Author: Gerard Magliocca

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The Irish Bailout

AP — November 22, 2010

Hundreds of leprechauns gathered in front of the Irish Parliament today to demand a share of the IMF bailout currently being negotiated by the Government. Under a rainbow sky, they told a crowd of supporters that without more pots and gold, they would have to leave the country to seek greener pastures.

“We’re Ireland’s most important cultural export,” said Tip Erary, one of the wee leaders of the protest.  “We make shoes, grant wishes, and appear in a movie with Jennifer Aniston.  Who deserves a rescue package more than us?”

Economists and pundits are divided over the LARP proposal.  Paul Krugman argued on his blog that “Keynes would approve of taking leprechaun gold and burying it to create jobs for treasure hunters.  We really should be nationalizing these monsters, not giving them a handout.” Glenn Beck countered that they are “hoarding the gold that I told you to buy” and called for an investigation into Woodrow Wilson’s policy on leprechauns.  Finally, Larry Kudlow said that only a tax cut would get these folks to shift from shoe production into more productive investment.

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The Highest Court

In 2006, George W. Bush gives an Oval Office Address.  He tells the nation that he will not enforce the Supreme Court’s decision in Hamdan.  He says his duty to protect America from terrorists makes its impossible to accept such a dangerous decision.  Furthermore, he says the opinion is inconsistent with the Biblical principle of “an eye for an eye.”  Finally, he asks all citizens to join in his resistance to the Court.

I don’t need to tell you what the reaction to that would have been.  Impeachment hearings would have started the next day (and might not have taken long).  Why do I bring this up? Because the scenario that I’ve just described is what almost happened in 1935 when Franklin Roosevelt was prepared to announce his opposition to the Gold Clause Cases.  I’m writing an article about this episode, which is almost done, but I thought I’d say something about this part of the story now.

Before 1933, a standard provision in public and private contracts held that creditors were to be paid back in dollars “payable in principal and interest in United States gold coin of the present standard of value,” which meant the standard in force when the contract was made.  The Great Depression caused serious deflation, which meant that one gold dollar in 1929 was worth about $1.69 in 1933.  To save debtors from the crushing burden of paying back much more than they borrowed, Congress authorized the President to reduce the gold weight of the dollar and said that gold clauses in contracts were null and void.  The latter act was attacked in the Supreme Court, and in early 1935 nobody was sure what the Justices would do.  (They ended up upholding Congress’s abrogation by a 5-4 vote.)

The President decided that he would not accept the “wrong” decision and drafted a Fireside Chat explaining why.  Most of the address centered on the disastrous consequences of forcing debtors to pay in deflated dollars, but at the end there was this amazing passage:

“Every individual or corporation, public or private, should pay back substantially what they borrowed.  That would seem to be a decision in accordance with the Golden Rule, with the precepts of the Scriptures, and the dictates of common sense.  In order to attain this reasonable end, I shall immediately take such steps as may be necessary, by proclamation and by message to the Congress of the United States. In the meantime, I ask every individual, every trustee, every corporation and every bank to proceed on the usual course of their honorable and legitimate business.  They can rest assured that we shall carry on the business of the country tomorrow just as we did last week or last month, on the same financial basis, on the same currency basis, and in the same relationship of debtor and creditor as before.”

The Golden Rule?  The Scriptures?  Go about your business and ignore what the Supreme Court just held?  As the Crocodile Hunter used to say, “Crikey!”

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The Master Switch

I am reading Tim Wu’s terrific new book on how information industries oscillate between decentralized and consolidated business models and the role that regulatory policy plays in that cycle.  I highly recommend that you pick this up, and hope to organize an online symposium about this important book here on CoOp sometime soon.

There is something that bothers me about Tim’s analysis (or, at least, raises a question). There is no doubt that he is a fan of as much openness as possible, as demonstrated by his support for net neutrality.  More or less, the bad guys in his story are monopolists (AT&T, RCA, Paramount) and the heroes are the rebels who fought them.  In general, I agree with this narrative.  As someone old enough to remember the Bell system, you weren’t missing anything.  But I’m hesitant to embrace this openness norm completely.

The toughest case is the studio system for movies.  The flaws of that vertically integrated oligopoly are not hard to describe.   Actors were bound by long-term contracts that denied them the fruits of their labor (much like baseball players before free agency).  Censorship was pervasive, as Tim correctly points out.  And yet . . .

People still refer to this time as Hollywood’s Golden Age.  Now I concede that movie tastes are not uniformly shared, but if you ask most people when better movies were made, would they say 2010 or 1939?  (OK, that’s not an entirely fair comparison.  1939 was the best year of the studio system, and movies did not have the kind of competition then that they get now.) The point is that the studio system produced outstanding art.  As a result, the issue of how regulatory policy should work (or stay its hand) for information industries is not so simple.

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Interesting Cases That You’ve Never Heard Of — The Pueblo Indians

Several years ago I wrote an article that examined how the debate over Native American rights, especially the Cherokee Removal, influenced the framers of the Fourteenth Amendment.  The paper also explained there that this component of the original understanding should alter the way that we think about equal protection by introducing the possibility that the regulation of cultural choices, not just immutable traits, could be subjected to heightened scrutiny.  I must admit that I’m disappointed that nobody really picked up on this idea, but I thought I’d talk about one intriguing case that fleshes out the concept somewhat.

In United States v. Joseph, 94 U.S. 614 (1876), the Supreme Court held that the Pueblo Indians of New Mexico were not an Indian Tribe under federal law.  An 1834 statute prohibited anyone, under penalty of a fine, from settling on land secured to a Tribe by a treaty with the Federal Government.  The United States brought an action seeking to fine somebody who took a homestead on Pueblo land. The New Mexico Territorial Supreme Court rejected this action, on the grounds that the Pueblos were civilized and not an Indian Tribe. That court pointed out that the Pueblos lived in villages, were farmers, spoke Spanish, and were Christian.  By contrast, “[w]hen the term Indian is used in our acts of Congress, it means that savage and roaming race of red men given to war and the chase for a living, and wholly ignorant of the pursuits of civilized men.”  Though the Court conceded that the Pueblos could be racially defined as Indians, it explained that this was irrelevant.  Culture was what mattered.

The U.S. Supreme Court unanimously affirmed in an opinion by Justice Miller.  He distinguished the Pueblos from other tribes in the territory acquired during the Mexican-American War, who were incapable of self-government and therefore required “guardian care.” Although the Pueblos held their land in common rather than in fee simple, “they only resemble in this regard the Shakers and other communistic societies in this country, and cannot for that reason be classed with the Indian tribes . . .”.

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The Cross of Gold Speech — The Audio Version

I was doing some research to put together a seminar on constitutional law and came across something surprising.  It turns out that William Jennings Bryan recorded his Cross of Gold Speech on a record in the 1920s.  Obviously, this is not the same as hearing the original version in a hall full of people, but it is neat to hear what he sounded like.