Coordinating Fiscal and Monetary Policy in the E.U.: Is Ever Closer Political and Economic Union Advisable?

Initiating a bold effort on February 4, 2011 at a summit of the European Council (composed of heads of the state governments) to strengthen the euro by coordinating fiscal policies among the 17 states that use the currency, the German Chancellor and French President laid down far-reaching plans to deepen economic and political integration for the group of states within the EU. From the standpoint of the US, a subset of states relatively integrated federally seems strange, though perhaps such flexibility will obviate a war between EU states in the future. In other words, Americans ought not dismiss the arrangement out of hat. This is not to say that bringing fiscal policy up to the EU level to join monetary policy will be easy, even for just seventeen states.  The particular interests of the latter must be balanced against the interest of the ECB (the EU's central bank) for some degree of fiscal coordination and accountability.

The complete essay is at Essays on Two Federal Empires.

The U.S. Senate on Health Insurance Reform: On the Applicability of the Bundesrat and the E.U.'s Council of Ministers

A second federal judge ruled at the end of January, 2011 that it is unconstitutional for Congress under the interstate commerce clause of the U.S. Constitution to enact a health care law requiring Americans to purchase health insurance. Unlike the Federal judge in Virginia who had ruled against the law the month before, Judge Roger Vinson of Federal District Court in Pensacola, Fla., concluded that the insurance requirement was so “inextricably bound” to other provisions of the Affordable Care Act that its unconstitutionality required the invalidation of the entire law.  Such an invalidation would of course be in the interest of the health-insurance industry lobby; the managers of health insurance companies are opposed to providing expanded coverage to the uninsured without the mandated expanded pool that would spread out the risk. One might wonder whether the lobby has any muscle with the Federal courts.  Nonetheless, I want to raise another point that may have been missed from all the tussle over the jurisprudence. Specifically, 26 states were parties to the legal challenge in Pensacola. That is to say, more than half of the state governments were opposed to the Affordable Care Act.  It is notable, therefore, that the U.S. Senate, which represents the States and was intended to give them a direct agency in the general (or federal) government, passed the Act by 60 votes in favor.  

The full essay is at Essays on Two Federal Empires.

A Yale College Dean Functioning as a Government Official

A fraternity at Yale had its new members chat “no means yes”…meaning that if a woman says no, she means yes…in pledging during the Fall of 2010.  The dean of Yale College asked the college’s executive committee to look into the matter.  This seems to me to evince a penchant for bureaucracy for its own sake. 

The full essay is at "A Yale College Dean."

Relegating a State as Bankrupt in U.S. Court: The Problem of Federalism

David Skeel suggests that a new chapter should be created in U.S. bankruptcy law to cover state governments. This is not without problems, however.  Skeel states that the "main objection to bankruptcy for states is that it would interfere with state sovereignty—the Constitution’s protections against federal meddling in state affairs.”  He does not see this as a major hurdle, whereas I do. Whereas he, as a lawyer, is looking narrowly at bankruptcy and constitutional law, I am looking more long term at the trajectory of federalism succumbing to consolidation.

The full essay is at Essays on Two Federal Empires."

The Federal Reserve to Buy More U.S. T-Bills but No State Debt

According to The New York Times, “At their first meeting of the year, Federal Reserve policy makers voted unanimously … to continue the central bank’s controversial $600 billion plan to spur the recovery by buying government bonds.”[1] In other words, the central bank would continue to “print money” to buy up U.S. Government debt, allowing that government to go into more debt without putting pressure on the interest rate to go up (which would cost the government more in interest payments to bondholders).

The full essay is at "The Federal Reserve."

1. Sewell Chan, "Fed to Continue Bond Buying Program," The New York Times, January 26, 2011.

Amid Record Bonuses Goldman Sachs Enabled Greek Debt

The person who has the gold makes the rules.  I suspect this is the operating mantra at Goldman Sachs even after the bank’s near-death experience (when Solomon Bros stock was taking a hit, Blankfein knew his bank could be next).  As it turns out, the bank was involved in enabling Greece to stealthily spend beyond its means. Just after Greece had been admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means. Additionally, in late November, 2009— three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in Athens with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting. The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.[1]

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

1. Louise Story, Landon Thomas, Jr., and Nelson D. Schartz, “Wall St. Helped to Mask Debt Fueling Europe’s Crisis,” The New York Times, February 13, 2010.