Corporations: A Little History

I came across this post today which included this quote from Justice Marshall:

A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.

Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518 (1819), p. 636.

Here's a link to that decision.

Given this statement of what a corporation is, it always struck me as strange that the legislature is not empowered to state, as one of its "properties," that it cannot make contributions to political campaigns.

But, interestingly, the Dartmouth College case held that the legislature (in that case, of the state of New Hampshire) could not make changes to the corporate charter.  The Supreme Court in that case treated a corporate charter as a contract between the state and the corporation.  The Constitution, Article 1, Section 10, clause 1 provides:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

abridged to: "No State shall...pass any...Law impairing the Obligation of Contracts...."

The Court in Dartmouth College concluded that, by attempting to make changes in the corporate charter, it was impairing a contract between the state and the corporation, which was unconstitutional.  But in his long and very interesting concurrence, Justice Story concluded as follows:

In my judgment, it is perfectly clear that any act of a legislature which takes away any powers or franchises vested by its charter in a private corporation, or its corporate officers, or which restrains or controls the legitimate exercise of them, or transfers them to other persons without its assent is a violation of the obligations of that charter. If the legislature mean to claim such an authority, it must be reserved in the grant. The charter of Dartmouth College contains no such reservation, and I am therefore bound to declare that the acts of the Legislature of New Hampshire now in question do impair the obligations of that charter, and are consequently unconstitutional and void.

The italics are mine.

Many states took Justice Story's hint, and began adding as a clause in their charters, a reservation of rights to make changes.  Later, as business corporations proliferated in the late 19th Century, these reservations were built into the corporation laws of the states.  These restrictions were later upheld by the Supreme Court in the Pennsylvania College Cases and Greenwood v. Freight Company, thereby giving state legislatures the power to impose new regulations on corporations.

These provisions continue in state laws today.  For example, New York's Business Corporation Law (Section 110) provides as follows:

The legislature reserves the right, at pleasure, to alter, amend, suspend or repeal in whole or in part this chapter, or any certificate of incorporation or any authority to do business in this state, of any domestic or foreign corporation, whether or not existing or authorized on the effective date of this chapter.

Here's a similar provision under Delaware General Corporation Law (Section 393), where most public corporations are incorporated:

This chapter may be amended or repealed, at the pleasure of the General Assembly, but any amendment or repeal shall not take away or impair any remedy under this chapter against any corporation or its officers for any liability which shall have been previously incurred. This chapter and all amendments thereof shall be a part of the charter or certificate of incorporation of every corporation except so far as the same are inapplicable and inappropriate to the objects of the corporation.

Frankly, based on this history, state legislatures clearly can pass legislation that restricts the political rights of corporations.  I really don't know how one can reach any other conclusion.

Best Wishes!

Hope everyone had a great holiday!

Happiness

Just a couple of quick links to articles that are food of thought this holiday season.  They cover two aspects of modern life that I think it behooves us to reflect upon.

From the foundation document of the United States: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."

So how well are we doing?

First, one of the more interesting books to come out this year is The Political Economy of Human Happiness. From an interview with the author, Banjamin Radcliff:

Now, to be sure, the market economy absolutely contributes to human well-being in other ways — no one can deny that — but we have a macro- vs. micro-problem. At the macro level, capitalism works well. I would agree with Brooks that the market society is one of humanity’s greatest achievements. But at the micro level it depends at the very core of its logic, as even Adam Smith was at pains to point out, on the idea of using other people (employees) as a means to making profits for oneself. The people we hire to do work are just mere commodities in the profit-loss calculations, no more worthy of special concern than barrels of oil or bushels of grain. The last chapter of my book discusses these moral tensions that capitalism creates. My conclusion is that the social safety net, labor market regulations and labor unions all limit the degree to which people become mere commodities, and thus are more likely to lead fulfilling lives.

Second, Corey Robin had a great post a week or so ago about Obamacare and how it reflects the increasing complexity of modern life.  Forget the "what the left wants" language, and just reflect on what he says about what life is becoming, and whether it is something that we should, as a society, desire:

Aside from the numbers, what I’m always struck by in these discussions is just how complicated Obamacare is. Even if we accept all the premises of its defenders, the number of steps, details, caveats, and qualifications that are required to defend it, is in itself a massive political problem. As we’re now seeing.

More important than the politics, that byzantine complexity is a symptom of what the ordinary citizen has to confront when she tries to get health insurance for herself or her family. As anyone who has even good insurance knows, navigating that world of numbers and forms and phone calls can be a daunting proposition. It requires inordinate time, doggedness, savvy, intelligence, and manipulative charm (lest you find yourself on the wrong end of a disgruntled telephone operator). Obamacare fits right in with that world and multiplies it.

