Tuesday, October 20, 2020

Amy Coney Barrett, the ACA, Abortion, and the Future of the Supreme Court

Two big issues that the opposition to Amy Coney Barrett's confirmation as an Associate Justice of the U.S. Supreme Court have focused on are abortion and the Affordable Care Act. With respect to the ACA, Barrett seems open to a severability argument. As I understand it (I have not researched this in depth), in the current case before the Supreme Court, those, including the Trump Administration, who want the Supreme Court to decide that the ACA is unconstitutional are arguing that the mandate to have health insurance is no longer a tax since Congress lowered the penalty to zero and hence is unconstitutional. This, they argue means, that the ACA in its entirety is unconstitutional. The doctrine of severability implies that the Court could decide that the mandate is unconstitutional but not strike down the rest of the ACA. (The Congress next year could change the law so that there is a penalty, perhaps small, which would seem to moot the case.) In the future, others could bring different cases to attack the ACA, and it is possible with Barrett on the Court that it could reverse its recent precedent on this. Of course, while I think this is not that likely, it is also possible that Barrett and four other Justices decide for some reason that severability does not apply in the current case before the Court.

Abortion has been a hot-button issue for a long time. As way of background, before Roe v. Wade, there was the 1965 case, Griswold v. Connecticut. Contraception was illegal in Connecticut, and in this case, the Supreme Court decided that married couples had a right of privacy under the Constitution and could, therefore, not be denied the use of contraceptives. (A 1972 case, Eisenstadt v. Baird, extended the right to use contraception to unmarried couples. This struck down a Massachusetts law based on the Equal Protection Clause of the 14th Amendment.) The Roe v. Wade opinion used the right of privacy argument stemming from the Griswold case to hold that laws prohibiting abortion were unconstitutional.

It is, therefore, instructive that, when asked at her confirmation hearing whether she agrees with the Court's Griswold opinion, Barrett refused to answer. She did say that it was unlikely that Griswold would be struck down, since, for that to happen, a state would have to enact a law prohibiting contraception and the challenge to that law would go to the Supreme Court. She viewed this as unlikely. (While it is unlikely that a state legislature would pass a law prohibiting all contraception, it is possible that a state could enact a law prohibiting certain types of contraception, especially those viewed by some as “abortifacients.” That would likely reach the Supreme Court.)

In contrast to Barrett, when John Roberts was asked about the Griswold case at his confirmation hearing to be Chief Justice, he answered that “there is a right to privacy protected as part of the liberty guarantee in the Due Process Clause.” He further said: "I agree with the Griswold Court’s conclusion that marital privacy extends to contraception and the availability of that."

Clarence Thomas at his confirmation hearing to be an Associate Justice also said he agreed with the Griswold decision, saying “my bottom line was that I felt that there was a right to privacy in the Constitution, and that the marital right to privacy, of course, is at the core of that.”

Samuel Alito at his confirmation hearing also affirmed that there was a right of privacy under the Constitution. He was a bit more ambiguous about Griswold: “I agree that Griswold is now, I think, understood by the Supreme Court as based on the liberty clauses of the due process clause of the Fifth Amendment and the 14th Amendment.” 

The two newest Justices would not say whether they agreed with Griswold. When asked at his confirmation hearing about Griswold, all Justice Neil Gorsuch would say is that it was long-established precedent. He would not answer whether he agreed with the decision.  Justice Brett Kavanaugh also refused to say whether the agreed with the reasoning of the Griswold decision in his confirmation hearing.

Given that Roe v. Wade relies on Griswold and that there seems to be some Justices who do not believe that the Constitution grants a right of privacy, it is not that hard to see it being reversed at some point in the future.

However, sometimes lost in the discussion of Roe v. Wade is a discussion of the Planned Parenthood v. Casey decision (1992), which modified Roe v. Wade by applying on state restrictions on abortion "an undue burden" test. In subsequent decisions, the Supreme Court has found that many state laws applicable to abortion clinics do not pose an "undue burden" on women who want to have an abortion. As a result, many women of limited means find it nearly impossible to obtain an abortion in some states. (Other states, such as Virginia, have relaxed in recent years the laws applicable to abortion.) In other words, while the Court has claimed that the central holding of Roe v. Wade has been affirmed, how much access there is to abortion as a practical matter remains to a great degree up to state governments.

As a self-defined “originalist,” Barrett most likely disagrees with the right of privacy justification in Griswold for striking down the contraception law in Connecticut. Moreover, one can say with a great deal of certainty that she believes that Roe v. Wade was wrongly decided. The real question is what she thinks of the Casey decision, which relies heavily on the doctrine of stare decisis to uphold a woman’s right to terminate a pregnancy prior to the point of viability. Casey, though, does jettison the trimester approach in Roe and explicitly allows for state rules governing abortion unless they impose an “undue burden” on a woman’s right to obtain an abortion.

