subsequently forced to go outside the mainstream and use expensive alternatives like check cashing services and money orders to conduct their everyday financial business. Increased consumer awareness of these reports is necessary so that consumers better understand the impact poor account management may have on their future usage of traditional banking services.

This article examines these reports, the impact on consumers when they can’t open a new account based on information contained in such reports, and how changes in overdraft practices have encouraged poor account management, which in turn may have resulted in even more negative reports. The article also examines how the Fair Credit Reporting Act (“FCRA”) applies to account screening reports and whether new overdraft practices technically result in loans, triggering additional disclosure. The article concludes with recommendations, discussing how the reporting system could be improved and how consumers could be better informed and protected.