I’m not interested in arguing here over what was possible with health care reform and what wasn’t; we’ve had that debate a thousand times. But I thought it might be useful to re-up part of this post I did, when I first started blogging, on how much time and energy our capitalist world requires us to waste, and what a left approach to the economy might have to say about all that. It is this world of everyday experience—what it’s like to try and get basic goods for yourself and/or your family—that I wish the left (both liberals and leftists) was more in touch with.

The post is in keeping with an idea I’ve had about socialism and the welfare state for several years now. Cribbing from Freud, and drawing from my own anti-utopian utopianism, I think the point of socialism is to convert hysterical misery into ordinary unhappiness. God, that would be so great.

• • • • • •

There is a deeper, more substantive, case to be made for a left approach to the economy. In the neoliberal utopia, all of us are forced to spend an inordinate amount of time keeping track of each and every facet of our economic lives. That, in fact, is the openly declared goal: once we are made more cognizant of our money, where it comes from and where it goes, neoliberals believe we’ll be more responsible in spending and investing it. Of course, rich people have accountants, lawyers, personal assistants, and others to do this for them, so the argument doesn’t apply to them, but that’s another story for another day.

The dream is that we’d all have our gazillion individual accounts—one for retirement, one for sickness, one for unemployment, one for the kids, and so on, each connected to our employment, so that we understand that everything good in life depends upon our boss (and not the government)—and every day we’d check in to see how they’re doing, what needs attending to, what can be better invested elsewhere. It’s as if, in the neoliberal dream, we’re all retirees in Boca, with nothing better to do than to check in with our broker, except of course that we’re not. Indeed, if Republicans (and some Democrats) had their way, we’d never retire at all.

In real (or at least our preferred) life, we do have other, better things to do. We have books to read, children to raise, friends to meet, loved ones to care for, amusements to enjoy, drinks to drink, walks to take, webs to surf, couches to lie on, games to play, movies to see, protests to make, movements to build, marches to march, and more. Most days, we don’t have time to do any of that. We’re working way too many hours for too little pay, and in the remaining few hours (minutes) we have, after the kids are asleep, the dishes are washed, and the laundry is done, we have to haggle with insurance companies about doctor’s bills, deal with school officials needing forms signed, and more.

What’s so astounding about Romney’s proposal—and the neoliberal worldview more generally—is that it would just add to this immense, and incredibly shitty, hassle of everyday life. One more account to keep track of, one more bell to answer. Why would anyone want to live like that? I sure as hell don’t know, but I think that’s the goal of the neoliberals: not just so that we’re more responsible with our money, but also so that we’re more consumed by it: so that we don’t have time for anything else. Especially anything, like politics, that would upset the social order as it is.

…We saw a version of it during the debate on Obama’s healthcare plan. I distinctly remember, though now I can’t find it, one of those healthcare whiz kids—maybe it was Ezra Klein—tittering on about the nifty economics and cool visuals of Obama’s plan: how you could go to the web, check out the exchange, compare this little interstice of one plan with that little interstice of another, and how great it all was because it was just so fucking complicated.

I thought to myself: you’re either very young or an academic. And since I’m an academic, and could only experience vertigo upon looking at all those blasted graphs and charts, I decided whoever it was, was very young. Only someone in their 20s—whipsmart enough to master an inordinately complicated law without having to make real use of it—could look up at that Everest of words and numbers and say: Yes! There’s freedom!

That’s what the neoliberal view reduces us to: men and women so confronted by the hassle of everyday life that we’re either forced to master it, like the wunderkinder of the blogosphere, or become its slaves. We’re either athletes of the market or the support staff who tend to the race.

That’s not what the left wants. We want to give people the chance to do something else with their lives, something besides merely tending to it, without having to take a 30-year detour on Wall Street to get there. The way to do that is not to immerse people even more in the ways and means of the market, but to give them time and space to get out of it. That’s what a good welfare state, real social democracy, does: rather than being consumed by life, it allows you to make your life. Freely. One less bell to answer, not one more.

Reading about Economics

I've been pretty quiet on this blog lately, mostly because I've been doing a lot of reading, particularly about the economy.  There seems to be growing interest in a new "school" of economic thought known as Modern Monetary Theory (MMT), which I have learned about from reading Yves Smith's blog Naked Capitalism (Yves' blog is one of my daily "must reads").  Just today there is a post from Vincent Huang on The Nature of Money which is is a fascinating read.