The authors of the governing decision in Casey – Justices Sandra Day O’Connor, Anthony Kennedy, and David Souter -- spend quite a few words worrying about the Court’s perceived legitimacy if it did not adhere to stare decisis with respect to Roe. They do say that there are times when a decision is so egregious that it must be overturned. They mention specifically Lochner v. New York and Plessy v. Ferguson. Lochner struck down a New York State law limiting bakers to work at most 60 hours a week and Plessy v. Ferguson decided that racial segregation laws were constitutional for facilities that were “separate but equal.” With respect to Roe, the Justices writing the controlling opinion in Casey wrote: “In contrast, because neither the factual underpinnings of Roe’s central holding nor this Court’s understanding of it has changed (and because no other indication of weakened precedent has been shown), the Court could not pretend to be reexamining Roe with any justification beyond a present doctrinal disposition to come out differently from the Roe Court. That is an inadequate basis for overruling a prior case.”

It is not clear what Barrett thinks of this argument, and, if she disagrees, how far she is willing to go in limiting the legal right of women to terminate pregnancies. It is also not clear how far four other Justices are willing to go, now that the “conservatives” (assuming Barrett is confirmed) will have a clear majority and their decision will have real-word effects. At a minimum, it is likely that Roe will continue to be whittled down by burdens that the Court decides are not “undue.” Whether they go further than that is uncertain. They know that public sentiment is not on their side.

Making abortion illegal would not eliminate it. There will always be women who will seek abortions, no matter how easily available various types of contraception are. If it is illegal, there will be illegal and, in many cases, unsafe abortions. That is not an optimum policy result.

While the most likely result is a patchwork of different laws among the states concerning abortion, according to Laurence Tribe, Congress could make it illegal everywhere if Roe were overturned. I doubt that would happen, given public opinion on the subject, but it is worth keeping in mind. Also, Tribe points out in a 2018 tweet, that Roe “is a 2-sided coin. It protects a woman’s liberty to choose *whether or not* to bear a child. Relegating that choice to the state isn’t a PRO-LIFE move but an ANTI-LIBERTY move. If a state can say ‘stay pregnant!’ it can also say ‘abort!’” Again, that is unlikely but possible.

The concentration on the ACA and abortion partially eclipses other matters that come before the Court. With Barrett on the Court, one can easily see the dismantling of many regulations that business interests view as "undue burdens," such as those protecting the environment and worker safety. Also, there could well be decisions allowing more voter suppression than is currently the case.

Barrett argues that the originalist approach to the Constitution is one of judicial modesty. She says that the elected branches should make policy, not unelected Justices. However, if the Supreme Court interprets the Constitution as limiting severely what legislation is permissible, the Court will be in the policymaking business, as it was when it was striking down New Deal legislation, leading President Franklin Roosevelt to propose a complicated court-packing scheme. While that proposal was and is viewed by most unfavorably, there is an argument that it worked, since two Justices subsequently started voting with the liberals then on the Court. “A switch in time saved nine.”

Saturday, August 8, 2020

Book Review: The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy

Modern monetary theory (MMT) is controversial. It upsets deficit hawks because it claims that the limits on running a budget deficit for a government that is a “currency issuer” (unlike state governments or members of the Eurozone) are the productive capacity of the economy and inflation. A currency issuer can always make good on debt that is denominated and paid in its own currency. Also, it upsets most mainstream economists with its argument that fiscal policy, rather than monetary policy, should be the main instrument that should be used by governments that are currency issuers to steer the economy to full employment and low inflation.

Stephanie Kelton’s new book, The Deficit Myth, aims to convince interested persons in the correctness of these ideas. It can be easily read by non-economists, but the simplification of the argument does not help it to be persuasive.  

The book is at its best when discussing the budget deficit of a currency issuer government. She argues persuasively that analogies to corporations or household budgets are not appropriate.1 Many economists would agree with this, though most would be concerned about the budget deficit when the economy is doing well. Kelton would respond to that criticism by pointing out that the government should not run budget deficits when inflation starts appearing. In the current circumstances, most economists would agree that the large budget deficits of the federal government are necessary.

However, the book is a disappointment. With regard to budget deficits, Kelton does not acknowledge that at some point there could be a lack of confidence in a particular currency, justified or not, which could affect the foreign exchange market and force the government to change its policies.

The most grievous flaw in the book is the brushing aside of institutional detail. The author asserts that the government just issues newly created money to pay its bills and then replaces some of that money with government securities. In the U.S. that is not quite how it works under the current institutional arrangements. The Treasury maintains in effect a checking account at the Federal Reserve. Treasury staff make projections for the months ahead of the amounts of cash that will come into that account and will go out of that account on a daily basis. Then Treasury decides the timing and quantity of its security issuance so that its balance does not go negative. Treasury is prohibited from borrowing directly from the Fed, but an inadvertent one-day overdraft is permitted. 

