Hillary Lies Again

Andrew P. Napolitano*

Judge Napolitano

Judge Napolitano

In a column I wrote in early July, based on research by my colleagues and my own analysis of government documents and eyewitness statements, I argued that in 2011 and 2012 then-Secretary of State Hillary Clinton waged a secret war on the governments of Libya and Syria, with the approval of President Obama and the consent of congressional leadership from both parties and in both houses of Congress.

I did err in that column with respect to an arms dealer named Marc Turi. I regret the error and apologize for it. I wrote that Turi sold arms to Qatar as part of Clinton’s scheme to get them into the hands of rebels. A further review of the documents makes it clear that he applied to do so but was denied permission, and so he did not sell arms to Qatar. Other arms dealers did.

I also erred when referring to Qatar as beholden to Washington. In fact, Qatar is in bed with the Muslim Brotherhood and is one of the biggest supporters of global jihad in the world -- and Clinton, who approved the sales of arms to Qatar expecting them to make their way to Syrian and Libyan rebels, as they did, knew that. She and her State Department caused American arms to come into the possession of known al-Qaida operatives, a few of whom assassinated U.S. Ambassador Chris Stevens.

When Sen. Rand Paul, R-Ky., asked Clinton in January 2013 at a Senate Armed Services Committee hearing whether she knew of any weapons coming from the U.S. and going to rebels in the Middle East, she denied such knowledge. She either has a memory so faulty that she should not be entrusted with any governmental powers, or she knowingly lied.

It gets worse.

It now appears that Clinton was managing her war using emails that she diverted through a computer server owned by her husband’s charitable foundation, even though some of her emails contained sensitive and classified materials. This was in direct violation of federal law, which requires all in government who possess classified or sensitive materials to secure them in a government-approved venue.

The inspector general of the intelligence community and the inspector general of the State Department each have reviewed a limited sampling of her emails that were sent or received via the Clinton Foundation server, and both have concluded that materials contained in some of them were of such gravity that they were obliged under federal law to refer their findings to the FBI for further investigation.

The FBI does not investigate for civil wrongdoing or ethical lapses. It investigates behavior that may be criminal or that may expose the nation’s security to jeopardy. It then recommends either that indictments be sought or the matter be addressed through non-prosecutorial means. Given Clinton’s unique present position -- as the president’s first secretary of state and one who seeks to succeed him, as well as being the wife of one of his predecessors -- it is inconceivable that she could be prosecuted as Gen. David Petraeus was (for the crime of failing to secure classified materials) without the personal approval of the president himself.

Let’s be realistic and blunt: If the president wants Clinton prosecuted for failing to secure classified materials, then she will be, no matter the exculpatory evidence or any political fallout. If he does not want her prosecuted, then she won’t be, no matter what the FBI finds or any political fallout.

I have not seen the emails the inspectors general sent to the FBI, but I have seen the Clinton emails, which are now in the public domain. They show Clinton sending or receiving emails to and from her confidante Sid Blumenthal and one of her State Department colleagues using her husband’s foundation’s server, and not a secure government server. These emails address the location of French jets approaching Libya, the location of no-fly zones over Libya and the location of Stevens in Libya. It is inconceivable that an American secretary of state failed to protect and secure this information.

But it is not inconceivable that she would lie about it.

Federal statutes provide for three categories of classified information. “Top secret” is data that, if revealed, could likely cause grave damage to national security. “Secret” is data that, if revealed, could likely cause serious damage to national security. “Confidential” is data that, if revealed, could likely cause some damage to national security. Her own daily calendars, which she regularly emailed about, are considered confidential.

Clinton has repeatedly denied ever sending or receiving data in any of these categories. She probably will argue that an email that fails to use the terminology of the statute cannot be deemed classified. Here the inspectors general have corrected her. It is the essence of the data in an email -- its potential for harm if revealed -- that makes its contents classified and the failure to protect it a crime -- not the use of a magic word or phrase in the subject line.

She is no doubt lying again, just as she did to the Senate Armed Services Committee. Yet the question remains: Why did she use her husband’s foundation’s computer server instead of a government server, as the law requires? She did that so she could obscure what the server recorded and thus be made to appear different according to history from how she was in reality. Why did she lie about all this? Because she thinks she can get away with it.

Will American voters let her?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

Hillary Clinton’s Upside Down Tax Reforms

Richard Epstein*

Richard Epstein

Richard Epstein

In her recent speech at NYU Stern School of Business, Hillary Clinton put forward a suite of proposals for responding to what shetermed “quarterly capitalism,” which leads corporate executives to favor short-term income at the expense of sustainable long-term growth. The single most important feature of her speech is what she did not mention—removing or weakening taxes and regulations that shackle today’s overregulated economy.

In her uneasy effort to sound like a responsible version of the irrepressible Bernie Sanders, she tried to fuse together two progressive themes that are difficult to marry to each other: the promotion of economic growth and greater wage equity, especially for workers at the bottom end of the income scale.

The most novel aspect of her corporate program is to increase the capital gains tax on short-term investments in order to incentivize key corporate officers to invest in the long haul by having high-income taxpayers monitor their behavior. Right now short-term capital gains on assets held for less than one year are taxed at ordinary income tax rates, which tops out at 39.6 percent, to which is added a 3.8 percent net investment income tax, for a total of 43.4 percent.

The Clinton proposal is to double that short-term period, and then to slowly decrease the excess burden over the next four years, until in the sixth year the long-term capital gains rates (which top out at 20 percent) will kick in. This proposal only applies to the top 0.6 percent of families whose incomes are over $465,000 per year. Its purpose is to encourage corporate CEOs to work for long-term gains and to treat their workers as “assets.”

Unfortunately, Clinton’s proposal won’t work. It rests on a number of unexamined assumptions. The first is that companies currently manage exclusively to short-term numbers. To be sure, such numbers provide a useful benchmark that gives guidance to investors and workers alike. Stock prices can move sharply up or down on these reports.

But in general that responsiveness is a good and not a bad thing, because that one quarterly number reduces the cost of monitoring overall firm performance, which, in turn, allows all investors to punish bad and reward good performance. This brute fact is why no one wants to prohibit firms from disclosing that number. That one number, moreover, influences every market participant, not just the tiny sliver of people at the top.

