Asymptosis

Most people don’t know this fascinating and appalling little bit of legal history. I first learned about it back in 2003, from my friend and colleague Ted Nace’s Gangs of America.

Accounts of it are all over the web, but I’ll try to give you the short story here.

In casual discussions from the bench prior to arguments for Santa Clara County v. Southern Pacific Railroad (1886; a dispute over corporate taxation), Chief Justice Morrison Waite said something obiter dictum — “said in passing” — to the following effect:

…the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations.

The court reporter included this statement in the “headnote” to the case entry in the United States Reports — the record of Supreme Court decisions.

That court reporter was J.C. Bancroft Davis, former president of the Newburgh and New York Railway Company.

Davis checked with the chief justice before including the passage. The justice did not demur, though he did acknowledge:

we avoided meeting the constitutional question in the decision

So the passage — in the headnote, not the decision itself — had no force of law, no value as precedent.

But just three years later it was cited as precedent by Associate Justice Stephen J. Field in Minneapolis & St. Louis Railway Company v. Beckwith. It has been cited repeatedly thereafter.

Corporations are persons within the meaning of the clauses in the Fourteenth Amendment to the Constitution concerning the deprivation of property, and concerning the equal protection of the laws. Santa Clara County v. Southern Pacific Railroad, 118 U. S. 394, and Pembina Mining Co. v. Pennsylvania, 125 U. S. 181, followed.

Field was there for Santa Clara, so he knew it held no precedent value, but he cited it anyway, as if it did. For the grimy details of Field’s conflicts of interest, I’ll direct you here.

If everything is left to take its natural course — without intervention by humans — everything will be just peachy.

Twirl finger in cheek.

The monumental constructs of neoclassical economics are a tissue of circular definitions and self-contradictions (as demonstrated by its own practitioners, on its own terms) assembled to provide post hoc rationalizations for that faith-based belief. (A belief that — not surprisingly — is profoundly beneficial to incumbents, those with money and power.)

Just sayin’.

Three assumptions:

1. We want to maximize aggregate individual liberty. Person A has 5 zlots of liberty, Person B has 12 zlots of liberty, etc. Add them up: sum(people:liberty).

2. Individual liberty is a function of wealth. If you have more money you have more liberty to do what you want day to day, year to year, and in the course of your life.*

3. Unfettered corporate capitalism inevitably concentrates wealth into fewer hands. It’s an inherent, emergent property of the system

Do the arithmetic: unfettered corporate capitalism reduces aggregate liberty.**

So if we want widespread liberty, we want a system that results in widely distributed wealth.That means well-managed capitalism.

Please spare me the ridiculous fallacy-of-the-extremes incentive arguments. Especially given today’s massive disparities, there are more-than-ample incentives at all levels for people to energetically pursue wealth. Adjustments back to 1950s or 1990s levels of wealth distribution will not significantly effect that, and the countervailing macro effects of widespread wealth distribution will overwhelm any negative incentive effects that do arise. Those claiming otherwise are either defending their own status quo wealth (stupidly, because their children will suffer a poorer country as a result), or they’re deluded fools grabbing their ankles and doing the defending for others.

* Libertarians don’t seem to understand that there is such a thing as economic coercion, and that any system — even one with no rules at all — subjects people to such coercion. Even if there’s no physical coercion, i.e. arrest, threatened in the end game (one can always just declare bankruptcy),  economic coercion — the requirement that you choose between bad alternatives — is profoundly destructive of personal liberty. That coercion exists even if there is no identifiable malevolent coercer (de ebil gubmint man) — person or entity.

** Don’t get me wrong (notice the “unfettered” there): I believe that corporate capitalism has created more prosperity — hence liberty — than any other human invention. But that’s only true because of government. Corporations only exist and operate as chartered constructs of government, and it’s only because governments properly manage economies consisting of the corporations they’ve created that those corporations have had the beneficial effects — and success — that they’ve had.

No, this is not about lead-footed Starsky and Hutch-style car chases by law enforcement.

Rather, it’s about damned convincing evidence that unleaded gasoline (introduced in the U.S. in the 70s) is largely responsible for the huge decline in crime rates since the early 90s. (Update: it continues.) Even more convincing than (but not precluding) Levitt’s Roe v Wade hypothesis.

Short story: we spent fifty years quite literally poisoning the minds of our children — especially inner-city and low-income children. The damage is permanent.

Researcher Rick Nevin is getting some well-deserved press (Washington Post, Wall Street Journal) for his cross-country analyses of lead exposure and crime. (Worth noting: he first published this research in 1999.)

Here’s a picture; you can eyeball the correlations yourself. The researchers, naturally, analyze the correlations more systematically.

Here’s more, consumption of lead in gasoline in the USA, in thousands of metric tons (click for source):

See also the work of Jessica Wolpaw Reyes, who claims that half the decline in crime resulted from less lead in the environment (hence in little kids’ heads).

Robert Waldmann (hat tip!) at Angry Bear is looking at the latest data from the UK, where they went unleaded thirteen years later, so the effects should be showing up now. They seem to be:

the total number of violent crimes was basically identical in 2004/5 2005/6 and 2006/7 then declined about 17% by 2009/10. The predicted peak of 2007 corresponds about as precisely to the data as is conceivable.

From the WaPo article:

Chicago’s Robert Taylor Homes, for example, were built over the Dan Ryan Expressway, with 150,000 cars going by each day. Eighteen years after the project opened in 1962, one study found that its residents were 22 times more likely to be murderers than people living elsewhere in Chicago.

