A Never-Ending Story Of Bailouts, Moral Hazard, And Low Economic Growth

A Never-Ending Story Of Bailouts, Moral Hazard, And Low Economic Growth

Tyler Durden

Fri, 06/26/2020 – 17:45

Authored by Klajdi Bregu via The Mises Institute,

The recent economic downturn has created the environment for a new round of bailouts by the government and the Fed. Last time they did this they told us it would be the last one, but anyone who knows our history knew that was not going to stand. Now we are told again that this is an exceptional situation and we must bail out businesses in trouble so that the economy can restart again as quickly as possible. But this is the same argument the government has always made when pushing for a bailout. What is more, every time the government has bailed out businesses, they have promised us that this will not create moral hazard.

Moral hazard here refers to the ability to take risk without fear of suffering the consequences. As I show below, businesses profit by making bad short-term decisions, and when these bad decisions bring them to the brink of bankruptcy, they are bailed out by taxpayers. So, the owners of these firms and their CEOs benefit from the upside, and taxpayers foot the bill on the downside. In what follows, I review the history of bailouts in the US and argue that we must consider bringing an end to bailouts if we want to have the real and sustainable economic growth we desperately need.

Financial Institutions Bailouts 1.0 and 2.0

After the savings and loan (S&L) industry had struggled for many years, government finally came to the rescue. The federal government, at the time under the leadership of President George H.W. Bush, passed a bailout that cost taxpayers $124 billion ($264 billion in today’s dollars). It is important for our purpose here to keep in mind that in the lead-up to this many of these firms had taken advantage of the booming housing market. Many of these companies lent too much money, and when the economy weakened they could not keep up with the losses. This led L. William Seidman, former chairman of the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation, to say that “The banking problems of the ’80s and ’90s came primarily, but not exclusively, from unsound real estate lending.” Hence, these companies were not prudent during the good times and did not plan for a downturn.

This was not the last time financial institutions were bailed out. Banks, along with the artificially low interest rates, were the main cause of the Great Recession. History repeated itself as the federal government stepped in and bailed them out again. We were told that the banks and AIG (American International Group) were “too big to fail” and could not be allowed to go bankrupt because the harm to the economy would be enormous. These bailouts—for AIG, the banks, Fannie Mae, and Freddie Mac—cost the taxpayers $621 billion in today’s dollars, or more than twice the previous bailout. But, aren’t the banks stronger now? one could ask. This is a fair question, yet the banks would be strong if we let them liquidate the parts of their companies that were hit the most. Had we done this we would have a stronger banking system and no moral hazard for the rest of the economy.

Automakers Bailouts 1.0 and 2.0

During the Great Recession the government bailed out the three big automakers in the US. But this was not the first time the government had bailed out a car company. Chrysler had already been bailed out in 1979, when they got $1.5 billion ($5.7 billion in today’s dollars). It is important to point out why Chrysler had needed to be bailed out. Charles Hyde, professor of history at Wayne State University and author of Riding the Roller Coaster: A History of the Chrysler Corporation, had this to say:

Well, in essence they made some very bad product choices throughout the 1970s. They decided to become specialists in large, gas-guzzling cars, and they did that right at the time there were two different Arab oil boycotts and crises with the price of gasoline. And their cars simply didn’t sell. The other problem they had were very serious quality problems. Their cars were probably the worst-built cars in any showrooms anywhere.

Chrysler emerged stronger after this; they made the necessary changes, and it seems that at least for a while they did well. But in 2008 Chrysler and GM both found themselves in trouble. This time around, the bailout was about $100 billion adjusted for inflation, which is about 17.5 times the previous one. And, again, we know these firms had made bad decisions (misallocated resources), since Ford and other car companies did not need a bailout.

The concerned reader may ask, Aren’t the bailouts the price we have to pay to save jobs? The problem is that these companies never really fixed their problems. While low interest rates have helped them, they have also made them more fragile. As I have written elsewhere, the car market is in an unsustainable bubble, and with sales going down and delinquencies that were already rising, another crash and maybe another round of bailouts seem inevitable. In fact, the Fed has already implicitly “bailed out” Ford by promising to buy the fallen angels‘ debt. So, while the bailouts may save some jobs in the short run, they will cause much more trouble in the long run.

Airline Bailout 1.0 and 2.0

Following the attack on 9/11, airline traffic suffered a big hit and the airline firms needed the government’s help “to survive.” The government at the time provided $5 billion in grants and $10 billion in loans (about $22 billion in today’s dollars). After the bailout bill was passed President George W. Bush said:

I commend the Congress for their cooperation and quick action in passing responsible legislation that will improve passenger safety, help the victims and their loved ones, and keep America’s airplanes flying while the airlines develop long-term viability plans.

But as it turns out, airline companies did not develop very good “long-term viability plans.” Recently, the US airlines were hit with the same problem they had after 9/11—a lack of passengers because of the COVID-19 crisis—and they could not have been less prepared for this. One would expect an industry that had experienced a similar situation not so long ago to be better prepared than others, but they clearly were not.

The government stepped in again and has bailed them out by allocating $25 billion in grants (30 percent of which will be repaid as a loan over ten years) and an additional $25 billion in loans.

But again one may ask, Doesn’t this save jobs? The answer to this important question is that this may save some jobs in the short run, yes, but the cost will be very high, since these jobs are not sustainable. What is more, this bailout will lead to lower economic growth, since the necessary resource reallocation will not happen.

Bailouts Lead to Lower Economic Growth

Our history of bailouts shows that we have created tremendous moral hazard. As I have argued above, some industries or firms have been repeatedly bailed out. Hence, these companies have never learned to be prudent and save for a rainy day, which shows that they are incompetent at best or simply care only for short-term profits. Take the airline industry, for instance. In the post–Great Recession period, the airline industry used 96 percent of its profits to buy back stocks and did not plan for a downturn. It is true that it was not easy to predict a situation like the current one caused by COVID-19, but many would disagree that this was a black swan, including Nassim Taleb himself.