The quarterly number is of course not the be-all and end-all measure of corporate behavior. The typical statement will also contain all sorts of footnotes that make it possible for firm analysts to determine how both accrued (not yet paid or collected)and contingent (which may or may not come to pass) revenues and liabilities influence long-term growth. In addition, the Securities and Exchange Commission requires an extensive Management Discussion & Analysis narration of the public firm’s annual report.

These detailed materials are not for everyone, but for the small group of professional analysts that follow individual companies. These professional analysts often have influence over large pools of capital and can base their investment decisions on long-term prospects. Clinton has presented no evidence that this process is out of whack, or more precisely, out of whack in ways that her taxation proposal can address.

Start with this question: Is the proper object of taxation income or consumption? Right now, we tax income, but as a matter of principle that decision is highly suspect, because of the extra taxation it places on personal savings, savings that become the capital investments Clinton wants. Any capital gains tax, either long-term or short-term, exerts a lock-in effect on investors that makes them reluctant to sell their current investments to buy new ones.

An investor who pays a 20 percent capital gains tax to the government has less money to invest in a new project relative to an old one. Thus, he may well be reluctant to make that shift even if the new investment promises a higher rate of return than the old investment. The numbers may not add up given that he is working off a smaller investment base. A decision that reduced the capital gains to a zero rate would, after transactions costs, leave the same amount of money to invest in the new project, which makes it easier for capital to move to its higher value use. In the alternative, the zero tax rate could be extended only to those capital gains that are reinvested in other similar ventures within, say, a 30-day period.

Note that the dangers of lock-in explain why the Clinton proposal is upside down. First, the Clinton proposal is likely to reducetax revenue as it lowers the rate of investment and postpones the turnover among investments. This second consequence is very serious because a sensible investment strategy depends on skilled investors cashing out of mature investments that are now lower risk in order to reinvest in new high risk ventures that can benefit from their expertise.

Revenue consequences aside, Clinton is wrong to think that the best way to monitor a weak investment is for rich investors to be prepared to go down with the ship. Most individuals, however wealthy, have only the tiniest sliver of ownership in any large corporation, and thus have little incentive to monitor its performance given their high private costs. But selling shares, which puts a downward pressure on the firm’s value, is a wonderful way to attract the attention of insiders that something is wrong. It also increases the possibility that new share buyers will have a sufficiently large block of stock such that they will be in a better position to deal with the shortcomings of the existing corporate culture.

Clinton in her speech berates many activist investors for their short-termism. But this point is exactly backwards. The ability of activists to acquire large blocks of stock can allow them to demand fundamental structural reforms in the company, or to claim for themselves seats on the corporate board where they can make fundamental changes in corporate strategy, including the sale of underperforming corporate assets or the replacement of ineffective corporate managers.

The point is especially true when we take into account the way in which many people, including rich owners, hold their stock. For a variety of reasons, it is generally unwise for individuals to hold stocks of individual companies. Those investments could lead to an under-diversification of risk, which exposes them to sharp downfalls that occur in either a particular sector or a particular firm. Such risks are avoidable by holding well-diversified portfolios.

In addition, many high-income individuals, such as executives, bankers, and other professionals, do not know their next assignment from one end of the year to the next. But they are keenly aware that they work under all sorts of business and legal restrictions against trading on inside information of the sort that Clinton wants them to acquire. One wrong transaction can put any of these professionals on the wrong end of firm sanctions or a criminal investigation. The best way to avoid this risk is to turn over all portfolio investments to an independent manager. Indeed, in some cases the pressures are so strong that it is best that the investments be held in a blind trust where the beneficiary knows nothing about individual holdings, but only about general investment strategy.

Given these strong business pressures, the better strategy for virtually all investors, whether well heeled or not, is to find some institutional intermediary to run interference by making all key investment decisions. One way to do that is to buy directly into mutual funds with other private parties. Still another way is to hire a personal financial advisor who can direct that task of asset allocation across different classes of assets—stocks, bonds, real estate, cash—usually held in mutual funds. At this point, the individual investor is two levels removed from the actual control of corporate activities.

Even for those hardy individuals who make their own investment decisions, huge fractions of their wealth are in pension plans that operate in a tax-free environment until distributions are made years later when they reach retirement age. For this large group of persons, no tax treatment can possibly make a difference in how these private owners (or their managers) view their operation. Quite simply, the Clinton proposal takes into account none of the complexities of current market structure in requiring persons to take long-term positions in firms, assuming that such positions will lead to appropriate forms of pressure.

Nor is it clear that any of the pressures she hopes to create will lead to her general goal that asks for firms to treat their workers as long-term assets. The initial question here is—why don’t employers do this right now? The short answer is that they do: managing “human resources” is right at the top of the list of key corporate functions. No firm can hope to survive if it gives short shrift to its worker base, which includes the large number of lower income workers on which its activities depend. In the large corporation, that long-term planning pays especial attention to skilled workers in high income positions.

The recent salary evidence makes it painfully clear that the wage gap continues to rise between those workers that have marketable skills and those that don’t. An oil company during an energy boom needs to hire petroleum engineers, but not janitors, on its long-term payroll. Janitorial work is better outsourced to independent firms that can deal with the formidable regulatory barriers to hiring low-wage workers in nonskilled areas.

Indeed, the workers who are cast out of the corporate network will have to find jobs in small firms, often run themselves by middle and lower income owners who have to struggle to stay in business because progressives like Clinton know exactly how those owners should run their businesses. The recent evidence suggests that the Obama administration’s proposed regulationsto expand the number of hourly workers entitled to overtime protection under the Fair Labor Standards Act will provoke prompt business efforts to cut overtime and reshape business to minimize that burden.

In the end, we get the perfect populist storm: Tax proposals that will not help reform the corporate sector are justified in order to promote labor reforms that will cripple labor markets. The one law that even Clinton cannot repeal is the law of unintended consequences.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Obama’s Disastrous Iran Deal

Richard Epstein*

Richard Epstein

Richard Epstein

In his famous 1897 essay, “The Path of the Law,” Oliver Wendell Holmes said that to understand the law, it would be necessary to adopt the perspective of the famous “bad man,” the one “who cares only for the material consequences” of his actions, but “does not care two straws for the axioms or deductions” of natural law. Our bad man just wants “to know what the Massachusetts or English courts are likely to do in fact.”

