Month: June 2018

Why Oil Markets Should Fear Trump’s Trade War

Authored by Nick Cunningham via OilPrice.com,

“We’re putting the trade war on hold,” U.S. Secretary of Treasury Steven Mnuchin said on “Fox News Sunday,” nearly two weeks ago. That didn’t go down well with President Trump who promptly restarted the trade war.

Not only did Trump step up trade penalties on China, announcing a few days ago that tariffs on $50 billion worth of Chinese goods would go forward, but he moved to impose tariffs on Canada, Mexico and the European Union, the U.S.’ closest allies and trade partners. The tariffs will include a 25 percent levy on steel and 10 percent on aluminum. Months ago, Trump proposed these tariffs, but repeatedly offered exemptions to allies while U.S. officials negotiated with their counterparts to come up with a resolution.

But, the U.S.’ trade partners refused to give ground, especially since the Trump administration subsequently launched an investigation into automotive imports, which led the EU, in particular, to come to the conclusion that offering concessions would only be met with demands for more concessions.

Sensing he was losing leverage, Trump ripped up that playbook and moved to impose the steel and aluminum tariffs immediately.

Needless to say, Canada, Mexico and the EU promptly announced retaliatory action. Moreover, many argue the U.S. tariffs are illegal under WTO and NAFTA. “The American administration has made a decision today that we deplore, and obviously is going to lead to retaliatory measures, as it must,” Canadian Prime Minister Justin Trudeau said in a statement, announcing retaliatory tariffs on U.S. steel, aluminum, as well as an array of other products.

And in a testament to how ill-conceived the U.S. strategy is, even the United Steelworkers union opposes the move. “The regular chaos surrounding our flawed trade policies is undermining the ability to project a reasoned course and ensure that we can improve domestic production and employment,” the union said in a statement.

What is worrying for the Trump administration is the fact that Canada, Mexico, the EU and China are all retaliating and ceding very little ground. It’s extremely difficult to imagine the U.S. being able to force such a long list of countries into giving in, especially since Trump is fighting a trade war on so many fronts at once.

The escalating trade war could lead to significant fallout for the oil market, although for now, the extent to which it impacts demand is unclear.

“Recent signs of protectionism from the U.S. are a risk to the forecast, raising the possibility of a global trade war,” the IEA said in March, when Trump originally proposed tariffs. “A slowdown [in global trade] would have strong consequences, particularly for fuel used in the maritime sector and in the trucking industry.”  

The oil and gas industry, typically an ally of the Trump administration, criticized the tariffs.

“The implementation of new tariffs will disrupt the U.S. oil and natural gas industry’s complex supply chain, compromising ongoing and future U.S. energy projects, which could weaken our national security,” said API President and CEO Jack Gerard in a statement. Oil and gas pipelines use a special type of steel, much of which is not made in the United States.

“If you consider that U.S. oil and gas companies spent $8 billion to $9 billion on pipe last year alone, this would increase material cost by more than $2 billion dollars per year if they sourced all of that material from outside of the United States,” Ed Longanecker, president of the Texas Independent Producers & Royalty Association, told S&P Global Platts.

Josh Zive, a trade attorney with Bracewell, told S&P Global Platts that industries using steel have already started to see costs creeping up. “It’s difficult to perceive any scenario in which that doesn’t increase” at an accelerated pace, he said. The Trump administration is offering a process in which individual companies can apply for exemptions, and Zive says that the new tariffs will lead to thousands of such requests.

The real danger for oil prices is that Trump’s trade crusade curtails oil demand at a time when OPEC and its non-OPEC partners could begin adding oil back into the market. On a similar but somewhat unrelated note, Bank of America Merrill Lynch recently outlined a pessimistic scenario in which the possibility of an emerging market slowdown occurred at a time when OPEC increased production, a combination that could ultimately push oil down to $60. The bank didn’t even factor in Trump’s trade war, which could upend growth in industrialized countries as well.