Nevin’s finding implies a double tragedy for America’s inner cities: Thousands of children in these neighborhoods were poisoned by lead in the first three quarters of the last century. Large numbers of them then became the targets, in the last quarter, of Giuliani-style law enforcement policies.

We’re seeing it in spades: the history of tetraethyl lead (read it and weep) is a tragic textbook case of market/profit interests eviscerating the commons and making us all (including the rich) far worse off, in the name of “the invisible hand” making us all better off.

That ebil gubmint man with his heavy-handed regulations impinging on honest businesspeople (who are just trying to make a buck, for everyone’s benefit) sure did have a pernicious effect, huh?

Conservatives love to point out that our employer-based health insurance system is a result of wage controls under FDR. Since employers weren’t able to attract workers with higher wages, they started offering benefits instead — notably health insurance.

I recently read Frank Freidel’s biography of FDR, and the whole story became clear.

The post-Pearl Harbor economic surge was causing rapid inflation.

By March, 1942, food cost almost 5 percent, and clothing 7.7 percent, more than on the day of Pearl Harbor; the cost of living had risen 15 percent since September 1939. [Leon] Henderson predicted prices might rise 23 percent more by the end of 1942. The nation, as Roosevelt well realized, was reaching  the critical point where, as a result of price increases, demands for wage increases could force spiraling inflation.

Roosevelt was desperate to prevent that eventuality.

Heavier taxes to drain excess buying power were imperative. [This is not complicated; see Abba Lerner on “Functional Finance.”]

Conservatives in Congress (then as now) were rabidly anti-tax — gotta protect the monied class — but despite their supposed free-market ideology, they were willing to impose wage controls. (Big surprise.) Roosevelt was able to get this second- or third-best solution through Congress.

So the wage controls that resulted in our ridiculous employer-based health-insurance system were a direct result of conservatives’ hypocrisy.

And now, notwithstanding Ryan’s obviously-never-gonna-happen voucher feint, conservatives have demonstrated themselves to be dead-set on maintaining the status quo of employer-based private health insurance (they had six years of unfettered control, did nothing about it…) — the very “historical accident” that they so bemoan, and that they are responsible for inflicting on the nation.

Those who perceive economists as being clear-eyed Sowellian realists, the benchmarks of “objective” (or objectivist) rationality, should — to be consistent with their own beliefs and admonitions — probably pay more attention to economists’ political choices, as revealed here in a survey of economists:

The “liberalism” score here refers to what libertarians like to call “classical liberalism” — the “small government good” belief system. In modern usage, it means “libertarianism.” Not surprisingly, libertarians score high on this measure of libertarianism.

I’ve always been at a loss to understand why big shareholders don’t boss around corporate management more. The shareholders are supposed to be the owners and ultimate authorities, right?

Yes, the rules of corporate voting make it very difficult and expensive for even big shareholders to challenge management (they have to fund their own mail campaigns to shareholders; corporations aren’t generally required to put their issues on the ballot). And yes, there’s all that cronyistic back-scratching among corporate board members who sit on multiple boards.

But as control of shares has concentrated into the hands of money managers (mutual funds, ETFs, pension funds, etc.), why don’t those money managers rebel against corporate actions that clearly degrade or fritter away shareholder value?

John Bogle gives two tentative suggestions that I haven’t heard before in today’s Times:

Our nation’s money managers now hold 70 percent of all shares of American corporations, compared to a mere 8 percent in the 1950s, giving them absolute voting control. …

… the participation of our institutional money managers in corporate governance has been limited, reluctant and unenthusiastic. Perhaps they feared angering clients whose pension and thrift funds they manage — that is, the very corporations whose shares fill their investment portfolios. It is an obvious conflict of interest, however often denied.

To make matters worse, most of our large institutional money managers are themselves owned by giant United States and global financial conglomerates. The shares of those conglomerates, in turn, are held in their own portfolios.

Short story, neither money managers’ incentives, nor those of management, are aligned with shareholders’.

The notion that shareholders somehow “own” the corporations whose shares they hold (much less those corporations’ real assets) is profoundly delusional. They’re simply lenders, with extremely constrained legal rights to a share of future income (instead of fixed interest) in return for the use of their money.

They’re nothing like business owners — and neither, in this ecosystem of publicly-traded companies, is anyone else .

I’m completely, utterly at a loss as to how any person, any parent, could care that much about perceiving themselves as being morally correct.

The visual display of quantitative information in a funhouse mirror « The Reality-Based Community.

Some of my readers may have seen the Zogby-based study a year or so ago suggesting that liberals are economic boneheads compared to conservatives.

As it turns out — according to the researchers who did that study — not so much, really:

“One year ago, we reported the results of a 2008 Zogby survey that purported to gauge economic enlightenment (Buturovic and Klein 2010). … We also found that that self-identified Progressives and Liberals did much worse than Conservatives and Libertarians. Most of those eight questions specifically challenged leftist positions and/or reassured conservative and/or libertarian positions, while none had a clear slant against conservatives and/or libertarians. In a new survey, conducted in December 2010, we supplemented those eight questions with another nine new questions, all specifically challenging conservative and/or libertarian positions (and often reassuring leftist positions). … the new test consisting of all 17 questions yielded results that vitiated prior evidence of the left being worse. Now, all groups do poorly, with each group tending to do relatively poorly on the questions challenging its positions.”

“we now know that a lot depends on being challenged and, moreover, on being reassured by the point of the survey item.”

“Once we construct questions that set traps, as it were, for conservatives and libertarians, they fall into them just as readily as the left fell into traps in the previous set of questions.”

Section 9: Foreign Policy and National Security | Pew Research Center for the People and the Press.