Also, Kelton seems to argue that the government is the sole source of money creation. However, the Federal Reserve controls the monetary base, but it is the banking system that creates money by taking in deposits and lending it out. The ratio of the supply of money (M1 or M2) and the bank reserves that the Fed creates is not constant.2

Another monetary issue that Kelton ignores is the velocity of money, which is the ratio of the GDP to the money supply. That is also not constant.3 

MMT proponents do not provide a convincing explanation of the combination of inflation and a bad economy in the 1970s (“stagflation”). They are not alone in not explaining convincingly why this happened, but, since their core argument is that deficit spending is only limited by the productive capacity of the economy and inflation, they need to address it.

Finally, with regard to fiscal and monetary policy, Kelton ignores that the Fed can act very quickly, but Congress cannot. And even when Congress passes appropriation legislation that the President signs, it takes some time for the spending to take place. 

The argument that the central bank should be made a bit player and all the action should be concentrated in fiscal policy is not convincing. Kelton surely knows of the issues I have mentioned here, but to simplify her argument she ignores them. If she writes another book, she should address these types of issues and be more explicit about what she is advocating and why she thinks it is practical and feasible, both technically and politically.

The book also addresses Social Security, and I mostly agree with her discussion of this. From an economic perspective, it does not really matter whether benefits are paid from the general fund or the Social Security trust fund, though it matters politically. In this regard, the argument is made by conservatives and others that we should not let the trust funds run down enough that money from the general fund is necessary to make sure that benefits are not cut. This, they say, would make the program subject to politics. This is ridiculous on its face, since Social Security benefits are already subject to politics, as they amply demonstrate by making the argument that future benefits should be cut. They argue that we need to cut future Social Security benefits now in order “to protect” Social Security. From what?  Politics?   

In another chapter, Kelton argues that the federal government should act as an employer of last resort when the economy is doing badly. The attractiveness of this idea is clear, and to an extent during the Depression, entities such as the Civilian Conservation Corps were set up to provide employment when there were no private sector jobs to be had. However, Kelton underestimates the enormous practical challenges of setting up and administering an agency or agencies that would employ people when the unemployment rate was high. For the idea to be taken seriously, more thought needs to be given about how this would work and what type of jobs would be offered. For example, let’s say that the demand for aerospace engineers collapsed. What would the government employ them to do?

Currently, the U.S. government is conducting a giant economic experiment. It has been spending without regard to the budget deficit, at least until recently when Congress is having difficulty passing legislation to spend more money to help the economy. The Fed has essentially monetized the deficit. While Treasury cannot borrow directly from the Fed, the Fed has been buying up Treasury securities in large amounts in the market, thus replacing Treasury securities with bank reserves. The adherents to MMT and most economists think this is necessary in the situation we find ourselves in. In fact, the well-respected journalist, Sebastian Mallaby, who generally holds more traditional economic views than that of MMT, calls this “the age of magic money.”

In a way then, MMT is being tested, but there may be a return to more traditional ways of thinking once the current crisis is over. MMT cannot be as easily dismissed as Larry Summers tried to do in a March 2019 article for the Washington Post (“The left’s embrace of modern monetary theory is a recipe for disaster”). But it needs more work, and they will have to get into the details of how the monetary system works and how they would reform it in order not to be dismissed as a fringe group, in the manner Art Laffer’s version of supply-side economics is viewed.

Endnotes:

1. In this regard, President Obama was wrong when he said that the government needed to tighten its belt just as families were doing. Precisely the opposite is necessary when the economy is doing poorly.

2. This incidentally is a problem with the monetarism associated with Milton Friedman, which often implicitly assumed that it is constant. 

3. Again, the monetarists usually assumed that velocity was relatively constant and that the central bank only had to worry about the amount of reserves it created. Friedman, only half-jokingly, said that we did not need an open market committee at the Fed, a computer could be programed to do this.

Wednesday, March 4, 2020

Comments on 2020 Presidential Politics


Because the Iowa caucuses and the New Hampshire primaries are the first contests for the Democratic and Republican parties’ nomination process, they receive outsized attention by the candidates and the news media. In fact, few delegates are at stake, but they provide a test of the candidates’ retail politics abilities and do not provide insurmountable financial barriers that the larger states often present. Despite the cold weather, reporters seem to enjoy covering these events, and defend them for the seriousness that the voters of these states consider their choices. As has been pointed out, though, the demographics of both states do not reflect the country at large, and the population of both states is largely white. Many question the role that these two states play in choosing the next President of the United States.