Trump is being criticized from all corners, including many in his own party, but for now he is moving forward with an aggressive trade approach.

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Italians Angry After ECB Admits It Slashed Purchases Of Italian Debt During Recent Crisis

Heading into the second half of May, just as the political turbulence in Italy was rising as investors took fright at 5-Star’s attempts to form a coalition government with the anti-immigrant League party, and what was initially a trickle of selling in Italian BTPs became a full-blown liquidation panic, some Italians wondered if the Mario Draghi wasn’t using a page from the Sylvio Berlusconi playbook, by allowing Italian bonds to tumble without ECB intervention, simply to “pressure” the domestic political process against the formation of a populist, Euroskeptic cabinet, something European Budget Commissioner, Guenther Oettinger scandalously suggested last week when he said that “the negative development of the markets will lead Italians not to vote much longer for the populists.”

Indeed, as we noted last week, several politicians suggested at the end of May that the ECB was exacerbating the sharp market moves: “It would be useful to know how much debt the Bank of Italy and the ECB have bought compared to the norm? Have purchases gone down?” tweeted Carla Ruocco, a Five Star MP, at the peak of the market turmoil last week.

Elsewhere, Laura Castelli, another Five Star parliamentarian close to leader Luigi Di Maio said in an interview with Huffington Post that “the ECB and Italian banks have slowed up if not suspended their buying of BTP [Italian government bonds] . . . which is adding to pressure on spreads”. She also argued that “quantitative easing is being weakened at exactly the moment when we need it strengthened to secure the stability of the EU.”

As it turns out, skeptical Italians was proven right because as the ECB revealed when it disclosed its PSPP bond purchases for the month of May when “lo spread” between the yield on Italian and German government bonds blew out to its highest level for five years – leading some of the country’s politicians to hit out at perceived “bullying” from the bond markets – the central bank sharply scaled back the proportion of Italian purchases relative to all other bonds purchased under QE in the month of May, which according to the FT is an “admission that could fuel suspicions of the new Eurosceptic Italian government that the central bank is seeking to punish it.”

As shown below, in total less than 15% of ECB’s net May purchases were of Italian debt, the lowest proportional allocation to Italy since the bond-buying program began in March 2015.

And with relative Italian purchases tumbling, some other nations must have seen its bond purchases jump. Sure enough, that someone was Germany, which as the chart below shows, saw its net purchases of bond as a % of total, soar to the highest since the program began.

Of course, any hint the ECB is intervening in markets to push for a specific political outcome, even though it did precisely that in November 2011 when a crash in Italian bonds led to the ouster of then-PM Sylvio Berlusconi, would lead to a huge European scandal in which the “apolitical” central bank is seen as intervening in domestic politics, and the bank came out prepared with a statement “explaining” precisely why Italian purchases tumbled, and to deny  Castelli’s allegations that the ECB’s QE was being weakened “at exactly the moment when we need it strengthened to secure the stability of the EU” just to punish Italian voters who picked a populist government.

This is what the ECB said:

“Several countries including France, Austria and Belgium saw their share in net purchases go down in May, not just Italy. This is the result of agreed and communicated rules on the timing of re-investments.”

Yes, but no other nation saw its share drop as much as Italy; a plunge which certainly exacerbated the low liquidity liquidation that sent “lo spread” above 300bps. 

Furthermore as the ECB’s spokesman tried to explain, there was a high volume of German bond redemptions in April which could not all be reinvested in the market during that period, so “some of these re-investments were spread also to May to ensure a smooth implementation.”

Confused? The ECB just blamed the plunge in relative Italian bond purchases, and the surge in German, on a calendar quirk. The ECB continued:  “In absolute terms, the amount of net purchases for Italy in May (EUR 3.6 bln) was higher than, for example, in March (EUR 3.4 bn) and January (EUR 3.4 bn). Gross purchases for Italy were actually higher in May than in April (around 32% higher).”

Indeed, but again on a relative basis they plunged, and that’s all that traders in Europe – where nations pretend to be at least relatively equal – cared about.

