Archive for September, 2018

Only Idiots Think that Judges Are Umpires and Only Cads Say that They Think So

It now seems besides the point, but I want to go back and consider something Judge Kavanaugh said in his initial testimony three weeks ago before the Senate Judiciary Committee, now largely, and deservedly, forgotten.

In his earlier testimony, Judge Kavanaugh made the following ludicrous statement, echoing a similar statement by (God help us) Chief Justice Roberts at his confirmation hearing before the Senate Judiciary Committee:

A good judge must be an umpire, a neutral and impartial arbiter who favors no litigant or policy. As Justice Kennedy explained in Texas versus Johnson, one of his greatest opinions, judges do not make decisions to reach a preferred result. Judges make decisions because “the law and the Constitution, as we see them, compel the result.”

I don’t decide cases based on personal or policy preferences.

Kavanaugh’s former law professor Akhil Amar offered an embarrassingly feeble defense of Kavanaugh’s laughable comparison, in a touching gesture of loyalty to a former student, to put the most generous possible gloss on his deeply inappropriate defense of an indefensible trivialization of what judging is all about.

According to the Chief Justice and to Judge Kavanaugh, judges, like umpires, are there to call balls and strikes. An umpire calls balls and strikes with no concern for the consequences of calling a ball or a strike on the outcome of the game. Think about it: do judges reach decisions about cases, make their rulings, write their opinions, with no concern for the consequences of their decisions?

Umpires make their calls based on split-second responses to their visual perceptions of what happens in front of their eyes, with no reflection on what implications their decisions have for anyone else, or the expectations held by the players whom they are watching. Think about it: would you want a judge to decide a case without considering the effects of his decision on the litigants and on the society at large?

Umpires make their decisions without hearing arguments from the players before rendering their decisions. Players, coaches, managers, or their spokesmen do not submit written briefs, or make oral arguments, to umpires in an effort to explain to umpires why justice requires that a decision be rendered in their favor. Umpires don’t study briefs or do research on decisions rendered by earlier umpires in previous contests. Think about it: would you want a judge to decide a case within the time that an umpire takes to call balls and strikes and do so with no input from the litigants?

Umpires never write opinions in which they explain (or at least try to explain) why their decisions are right and just after having taken into account on all the arguments advanced by the opposing sides and any other relevant considerations that might properly be taken into account in reaching a decision. Think about it: would you want a judge to decide a case without having to write an opinion explaining why his or her decision is the right and just one?

Umpires call balls on strikes instinctively, unreflectively, and without hesitation. But to judge means to think, to reflect, to consider both (or all) sides, to consider the consequences of the decision for the litigants and for society, and for future judges in future cases who will be guided by the decision being rendered in the case at hand. Judging — especially appellate judging — is a deeply intellectual and reflective vocation requiring knowledge, erudition, insight, wisdom, temperament, and, quite often, empathy and creativity.

To reduce this venerable vocation to the mere calling of balls and strikes is deeply dishonorable, and, coming from a judge who presumes to be worthy of sitting on the highest court in the land, supremely offensive.

What could possibly possess a judge — and a judge, presumably neither an idiot nor insufficiently self-aware to understand what he is actually doing — to engage in such obvious sophistry? The answer, I think, is that it has come to be in the obvious political and ideological self-interest of many lawyers and judges, to deliberately adopt a pretense that judging is — or should be — a mechanical activity that can be reduced to simply looking up and following already existing rules that have already been written down somewhere, and that to apply those rules requires nothing more than knowing how to read them properly. That idea can be summed up in two eight-letter words, one of which is nonsense, and those who knowingly propagate it are just, well, dare I say it, deplorable.

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My Paper “The Fisher Effect and the Financial Crisis of 2008” Is Now Available

Back in 2009 or 2010, I became intrigued by what seemed to me to be a consistent correlation between the tendency of the stock market to rise on news of monetary easing and potentially inflationary news. I suspected that there might be such a correlation because of my work on the Great Depression inspired by Earl Thompson, from whom I first learned about a monetary theory of the Great Depression very different from Friedman’s monetary theory expounded in his Monetary History of the United States. Thompson’s theory focused on disturbances in the gold market associated with the demonetization of gold during World War I and the attempt to restore the gold standard in the 1920s, which, by increasing the world demand for gold, was the direct cause of the deflation that led to the Great Depression.

I later came to discover that Ralph Hawtrey had already propounded Thompson’s theory in the 1920s almost a decade before the Great Depression started, and my friend and fellow student of Thompson, Ron Batchelder made a similar discovery about Gustave Cassel. Our shared recognition that Thompson’s seemingly original theory of the Great Depression had been anticipated by Hawtrey and Cassel led us to collaborate on our paper about Hawtrey and Cassel. As I began to see parallels between the financial fragility of the 1920s and the financial fragility that followed the housing bubble, I began to suspect that deflationary tendencies were also critical to the financial crisis of 2008.

So I began following daily fluctuations in the principal market estimate of expected inflation: the breakeven TIPS spread. I pretty quickly became persuaded that the correlation was powerful and meaningful, and I then collected data about TIPS spreads from 2003, when the Treasury began offering TIPS securities, to see if the correlation between expected inflation and asset prices had been present 2003 or was a more recent phenomenon.

My hunch was that the correlation would not be observed under normal macroeconomic conditions, because it is only when the expected yield from holding money approaches or exceeds the yield from holding real assets that an increase in expected inflation, by reducing the expected yield from holding money, would induce people to switch from holding money to holding assets, thereby driving up the value of assets.