With no real contest taking place among the Republicans this year, the focus has been on the Democrats. Before the New Hampshire primary, four significant Democratic contenders,  Beto O'Rourke,  Kamala Harris, Cory Booker, and Juli├ín Castro dropped out of the race. All four were attractive candidates and three are non-white. However, their polling numbers, financial difficulties, and, in the case of Kamala Harris, campaign management problems caused their departures, not the first two electoral contests. After New Hampshire, Andrew Yang dropped out.

More significant this year was the next primary, South Carolina. Arguably, the makeup of the Democratic Party in that state is also not representative of all Democrats. Approximately 60 percent of the Democratic electorate in that state is African-American. The South Carolina primary served to resurrect the candidacy of Joe Biden, whom many had written off, and propelled him to victory in many states on Super Tuesday.

This is a strange way to choose the Democratic nominee. Unless some development totally collapses Trump’s candidacy, he will almost certainly win South Carolina’s electoral votes in November. The Democrats in that state though appear to have had the largest voice in picking the Democratic nominee. It is still possible for Bernie Sanders to win the nomination, especially after his performance in California, but as of now, the odds favor Biden. The reason that they do is the results of the South Carolina primary.

As far as the general election goes, Trump will have the support of an enthusiastic base, but he needs more than that to win. If Sanders were to win the Democratic nomination, he would have an enthusiastic base, but many in the center would not vote for him. They also might not vote for Trump in large numbers. If Biden were to win, he would not have an enthusiastic base supporting him, but he would have the votes of all who dislike Trump, which is sizeable. The betting of the Democratic establishment and primary voters is that Biden has the best chance to beat Trump.

Trump would probably prefer to run against Sanders, whom the Republicans would portray as a dangerous socialist and point to communist regimes as illustrating the danger. This would be unfair to his positions and what he could conceivably get enacted by Congress, but it could work. With Biden, the Republicans are going to point to his gaffes and hint that age has taken a sufficient toll on Biden that he should not be President. It is not clear that strategy will work.

Democrats need to more forcefully discuss Trump’s unsavory business history than did Hillary Clinton’s overly confident campaign. They also need to criticize his record as President, including the inhumane treatment of people trying to enter the country, tax policies slanted to the rich, attempts to repeal the ACA, a muddled foreign policy, disastrous environmental policies, and arguably illegal uses of his office to further his political and financial interests.

It will be a dirty and hard-fought campaign.