Incidentally, as we reported last week, the ECB said that it was watching political events in Italy but was unlikely to intervene by buying debt. Well, it clearly did intervene by purchasing debt… of Germany, much to Bill Gross’ chagrin, as the relative outperformance of Bunds over US Treasurys led to the biggest one day loss for Bill Gross’ unconstrained fund.

Finally, in light of the ECB’s sudden drop off in Italian bond purchases in May, it is hardly surprising that as we reported on May 31, the Italian Ministry of Finance announced it had unexpectedly repurchased €500 million in 2 Year BTPs…

… surprising market watchers.

And while the Italian bond crash has been put on hold for now, the far bigger question remains: what happens to this artificially supported bond market, in which politicians scream bloody murder when the ECB tapers its purchases even modestly, when the ECB fully ends its QE and stops monetizing public debt as it is widely expected to do on January 1, 2019?

* * *

Following the news that the ECB had purchased fewer Italian bonds in May, the FTSE MIB slumped to session lows, with Italian banks following suit as Italians are given a stark reminder just how precarious the price of every single asset in the country is without the continued support of the ECB.

Needless to say, Italian politicians were not happy: Claudio Borghi, the League’s top economic adviser, said it was “no surprise” to discover the ECB had been buying more German bonds. “Since Draghi promised to do ‘whatever it takes’ the biggest players in the Italian bonds market has been the ECB and they fix the price,” he told the FT.

“It is necessary to clarify the storytelling about Italian debt. It is not general markets’ that have the greatest influence on the price but the ECB is by far the biggest factor.”

Borghi, is of course, correct, but the next question is: so what? Yes, Italian bonds are massively mispriced and they will plunge if and when the ECB stops supporting the market, in effect holding Italy hostage. As for the biggest question, it is what, if anything, Rome has up its sleeve to avoid such a fate when Draghi’s QE finally ends.

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New York Spent $15 Million in Taxes To Build Upstate Film Studio. It Just Sold for $1.

Few investments are more famously fraught with failure than making movies. That extends especially to states and localities that attempt to lure filmmakers to their locales via sexy and economically useless subsidies that end up costing far more than they generate in new business activity and tax revenue. As the Tax Foundation reported in 2012, film subsidy programs generate between 7 cents and 30 cents in return for each dollar spent, guaranteeing a massive loss to taxpayer for every tax credit, rebate, or other handout.

In 2014, New York Gov. Andrew Cuomo championed the creation of the Central New York Film Hub near Syracuse with $15 million of taxpayer money. “Who would have ever figured: Hollywood comes to Onondaga [County], right?” Cuomo said at the time, according to The New York Times. “You would have never guessed. But it has.”

Cuomo also insisted that the studio would generate at least 350 good-paying jobs related to the film industry. Instead, the facility, which was owned by the state government, was just sold for $1.

Unfortunately for local taxpayers, the buyer was Onondonga County, so the potential for continued wasting of tax dollars remains real. Syracuse.com reports that no permanent jobs have been created by the facility.

The Central New York Film Hub is something of a sequel for Gov. Cuomo, whose attempts to lure jobs to the Empire State, especially the upstate region, regularly fail. Back in 2016, for instance, it came to light that the $100 million poured into Start-Up NY, which offered tax breaks and other benefits to companies relocating to New York, had generated just 408 jobs.

When Cuomo took office in 2011, he recognized that New Yorkers already shouldered one of the highest state and local combined tax burdens in the country and boldly proclaimed that he would cut taxes, spending, and regulations to make his state friendly to business. After a few gestures in that direction, he has instead increased the burdens on job creation.

But hey, at least he got a buck back on a $15 million “investment.”

In 2011, Reason‘s Zach Weissmueller discussed the failures of film subsidies with super-producer Gavin Polone, whose projects have included Curb Your Enthusiasm, The Gilmore Girls, Panic Room, and more.