I get a bit disheartened reading this stuff, however, because it demonstrates to me just how little the average American understands about the economy and how it works.  I recently commented on this blog post by Paul Krugman, saying the following:

The sum total of my economics education was basic Macro from Samuelson some 35 years ago. It was transformational to me, in the sense that it gave me an understanding of the way that the economy functions and the government's role in making sure it functions smoothly. Last year, when I heard that my son's high school was, for the first time, going to offer AP Macroeconomics, I urged him to enroll in the course.

There is so much that is counter-intuitive about macro-economics. Just try explaining to the average American the paradox of thrift. When the President says that the government must tighten its belt like individuals do, anyone with a basic sense of macroeconomics knows what a foolish statement that is. But most Americans just nod their heads in agreement.

To me it is essential that the average American understand these basic concepts. Frankly, I think we should focus on developing a basic course at the high school level that should be part of the core curriculum that everyone should take.

So I continue to try and understand what's going on....and MMT has given me an understanding that I really didn't have before.

If you're as interested, many of the major players on this front are at the University of Missouri Kansas City, and blog at the website New Economic Perspectives.  The series of blog posts at the MMT Primer on that site can give you the basics.

I want to describe one of the concepts that I never really thought about.  I'm sure I'm going to blow something as I write this, so anyone who can add to my understanding please chime in.

Time to Bury the Clinton Legacy? Agreed!

Dean Baker has a column with that title, and I agree with what he has to say:

The story told by Democrats is that Clinton took the tough steps to bring down the budget deficit and balance the budget. He raised taxes and cut spending, even at the risk of alienating his base. The move toward a balanced budget caused the economy to boom, giving us the low unemployment and budget surpluses of the late 1990s.

In this story, everything went haywire when George W. Bush arrived in the White House and squandered the surplus with his big tax cuts. Making matters worse, he fought the wars in Afghanistan and Iraq without paying for them. The wars and tax cuts shifted the budget from large surpluses to large deficits, resulting in slower growth and eventually the financial crisis in 2008.

This story is fundamentally wrong, starting with the most basic point: The tax increases and spending cuts put in place by Clinton would not have balanced the budget, much less led to a large surplus. The Congressional Budget Office’s 1996 projections for the year 2000, still showed a deficit in 2000 equal to 2.5 percent of GDP ($400 billion in today’s economy). These projections were made after all the Clinton-era tax increases and spending cuts were passed into law.

The reason we had a surplus of 2.5 percent of GDP in 2000 instead of a deficit was that the economy was propelled by a stock bubble. The bubble led to a boom in consumption, which caused the saving rate to hit a record low. There was also a surge in investment as overhyped dotcom companies were able to raise billions on the stock market even if it was entirely unclear how exactly they could make a profit.

I would go a little further here, and say that the Clinton tax increase in 1993 probably acted to limit the size of the bubble, although the cut in the capital gains rate from 28% to 20% in 1998 clearly operated to inflate it further. And I agree that the Bush tax cuts and deficit spending helped limit the damage caused by the bursting of the dot-com bubble.  However, I think the stimulus would have been much more effective if it had consisted in New Deal type infrastructure spending rather than tax cuts skewed highly to the wealthy.

More on this later....

What's Going On in Italy

This story is actually kind of scary:

Events in Italy are turning serious. President Giorgio Napolitano has warned of “widespread social tension and unrest” in 2014 as the Long Slump drags on.

Those living on the margins are being drawn into “indiscriminate and violent protest, a sterile lurch towards total opposition”.

His latest speech is a veritable Jeremiad. Thousands of companies are on the “brink of collapse”. Great masses of the working people are on the dole or at risk of losing their jobs. Very high rates of youth unemployment (41pc) are leading to dangerous alienation.

“The recession is still biting hard, and there is a pervasive sense that it will be difficult to escape, to find a way back to full growth,” he said.

Now why might that be? Might it not have something to do with the central overriding fact that Italy has a currency overvalued by 20pc or more within EMU: that it is trapped in a 1930s fixed-exchange system run a 1930s central bank that is standing idly by (for political reasons) as M3 growth stalls, credit contracts, and deflation looms?

Mr Napolitano offers no answer. A former Stalinist who applauded the Soviet invasion of Hungary in 1956 (a youthful indiscretion), he has long since switched his ideological fervour to the EU project. He is by nature incapable of questioning the premises of monetary union, so don’t expect any useful insights from the Quirinale on how to break out of this impasse.

He does concede that the eurozone crisis “has put a severe strain on social cohesion” but leaves the matter hanging, his argument unfinished, more descriptive than analytical.