Wednesday, October 3, 2018

Book Review: The Fed and Lehman Brothers by Laurence M. Ball


Laurence M. Ball is the Chair of the Economics Department at Johns Hopkins University. He has been researching and writing papers about the events that led to Lehman Brothers’ filing for bankruptcy on September 15, 2008. This research has led to him writing an important book aimed at an audience beyond financial economists and other financial industry professionals, The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster. The thesis of the book is quite simple: the real reason that the Federal Reserve did not extend loans secured by Lehman collateral in order to stave off bankruptcy and give the firm a chance to survive, as it did with other firms before and after Lehman’s bankruptcy, was due to political considerations. He bluntly states that the argument that Ben Bernanke, Timothy Geithner, and Hank Paulson, who, during the 2008 financial crisis were respectively the Chairman of the Federal Reserve Board, the President of the Federal Reserve Bank of New York, and the Secretary of the Treasury, make that the Fed lacked the legal authority to extend a loan to Lehman Brothers due to its insolvency and lacking sufficiently good collateral is flatly wrong.
The first part of the book is important but a bit of a slog to get through. Ball examines in detail Lehman’s balance sheet, the law with respect to Fed loans to non-members of the Federal Reserve System, Lehman’s assets available as collateral for a loan, and the reasons for its liquidity problems. After reading Ball’s analysis of these matters, it is hard to see what convincing rebuttal Bernanke, Geithner, or Paulson could offer. The last part of the book is somewhat easier to read as it analyzes what various officials said to the committees of Congress and to the Financial Crisis Inquiry Commission. The author conclusively demonstrates that the decision not to extend a loan to Lehman to buy time so that Barclays could go through the procedures UK regulators were insisting to purchase Lehman or for some other arrangement, including in the worst case an orderly liquidation, could be made. The person most responsible for this political decision, Ball argues, is the one who had no legal authority in this matter, Secretary Paulson, who from all reports can come on forcefully, making other fearful to oppose him. One does not become the head of Goldman Sachs, his previous job, with a self-effacing or modest manner, as Bernanke, who is obviously a brilliant economist, often does. Geithner, whom I know, is no shrinking violet and can be charming or, if he believes the situation demands it, will display a calculated show of anger, apparently felt it judicious in the fast-moving crisis to defer to Paulson. It is not clear whether Bernanke or Geithner totally agreed with Paulson. They may have, or they may have harbored doubts.
Paulson seems to have come to his decision for two related reasons. The first is that he believed that bailing out Lehman would increase moral hazard. That is jargon for saying that, if firms know that they are going to be bailed out if they get into trouble, they are more likely to take more risks than they otherwise would. The other reason is that Paulson did not want to be known as “Mr. Bailout.” That, one notes, means that even though he lacked the legal authority to decide on Federal Reserve policy in this matter, he was cognizant that public perception, as well as the underlying reality, was that he was the official effectively making the decisions.
After the failure of Lehman, the Federal Reserve and subsequently the Treasury with the creation of the Troubled Asset Relief Program fund bailed out various financial institutions. In particular, Ball points to the bailout of AIG. Ball, though, could have pointed out that there was an enormous exposure of various firms to a unit of AIG, because many of them had entered into credit default swaps with AIG in seeking to reduce their exposure to possible defaults on home mortgages. It is likely that a failure of AIG would have been even more calamitous for the financial system and the economy than Lehman’s was. In this connection, it is worth mentioning, though Ball does not because his focus is on Lehman, that it was a failure of the various financial regulators to notice the risk that firms subject to regulation and oversight were collectively off-loading to AIG. The Office of Thrift Supervision (OTS) was theoretically responsible for overseeing AIG, because its ownership of a savings and loan made it a thrift holding company, but OTS did not have the resources to do this. The other financial regulators had access to the information about the transactions their charges were doing with AIG and could have inquired. They all seem to have missed this and did nothing.
Also, while Ball clearly believes that the failure to stave off Lehman’s bankruptcy was a mistake, he could have addressed a contrary argument made by then New York Times financial columnist Joe Nocera in September 2009 in an article headlined “Lehman Had to Die So Global Finance Could Live.” Nocera argues that, even if Lehman had been bailed out, the financial crisis would have proceeded, and the next financial institution to be on the brink of failure would have been a larger, more significant institution (for example, AIG). The failure of Lehman, unfair as it was, turned out to be necessary because its aftermath demonstrated the need to bailout other institutions. Nocera writes: “John H. Makin, a visiting scholar at the American Enterprise Institute, wrote recently, ‘If the Lehman Brothers’ failure had not triggered the panic phase of the cycle, some other institutional failure would have done so.’ I’ll go a step further: it is quite likely that the financial crisis would have been even worse had Lehman been rescued. Although nobody realized it at the time, Lehman Brothers had to die for the rest of Wall Street to live.” Of course, no one knows what would have happened if Lehman had been bailed out. Would the government have bailed out each institution as it came to the brink of failure and avoided the financial calamity that took place?
 I would be a bit more forgiving than Ball of the decision Paulson and others made about Lehman. They were under a great deal of pressure and thought that the market would not react too badly to a Lehman failure. What is more difficult to understand is why the three principals and others have stuck to a story about a lack of legal authority to have done something different. They have not made a convincing argument that this was true, and Ball has demolished this story convincingly. It would have been, and still would be, better to admit that this was not the real reason, or, in the alternative that their understanding of Lehman’s financial situation and the applicable law was imperfect. They could also argue that pursuing another course would also have been disastrous.

Friday, August 31, 2018

Book Review: “American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold” by Sebastian Edwards