Hence, the bailouts have led to bad use of resources, which can explain, at least in part, the slow economic growth we have experienced post–Great Recession. The issue with bailouts is that the tradeoffs we face are higher unemployment now followed by higher and sustainable economic growth later, or lower unemployment now followed by lower economic growth later. Bailouts are directly connected to productivity, as the graph below shows. This means that the more bailouts we have the lower the economic growth. This makes sense, since economic theory tells us that when a company fails it means that they were not using resources efficiently. If the company goes bankrupt, then either some or all of the resources will be transferred to more prudent investors, which will lead to better use of these resources and higher economic growth. On the other hand, when a company is bailed out, they will continue to make bad decisions and even worse others will get the message that they will not be held responsible by the market if they make bad decisions.

Source: “Deutsche Bank Gives Us a View of the Credit Abyss,” Bloomberg.com, Apr. 27, 2020.

Conclusion

The good news is that some people are starting to speak out against these huge wealth transfers from taxpayers to large corporate shareholders and CEOs. In a recent interview for CNBC, Chamath Palihapitiya argued that companies that were not prudent should be left to go bankrupt. Sadly, many people are convinced that this would lead to massive unemployment, such that we are not bailing out corporations, but are rather helping workers. That is not quite the real story. When companies file for Chapter 11 bankruptcy, it is the shareholders and the speculators who get hurt, not the workers.

Yet the federal government and the Fed are doing anything they can to keep the debt bubble going. This is nothing new, since the federal government and the Fed have brought us to the current situation in concert. The Fed’s low interest rate policy together with the implicit bailout guarantee from the federal government led corporations to borrow too much. This has made the economy so fragile that it could not even handle interest rates at half of what they were before the last crisis started. As the Fed increased interest rates in 2018, the economy started to slow down so fast that they had to reverse and start lowering interest rates in 2019. Now they effectively stand at zero. Low interest rates, along with the many programs the Fed has implemented during the COVID-19 crisis, have led corporations to borrow more than $617 billion in the last two months alone. So, the story of bailouts and low interest rates continues. But until it ends we cannot expect to have the real and sustainable economic growth we desperately need.

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3,500 Mile-Long “Godzilla Dust Cloud” Will Hit US Southeast Within Hours

3,500 Mile-Long “Godzilla Dust Cloud” Will Hit US Southeast Within Hours

Tyler Durden

Fri, 06/26/2020 – 17:25

A giant dust cloud which has traveled 5,000 miles from North Africa is touching down on the US Southeast this weekend, and will cause a brown haze and raising respiratory health concerns amid the coronavirus pandemic, according to Reuters.

The North African dust storm is an annual occurrence – however this year it’s the most dense it’s been in more than 50 years according to meteorologists, which some have dubbed the “Godzilla dust cloud.”

This weekend it will descend on Florida, moving west into Texas and into North Carolina through Arkansas, according to the National Weather Service (NWS).

“It’s a really dry layer of air that contains these very fine dust particulates. It occurs every summer,” according to NWS meteorologist Patrick Blood. “Some of these plumes contain more particles, and right now we expecting a very large plume of dust in the Gulf Coast.”

This year, the dust is the most dense it has been in a half a century, several meteorologists told Reuters earlier this week as it crossed over the Caribbean.

The Saharan dust plume will hang over the region until the middle of next week, deteriorating the air quality in Texas, Florida and other states where the number of COVID-19 cases has recently spiked. –Reuters

“There’s emerging evidence of potential interactions between air pollution and the risk of COVID, so at this stage we are concerned,” said Boston University School of Public Health professor of environmental health, Gregory Wellenius.

Skies in affected states are expected to be hazy with reduced visibility, along with a blanketing of dust. According to meteorologists, the dry air mass that carries the dust can suppress the formation of hurricanes and tropical storms, and can produce enhanced sunrises and sunsets.

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The One Statue That Remains Untouched: Vladimir Lenin

The One Statue That Remains Untouched: Vladimir Lenin

Tyler Durden

Fri, 06/26/2020 – 17:05

Authored by Simon Black via SovereignMan.com,

Are you ready for this week’s absurdity? Here’s our Friday roll-up of the most ridiculous stories from around the world that are threats to your liberty, risks to your prosperity… and on occasion, inspiring poetic justice.

Today we tackle the woke…

NYC’s inspiring breakthrough in the science of contact tracing

“Contact tracing” is a tactic whereby public health officials attempt to track where you’ve been, and who you’ve been in contact with, in their efforts to contain a pandemic.

And we’ve seen a lot of contact tracing efforts lately.

New York City hired thousands of contact tracing specialists who are tasked with calling everyone who tests positive for Covid-19 and interviewing them to help identify who else they might have infected.

But now New York City’s Comrade Mayor Bill de Blasio has instructed his contract tracers to specifically NOT ask if an infected person attended a Black Lives Matter protest.

Seriously… what’s the point?

The entire idea of contact tracing is to find out who else might have been in close proximity. To deliberately NOT ask someone if they’ve been in close proximity of thousands of other people sort of defeats the purpose of the entire contract tracing program to begin with.

Naturally, New York City health officials have already said that any spike in Covid infections should be blamed on racism, and not mass gatherings of people.

And that’s what constitutes science in 2020.

This is another obvious sign of woke intersectionality.

Governments act like public health is their number one concern. They shut down the entire economy and refused to allow people to attend worship services, all to keep us safe from a strand of ribonucleic acid.

But in actuality they’re far more concerned with building political credibility with protestors, and they’re willing to completely make up science in order to do so.

Click here for the full story

*  *  *

Protesters destroy statues of an ex-slave, abolitionist… leave Lenin untouched

A statue in San Francisco of Miguel Cervantes, author of Don Quixote, was defaced with the word “bastard” spray painted onto it by protesters.

What protesters may not know is that the Spanish author actually spent five years as a slave after being captured off the coast of Africa.