Today, Holmes’s quintessential bad man is Iran, as it only cares about what happens if it gets caught,—caught, in this case, developing nuclear weapons. With most contracts, people work overtime to avoid that problem by choosing the right business partners. But there is no such luxury in international affairs.

Last week, Iran and the six world powers—the United States, China, Russia, Great Britain, France, and Germany—plus the European Union signed a nuclear deal called the “Joint Comprehensive Plan of Action.” Any examination of this deal has to start with the ugly but accurate assumption that Iran will, at every opportunity, act in bad faith.

The agreement starts off on a grand note: “The goal for these negotiations is to reach a mutually-agreed long-term comprehensive solution that would ensure Iranˈs nuclear program will be exclusively peaceful. Iran reaffirms that under no circumstances will Iran ever seek or develop any nuclear weapons.” But it is straight downhill from there.

The first problem with the deal is that it gives Iran an undeserved respectability that comes simply from being allowed to sign a significant international agreement.

Worse still, China and Russia should not be understood as adverse to Iran, their present and future ally. They are better understood as a Fifth Column against the West, and Iran’s many other foes, whose role in the negotiations is akin to the role that Vladimir Putin played in the embarrassing negotiations over chemical weapons in Syria that all but destroyed Obama’s credibility in foreign policy. Putin will be happy to take any excess uranium ore off the hands of the Iranians. But at the most opportune time, he might be prepared to return it to Iran if doing so would benefit Russia. The Chinese, for their part, also sense weakness in the United States and the West, as they build up illegal islands in the South China Sea subject to our diplomatic objections that accomplish nothing.

The remaining parties are our nominal allies who must believe that this nuclear deal represents a retreat from the basic proposition of Pax Americana—the guarantee that the U.S. will provide meaningful guarantees for the security of its allies. Our allies may well become less hostile to Russia and China precisely because they cannot count on U.S. leadership in tough times. The situation is starker still for the Israelis, who fear that the deal will embolden the Iranians to create more mischief in the Middle East and elsewhere. The Saudis are probably next in line in this belief. And both are surely right.

Iran’s promises count for nothing. Iran is quite happy to fund Bashar al-Assad in Syria, to back Hamas, and to launch terrorist attacks throughout the Middle East. It is eager to confront its Sunni rivals, most notably Saudi Arabia, by supporting their enemies. It is eager to annihilate Israel. Indeed now that the agreement seems in place, the Ayatollah says flat out that deal or no deal, “we will never stop supporting our friends in the region and the people of Palestine, Yemen, Syria, Iraq, Bahrain and Lebanon.”

Why then would anyone be surprised that Iran would be willing to make high-sounding promises that it has every intention to quickly break? Does anyone really agree with the President’s rosy view that Iran will reciprocate our respect with its respect? Putting our best foot forward makes sense with ordinary business deals where reputations count. It makes no sense when dealing with a Holmesian bad man who has no need or intention of reciprocating good will with good will.

In this sort of negotiating environment, reviewing the counterparty’s track record is a must, and Iran’s is far from laudable. Hence the guts of this deal lie not in lofty preambles, but in its gritty details of enforcement and sanctions, two issues which should be non-negotiable—a word that President Obama never invokes to defend our position.

One issue concerns the sequence in which the various stipulations of the agreement go into play. The black mark against this agreement is that it virtually guarantees immediate removal of the full set of economic sanctions against Iran, which will lead to an infusion of cash, perhaps in excess of $150 billion, into the country, some fraction of which will promptly flow to affiliate groups that cause mayhem around the world. But what does the President say about this substantial negative? Nothing. He just ignores it.

In his much-ballyhooed interview with Thomas Friedman of the New York Times, he stated: “Don’t judge me on whether this deal transforms Iran, ends Iran’s aggressive behavior toward some of its Arab neighbors or leads to détente between Shiites and Sunnis. Judge me on one thing: Does this deal prevent Iran from breaking out with a nuclear weapon for the next 10 years and is that a better outcome for America, Israel and our Arab allies than any other alternative on the table?”

In fact, we should judge President Obama and his treaty harshly on each of these points. By providing Iran with billions of dollars of immediate cash, this agreement will help Iran fund wars and terrorist attacks that could take thousands of lives. To offset this possibility, the President has indicated that he will try to bolster American assistance to the various countries that will be affected by Iranian aggression, but none of our allies can have much confidence in the leadership of a President who has made at best negligible progress in dealing with ISIS. His public vow to never put American ground forces in the Middle East turns out to be the only promise that he is determined to keep—for the benefit of our sworn enemies who have greater freedom of action given his iron clad guarantee. The objection to the President here is not that he has merely failed to curb Iranian mischief. It is that his clumsy deal will massively subsidize it.

Second, there is no more “snap back” here. Once the sanctions set out explicitly in the agreement are lifted from Iran, they won’t be reinstated any time soon. Gone are the days of anytime, anywhere inspections. In stark contrast, Articles 36 and 37 of the agreement outline a tortuous review process to reinstate any sanctions. First the Joint Commission must act, then the Ministers of Foreign Affairs, and then a nonbinding opinion by a three-member Advisory Board must be issued. If the matter is not resolved to mutual satisfaction after this process runs its course, any participant “could treat the unresolved issue as grounds to cease performing its commitments under this ICPOA.”

Section 37 then contains a murky provision under which the UN Security Council might possibly reimpose sanctions in part. But the entire procedure could take months, and at the end of this process Iran is free to walk if it does not like the outcome. Iran would also know that reassembling the original set of sanctions would be extremely difficult. Putting this agreement in place will likely end collective sanctions irreversibly.

And what do we get in exchange for all of the added risks we assume? The President claims that we have secured the best path possible to slow down the ability of the Iranians to make a nuclear weapon for at least ten years. But why should anyone believe that that will be the result when we are dealing with the quintessential bad man? The only safe way to slow down Iran’s nuclear capabilities is to do what the President claimed was necessary earlier, which is to knock out Iran’s total production of enriched uranium, subject to constant supervision.