For many years, I worked on public debt management issues at the U.S. Treasury Department. One of the things we touted was the safety of U.S. Treasury securities. Of course, Standard & Poor’s downgraded the credit rating of Treasury securities in 2011 from AAA to AA+ in reaction to the debt limit crisis of 2011—I was no longer working at the Treasury thenbut Treasury has always held to the line articulated by Secretary of the Treasury Robert Rubin that default was “unthinkable,” which, if you think about it, is a clever bit of ambiguity. 
Lurking usually quite quietly in the background, though, has been the abrogation of the gold clauses on government bonds (and private-sector ones) by the Joint Resolution of June 5, 1933. This resolution stated in part:
Resolved by the Senate and House of Representatives of the Clauses in Congress assembled, That (a) every provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount in money of the United States measured thereby, is declared to be against public policy; and no such provision shall be contained in or made with respect to any obligation hereafter incurred. Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts. Any such provision contained in any law authorizing obligations to be issued by or under authority of the United States, is hereby repealed, but the repeal of any such provision shall not invalidate any other provision or authority contained in such law. 
Sebastian Edwards new book, American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold tells the story of the Roosevelt Administration’s improvisational approach to handling the Depression and its concomitant financial sector problems with respect to gold. The aim was to combat deflation and, especially, increase the price of agricultural commodities, and this eventually led to the Joint Resolution. The action then moves to the Supreme Court, which effectively, though in the case of government bonds not literally, upheld the abrogation of the gold clauses for both government and private sector bonds in opinions (decided 5-4) written by Chief Justice Charles Evan Hughes. The opinions give different reasons for the two type of bonds. Technically, in the case involving government bonds, the opinion stated that Congress had exceeded its power in abrogating the gold clause but that the plaintiff had not suffered any damages. It relies on the fact that gold was no longer permissible to be used as money in the United States. The reasoning is a bit hard to follow, but here is the key paragraph of the opinion:
Plaintiff demands the “equivalent” in currency of the gold coin promised. But “equivalent” cannot mean more than the amount of money which the promised gold coin would be worth to the bondholder for the purposes for which it could legally be used. That equivalence or worth could not properly be ascertained save in the light of the domestic and restricted market which the Congress had lawfully established. In the domestic transactions to which the plaintiff was limited, in the absence of special license, determination of the value of the gold coin would necessarily have regard to its use as legal tender and as a medium of exchange under a single monetary system with an established parity of all currency and coins. And, in view of the control of export and foreign exchange, and the restricted domestic use, the question of value, in relation to transactions legally available to the plaintiff, would require a consideration of the purchasing power of the dollars which the plaintiff could have received. Plaintiff has not shown, or attempted to show, that, in relation to buying power, he has sustained any loss whatever. On the contrary, in view of the adjustment of the internal economy to the single measure of value as established by the legislation of the Congress, and the universal availability and use throughout the country of the legal tender currency in meeting all engagements, the payment to the plaintiff of the amount which he demands would appear to constitute not a recoupment of loss in any proper sense, but an unjustified enrichment.
For those really interested, the government bond opinion can be found here, 294 U.S. 330 (1935), and the private sector bond opinion can be found here, 294 U.S. 240 (1935).) It is worth noting that this is the same Supreme Court which infuriated FDR in its decisions on some other cases involving laws implementing the New Deal, leading to his failed court packing scheme. In the event, personnel changes at the Supreme Court during FDR’s long presidency ultimately resolved the Administration’s problems with the Court.
I became aware of these cases early in my tenure of working in the Domestic Finance section of Treasury. At the beginning of the Reagan Administration, there was pressure from supply siders and conservative economists, most prominently Milton Friedman, for the Treasury to sell bonds linked to gold. The aim was to return the U.S. to an ill-defined gold standard, the last vestiges of which had been ended by President Nixon in August 1971. A gold commission was set up by the Administration, but, for those in the know, it was clear that the idea of returning to some sort of gold standard was going to be rejected, given the makeup of the commission. Secretary of the Treasury Donald Regan was not keen on the idea. (As an aside, I hated Secretary Regan’s management style of creating discord among Treasury staff, but he usually made reasonable decisions after all the fighting. He did understand finance and was no dummy.) 
In our commenting on gold backed bonds, Domestic Finance did mention the abrogation of the gold clauses, thought not as the main argument against issuing gold backed bonds. (I wrote these memos but am now relying on memory since I do not have access to them.) The abrogation of the gold clauses also came up in public presentations of Treasury’s plans to issue inflation-indexed bonds in the 1996 and 1997. Some people publicly complained about Treasury having “defaulted.” Treasury’s position of course is that the Supreme Court in 1935 had upheld Treasury’s payment on these bonds as payment in full.
For those interested in this subject, Edward’s book provides a wealth of information. It is an interesting episode in the financial history of the United States, and, while, at least to the lay reader, the Supreme Court opinion on government bonds appears somewhat tortured, one can understand why Chief Justice Hughes wrote it given the times. 
Unfortunately, though, I cannot recommend this book for the general reader. The book was obviously written and produced in a hurry. I have never read a book with as many typographical errors as this one. Also, graphs are not clearly labelled, which puts an unnecessary burden on the reader to figure out what is being shown. More importantly, the author demonstrates in his introduction that he can write well, but the rest of the book in not as engaging as the introduction. As a commenter on the Goodreads said, the book is not a “page turner.”
The author, who is an economics professor at UCLA, writes that he became interested in this subject when working on Argentinian debt issues in 2002. While he concludes at the end of the book that some emerging nations are likely to default on foreign currency obligations on their debt, he does not provide much in the way of analysis of the similarities and differences between what the U.S. did in the 1930s and what some countries have done and may do in the future. 
In short, the book is useful as a starting point for a discussion of these issues given the research the author undertook, but it does not present a fully formed argument. If Edwards returns to this subject, I hope he has more to say than that it is a myth that the U.S. has never defaulted on its debt (a proposition that can quickly turn into a legal and semantic argument.)