Outside of Wisconsin State Capitol the statue of Hans Christian Heg was also toppled.

Heg was an anti-slavery activist who joined a militia that fought slave traders. Then he joined the Union Army during the Civil War, and died in battle, fighting to end slavery.

Perhaps statues in general are sinful in the new social order.

Except for the statue of Vladimir Lenin in Seattle. His statue has remained untouched.

Click here to read about Cervantes and here for Heg.

*  *  *

UK court fines man for calling an Irish guy a leprechaun

A man who insulted his ex-girlfriend’s new boyfriend was charged with a racially motivated crime.

He used the “grossly offensive” term “leprechaun” to refer to his ex’s new boyfriend, who is Irish.

The court fined him £280… and I can only imagine the Holy Hell that the Twitter mob will unleash upon him.

Click here for the full story.

*  *  *

Duluth Minnesota to delete “Chief” from town titles

The town of Duluth Minnesota decided to remove the term “Chief” from town titles.

They will rename titles such as “Chief Administrative Officer” so that it won’t be offensive to Native Americans.

The police and fire chiefs are also apparently open to taking on new titles.

Mayor Emily Larson explained that the word chief “is language that is offensive to people who are indigenous and actually offensive to a lot of people, especially when there is other language available.”

Chief is actually an Old French word meaning principal, first, leader, or most important.

It is also related to chef, so that should also probably be deleted from the lexicon.

Click here to read the full story.

*  *  *

On another note… We think gold could DOUBLE and silver could increase by up to 5 TIMES in the next few years. That’s why we published a new, 50-page long Ultimate Guide on Gold & Silver that you can download here.

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Fifteen Fast Facts About Gold

Fifteen Fast Facts About Gold

Tyler Durden

Fri, 06/26/2020 – 16:45

Today Bank of America published its eighth annual Gold and Gold industry primer, and extremely useful report chock full of information including sections on economic drivers, gold supply and demand trends, industry fundamentals and sector valuations. But the main reason why this year’s edition is remarkable, is because with gold trading at $1,770, it is just $100 away from its record hit in Sept 2011, an all time high price which even the skeptics say will be in the rear-view mirror in short notice as a result of the insanity taking place with central bank money printers.

Which is why we will have several extended articles covering some of the more fascinating BofA findings, but until then here – courtesy of BofA’s Jason Fairclough and team – are fifteen fast facts about gold:

  1. Gold never oxidizes, never gets rusty and is shiny forever;
  2. Gold has been mined for over 5,000 years;
  3. Tutankhamen’s coffin contained ~1.5 tonnes of gold;
  4. The WGC estimates that total above ground gold stocks stand at 197,576t, sufficient to satisfy global gold demand for 40+ years;
  5. Gold is virtually indestructible. Still though, If every single ounce of this gold were placed next to each other, the resulting cube of pure gold would only measure around 21 meters on each side;
  6. Illustrating how ductile gold is, a single ounce of gold can be stretched into a gold thread 5 miles long;
  7. The first gold coins appeared around 700 BC;
  8. If all the gold in the world was pulled into a 5 micron wire, it could wrap around the earth 11.2 million times;
  9. The word “gold” comes from the Old English word “geolu,” meaning yellow;
  10. In every cubic mile of sea water there is 25 tons of gold, equal to around 10 billion tons of gold in the oceans;
  11. Three James Bond movies have gold in the title: GoldenEye , Goldfinger, and The Man With The Golden Gun;
  12. The last Olympics which awarded medals made of solid gold was during summer 1912 in Stockholm;
  13. Modern day Olympic gold medals contain a minimum of six grams of gold and with the balance roughly 92.5% silver;
  14. There are more than 400 references to gold in the Bible; and
  15. Gold is becoming scarcer. The WGC estimates below ground gold reserves of 54,000t, which means “peak gold” was passed many years ago.

 

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The 9th Circuit Erred Again: Youngstown does not support the existence of an “equitable ultra vires cause of action”

Today the 9th Circuit decided Sierra Club v. Trump. In this case, the environmental group challenged the Trump administration’s transfer of appropriated funds to construct a border wall. The 9th Circuit previously upheld a district court injunction in this case. However, the Supreme Court stayed that ruling by a 5-4 vote. The per curiam order explained:

Among the reasons is that the Government has made a sufficient showing at this stage that the plaintiffs have no cause of action to obtain review of the Acting Secretary’s compliance with Section 8005.

At the time, Seth Barrett Tillman and I wrote a lengthy post explaining why the Plaintiffs lacked an equitable cause of action to challenge ultra vires action. This analysis was based on our work on the Foreign Emoluments Clause. In that litigation, the Plaintiffs have also asserted a general equitable cause of action to challenge illegal government conduct. (Judge Wilkinson’s recent dissent eviscerates this position.)

On remand, the Ninth Circuit held that the plaintiffs do in fact have “an equitable ultra vires cause of action to challenge the Federal Defendants’ transfer.” This opinion is flawed on several grounds.

First, the court conflates illegal conduct with the ability to challenge illegal conduct in court. The panel writes:

Equitable actions to enjoin ultra vires official conduct do not depend upon the availability of a statutory cause of action; instead, they seek a “judge-made remedy” for injuries stemming from unauthorized government conduct, and they rest on the historic availability of equitable review….The relief Sierra Club requests has been traditionally available. “The ability to sue to enjoin unconstitutional actions by state and federal officers is the creation of courts of equity, and reflects a long history of judicial review of illegal executive action, tracing back to England.” Armstrong.

This mistake is all too common. We explained in our prior post:

The constitutional claims in the Wall litigation, as well as in the Emoluments Clauses cases, cannot invoke the equitable jurisdiction of the federal courts. Why? In order to invoke a federal court’s equitable jurisdiction, Plaintiffs cannot simply assert in a conclusory fashion that the conduct of federal officers is ultra vires, and, on that basis, seek equitable relief. “Equity” cannot be used as a magic talisman to transform the plaintiffs into private attorneys general who can sue the government merely for acting illegally. Rather, in order to invoke the equitable jurisdiction of the federal courts, plaintiffs must put forward a prima facie equitable cause of action.