And that’s what the data showed; the correlation between expected inflation and asset prices only emerged after in 2008 in the period after a recession started at the end of 2007, even before the start of the financial crisis exactly 10 years in September 2008. When I wrote up the paper and posted it (“The Fisher Effect Under Deflationary Expectations“), Scott Sumner, who had encouraged me to write up the results after I told him about my results, wrote a blogpost about the paper. Paul Krugman picked up on Scott’s post and wrote about it on his blog, generating a lot of interest in the paper.

Although I was confident that the data showed a strong correlation between inflation and stock prices after 2008, I was less confident that I had done the econometrics right, so I didn’t try to publish the original 2011 version of the paper. With Scott’s encouragement, I have continued to collected more data as time passed, confirming that the correlation remained even after the start of a recovery while short-term interest rates remained at or near the zero lower bound. The Mercatus Center whose Program on Monetary Policy is directed by Scott has just released the new version of the paper as a Working Paper. The paper can also be downloaded from SSRN.

Aside from longer time span covered, the new version of the paper has refined and extended the theoretical account for when and why a correlation between expected inflation and asset prices is likely be observed and when and why it is unlikely to be observed. I have also done some additional econometric testing beyond the basic ordinary least square (OLS) regression estimates originally presented, and explained why I think it is unlikely that more sophisticated econometric techniques such as an error-correction model would generate more reliable results than those generated by simple OLS regrissions. Perhaps in further work, I will attempt to actually construct an explicit error-correction model and compare the results using OLS and an error-correction model.

Here is the abstract of the new version of the paper.

This paper uses the Fisher equation relating the nominal interest rate to the real interest rate and
expected inflation to provide a deeper explanation of the financial crisis of 2008 and the subsequent recovery than attributing it to the bursting of the housing-price bubble. The paper interprets the Fisher equation as an equilibrium condition in which expected returns from holding real assets and cash are equalized. When inflation expectations decline, the return to holding cash rises relative to holding real assets. If nominal interest rates are above the zero lower bound, equilibrium is easily restored by adjustments in nominal interest rates and asset prices. But at the zero lower bound, nominal interest rates cannot fall, forcing the entire adjustment onto falling asset prices, thereby raising the expected real return from holding assets. Such an adjustment seems to have triggered the financial crisis of 2008, when the Federal Reserve delayed reducing nominal interest rates out of a misplaced fear of inflation in the summer of 2008 when the economy was already contracting rapidly. Using stock market price data and inflation-adjusted US Treasury securities data, the paper finds that, unlike the 2003–2007 period, when stock prices were uncorrelated with expected inflation, from 2008 through at least 2016, stock prices have been consistently and positively correlated with expected inflation.

Why Judge Kavanaugh Shamefully Refused to Reject Chae Chan Ping v. United States (AKA Chinese Exclusion Case) as Precedent

Senator Kamala Harris asked Judge Kavanaugh if he considered the infamous Supreme Court decision in Chae Chan Ping v. United States (AKA Chinese Exclusion Case) as a valid precedent. Judge Kavanaugh disgraced himself by refusing to say that the case was in error from the moment it was rendered, no less, if not even more so, than was Plessy v. Ferguson overturned by the Supreme Court in Brown v. Board of Education.

The question is why would he not want to distance himself from a racist abomination of a decision that remains a stain on the Supreme Court to this day? After all, Judge Kavanaugh, in his fastidiousness, kept explaining to Senators that he wouldn’t want to get within three zipcodes of a political controversy. But, although obviously uncomfortable in his refusal to do so, he could not bring himself to say that Chae Chan Ping belongs in the garbage can along with Dred Scott and Plessy.

Here’s the reason. Chae Chan Ping is still an important precedent that has been and continues to be relied on by the government and the Supreme Court to uphold the power of President to keep out foreigners whenever he wants to.

In a post in March 2017, I quoted from Justice Marshall’s magnificent dissent in Kleindienst v. Mandel, a horrible decision in which the Court upheld the exclusion of a Marxist scholar from the United States based on, among other precedents, the execrable Chae Chan Ping decision. Here is a brief excerpt from Justice Marshall’s opinion, which I discuss at greater length in my 2017 post.

The heart of appellants’ position in this case . . . is that the Government’s power is distinctively broad and unreviewable because “the regulation in question is directed at the admission of aliens.” Brief for Appellants 33. Thus, in the appellants’ view, this case is no different from a long line of cases holding that the power to exclude aliens is left exclusively to the “political” branches of Government, Congress, and the Executive.

These cases are not the strongest precedents in the United States Reports, and the majority’s baroque approach reveals its reluctance to rely on them completely. They include such milestones as The Chinese Exclusion Case, 130 U.S. 581 (1889), and Fong Yue Ting v. United States, 149 U.S. 698 (1893), in which this Court upheld the Government’s power to exclude and expel Chinese aliens from our midst.

Kleindienst has become the main modern precedent affirming the nearly unchecked power of the government to arbitrarily exclude foreigners from entering the United States on whatever whim the government chooses to act upon, so long as it can come up with an excuse, however pretextual, that the exclusion has a national security rationale.

And because Judge Kavanaugh will be a solid vote in favor of affirming the kind of monumentally dishonest decision made by Justice Roberts in the Muslim Travel Ban case, he can’t disavow Chae Chan Ping without undermining Kleindienst which, in turn, would undermine the Muslim Travel Ban. 

Aside from being a great coach of his daughter’s basketball team, and superb carpool driver, I’m sure Judge Kavanaugh appreciates and understands how I feel.

Whatta guy.


About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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