It is all too clear that what Obama has offered today is a far cry from the deal he outlined to the country before these negotiations. It was easy for the President to talk tough to Mitt Romney in the course of their 2012 debates by then claiming it was “straightforward” that Iran has to “give up” its nuclear program in its entirety. As the President once recognized, there are no peaceful ends for which Iran needs a nuclear program. It is awash in oil, and it can satisfy any desire for medical isotopes by buying off-the-shelf products from any of a dozen nations that would be thrilled to supply them for free.

The agreement dramatically changes Iran’s status as an international aggressor. Elliott Abrams gives us the grim tally. Right off the bat, Iran’s nuclear program has gone from illegal to legal. The new agreement lets Iran keep 6,000 centrifuges and it allows the country to continue to do its own weapons research. It is likely that it can do a lot more outside the agreement as well. In five years the agreement lifts an arms embargo and in eight years all restrictions on ballistic missiles will be lifted.

It is often said that negotiation involves the process of give and take, by which it is not meant that the United States and its allies give and Iran takes. Unfortunately, that pattern has been observed in this recent deal. Iran had no hesitation in stating in the eleventh hour that various limitations on its sovereignty, e.g. inspections, were “unacceptable.” Today its position is that the sanctions must be lifted immediately. But the Obama administration was extraordinary reluctant to say that any Iranian proposal was unacceptable. The drama in the negotiation was how far the Iranians would push the agreement to their side of the table—which is exactly what to expect from any negotiation that relies exclusively on carrots and disdains all sticks.

This agreement does not require detailed study to conclude that it is a dead loser. Nonetheless, the United States has put it forward in the United Nations for approval before Congress has spoken, and the President, incorrigible as ever, has announced that he will veto any Congressional legislation that seeks to block the treaty. Many members of his own party do not share the President’s unfailing instinct for self-destruction. They should join the Republicans to reject the treaty by veto-proof majorities in both houses before the President and his team can do any further harm. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

The Folly of "Fair" Housing

Richard Epstein*

Richard Epstein

Richard Epstein

This past week, the Department of Housing and Urban Development (HUD) issued a long and convoluted final rule, entitled “Affirmatively Furthering Fair Housing” (Final Rule). This rule sets out the new terms and conditions which all local governments will be required to meet if they receive federal funds to advance their local housing programs.

These obligations are not made out of whole cloth, but were explicitly set out in the Fair Housing Act of 1968 (FHA), which has two separate parts. The first is a general command prohibiting all private parties from “discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions because of race, color, religion, sex, familial status, national origin, or handicap.”

The second, which applies to government agencies that receive public funds, imposes the additional obligation that they take proactive steps (which the new rule rebrands as “meaningful actions”) to eliminate “historic patterns of segregation, achieve truly balanced and integrated living patterns, promote fair housing choice, and foster inclusive communities that are free from discrimination.”

The tedious Final Rule, which has been hailed as “historic and overdue,” is an intellectual shipwreck. Its empty and vacuous commands are incapable of rational implementation. Yet notwithstanding HUD’s pious denials, the department is sure to continue its history of contentious litigation brought to chastise and correct local governments whose actions have not met its standard. One inherent difficulty in both the previous and current versions of the Final Rule is that its objectives are often in deep conflict with one anther.

HUD gives backhanded recognition to this point when it notes: “The Fair Housing Act does not prohibit individuals from choosing where they wish to live, but it does prohibit policies and actions by covered entities and individuals that deny choice or access to housing or opportunity through the segregation of persons protected by the Fair Housing Act.” But it does not grasp the magnitude of this concession. It turns out, of course, that most individuals do not wish to live in communities that meet HUD’s sterile definitions of "truly balanced and integrated communities.” They often prefer to live with individuals with whom they share common value in neighborhoods that offer the social support and companionship that they so clearly want.

It is not that everyone wants to live in racially homogenous communities. Quite the opposite. Edward Glaeser and Jacob Vigdor offer substantial evidence that racial separation has declined over the past 50 years, largely if not wholly apart from HUD’s affirmative action interventions. HUD offers no evidence of the potency of its affirmative action program in its Final Rule. But so long as some preferences for living with like individuals persist, there is little doubt that people will tend to cluster in communities with people of the same race, ethnicity or economic class, which tends to facilitate the kinds of interactions that they want. It is still important to recall Thomas Schelling’s seminal 1969 study, “Models of Segregation,” which shows how extensive racial separation can take place even when most people of both racial groups prefer to live in neighborhoods which are integrated, but in which they prefer to constitute a majority.

HUD is willfully blind to these complications. No matter how many terminological changes HUD makes in its report, it does not deal candidly with the serious risk that voluntary choices by ordinary individuals will undo the scripted program that HUD wants to impose on neighborhoods and communities. Indeed, even if by some magic stroke, the construction of new projects could result in “truly balanced and integrated living patterns” at time one, it is highly unlikely that those patterns will persist as individual choices will continue to undermine HUD’s desired end-state regimes.

The point here is an old one in political theory. In his famous book Anarchy, State, and Utopia, libertarian philosopher Robert Nozick pointed out that “patterned principles,” of the sort that HUD wants to impose, cannot survive in a world where individuals are entitled to acquire and exchange property with each other for mutual advantage. The logic of his historical theory of justice is that each voluntary exchange produces gains for the parties to it, and then sets the stage for further transactions with the same effect. The net result is a set of unpredictable outcomes whose process helps assure that the results will be socially desirable.

In similar fashion, Friedrich Hayek has long warned of the fatal conceit of central planning, which stems from the simple observation that government edicts are only the first step in a complex interactive process. When, as with HUD, these edicts work at cross purposes with the desires of local communities and their individual residents, the grand plan will surely be subverted by the responsive actions taken everywhere down the line. The HUD Final Rule concludes that its diktats and datasets will provide local communities the needed aid in formulating their new plans. But the guidelines are so squishy that HUD could favor local governments it likes while making life difficult for those that it does not. Nothing in the report indicates what safeguards if any will be put in place to prevent partisan sentiments from taking hold.

One way in which it is possible to gauge the inherent difficulty is to look at some past litigation that HUD has initiated from its grantees. One case of special note involves the prolonged litigation in New York State in United States ex rel. Antidiscrimination Center v. Westchester County, which settled in 2009. Over a six-year period, Westchester had received about $52 million in federal funds, which were subject to these same basic statutory obligations.