Second, Armstrong v. Exceptional Child Center, Inc. does not support the Plaintiffs’ claim. We wrote:

For example, in Armstrong v. Exceptional Child Center (2015), the Supreme Court rejected the proposition that “the Supremacy Clause creates a cause of action for its violation” in the federal court’s equitable jurisdiction.

Plaintiffs in the Emoluments Clauses cases repeatedly cite Armstrong, but fail to note that this case cuts against their free-floating claim to an equitable cause of action based on a purported constitutional violation.

Third, the panel misreads the nature of the cause of action in Youngstown. The panel writes:

That Sierra Club has a cause of action to enjoin the unconstitutional actions at issue here is best illustrated by Youngstown. There, Congress passed numerous statutes authorizing the President to take personal and real property under specific conditions. 343 U.S. at 585–86. During the Korean War, however, President Truman signed an executive order seizing most of the nation’s steel mills, even though the conditions of the statutes had not been satisfied as a matter of fact. Id. at 582, 586. It fell to the Supreme Court to determine whether the President had constitutional authority to seize the steel mills—it held he did not and affirmed the district court injunction. Id. at 588–589. The Court never questioned that it had the authority to provide the requested relief.

Youngstown did not involve a free-floating equitable claim. In this seminal separation-of-powers case, the federal government seized control of private steel mills. The action was brought by the mills’ owners. Youngstown’s brief explained its cause of action:

A simple cloud on title has always moved equity to grant relief because no other remedy is complete or adequate. Wickliffe v. Owings, 17 How. 47, 50 (1854); Southern Pacific v. United States, 200 U. S. 341, 352 (1906); Ohio Tax Cases, 232 U. S. 576, 587 (1914); Shaffer v. Carter, 252 U. S. 37, 48 (1920). The seizure of the properties and business of the plaintiffs, with its host of uncertainties and legal and practical problems arising from the ambiguous position in which the owners are left, should appeal to equity at least as strongly as a cloud on title. In these circumstances, any remedy at law would necessarily be inadequate.

The cause of action was based on the government’s regulation of real property–the steel mills. We explained:

The steel mill owners had a concrete, property interest that was impaired by the government’s actions. The plaintiffs did not rely on a generalized allegation of ultra vires action by the Secretary of Commerce; instead, they relied on an analogous cause of action to quiet title–their title to their property. Here too, we are in the heartland of historical equity jurisdiction involving disputed property rights.

Youngstown does not support the Sierra Club’s claim.

The Ninth Circuit’s errors here are plain. The Supreme Court should issue another stay.

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Florida and Texas Close Their Bars In Response to Surge in New COVID-19 Cases

reason-bar

Today, both Texas and Florida announced that they would be closing down their states’ bars in response to a rise in the number of new coronavirus cases.

“It is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” said Texas Gov. Greg Abbott (R) in a press release. “The actions in this executive order are essential to our mission to swiftly contain this virus and protect public health.”

Bars in Texas were allowed to reopen May 22, provided they operated at 25 percent capacity. This was raised to 50 percent capacity in early June.

Abbott cited the state’s positivity rate—meaning the percentage of coronavirus tests coming back positive—rising above 10 percent, and increasing numbers of COVID-19 patients in hospitals, as reasons for his reversal. The Texas Tribune reports that the state hit a record 4,736 hospitalizations on Thursday.

Hospitals in Houston and other metros report being at or near capacity. State officials and hospital leaders say Texas has enough intensive care unit (ICU) beds for now, but that new patients will outstrip hospital capacity if trends continue.

In addition to bars, Abbott’s order closes rafting and tubing businesses—which were linked to an outbreak in Hays County—and requires restaurants to reduce their capacity from 75 percent to 50 percent.

It’s a similar story in Florida, where rising case numbers and hospitalizations have seen Gov. Ron DeSantis (R) order that state’s bars closed as well. The governor had previously allowed most bars in the state to open on June 3.

Florida’s positivity rate has oscillated wildly from 5 percent to 18 percent over the past two weeks, but the trend has been unmistakably upwards.

Data collected by Florida International University (FIU) on South Florida hospitals, the Sun Sentinel reports, shows a surge in hospitalizations over the past two weeks, with places like Palm Beach and Miami-Dade County hitting record highs.

The FIU data shows more modest upticks in COVID-19 patients being admitted to ICUs or being placed on ventilators. “We are seeing slight spikes in ICU and ventilator use, and that’s something to watch,” Zoran Bursac, chair of FIU’s Department of Biostatistics, told the Sun Sentinel.

Avik Roy of the Foundation for Research on Equal Opportunity noted on Twitter that Florida’s rising hospitalizations are being driven mostly by younger people, who are less likely to need to be placed in ICUs and on ventilators.

Former FDA head Scott Gottlieb notes more gravely that mortality rates for younger patients in Florida are unusually high.

Both The New York Times and the Los Angeles Times have run stories on the recent spike in new coronavirus cases among younger people, both of which emphasized the youth’s trips to the bar as a reason for this uptick.

The temptation is obviously to blame these state’s case spikes on hasty reopenings. A cross-state comparison complicates that picture somewhat.

Colorado, where bars serving primarily drinks were allowed to open at reduced capacity last week, is seeing a minor uptick in new cases. South Dakota, which never implemented a lockdown order, is seeing its number of new cases go down. Meanwhile, states like Washington are seeing a big spike in new cases despite bars remaining closed in most of the state, and indoor dining being allowed only at reduced capacity. Parts of Pennsylvania, which has also been slow to reopen, are seeing spikes in new cases as well.

As always, the coronavirus pandemic continues to behave unpredictably, bedeviling efforts to find quick or simple policy responses.