Friday, April 20, 2018

Book Review: “Blue Dreams: The Science and the Story of the Drugs That Changed Our Minds” by Lauren Slater


Lauren Slater is a practicing psychologist and writer. As a psychologist, she cannot, and does not want, prescribing privileges, but she knows a tremendous amount about the drugs psychiatrists have used and now use in their practices, due to both her research and her personal experience with some of these drugs. She has suffered from severe depression, which at times has resulted in hospitalization, and the drugs she has been prescribed have helped but with a significant toll on her body. When she started taking Prozac, it helped, but over time she had to take increasing amounts to achieve the same effect. She is now on a cocktail of other drugs. She says that the pills she has taken and is currently taking have ruined her physical health, making her overweight and diabetic, but she would not have been able to have a productive life without them. She is hopeful that new approaches, some involving hallucinogenic drugs popular in the counterculture of the 1960s, may prove to be better treatments, but the new approaches will not, she has been told, work for her because of the drugs she is currently taking and dares not quit.
In February, I attended her book talk at a Washington, DC bookstore, Politics and Prose. (The video of this talk can be viewed here.) The talk took the form of an interview by Olga Khazan, a writer for The Atlantic. I found what she had to say interesting and was motivated to read the book, Blue Dreams: The Science and the Story of the Drugs That Changed Our Minds.
Blue Dreams is very well written, and, even though I found myself having to look up more words than I usually do, mostly technical terms, the book is entertaining to read. She weaves her own personal story with the history of various psychiatric drugs, beginning with Thorazine. All the drugs had promise, but they all came with severe side effects. 
One of Slater’s main points is that the medical community does not know how or why these drugs work. For example, the selective serotonin reuptake inhibitors (“SSRIs”, such as Prozac. Paxil, and Zoloft) were promoted to cure low serotonin levels, which was said to lead to depression. However, Slater notes that there is no correlation between serotonin levels and depression. Depressed patients can have lower, average, or higher levels of serotonin than average, as can the non-depressed. To the extent that SSRIs work better than placebos, and this is a subject of debate, something else is going on.
Slater points out that the analogy that doctors give their patients when prescribing antidepressants, that it is similar to taking a medication to cure some physical ailment, is all wrong. There is no blood test or other objective test one can administer to detect depression or to determine what is causing it. Perhaps it is reassuring to some to hear that depression is due to a chemical imbalance rather than something else, particularly because of the stigma depression has had, which in recent years seems to have been diminishing somewhat. The truth is that, when doctors prescribe these drugs, they are guessing, and if the first prescription does not work, they guess again.
Another point Slater makes is that with the heralded introduction of Prozac, depression has been on the increase. Of course, it is not clear whether that is due to more reporting of depression or because of other factors, such as a decline of community institutions and increased loneliness in the U.S. What is clear is that current drug treatments for depression do not work for everybody, their long-term use comes with physical costs that have not been fully studied, and the mechanism by which they help some is not understood. 
While the book is interesting and the author makes valid points, there are some weaknesses. Though much of the book is about depression, the discussion is wide ranging to include other mental ailments, which prevent normal functioning and can necessitate institutionalization. And depression, as the author at times states, is not one disease but a symptom which can arise from different causes. Also, there is dysthymia, or mild depression, making for people who are often unhappy but can function normally, and more severe, or major, depression, which affects the ability to deal with the necessities of daily life. These are not the same thing and probably should not be lumped together, even if some psychiatrists think these symptoms fall on a continuum. The author also discusses some non-drug treatments, such as deep brain stimulation. The wide range of topics is interesting, but it dilutes the focus of the book, making it more difficult to tease out the argument she is making. Nevertheless, the book is well-worth reading for those interested in the subject. The author writes well, conveys a great deal of information in an accessible way, and is very good storyteller. 
One comes away concluding from reading this book that antidepressants are over-prescribed. Dysthymia or general malaise may be a reaction to objective conditions of life, and, while we do not know why some people have much stronger reactions than others to bad situations, drugs are often not the answer, especially after considering their physical costs and potential for addiction,  as well as their possible benefits. The other main message delivered at the end of the book is the author’s optimism about progress in psychiatric research. She sees great potential in psychedelic drugs, whether old ones or newly discovered. I have no way of knowing whether that optimism is justified, but, while these powerful drugs may be useful for certain conditions, I doubt that such treatment will achieve the popularity of SSRIs or benefit many of those taking SSRIs for mild depression. That is perhaps just as well, since powerful drugs and other interventions, such as electroconvulsive therapy, should probably be used sparingly.

Monday, February 26, 2018

Book Review: Lost Connections: Uncovering the Real Causes of Depression—and the Unexpected Solutions by Johann Hari