A private community group challenged Westchester’s plan under the federal False Claims Act for not meeting its HUD obligations. In a bruising opinion by Judge Cote, the County was called out for not meeting those obligations because it chose to construct more affordable housing, even though its choice of housing projects were said to increase segregation. The ultimate settlement required the County to spend $52 million of its own money to build affordable housing in white municipalities, and to pay millions more in fees to the relator and the attorneys who brought the case.

Exactly which municipalities within the county had to bear the burden was not settled by Judge Cote’s decision, which only created yet another round of divisive negotiations that to this day have not been brought to an amicable resolution. Yet the only comment that the lengthy HUD Final Rule makes about that and similar unfortunate litigation is that “courts have set forth how the section applies to specific policies and practices of HUD program participants”—a whitewash if there were ever one.

The sorry episode should come as no surprise to anyone who has followed the 40-year saga that commenced with the New Jersey Supreme Court’s decision in Mount Laurel in 1975. In that case, the Southern Burlington County N.A.A.C.P. sued the Township of Mount Laurel, not for racial discrimination, but for its failure to provide a fair share of housing for low and moderate income families in the state. Once again, the utter vagueness of the standard, coupled with the fierce resistance of local governments, stymied the program for years.

The fundamental mistake in Mount Laurel was to leave intact the local zoning laws that kept out low income residents, and instead force the township to come up with positive programs to create exceptions to its basic zoning wall—which it did, after a fashion, by rear guard actions that included designating for the new housing a wetland located behind an industrial park far removed from water and sewer connections. Ultimately, when affordable housing was built in Mount Laurel, few members of minority groups wanted to stray so far from their home base. Local widows occupied a large number of the units.

The sad truth is that this unbroken level of failure will be taken to a new level by HUD’s Final Rule. Yet HUD is unable to explain how the huge conditions attached to its grants will build a single unit of new housing for anyone anywhere. What is needed is a complete reorientation in approach that starts from the proposition that it is far easier and more sensible to remove barriers to entry than it is to subsidize forced entry by judicial decree once those local barriers are allowed to remain in place. Indeed, the only winners out of HUD’s new initiative are government administrators, lawyers, and pro-housing activist groups that salivate at the prospect of hauling the next Westchester County into court.

The Supreme Court recently had the opportunity to clip HUD’s wings in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., an opportunity not taken when the liberal majority of the court, which by a narrow five-to-four vote, unwisely upheld the ability of HUD to use a disparate impact standard. This standard is the source of much mischief, since it can be held that discrimination was “because of race, color, religion, sex, familial status, or national origin,” even in the absence of any intention to discriminate on any of these grounds. HUD’s Final Rule cites this case for the bland proposition that “the Supreme Court also acknowledged “the Fair Housing Act's continuing role in moving the Nation toward a more integrated society.”

The heavy level of HUD oversight made it highly unlikely that Texas engaged in any form of discrimination whatsoever. Indeed, even the five-member liberal majority recognized that HUD’s fixation could lead to serious problems:

It would be paradoxical to construe the FHA to impose onerous costs on actors who encourage revitalizing dilapidated housing in our Nation’s cities merely because some other priority might seem preferable. Entrepreneurs must be given latitude to consider market factors. Zoning officials, moreover, must often make decisions based on a mix of factors, both objective (such as cost and traffic patterns) and, at least to some extent, subjective (such as preserving historic architecture).

The majority then remanded the case for further consideration, which in all likelihood will lead to less invasive oversight of the Texas agency. But in an odd way, HUD’s aggressive call to arms in its new Final Rule pays scant attention to any of the Supreme Court’s cautionary words. Indeed, HUD’s Final Rule is conclusive evidence that it is blissfully unaware of the trade-offs that stand in the path of sensible housing reform. There is little now that can be done to invalidate the entire Final Rule on facial grounds. But a self-help remedy remains in place. Every state county or municipality organization should think long and hard before taking a dime in HUD money.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

SEC Reg A+ Raises the Roof for Start-Ups and Ordinary Investors

Ross Campbell*

Venture Capitalists and Angel Investors are a kind of “kingmaker” for many start-ups—without a bullet-proof pitch that manages to both impress and satisfy their appetite for risk, many business fail to get early capital and ideas wither on the vine.

Whatever we make of this system—gatekeeping, tastemaking or farce—it should seem plain that in a time where an Ohio man can crowdfund his first potato salad to the tune of $55k, legitimate and non-satirical businesses should have similar tools to make their ideas soar or crash against the rocks.

In this spirit, the SEC recently finalized rules pursuant to Section 401 of the “Jumpstart Our Business Startups” Act of 2012, amending Regulation A (17 CFR § 230.251 et seq.) to make it easier for start-ups to engage with a wider range of investors before “going public.”

The amendments, or “Regulation A+” as colloquially known, allow a company to issue up to $50 million in securities to the public without the more onerous registration requirements of an IPO. Previously, companies that moved under Regulation A were limited to $5 million in securities, making the route of Regulation D (17 CFR § 230.501 et seq.), which offers unlimited investment from accredited investors, i.e., individuals earning more than $200k a year or with net assets of $1 million, the more feasible option.  In this sense, Reg A+ makes “equity crowdfunding” more attractive, and a useful alternative to the blue-bloodsport of Regulation D.

Though Regulation A+ does not offer the simplicity of a Kickstarter campaign, and has its fair share of hurdles, it greatly frees up the market in new business ideas. Specifically, it allows an innovative start-up to tap into public capital and spread risk where it may be unpalatable for the select few. Though this may be a topic for another day, Reg A+ also leaves the question: if the more lax regulation of Regulation D is presupposed on the “sophistication” of richer investors—does the assumption that the general public is “unsophisticated” really still hold up in the Information Age?  If not, then perhaps the SEC may finally be given a run for its money. 

*Ross Campbell is a Senior Articles Editor for the NYU Journal of law & Liberty.

Rubio’s “Student Investment Plan”: Market Solution or Bad Bet?

Ross Campbell*

Will Marco Rubio's plan help students?

Will Marco Rubio's plan help students?