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The 9th Circuit Erred Again: Youngstown does not support the existence of an “equitable ultra vires cause of action”

Today the 9th Circuit decided Sierra Club v. Trump. In this case, the environmental group challenged the Trump administration’s transfer of appropriated funds to construct a border wall. The 9th Circuit previously upheld a district court injunction in this case. However, the Supreme Court stayed that ruling by a 5-4 vote. The per curiam order explained:

Among the reasons is that the Government has made a sufficient showing at this stage that the plaintiffs have no cause of action to obtain review of the Acting Secretary’s compliance with Section 8005.

At the time, Seth Barrett Tillman and I wrote a lengthy post explaining why the Plaintiffs lacked an equitable cause of action to challenge ultra vires action. This analysis was based on our work on the Foreign Emoluments Clause. In that litigation, the Plaintiffs have also asserted a general equitable cause of action to challenge illegal government conduct. (Judge Wilkinson’s recent dissent eviscerates this position.)

On remand, the Ninth Circuit held that the plaintiffs do in fact have “an equitable ultra vires cause of action to challenge the Federal Defendants’ transfer.” This opinion is flawed on several grounds.

First, the court conflates illegal conduct with the ability to challenge illegal conduct in court. The panel writes:

Equitable actions to enjoin ultra vires official conduct do not depend upon the availability of a statutory cause of action; instead, they seek a “judge-made remedy” for injuries stemming from unauthorized government conduct, and they rest on the historic availability of equitable review….The relief Sierra Club requests has been traditionally available. “The ability to sue to enjoin unconstitutional actions by state and federal officers is the creation of courts of equity, and reflects a long history of judicial review of illegal executive action, tracing back to England.” Armstrong.

This mistake is all too common. We explained in our prior post:

The constitutional claims in the Wall litigation, as well as in the Emoluments Clauses cases, cannot invoke the equitable jurisdiction of the federal courts. Why? In order to invoke a federal court’s equitable jurisdiction, Plaintiffs cannot simply assert in a conclusory fashion that the conduct of federal officers is ultra vires, and, on that basis, seek equitable relief. “Equity” cannot be used as a magic talisman to transform the plaintiffs into private attorneys general who can sue the government merely for acting illegally. Rather, in order to invoke the equitable jurisdiction of the federal courts, plaintiffs must put forward a prima facie equitable cause of action.

Second, Armstrong v. Exceptional Child Center, Inc. does not support the Plaintiffs’ claim. We wrote:

For example, in Armstrong v. Exceptional Child Center (2015), the Supreme Court rejected the proposition that “the Supremacy Clause creates a cause of action for its violation” in the federal court’s equitable jurisdiction.

Plaintiffs in the Emoluments Clauses cases repeatedly cite Armstrong, but fail to note that this case cuts against their free-floating claim to an equitable cause of action based on a purported constitutional violation.

Third, the panel misreads the nature of the cause of action in Youngstown. The panel writes:

That Sierra Club has a cause of action to enjoin the unconstitutional actions at issue here is best illustrated by Youngstown. There, Congress passed numerous statutes authorizing the President to take personal and real property under specific conditions. 343 U.S. at 585–86. During the Korean War, however, President Truman signed an executive order seizing most of the nation’s steel mills, even though the conditions of the statutes had not been satisfied as a matter of fact. Id. at 582, 586. It fell to the Supreme Court to determine whether the President had constitutional authority to seize the steel mills—it held he did not and affirmed the district court injunction. Id. at 588–589. The Court never questioned that it had the authority to provide the requested relief.

Youngstown did not involve a free-floating equitable claim. In this seminal separation-of-powers case, the federal government seized control of private steel mills. The action was brought by the mills’ owners. Youngstown’s brief explained its cause of action:

A simple cloud on title has always moved equity to grant relief because no other remedy is complete or adequate. Wickliffe v. Owings, 17 How. 47, 50 (1854); Southern Pacific v. United States, 200 U. S. 341, 352 (1906); Ohio Tax Cases, 232 U. S. 576, 587 (1914); Shaffer v. Carter, 252 U. S. 37, 48 (1920). The seizure of the properties and business of the plaintiffs, with its host of uncertainties and legal and practical problems arising from the ambiguous position in which the owners are left, should appeal to equity at least as strongly as a cloud on title. In these circumstances, any remedy at law would necessarily be inadequate.

The cause of action was based on the government’s regulation of real property–the steel mills. We explained:

The steel mill owners had a concrete, property interest that was impaired by the government’s actions. The plaintiffs did not rely on a generalized allegation of ultra vires action by the Secretary of Commerce; instead, they relied on an analogous cause of action to quiet title–their title to their property. Here too, we are in the heartland of historical equity jurisdiction involving disputed property rights.

Youngstown does not support the Sierra Club’s claim.

The Ninth Circuit’s errors here are plain. The Supreme Court should issue another stay.

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via IFTTT

Florida and Texas Close Their Bars In Response to Surge in New COVID-19 Cases

reason-bar

Today, both Texas and Florida announced that they would be closing down their states’ bars in response to a rise in the number of new coronavirus cases.

“It is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” said Texas Gov. Greg Abbott (R) in a press release. “The actions in this executive order are essential to our mission to swiftly contain this virus and protect public health.”

Bars in Texas were allowed to reopen May 22, provided they operated at 25 percent capacity. This was raised to 50 percent capacity in early June.

Abbott cited the state’s positivity rate—meaning the percentage of coronavirus tests coming back positive—rising above 10 percent, and increasing numbers of COVID-19 patients in hospitals, as reasons for his reversal. The Texas Tribune reports that the state hit a record 4,736 hospitalizations on Thursday.

Hospitals in Houston and other metros report being at or near capacity. State officials and hospital leaders say Texas has enough intensive care unit (ICU) beds for now, but that new patients will outstrip hospital capacity if trends continue.