Without going as far as to warn that the Italian state itself is at risk, he said the growing threat from insurrectional forces must be confronted. The law must be upheld strictly. The country must continue to be governed. “Europe is watching us,” he said.

Mr Napolitano is alarmed, and so he should be. The “forconi” pitchfork revolt has taken a disturbing turn for Italy’s elites. Police took off their helmets in sympathy at the latest mass demo in Turin.

This is becoming an anti-EU movement. One of the Forconi leaders has just been arrested for climbing up the EU offices in Rome and ripping down Europe’s blue and gold flag.

ht/ Yves Smith

God I Hate Morning Joe

One of the things I have always liked to do as I get ready to leave for work in the morning is to flip on the TV and listen to the news.  Every once in a while I actually watch it, but for the most part I just listen so I have a basic idea of what's going on in the world.  But it gets more and more difficult to listen to some of the crap I hear.

Up until now, I've basically listened to Morning Joe, because there's nothing better that actually reflects what the VSPs are talking about it Washington.

But at this point, I'm sick of hearing the VSPs.

Yesterday a federal judge ruled that the NSAs program of collecting all cell phone metadata was declared unconstitutional.  So who did Morning Joe have on hand to discuss the implications of this ruling?

Michael Hayden...

...and...

Alberto Gonzalez.

Seriously?  These are the only people you could find that would be willing to talk about the implications of this ruling?

But the real topper was the discussion of Chris Christie and the growing GW Bridge scandal.

Already, the Beltway media is turning this into a Democratic v. Republican political fight.  And Jim Vanderhei's opinion of the matter, reflecting the VSPs no doubt, was really just mind-bogglingly bad.

This is not just a political fight.  This was a mind-bogglingly bad abuse of power that could have easily turned horribly wrong.  Yet these guys just pooh-pooh it.

Horrible.

So please - is everything else on morning news this bad?  Anybody have any suggestions for alternatives?

Another Headshaker

I have a fascination for economics - if you check out my blogroll you'll see that a lot of the blogs I read are economics blogs.  My fascination for the topic is really political: I believe that there is a direct correlation between the amount of freedom a person has and the amount of economic resources the person has at their disposal [this may not always have been the case, but it certainly is in today's post-industrial America].  I don't claim to have any particular expertise in the area - my "education" such as it is consists of one semester of basic macro in college and close to 30 years working as a tax lawyer in New York City.  So I've been very interested over the last several weeks - since I read this post by Paul Krugman and saw the talk by Larry Summers that he links to - in the discussion of "secular stagnation" which has been all the rage since then.

One of the factors that is viewed as important in this analysis is the increase in household debt over the 20-some-odd-year period preceding the 2008 financial crisis, a point discussed by Krugman here.  Via Mark Thoma, I read this post today by Antonia Fatas saying he's not really sure that the increase in household debt has much to do with the secular stagnation dilemma:

In summary, increasing debt ratios area unsustainable and the adjustment can have a negative effect on growth. The argument is probably right but when it comes to assessing the real impact on growth I think we need to do a more careful analysis before reaching that conclusion.

Here is where I think the reading of the previous chart becomes more complicated: Why was debt going up? For some this is simply a reflection of excessive spending that directly feeds into demand. The fact that it is excessive leads to the need to reverse the trend in the years that follow and, using the same logic but now going back, it will lead to a reduction in demand. But to reach that conclusion we first need to do a more careful analysis of the balance sheet of US households by looking not only at their liabilities but also at their assets.

He then posts a number of charts that show, lo and behold, that household wealth has been going up and down, more or less in tandem with household debt.  He then concludes with this statement:

What these charts suggest is that the analysis of debt is a complex one and it requires a careful look at both sides of the balance sheet. And unless I am missing some relevant academic research, we do not have a good framework to think about these trends. And things can get a lot more complicated if we start adding other issues, such as the distribution of holdings of assets and liabilities. It could be that the households that are holding the assets are not be the same as the ones holding the debt, and this can change the way we think about the implications of these trends.

After reading this I had to rub my eyes, shake my head and look again.  "It could be" that the households holding the assets are not the same as those holding the debt?

Seriously, is this a question? I would have thought it was axiomatic.

Of course, there are people that think that the distribution of household assets and debt is very relevant to our current economic woes.  Like this guy, I think they have a damn good argument.

WTF?

Via Atrios, I read this article about the Bloomberg Administration sprinting to get a deal in place to build a new soccer stadium for the New York City Football Club, which is organizing a new expansion franchise set to begin play in 2015.  I was especially struck by this statement from Bloomberg's spokesperson on the deal:

"We remain committed to working with our partners on the plan that will make New York City FC the country's preeminent Major League Soccer franchise, which includes a world-class stadium they can one day call home."