Johann Hari’s new book on depression has received a considerable amount of attention, much of which has focused on the first fifty pages or so of the book which criticizes the chemical imbalance theory of depression and casts doubt about the efficacy of and the reliance on antidepressant drugs. In fact, despite the pharmaceutical advertising implying that depression is caused by too little serotonin in the brain, there is no evidence of that. To the extent that selective serotonin reuptake inhibitors work, there is something else going on. Moreover, they don’t alleviate depression for everyone, and, in many cases, they do not work much better, if at all, than a placebo.
The debate about antidepressants is fierce. Irving Kirsch, a psychologist who is currently the Associate Director of the Program in Placebo Studies and a lecturer in medicine at the Harvard Medical School and Beth Israel Deaconess Medical Center, ignited the debate in a 2009 book, The Emperor's New Drugs: Exploding the Antidepressant Myth. Marcia Angell, a former editor-in-chief of the New England Journal of Medicine and is also currently affiliated with Harvard Medical School, promoted Irving Kirsch’s book in two long 2011 articles for the New York Review of Books. (I wrote about this here.) 
The debate has recently been reignited on the other side by a recent study in The Lancet which argues that antidepressants are effective, some more than others. Andrea Cipriani, a psychiatrist who led the study, told the BBC: “This study is the final answer to a long-standing controversy about whether anti-depressants work for depression.” Of course, that is wishful thinking on his part. The controversy will continue. (For example, see this, this, and this.)
Moreover, what is not known is the effect of long-term use of antidepressants. The studies that have been done focus on what happens after eight weeks; most people who use these drugs use them for much longer than that.
To focus solely on Hari’s chapters on antidepressants though is to miss his main point; the prevalence of depression in modern societies is due to how we live, not to chemical imbalances. He lists nine causes of depression and anxiety in modern life. The first seven are “disconnection from meaningful work,” “disconnection from other people,” “disconnection from meaningful values,” “disconnection from childhood trauma,” “disconnection from status and respect,” “disconnection from the natural world,” and “disconnection from a hopeful or secure future.” Each of these rates a chapter. Causes eight and nine, “the real role of genes and brain changes,” are consigned to a short and not very informative single chapter.
Hari argues persuasively about the travails of modern life. But there is a confusion in the book between what individuals should do about their individual circumstances and what we should be trying to do to change society. As a result, the book is neither a self-help book nor a guide on how to effectuate societal change.
For example, Hari does not address what a mental health professional is supposed to do when a patient walks in desperately unhappy. It is not in the professional’s power to change society or working conditions. In many cases, if there are no clear solutions about the objective conditions that patients face which are causing distress, I would guess in many cases mental health professionals will likely focus on helping patients to adapt better to the environment in which they find themselves. Hence, the temptation to prescribe antidepressants, tranquilizers, and other drugs. 
Another problem with the book is that it is unclear what we mean by depression. There is a difference between people who are chronically unhappy because of unsatisfying jobs or unsatisfactory personal relationships (or lack thereof) but who can still function on a day-to-day basis and people who spend most of their time in bed and can barely function and need help in meeting their daily needs. The author thinks this is a continuum, but it is not clear that they are the same thing, only differing by severity. 
Furthermore, when it comes to troubling, exogenous factors impacting daily life, why do some people manage to cope while other become mildly or severely depressed? No one really knows, though Hari does say there is a genetic component. There probably is in some or many cases, but the solution for the individual is not obvious. Saying that society is sick does not help the individual.
The problem for the medical profession in treating depression is that there is nothing to see except an unhappy individual. There are no blood tests or x-rays doctors can order to help them diagnose the condition. They can ask questions or ask patients to fill out a questionnaire, but this is all in the realm of subjectivity. Some lucky patients may benefit from drugs; others may find that talk therapy works; others may in time get over their distress; and others may have to suffer. Various forms and severity of what we call depression may more accurately be described as symptoms that are the result of various factors, depending on the individual and circumstances.
Apparently, no new antidepressants are likely to come to market anytime soon. There is some promising research in using psychedelic drugs to treat some forms of depression, but as Hari mentions, this does not work for everyone and there are risks. Those who remember the sixties will likely recall that some people had “bad trips” when taking LSD. That apparently is still a problem.
Another therapy which is currently used for severely depressed patients who have been “treatment-resistant” is electroconvulsive therapy (“ECT”), which is an attempt at a non-alarming way to refer to shock therapy. Currently, ECT is practiced in a way that is less painful to patients than the horror stories one remembers from Ken Kesey’s novel (or the movie), One Flew Over the Cuckoo's Nest. It apparently often has good results, but how it works does not seem to be that clearly understood. The tradeoff of long-term costs and benefits are not clear. It appears to make permanent, physical changes to the brain. Hari, though, does not discuss ECT. 
I wanted to like this book more than I did. Hari, though, is a good writer and an engaging speaker. His criticisms of modern society are worth pondering, even if many will not fully agree with them. His criticisms of antidepressant drugs are especially cogent and convincing, and, it needs to be noted, that Hari does indicate that they are helpful to some people. 
Note: I was motivated to read this book by an event I attended at Washington, DC’s premier independent bookstore, Politics and Prose. At this book talk, Andrew Sullivan interviewed Johann Hari. The video of this event can be found here.
Probably because of a plagiarism episode in his past, Hari has provided extensive endnotes to the book and additional information on a website. At that website, one can listen to the audio of interviews Hari conducted in researching the book.