In addition to bars, Abbott’s order closes rafting and tubing businesses—which were linked to an outbreak in Hays County—and requires restaurants to reduce their capacity from 75 percent to 50 percent.

It’s a similar story in Florida, where rising case numbers and hospitalizations have seen Gov. Ron DeSantis (R) order that state’s bars closed as well. The governor had previously allowed most bars in the state to open on June 3.

Florida’s positivity rate has oscillated wildly from 5 percent to 18 percent over the past two weeks, but the trend has been unmistakably upwards.

Data collected by Florida International University (FIU) on South Florida hospitals, the Sun Sentinel reports, shows a surge in hospitalizations over the past two weeks, with places like Palm Beach and Miami-Dade County hitting record highs.

The FIU data shows more modest upticks in COVID-19 patients being admitted to ICUs or being placed on ventilators. “We are seeing slight spikes in ICU and ventilator use, and that’s something to watch,” Zoran Bursac, chair of FIU’s Department of Biostatistics, told the Sun Sentinel.

Avik Roy of the Foundation for Research on Equal Opportunity noted on Twitter that Florida’s rising hospitalizations are being driven mostly by younger people, who are less likely to need to be placed in ICUs and on ventilators.

Former FDA head Scott Gottlieb notes more gravely that mortality rates for younger patients in Florida are unusually high.

Both The New York Times and the Los Angeles Times have run stories on the recent spike in new coronavirus cases among younger people, both of which emphasized the youth’s trips to the bar as a reason for this uptick.

The temptation is obviously to blame these state’s case spikes on hasty reopenings. A cross-state comparison complicates that picture somewhat.

Colorado, where bars serving primarily drinks were allowed to open at reduced capacity last week, is seeing a minor uptick in new cases. South Dakota, which never implemented a lockdown order, is seeing its number of new cases go down. Meanwhile, states like Washington are seeing a big spike in new cases despite bars remaining closed in most of the state, and indoor dining being allowed only at reduced capacity. Parts of Pennsylvania, which has also been slow to reopen, are seeing spikes in new cases as well.

As always, the coronavirus pandemic continues to behave unpredictably, bedeviling efforts to find quick or simple policy responses.

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Short Circuit: A Roundup of Recent Federal Court Decisions

Please enjoy the latest edition of Short Circuit, a weekly feature from the Institute for Justice.

California taught Dario Gurrola how to fight fires while he was in custody, paying him $2–$6 per day. Now that he’s paid his debt to society, however, state licensing restrictions bar him from becoming a full-time firefighter. This month, Dario and IJ filed suit to challenge those restrictions. Vice News has the story.

New on the Short Circuit podcast: Clark Neily of the Cato Institute (who is also a founding member of the podcast) rejoins the panel to talk gym closures in Michigan and a high-profile prosecution in D.C.