On Tuesday, presidential candidate Marco Rubio lambasted American higher education as a “cartel” that blocks low-cost competition and churns out massive debt for new graduates.  This is old news, and perhaps an understatement. It is no secret that the glut of federally guaranteed loans has likely contributed to tuition hikes and administrative bloat at American universities. (See the so-called “Bennett Hypothesis.”) But with college degrees being touted as the new “high school diploma,” or a sine qua non for upward mobility, student are less willing to balk at tuition prices and forego college altogether—after all, why not pass the buck five, ten years down the line?  As it stands, two-thirds of recent graduates hold some level of debt, the average borrower being $26k in the red, with combined loans totaling more than $1.2 trillion. If students default, the U.S. taxpayer is on the hook. As tuition climbs sky-high, and short-sighted students pile on debt with slim job prospects, it is no wonder that politicians are straining to reevaluate our position.  (The Federal Reserve Bank of New York estimates that 11.3% of loan payments are delinquent.)

Among other proposals for reform, Rubio again trotted out his “Student Investment Plan,” which would allow students to partner with certified investors who would front tuition costs in return for a percentage of a student’s earnings for a limited time after graduation. This plan recalls Milton Friedman’s reference to “Human Capital Contracts” in his 1945 book Income from Independent Professional Practice, where he imagined a world in which “[i]ndividuals sold ‘stock’ in themselves . . . [and] investors could ‘diversify’ their holdings and balance capital appreciation against capital losses.” It is also cousin to the “pay-it-forward” legislation recently proposed in Michigan and Oregon, in which the state would initially cover tuition costs, but students would be bound to pay back a percentage of their incomes to finance future generations.

Under Rubio’s proposal, an investor might cover 10k in tuition, and after assessing the risk factors of college major, institution, and GPA—ask for 4% of income per year for 10 years, regardless of whether that amounts to more or less than the original 10k . This proposal echoes President Obama’s “pay as your earn” plan that would allow American to cap loan payments at 10% of their income, with the debt forgiven after twenty years. However, Rubio’s plan has the added benefit of not costing the government an estimated $22 billion in loan forgiveness.

Most strongly in its favor, this proposal appears to shift risk from students onto willing investors, rather than the general public. After all, a student would only be concerned with paying back an agreed-upon percentage, and not enter into a negative feedback loop of trying to keep up with an unmanageable principal. (As a rising 3L, it bears reflection that the typical law student graduates with $122k in student loan debt, while half of lawyers start at a salary of less than $62k a year.)

As for its detractors, some have critiqued Rubio’s plan for creating little actual risk for potential investors (e.g., it would only take about 10 years for an investor to recoup a 10k investment, if a student paid 4% on a 25k salary), and for the fact that investors could refuse to finance certain majors or instead charge exorbitant interest rates. Indeed, some caution, this plan could arguably allow greater debt burdens than high-interest federal loans. Further, some believe that such contracts could deter the meandering path of many students between majors, as such choices could trigger higher interest rates or scrap funding altogether. Finally, it would seem that Rubio fails to address the lack of bargaining power and sophistication of many students who might enter into raw deals. These are valid concerns, yet they appear to miss the point—Student Investment Plans are less panacea, and more just an additional option for students that want to opt out of traditional funding structures. Further, the doctrine of “unconscionability” in contract law would provide students with a defense to patently unfair terms, not to mention the inevitable regulation that would guide this practice.   

For some, a Student Investment Plan may be a good bet. After all, why settle for federal interests rates if you believe you can negotiate something more favorable? Further, a student could have the best of both worlds and use federal loans to finance their “meandering years,” and then bargain with certified investors if they so choose. These funding structures would also offer real-time assessment of college value and the marketability of certain degrees— if colleges are largely modeled on preparing students for future employment, what better gauge than amount of earning potential investors attribute to them? In the end, students should have the option of capitalizing on their potential. (Or, in the rhetoric of others, “sell themselves to investors to pay tuition.) Though Rubio has yet to give more concrete details on his Plan, reasonable alternatives to the current regime should be regarded as a good start.

*Ross Campbell is a Senior Articles Editor for the NYU Journal of Law & Liberty.

Raisin' a Raw Deal

Richard Epstein*

Richard Epstein

Richard Epstein

Thanks to the Supreme Court’s decisions on Obamacare and same-sex marriage, public attention has been unfortunately drawn away from Horne v. Department of Agriculture, which deals with the Agricultural Marketing Agreement Act of 1937, under which the government stabilizes crop prices, like those of raisins.

Under the law, a Raisin Administrative Committee, consisting mainly of raisin growers appointed by the Secretary of Agriculture, requires each farmer to give, free of charge, a certain fraction of their crop to the United States government. Once received, the government can sell them in noncompetitive markets, give them away, or dispose of them “by any means consistent with the purpose of the program”—which means keeping prices high by limiting the supply of raisins for sale and destroying those that cannot be otherwise safely disposed. To complete the circle, net profits from the program, less government expenses, are distributed back to the raisin growers.

Stripped of New Deal newspeak, the marketing program institutes a textbook government-run cartel. Like monopolies, cartels raise prices, reduce output, and undermine social welfare, which would normally make them targets under the antitrust laws. Indeed, cartels are even more dangerous than a single-firm monopolist. The monopolist chooses efficient means of production to maximize his profits, even though, socially, the results are inferior to those generated by a competitive market. But a cartel cannot survive unless it offers some accommodation to inefficient producers that would, if left uncompensated, sell their commodities below the cartel price. Hence, like OPEC, the Department of Agriculture lets a central committee set quantity restrictions to keep all players happy. Franklin Roosevelt loved cartels for the votes they brought in, just as he opposed monopolies because they made ideal targets for his populist rhetoric.

The New Deal’s defense of cartels in agriculture exerted a transformative effect on American constitutional law. These cartels could only work on a nation-wide basis, so the Roosevelt administration persuaded the Supreme Court that the Commerce Clause of the Constitution was not limited to cross-border transactions between states, but reached first intrastate sales and, ultimately, the production and consumption of crops on individual farms as enshrined in Wickard v. Filburn.

 For the next seventy-plus years, these cartels worked with clock-like precision, until the Hornes, farmers in California, challenged their operation, first in 20022003 when they refused to turn over 47 percent of their raisin crop over to the government and then again in 20032004 when they refused to turn over 30 percent. The government fined the Hornes $480,000 for the value of the raisins, to which they tacked on an additional penalty of $200,000.

The fine and the penalty were challenged by the Hornes on the ground that the government seizure of their raisins constituted a taking under the Fifth Amendment, which states that “private property [shall not] be taken for public use, without just compensation.”