Um, excuse me, but is it really the policy of the government of the City of New York to ensure that sports franchises in the city win championships?  Seriously?

I'm so glad Bloomberg is leaving.

Where Do They Get This Stuff?

I had the unfortunate experience today of clicking from this post by Charlie Pierce to this "manifesto" of Dr. Milton Wolf, who apparently is the Tea Party candidate that will challenge Senator Pat Roberts (R-Kansas) in 2014.  Now I could take exception with just about every paragraph set out by Wolf, but there is one thing he said that particularly irks me and I just have to get it off my chest:

The first step is to recognize that the IRS has become irretrievably corrupted and the 75,000-page tax code has become an anathema to civil society.

Listen, I am a tax lawyer by trade.  I've have a copy of the Internal Revenue Code sitting on my desk for over 29 years (and a second copy at home too just in case I'm in the mood for some entertaining reading). My copy of the Code is 3,029 pages long.  And just to make clear, my copy of the Code includes notes on every amendment made to every section of the Code since it was first enacted in 1954.  So Code as enacted with all amendments for the last 60 years?  3,029 pages.

Not 75,000.

And let me just say in passing that, in my experience, the increasing length and complexity of the Internal Revenue Code is generally caused by law changes made by Republicans.  If you look at the history of major tax acts since 1954, most of them occur during Republican Administrations.  The Conservative patron St. Ronald actually had 5 major tax overhaul bills during his 8 years in office, more or less doubling the size of the Code during his term. Funny how Republicans complain about how businesses need certainty so that they can plan for the future, but when they get into office they end up changing things dramatically.

Who Are We Really Subsidizing?

Over the last year we have seen more and more of these kinds of reports:

Almost a third of the country’s half-million bank tellers rely on some form of public assistance to get by, according to a report due out Wednesday.

Researchers say taxpayers are doling out nearly $900 million a year to supplement the wages of bank tellers, which amounts to a public subsidy for multibillion-dollar banks. The workers collect $105 million in food stamps, $250 million through the earned income tax credit and $534 million by way of Medicaid and the Children’s Health Insurance Program, according to the University of California at Berkeley’s Labor Center.

The center provided the data to the Committee for Better Banks, a coalition of labor advocacy groups that published the broader study, to be released Wednesday, on the conditions of bank workers in the heart of the financial industry, New York. In the that state alone, 39 percent of tellers and their family members are enrolled in some form of public assistance program, the data show.

We are seeing them more and more in all kinds of industries, most especially in fast food and retail.  The government itself is in on the game.  Many companies having contracts with the federal government are paying their workers barely subsistence wages.

The message of these stories is really a twist from what we have seen for so many decades.  In the past programs like foodstamps, medicaid, housing assistance, child care assistance and others we viewed as lazy people, moochers who were unwilling to work hard enough to provide for themselves and their families.  Stories like this one are changing the narrative.

The fact is, if an employee works full time and relies on these programs, the programs are subsidizing the employer just as much as they are subsidizing the employee.

And most people on these programs are working people, not unemployed people.

It seems like this message is starting to get through.  Programs that allow employers to pay less than a living wage subsidize employers, not employees.

What this meme means for policy, though, remains an open question.  It seems to me there are two ways you can go with this.

One route is to require employers to pay a living wage: increase the minimum wage to a level that anyone working 40 hours a week can make enough money so that they don't have to rely on public assistance.  This should apply equally if the individual is working two or more part time jobs or one full time job.  If they work 40 hours, they should be able to survive with no public assistance.

The second route is to recognize that these are simply necessary programs in an economy that provides market-based wages.  In other words, there has to be a recognition on the part of employers that they are benefitting from these programs, and because of that they should be willing to pay some of the portion of the additional profits they enjoy as a result of low wages to support these programs.

Personally, I'm sympathetic to the view that profitable businesses should not be subsidized in this manner - that companies that make hundreds of millions of dollars a year should pay their employees a living wage. But I also recognize that a lot of small business employers really would be squeezed if the minimum wage was lifted to $15 per hour.  I am concerned that if the only businesses that can operate were those that pay a living wage, then only very large business will be able to operate, making inequality even worse than it already is.

I'm perfectly happy to have a programs that supplement wages on the assumption that the are fundamental to the operation of our 21st century economy.  But if that's the case, then we have to stop vilifying the people whose wages are supplemented by these programs. And we have to be willing to fund them with out tax dollars.