  • High-ranking former Trump Administration official pleads guilty to making false statements. But wait! The feds seek to dismiss the prosecution, a move that requires “leave of court.” D.C. Circuit (over a dissent): Which means the court must dismiss the case (unless the defendant objects).
  • Federal law gives the Secretary of Homeland Security the “sole and unreviewable discretion” to subject certain aliens to expedited removal. Last year, the secretary expanded the reach of the removal process to cover all undocumented immigrants who had been in the U.S. for less than two years. Three organizations whose members are covered by this expansion file suit. D.C. Circuit: Sorry, but “sole and unreviewable discretion” means that you lose on the merits. Dissent: Ridiculous! “Sole and unreviewable discretion” means that they lose on jurisdiction!
  • In 2015, the DOJ indicted several officials of the global soccer organization FIFA, who were ultimately convicted of, among other things, conspiracy to commit honest services wire fraud. FIFA officials: That’s impermissible extraterritorial application of the law; our conspiracy occurred entirely on foreign soil. Second Circuit: Ah, but you were charged with conspiracy to commit honest services wire fraud, and some of the bribes you received came from accounts at U.S. banks, which is enough of a domestic hook to support the convictions.
  • The Third Circuit ably distills the differences between standing and mootness in an opinion that does little good for the plaintiffs, whose case is moot.
  • Must statutory challenges to federal redistricting be heard by a three-judge district court? Or is the ordinary one judge fine? Fifth Circuit (en banc): All of us agree the case is moot because the election is over, but we are, nevertheless, in stark disagreement about the answer to that question of statutory interpretation.
  • Only twice has the Supreme Court ever struck down a law for violating the nondelegation doctrine, which holds that Congress may not delegate its legislative authority to another branch of government or a private party. “Ever. And none in more than eighty years.” And, says the Fifth Circuit, a vaping industry challenge to Congress’ delegation of authority to the Secretary of Health and Human Services (to determine if vaping products should be regulated like tobacco products) is not likely going to snap the nondelegation losing streak. [Ed.: Though we humbly suggest that at IJ we have a case that totally will.]
  • In 2009, the state of Ohio tried and failed to execute a prisoner, giving up after attempting for two hours to maintain an IV line through which to administer lethal-injection drugs. Sixth Circuit: Now on habeas review, we can’t say that trying again would amount to cruel and unusual punishment or double jeopardy.
  • Inmate at Ill. state prison sues guards. District court (March 2016): If the guards wish to argue that the inmate failed to exhaust his administrative remedies, they must file a motion to that effect by April 27, 2016. Guards don’t file a motion by April 27. Or by the end of discovery eight months later. Nor do they raise exhaustion in their summary-judgment motion three months after that. Then, two months before trial, they ask to file a new summary-judgment motion, raising exhaustion. Yikes! The basis for their delay? “[U]nknown reasons.” District court: Good enough for gov’t work. Seventh Circuit: Decidedly not good enough for gov’t work. To trial the case must go.
  • Page six of this Seventh Circuit opinion features the sort of footnote that gives litigators the willies.
  • In 1972, East Chicago, Ind. officials build public housing on former lead smelting and processing site. In 2016, the city orders 1,000 residents to leave; there are wildly unsafe levels of arsenic and lead in the soil. Seventh Circuit: The residents’ suit against the companies that operated on and near the site from 1906 to 1970 must go in federal, rather than state, court.
  • Arkansas police stop speeding motorcyclist (confusing him with a different motorcyclist with a very similar bike and clothing who’d evaded police stops), tase him without warning while he’s fidgeting with his bike. Excessive force? Eighth Circuit: Qualified immunity. You can’t tase people suspected of a nonviolent crime without warning, but he was suspected of seriously reckless driving and could have been about to flee.
  • Can the government make it a crime to truthfully report actors’ ages on websites like IMDB.com? The answer—per the Ninth Circuit—will absolutely not surprise you.
  • Investigating an abandoned trailer, Beckham County, Okla. deputy sheriff determines that former police chief stole it from an Anderson, S.C. church, arrests him. The former chief is subjected to a body-cavity strip search at booking, and the sheriff puts out a press release full of incriminating allegations from the warrant affidavit. Yikes! Turns out the church had two trailers and mixed up the VINs—the former chief’s trailer was not stolen but validly purchased. Double yikes! The former chief had campaigned for the sheriff’s opponent in the election—might this all be retaliation? Tenth Circuit: The arrest was proper, the press release fine. But “[b]ody-cavity strip searches are not so trivial” as to be universally conducted on all detainees.
  • Schizophrenic pretrial detainee at Rio Grande County, Colo. jail exhibits a variety of distressing behaviors culminating with him removing his eyeball from its socket. Staff restrain him as he attempts to remove the other eyeball. Officers: We checked on him every 15 minutes, as medical professionals advised. Tenth Circuit: That’s disputed, and since you failed to challenge whether the law was clearly established, the detainee’s suit can proceed.
  • Lakeland, Fla. officials move 26-foot-tall marble cenotaph honoring Confederate dead from one city park (where it’s been since 1910) to another. Eleventh Circuit: Plaintiffs who oppose the move (including one who wishes to “‘vindicate the cause’ for which the Confederate Veteran fought”) lack standing to press First Amendment and due process claims.
  • The Eleventh Circuit goes en banc to unanimously reverse precedent holding that people lack standing to bring Fourth Amendment claims if they have abandoned their privacy interests in the objects being searched. Judge Rosenbaum, concurring: I wrote that earlier precedent, and it’s totally wrong.
  • Woman sees dark-clothed men rush toward her back door in East Dublin, Ga. late one night, and she wakes her husband. Having been robbed the day before, the couple feared they were being robbed again; the husband grabs a shotgun and goes to investigate. He’s shot 23 times. Turns out it’s a SWAT team executing a drug raid sparked by the man who’d robbed them the day before—he told police he thought the husband was a meth dealer. The husband, a grandfather and the owner of a construction company, dies. Police find no drugs on the property. Eleventh Circuit: No qualified immunity for a cop who lied and omitted key info in his warrant affidavit. And the widow can pursue punitive damages against him.
  • Pretrial detainee at Clayton County, Ga. jail shares candy with his cellmate, another pretrial detainee who was also arrested for a nonviolent crime. (Neither has a history of violent felonies.) The cellmate demands all the candy and beats the first detainee to death when he declines to turn it over. Allegation: The jail’s intake procedures don’t adequately screen for violent misdemeanors, leading to nonviolent detainees sharing a cell with violent detainees. Eleventh Circuit: Plaintiffs haven’t shown a constitutional violation.

Allowing ex-offenders to earn an honest living is one of the best ways to prevent re-offending. But strict occupational licensing requirements make it harder for ex-offenders to find work. A new IJ report details the numerous methods state licensing boards use to deny credentials to otherwise qualified applicants. In multiple states, an applicant can be denied a license without any consideration of their rehabilitation or on the basis of any felony, even if the crime is completely irrelevant to the license sought. Licensing boards can even disqualify applicants over their perceived “good moral character” or “moral turpitude,” vague terms that let boards act capriciously. For more information and to see how your state treats ex-offenders, read Barred from Working.

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via IFTTT

Short Circuit: A Roundup of Recent Federal Court Decisions

Please enjoy the latest edition of Short Circuit, a weekly feature from the Institute for Justice.

California taught Dario Gurrola how to fight fires while he was in custody, paying him $2–$6 per day. Now that he’s paid his debt to society, however, state licensing restrictions bar him from becoming a full-time firefighter. This month, Dario and IJ filed suit to challenge those restrictions. Vice News has the story.

New on the Short Circuit podcast: Clark Neily of the Cato Institute (who is also a founding member of the podcast) rejoins the panel to talk gym closures in Michigan and a high-profile prosecution in D.C.