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Putin Signs Law On Countermeasures To “Unfriendly Actions” By US And Its Allies

While Trump and Putin may, or may not, be planning a long overdue summit between the US and Russia – as a reference, presidents George W. Bush and Barack Obama each held summits with Putin within six months of taking office; meanwhile 16 months into his tenure, Trump has yet to do the same – today Russian President Vladimir Putin signed a law stipulating implementation of counter-sanctions against the US and its allies.

According to the Russian media, the legislation will be applied to any state or person for “hostile actions” against Russia, and allows Russian authorities to cut international cooperation with foreign states and impose import and export restrictions among other countermeasures. Trade embargos will not extended to certain goods, however, that are imported by Russian citizens for personal use.

As RT adds, the bill which is aimed at defending “economic interests and security” was drafted by State Duma Speaker Vyacheslav Volodin and the heads of all four parliamentary caucuses in mid-April. It was approved by Russian lawmakers by the end of May. The move came in retaliation to Washington’s economic penalties against Moscow.

However, contrary to domestic concerns, the countersanctions do not apply to imported essential items, for which no replacements are produced in Russia or other countries, although in case of escalating trade wars, those are precisely the products which trading partners will limit their exports.

As a reminder, in early April, the US Treasury included 24 Russians, including high-profile politicians, and 14 corporations on a sanctions list relating to alleged “malign activity around the globe.” The move has been repeatedly condemned by Russian authorities, with Moscow immediately promising to retaliate. It is unclear if by signing today’s law, Russia will next proceed to respond in kind to the US action.

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Saudi King Threatens Military Action If Qatar Installs Russian Air Defense System

Authored by Jason Ditz via AntiWar.com,

Saudi King Salman has threatened to take military action against neighboring Qatar if the nation follows through with a plan to install an anti-aircraft defense system. 

Salman said he would take military action to “eliminate this defense system.”

Saudi Arabia and many of its allies severed ties with Qatar last year, based around a false media report claiming the Qatari Emir wasn’t sufficiently hostile toward Iran. The Saudis have since suggested they’d channel out the entire Qatari border, turning it into an island, and dumping nuclear waste in the area.

Around this ever growing Saudi hostility toward Qatar, the nation made a deal to buy S-400 air defense systems from Russia. Russia says that plans to deliver the missiles have not changed, despite the Saudi threats.

That Qatar turned to Russia for air defenses is interesting, as historically the nation has heavily bought arms from the US.

Qatar also hosts a massive US base, which one would think would preclude a Saudi attack on them.

The S-400 has been a popular export for Russia, with another US ally, Turkey, also having recently agreed to buy it.

The US has expressed annoyance about these nations buying Russian arms, but fear of losing future sales has precluded any major moves to punish them.

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America’s Long-Term Challenge #4: Erosion of the Middle Class

We’ve all seen the headlines: the middle class in the United States (and much of Europe for that matter) has been in decline for years.

CNN May 18, 2018: “Almost half of US families can’t afford basics like rent and food”
Marketwatch June 2, 2018: “50 million American households can’t even afford basic living expenses”
Wall Street Journal February 13, 2018 : “US households shoulder record $13.15 trillion debt”

This is the opposite of what we’ve witnessed here in Asia– an astonishing, almost unprecedented rise in the middle class.

In China, just 4% of the population was middle class in 2000 according to consulting firm McKinsey. By 2012, China’s middle class had exploded to 68% of the population.

Vietnam’s middle class has nearly doubled just since 2013. And there are similar trends across the region.

This is a pretty big deal, signaling not only a game-changing shift in global wealth and power, but also trouble ahead for millions of households on the edge.

My team and I have spent time combing through Federal Reserve data trying to explain this trend. And it’s worth starting with an obvious question: what does it mean to be ‘middle class’ ?

This varies from country to country. To be middle class here in Thailand is something entirely different than to be middle class in Denmark.

But in general, being middle class means you’re neither rich nor poor.

You earn enough money to be able to pay the bills without want or worry, enjoy modern conveniences and recreation, and still have some funds left over for savings and investment.