The most amazing part of this saga is not that the Hornes won, but that no one involved in the litigation used the word “cartel.” The Hornes had to avoid the term whose use would undermine their claim. A cartel arrangement is not just a naked taking. Its offset turns out to be the higher prices that the Hornes and other cartel members can fetch for their remaining stock of raisins in the open market, which should count as a form of in-kind compensation under the Takings Clause. Under traditional antitrust lingo, they are cheaters who work under the cartel umbrella. All power to them!

Nonetheless, the government did not wish to make an open admission that the Marketing Act fortifies cartels, lest they undermine the stabilization myth that helps shield these cartels from public disapproval. And the Supreme Court, which has already blessed these grotesque arrangements, could ill-afford to undermine the legitimacy of its own earlier rulings, including Wickard, which props up the modern welfare state, including Obamacare.

Right off the bat, Chief Justice Roberts’ entire takings discussion has a surreal quality because it ignores the real victims of this program, the public at large. The Court instead focuses only on the Hornes’ claim that the government seized their raisins, which is of course a paradigmatic taking that under current law is unconstitutional.

In its opening salvo, the government claimed that personal property, such as raisins, receive less constitutional protection than real estate. The Chief Justice rightly slapped that claim down, noting that the comprehensive phrase ”private property” includes all forms of wealth in private hands, even patents. The constitutional text offers no warrant for dividing the field into first and second-class forms of property. Once raisins received full protection, the government could not justify its marketing program by saying that the residual cash that came back at the end of each annual cycle removed any constitutional taint from the program. That residual cash from the program cannot possibly meet the standard of full and fair market value (that is, the measure of just compensation), and the Chief Justice rightly rejected Justice Sotomayor’s odd dissent that there is no taking at the front end because some compensation is offered at the end of the day.

From that point on, Justice Roberts entered choppy waters. He is no judicial revolutionary, and thus throughout his opinion he tries to make peace with the tattered constitutional jurisprudence that has long embraced a distinction between physical and regulatory takings. The latter restricts the ability of a property owner to use or sell his property, but leaves him undisturbed in the possession of his land. The Hornes are, of course, on the right side of that distinction given that the government tried to physically seize their raisins.

Yet Justice Roberts was unable to defend the line between physical and regulatory takings. Exhibit A was the Court’s 1980 decision PruneYard Shopping Center v. Robins, which, waving a free speech banner, held that there was no taking of a shopping center when its owner was forced to admit protestors on his property against their will. The right way to treat this case is as a partial physical taking of the property once the owner lost his right to exclude others from his property.

But Justice Roberts wrongly reimagined this deliberate entrance as a regulatory taking by equating partial use by others with a restriction on how one can use one’s own property. He then compounded the error by falsely claiming that the owner’s use of the shopping center was “largely unimpaired,” without ever explaining why PruneYard filed suit in the first place. Hence, he concluded the ersatz regulation did not go “too far.”

That last unfortunate phrase was lifted from Justice Holmes’ famous opinion in Pennsylvania Coal v. Mahon and has bedeviled the field ever since. With physical takings, the rule is that the government pays for whatever it takes, be it large or small. With regulatory takings, the Holmes distinction says that the property owner cannot claim that a taking occurred as a result of regulation so long as he retains some residual value. Yet Justice Roberts never explains why two forms of government action, both susceptible to potential massive abuse, should receive such different constitutional responses.

The point is painfully evident in agricultural markets, because the government could achieve most of its objectives by restricting through regulation the total amount of raisins each farmer could grow on his own land. The unified theory that the Chief Justice recognizes is needed for land and personal property now gives way to the indefensible intellectual distinction between physical and regulatory takings.

Once that distinction is buried, ironically, it turns out that the Hornes are the wrong plaintiffs in this case. The compensation for their physical taking consists not solely in the residual cash payout they receive. It is also the higher price that they can charge for their retained crops that makes them whole: if it did not, the cartel would collapse tomorrow. Accordingly, the proper challengers to the marketing orders are the consumers who should have a typical antitrust–type claim for collusion against the raisin market, which ironically they cannot bring under the misguided 1943 Supreme Court decision in Parker v. Brown that insulates government-sponsored cartels from the antitrust law.

Roberts’ reticence to tackle fundamental issues was equally evident in his unhappy resolution of the third question of whether the government could require a surrender of some portion of a farmer’s crops in order to sell the rest in interstate commerce. His answer—it cannot—is correct, but his analysis is not.

The doctrine of unconstitutional conditions has long made it impossible for the government to condition the granting of one right on the willingness of an individual to surrender a second, and then call the entire transaction “voluntary.” In many cases, this government “choice” given to private parties is tantamount to the choice that the robber gives to his victim: “your money or your life.” The government therefore must justify any condition it imposes by showing that it relates to the protection of a legitimate public interest. By way of example, the government can condition the sale of goods into interstate commerce so that they do not explode on public roads. But it cannot condition them on someone’s agreeing to waive their Fourth Amendment rights against search and seizure, or on payment of tribute to competitors anxious to preserve their monopoly position.

Unfortunately, a wretched 1984 Supreme Court decision, Ruckelshaus v. Monsanto, allowed the government to condition the licensing of a dangerous fungicide for sale on the willingness of its owner to share trade secrets, a constitutionally protected form of property, with his competitors. Justice Harry Blackmun blithely claimed that any firm that rejected the condition could always sell goods in foreign markets. Chief Justice Roberts, however, refused to overrule Monsanto with the glib remark that “raisins are not dangerous pesticides; they are a healthy snack,” without delving into whether Monsanto was wrong, which it was given that its transfer of trade secrets was no more warranted for dangerous products than safe ones

In the end, Horne counts as a partial victory over the government. But its long-term value is undercut by the confused tangle of legal doctrine that Roberts decision left in place. To be sure, the Chief Justice conveniently ignored the offsetting benefits from the marketing, and struck down the fines and penalties in the individual case. It now remains to be seen whether every raisin grower is free to defy the government mandate, or whether the government can switch to acreage restrictions or other devices to achieve the same end.