  • High-ranking former Trump Administration official pleads guilty to making false statements. But wait! The feds seek to dismiss the prosecution, a move that requires “leave of court.” D.C. Circuit (over a dissent): Which means the court must dismiss the case (unless the defendant objects).
  • Federal law gives the Secretary of Homeland Security the “sole and unreviewable discretion” to subject certain aliens to expedited removal. Last year, the secretary expanded the reach of the removal process to cover all undocumented immigrants who had been in the U.S. for less than two years. Three organizations whose members are covered by this expansion file suit. D.C. Circuit: Sorry, but “sole and unreviewable discretion” means that you lose on the merits. Dissent: Ridiculous! “Sole and unreviewable discretion” means that they lose on jurisdiction!
  • In 2015, the DOJ indicted several officials of the global soccer organization FIFA, who were ultimately convicted of, among other things, conspiracy to commit honest services wire fraud. FIFA officials: That’s impermissible extraterritorial application of the law; our conspiracy occurred entirely on foreign soil. Second Circuit: Ah, but you were charged with conspiracy to commit honest services wire fraud, and some of the bribes you received came from accounts at U.S. banks, which is enough of a domestic hook to support the convictions.
  • The Third Circuit ably distills the differences between standing and mootness in an opinion that does little good for the plaintiffs, whose case is moot.
  • Must statutory challenges to federal redistricting be heard by a three-judge district court? Or is the ordinary one judge fine? Fifth Circuit (en banc): All of us agree the case is moot because the election is over, but we are, nevertheless, in stark disagreement about the answer to that question of statutory interpretation.
  • Only twice has the Supreme Court ever struck down a law for violating the nondelegation doctrine, which holds that Congress may not delegate its legislative authority to another branch of government or a private party. “Ever. And none in more than eighty years.” And, says the Fifth Circuit, a vaping industry challenge to Congress’ delegation of authority to the Secretary of Health and Human Services (to determine if vaping products should be regulated like tobacco products) is not likely going to snap the nondelegation losing streak. [Ed.: Though we humbly suggest that at IJ we have a case that totally will.]
  • In 2009, the state of Ohio tried and failed to execute a prisoner, giving up after attempting for two hours to maintain an IV line through which to administer lethal-injection drugs. Sixth Circuit: Now on habeas review, we can’t say that trying again would amount to cruel and unusual punishment or double jeopardy.
  • Inmate at Ill. state prison sues guards. District court (March 2016): If the guards wish to argue that the inmate failed to exhaust his administrative remedies, they must file a motion to that effect by April 27, 2016. Guards don’t file a motion by April 27. Or by the end of discovery eight months later. Nor do they raise exhaustion in their summary-judgment motion three months after that. Then, two months before trial, they ask to file a new summary-judgment motion, raising exhaustion. Yikes! The basis for their delay? “[U]nknown reasons.” District court: Good enough for gov’t work. Seventh Circuit: Decidedly not good enough for gov’t work. To trial the case must go.
  • Page six of this Seventh Circuit opinion features the sort of footnote that gives litigators the willies.
  • In 1972, East Chicago, Ind. officials build public housing on former lead smelting and processing site. In 2016, the city orders 1,000 residents to leave; there are wildly unsafe levels of arsenic and lead in the soil. Seventh Circuit: The residents’ suit against the companies that operated on and near the site from 1906 to 1970 must go in federal, rather than state, court.
  • Arkansas police stop speeding motorcyclist (confusing him with a different motorcyclist with a very similar bike and clothing who’d evaded police stops), tase him without warning while he’s fidgeting with his bike. Excessive force? Eighth Circuit: Qualified immunity. You can’t tase people suspected of a nonviolent crime without warning, but he was suspected of seriously reckless driving and could have been about to flee.
  • Can the government make it a crime to truthfully report actors’ ages on websites like IMDB.com? The answer—per the Ninth Circuit—will absolutely not surprise you.
  • Investigating an abandoned trailer, Beckham County, Okla. deputy sheriff determines that former police chief stole it from an Anderson, S.C. church, arrests him. The former chief is subjected to a body-cavity strip search at booking, and the sheriff puts out a press release full of incriminating allegations from the warrant affidavit. Yikes! Turns out the church had two trailers and mixed up the VINs—the former chief’s trailer was not stolen but validly purchased. Double yikes! The former chief had campaigned for the sheriff’s opponent in the election—might this all be retaliation? Tenth Circuit: The arrest was proper, the press release fine. But “[b]ody-cavity strip searches are not so trivial” as to be universally conducted on all detainees.
  • Schizophrenic pretrial detainee at Rio Grande County, Colo. jail exhibits a variety of distressing behaviors culminating with him removing his eyeball from its socket. Staff restrain him as he attempts to remove the other eyeball. Officers: We checked on him every 15 minutes, as medical professionals advised. Tenth Circuit: That’s disputed, and since you failed to challenge whether the law was clearly established, the detainee’s suit can proceed.
  • Lakeland, Fla. officials move 26-foot-tall marble cenotaph honoring Confederate dead from one city park (where it’s been since 1910) to another. Eleventh Circuit: Plaintiffs who oppose the move (including one who wishes to “‘vindicate the cause’ for which the Confederate Veteran fought”) lack standing to press First Amendment and due process claims.
  • The Eleventh Circuit goes en banc to unanimously reverse precedent holding that people lack standing to bring Fourth Amendment claims if they have abandoned their privacy interests in the objects being searched. Judge Rosenbaum, concurring: I wrote that earlier precedent, and it’s totally wrong.
  • Woman sees dark-clothed men rush toward her back door in East Dublin, Ga. late one night, and she wakes her husband. Having been robbed the day before, the couple feared they were being robbed again; the husband grabs a shotgun and goes to investigate. He’s shot 23 times. Turns out it’s a SWAT team executing a drug raid sparked by the man who’d robbed them the day before—he told police he thought the husband was a meth dealer. The husband, a grandfather and the owner of a construction company, dies. Police find no drugs on the property. Eleventh Circuit: No qualified immunity for a cop who lied and omitted key info in his warrant affidavit. And the widow can pursue punitive damages against him.
  • Pretrial detainee at Clayton County, Ga. jail shares candy with his cellmate, another pretrial detainee who was also arrested for a nonviolent crime. (Neither has a history of violent felonies.) The cellmate demands all the candy and beats the first detainee to death when he declines to turn it over. Allegation: The jail’s intake procedures don’t adequately screen for violent misdemeanors, leading to nonviolent detainees sharing a cell with violent detainees. Eleventh Circuit: Plaintiffs haven’t shown a constitutional violation.

Allowing ex-offenders to earn an honest living is one of the best ways to prevent re-offending. But strict occupational licensing requirements make it harder for ex-offenders to find work. A new IJ report details the numerous methods state licensing boards use to deny credentials to otherwise qualified applicants. In multiple states, an applicant can be denied a license without any consideration of their rehabilitation or on the basis of any felony, even if the crime is completely irrelevant to the license sought. Licensing boards can even disqualify applicants over their perceived “good moral character” or “moral turpitude,” vague terms that let boards act capriciously. For more information and to see how your state treats ex-offenders, read Barred from Working.

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