This a very delicate balance. And maintaining it depends heavily on the rate of inflation.

If wages rise faster than prices, the middle class thrives. If prices rise faster than wages, the middle class perishes. And that’s what’s been happening in the west, especially in the US.

Here’s a great example: housing. For the vast majority of people it’s their biggest expense. Most of us spend more on rent or mortgage than anything else.

Housing prices have obviously increased over time. But what’s really interesting is how much more rapidly home prices have increased over wages.

In late 2011, for example, the average home cost around 3.56 times the average salary in the US, according to data published by the Federal Reserve Bank of St. Louis.

By the end of 2017, the average home cost 4.73 times the average salary, even though mortgage rates were essentially unchanged.

In other words, even when you adjust for the fact that people are earning more, housing became 33% more expensive in just six years– and that doesn’t account for increases in property taxes, home owners association dues, insurance premiums, etc.

It’s the same with rent: back in 2000, the average monthly rent in the United States was 7.38 times the average weekly wage.

By 2017, rents had risen to 8.66 times the average weekly wage, an increase of 17%.

So even though people are technically earning more money, their money buys them less and less house.

Medical care costs show the same trend: in 2000, average annual medical care spending in the United States accounted for 10.8% of the average salary.

By the end of 2016, medical care consumed 15.5% of income, a proportional increase of 43%.

So again, people are earning more. But despite those wage increases, they’re spending 43% more on medical care than they used to.

My team and I spent some time analyzing the Department of Commerce’s “Personal Consumption Expenditures” (PCE) data series; the PCE is an account of consumer spending, and it is the Federal Reserve’s primary metric in measuring inflation.

In an ideal world, inflation would be 0%, i.e. prices would be stable, and the PCE wouldn’t budge. But that’s rarely the case.

Inflation (as measured by PCE) has averaged 2.4% per year for the past decade, and 4.8% per year since 1980.

Now, one would hope that, as consumer prices increased, wages would at least keep up.

But that hasn’t happened.

According to the Commerce Department’s data, inflation has exceeded wage growth for 33 out of the past 38 years, averaging a loss of 1.35% per year.

This is crucial. One or two years of losing 1.35% of your income’s purchasing power would be no big deal… just a rounding error.

But decades of this sustained erosion can really take a toll on the middle class. And it did.

In aggregate, inflation has outpaced wage increases by 66% since 1980. This means that the average American salary buys 66% less than it used to four decades ago.

People have made up for it by going into debt.

Back in 1980, the average amount of debt per worker in the US was 1.96 times his/her monthly salary.

Today the average American worker’s debt is 5.00 times his/her monthly salary.

Same theme– yes, people are earning more. But the amount of debt that they owe relative to their wages is more than 2.5x greater.

Simply put, this isn’t the path to prosperity. There are precisely zero examples from history of a major power achieving long-term economic success by slowly degrading its middle class.

This is a very long-term story.

Just like the gargantuan size of the national debt, the major funding crisis plaguing US pension funds (including Social Security), and the steady debasement of the currency, this slow erosion of the middle class will take years and years to play out.

But the impact of all these trends cannot be understated, as they will truly shape the history of things to come, both in the United States, and across the world.

Source

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SCOTUS Overturns Case Against Gay-Biased Baker

In a landmark 7-2 ruling (Ruth Bader Ginsburg and Sonia Sotomayor), the Supreme Court has thrown out a finding that a Colorado baker illegally discriminated when he refused to make a cake to celebrate a same-sex wedding.

As The Hill reports, Justice Anthony Kennedy, who wrote the decision, said the Colorado Civil Rights Commission violated the Free Exercise Clause of the Constitution when it forced Jack Phillips to make a cake for a same-sex wedding he morally opposed under the state’s public accommodations law.

“The laws and the Constitution can, and in some instances must, protect gay persons and gay couples in the exercise of their civil rights, but religious and philosophical objections to gay marriage are protected views in some instances protected forms of expression,” the court said.    

Justice Anthony Kennedy also pointed to one commissioner’s comments that religion had been used to justify slavery and the Holocaust and that invoking religion to hurt others is “despicable.”

Additionally, in his majority opinion, Kennedly wrote that the issue “must await further elaboration.”

Appeals in similar cases are pending, including one at the Supreme Court from a florist who didn’t want to provide flowers for a same-sex wedding.

Is this the start of the end of the politically-correct, social-justice-warrior era? We highly doubt it. As a reminder, in April, a judge ruled that a bar was well within its right to kick out Trump supporters, and of course, the Oakland coffee shop that has refiused to allow policemen in uniform to enter.

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UN Report Condemns Trump Admin For “Deliberately” Creating Devastating Inequality

Authored by Jake Johnson via Common Dreams,

It is no secret that the United States has among the worst levels of inequality, poverty, and infant mortality of all wealthy nations, but a scathing new United Nations report (pdf) concludes that President Donald Trump and the GOP-controlled Congress are “deliberately” working to make these already devastating crises worse by waging war on the poor while lavishing the rich with massive tax cuts.

Highlighting the Trump administration’s push to dismantle the last vestiges of the American social safety net, Philip Alston – U.N. Special Rapporteur on Extreme Poverty and Human Rights and author of the new report—told the Guardian on Friday: “This is a systematic attack on America’s welfare program that is undermining the social safety net for those who can’t cope on their own. Once you start removing any sense of government commitment, you quickly move into cruelty.”

“If food stamps and access to Medicaid are removed, and housing subsidies cut, then the effect on people living on the margins will be drastic,” Alston added, pointing to just three of the many programs Trump is aiming to slash or restrict with cruel work requirements.

With millions of Americans already on the brink of deep poverty, Alston warned that Trump’s tax law, deregulatory agenda, and welfare cuts are driving the poor closer to complete “ruination,” which the U.N. official defines as “severe deprivation of food and almost no access to healthcare.”

Alston’s report is the end product of a two-week visit to some of the most poverty-stricken parts of the U.S. late last year, and it thoroughly documents both the longstanding inequities that have dominated American society for decades and the uniquely brutal policies Trump and the Republican Party are pursuing in an effort to reward corporate America.

While the U.S. is home to “over 25 percent of the world’s 2,208 billionaires,” such wealth stands in “shocking contrast with the conditions in which vast numbers of its citizens live,” the report observes. “About 40 million live in poverty, 18.5 million in extreme poverty, and 5.3 million live in Third World conditions of absolute poverty. Its citizens live shorter and sicker lives compared to those living in all other rich democracies, eradicable tropical diseases are increasingly prevalent, and it has the world’s highest incarceration rate.”

Acknowledging that inequality in the U.S. has been rising rapidly for around five decades, the report argues that the Trump administration’s policies – particularly its $1.5 trillion in tax cuts to the rich and large corporations – ”seem deliberately designed to remove basic protections from the poorest, punish those who are not in employment, and make even basic healthcare into a privilege to be earned rather than a right of citizenship.”

As for solutions to the soaring income and wealth inequality in the U.S. that have produced what Alston calls a “land of stark contrasts,” the U.N. report spotlights several broad suggestions – from a job guarantee to criminal justice reform to universal healthcare – but concludes that inequality will continue to soar without sufficient “political will” to reverse it.

“At the end of the day… particularly in a rich country like the United States, the persistence of extreme poverty is a political choice made by those in power,” the report observes.

“With political will, it could readily be eliminated.”

*  *  *

Certainly makes it pretty clear where The United Nations stands – it’s almost as if this “massive inequality” and “shocking contrast in conditions” only began in January 2017?!!

One wonders where the “political will” was during the previous President’s reign to “eliminate” the inequalities?

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Factory Orders Slump – Worst April Since 2012

US Factory Orders continue their flip-flopping performance with a 0.8% tumble in April – worse than expected – after an upwardly revised 1.7% rise in March.

This is the worst April drop since 2012…

Year over year, factory order growth slowed from 9.1% to +7.4%.

Ex-Transports, factory orders rose 0.4% MoM – its 10th monthly improvement in a row.

However, new orders ex-defense for April fell 0.9% after rising 2.4% in March, suggesting what gains there were, were all driven by war-spending.

 

 

 

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A Libertarian on the Bench

In January 2016 Arizona Gov. Doug Ducey (R) appointed the veteran libertarian lawyer and legal theorist Clint Bolick to a seat on the Arizona Supreme Court. A few days before Bolick was officially sworn in, I asked him how he planned to approach his new job. “The role of a justice is to give effect to every single word in the Constitution,” he told me. “I believe that the written Constitution reflects the social contract that people have made with each other and with their government. And just as with any contract, a judge’s role is to enforce that contract vigorously.”

In the recent case of Arizona v. Maestas, Justice Bolick had the opportunity to practice the judicial vigor that he preached.

At issue was the 2014 arrest of an Arizona State University student named Andre Lee Juwaun Maestas. Under the terms of the Arizona Medical Marijuana Act (AMMA), a voter initiative passed in 2010, Maestas was a valid medical marijuana cardholder. That meant that he was legally allowed to possess 2.5 ounces of “usable marijuana.” Yet Maestas was arrested after university police found 0.014 ounces of marijuana in his dorm room.

Why did the police arrest a valid AMMA cardholder for this seeming non-offense? They arrested him because in 2012 the state legislature amended the AMMA to forbid all medical marijuana use and possession on state college and university campuses.

Now here is where the judiciary comes in. Per the Arizona Constitution, the state legislature may only amend a voter initiative if “the amending legislation furthers the purposes of such measure.” The question before the Arizona Supreme Court in the Maestas case was whether the 2012 criminalization law was at odds with that provision from the state Constitution.

The Arizona Supreme Court held that it was. “Criminalizing AMMA-compliant marijuana possession or use on public college or university campuses plainly does not further the AMMA’s primary purpose,” the Arizona Supreme Court ruled in Arizona v. Maestas. “We hold [the 2012 law] unconstitutional as applied to the student/cardholder in this case.”

Justice Bolick joined that opinion in full. He also wrote separately in concurrence in order to address a larger legal issue raised by the dispute: Namely, just how much deference does the judiciary owe to the legislature in a case like this?

According to the state of Arizona, the judiciary owed total deference to the lawmakers here. In the state’s view, the legislature alone enjoys the power to establish and maintain “a general and uniform public school system.” Criminalizing marijuana use on public campuses, the state insisted, should be immune from judicial review because it is a non-justiciable “political question.”

Also known as the “political question doctrine,” this particular argument for judicial abstinence has its origins in U.S. Supreme Court caselaw. In Baker v. Carr (1962), for example, SCOTUS said that the courts should generally stay out of those cases that involve “a textually demonstrable constitutional commitment of the issue to a coordinate political department; or a lack of judicially discoverable and manageable standards for resolving it.”

In his Maestas concurrence, Justice Bolick basically delivered a massive judicial benchslap against the political question doctrine. To avoid hearing or deciding a case because of “a lack of judicially discoverable and manageable standards for resolving it,” Bolick declared, “implies that the matter is not constitutionally entrusted to another branch, but that for prudential reasons we should not decide it anyway, leading to the inevitable consequence that another branch of government will decide the constitutional limits of its own power.”

In Bolick’s view, the courts should have no part of any doctrine that commands that sort of result. “When the judiciary fails to interpret and enforce constitutional rights and limits,” he wrote, “it shrinks from its central duty and drains the Constitution of its intended meaning.” In an appropriate future case, Bolick concluded, “I would reexamine the prudential requirement of our political question doctrine to determine whether it comports with our constitutional design.”

It’s the same thing that Bolick told me two years ago. The proper role of a judge does not involve dodging so-called political questions—it involves vigorously enforcing constitutional limits when the political branches step out of line.

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