The public always pays a high price for muddled law. It leads to uncertain outcomes in future cases. And worse, it results in the perpetuation of indefensible constitutional doctrines. The line between physical and regulatory takings is essential to propping up the most destructive government initiatives, both state and federal. And the use of exactions and other unconstitutional conditions leads to massive abuses by government regulators. Chief Justice Roberts had the chance to go beyond incrementalism in the face of massive doctrinal disarray. We are all the poorer that he shunted off to one side the larger issues about New Deal programs that Horne should have brought front and center. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Hillary's Secret War

Andrew P. Napolitano*

Judge Napolitano

Judge Napolitano

In the course of my work at Fox News, I am often asked by colleagues to review and explain documents and statutes. Recently, in conjunction with my colleagues Catherine Herridge, our chief intelligence correspondent, and Pamela Browne, our senior executive producer, I read the transcripts of an interview Browne did with a man named Marc Turi, and Herridge asked me to review emails to and from State Department and congressional officials during the years when Hillary Clinton was the secretary of state.

What I saw has persuaded me beyond a reasonable doubt and to a moral certainty that Clinton provided material assistance to terrorists and lied to Congress in a venue where the law required her to be truthful. Here is the backstory.

Turi is a lawfully licensed American arms dealer. In 2011, he applied to the Departments of State and Treasury for approvals to sell arms to the government of Qatar. Qatar is a small Middle Eastern country whose government is so entwined with the U.S. government that it almost always will do what American government officials ask of it.

In its efforts to keep arms from countries and groups that might harm Americans and American interests, Congress has authorized the Departments of State and Treasury to be arms gatekeepers. They can declare a country or group to be a terrorist organization, in which case selling or facilitating the sale of arms to them is a felony. They also can license dealers to sell.

Turi sold hundreds of millions of dollars’ worth of arms to the government of Qatar, which then, at the request of American government officials, were sold, bartered or given to rebel groups in Libya and Syria. Some of the groups that received the arms were on the U.S. terror list. Thus, the same State and Treasury Departments that licensed the sales also prohibited them.

How could that be?

That’s where Clinton’s secret State Department and her secret war come in. Because Clinton used her husband’s computer server for all of her email traffic while she was the Secretary of State, a violation of three federal laws, few in the State Department outside her inner circle knew what she was up to.

Now we know.

She obtained permission from President Obama and consent from congressional leaders in both houses of Congress and in both parties to arm rebels in Syria and Libya in an effort to overthrow the governments of those countries.

Many of the rebels Clinton armed, using the weapons lawfully sold to Qatar by Turi and others, were terrorist groups who are our sworn enemies. There was no congressional declaration of war, no congressional vote, no congressional knowledge beyond fewer than a dozen members, and no federal statute that authorized this.

When Sen. Rand Paul, R-Ky., asked Clinton at a public hearing of the Senate Armed Services Committee on Jan. 23, 2013, whether she knew about American arms shipped to the Middle East, to Turkey or to any other country, she denied any knowledge. It is unclear whether she was under oath at the time, but that is legally irrelevant. The obligation to tell the truth, the whole truth and nothing but the truth to Congress pertains to all witnesses who testify before congressional committees, whether an oath has been administered or not. (Just ask Roger Clemens, who was twice prosecuted for misleading Congress about the contents of his urine while not under oath. He was acquitted.)

Here is her relevant testimony.

Paul: My question is … is the U.S. involved with any procuring of weapons, transfer of weapons … buying, selling … anyhow transferring weapons to Turkey … out of Libya?

Clinton: To Turkey? ... I will have to take that question for the record. Nobody’s ever raised that with me. I, I…

Paul: It’s been in news reports that ships have been leaving from Libya and that they may have weapons … and what I’d like to know is … the (Benghazi) annex that was close by… Were they involved with procuring, buying, selling, obtaining weapons … and were any of these weapons transferred to other countries … any countries, Turkey included?

Clinton: Senator, you will have to direct that question to the agency that ran the (Benghazi) annex. And I will see what information is available and … ahhhh…

Paul: You are saying you don’t know…

Clinton: I do not know. I don’t have any information on that.

At the time that Clinton denied knowledge of the arms shipments, she and her State Department political designee Andrew Shapiro had authorized thousands of shipments of billions of dollars’ worth of arms to U.S. enemies to fight her secret war. Among the casualties of her war were U.S. Ambassador to Libya Chris Stevens and three colleagues, who were assassinated at the American consulate in Benghazi, Libya, by rebels Clinton armed with American military hardware in violation of American law.

This secret war and the criminal behavior that animated it was the product of conspirators in the White House, the State Department, the Treasury Department, the Justice Department, the CIA and a tight-knit group of members of Congress. Their conspiracy has now unraveled. Where is the outrage among the balance of Congress?

Hillary Clinton lied to Congress, gave arms to terrorists and destroyed her emails. How much longer can she hide the truth? How much longer can her lawlessness go unchallenged and unprosecuted? Does she really think the American voters will overlook her criminal behavior and put her in the White House where she can pardon herself?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

Hard Questions on Same-Sex Marriage

Richard Epstein*

Richard Epstein

Richard Epstein

It doesn’t take a weatherman to tell which way public opinion blows. The huge uptick of support for same-sex marriage has beendescribed as swift and broad, to which we can add, in all likelihood, lasting.

In my view, every time the defenders of the traditional view of marriage speak in public on behalf of a ban, they lose the support of neutral third parties. The problem is that they are trying to tell other people how they should lead their own lives, and are using the power of the state to do it. Their justifications are far from compelling. They talk about the need for procreation in marriage, though many straight married couples use contraceptives. They talk about the risks to parenting, when there is no evidence that suggests that gay and lesbian couples are worse parents, especially when compared to dysfunctional couples in traditional marriages or single parents of limited financial means. Their arguments against same-sex marriage thus fall flat to modern ears, so that the basic support for same-sex marriage only grows.

The transformation of public opinion dovetails nicely with the recent Supreme Court decision in Obergefell v. Hodges, in which Justice Anthony Kennedy’s Olympian opinion echoed the social tidal wave in favor of same-sex marriage. Kennedy did not bother to articulate what standard of scrutiny, high or low, controls the case. In his mind, the case for an inclusive definition of marriage is so strong that the ban on same-sex marriage cannot survive under any standard of review. Analytically, however, he provided only weak answers to an even more fundamental question: What judgments should be left to democratic processes and what judgments should be insulated against majoritarian politics?

This problem has special urgency here because of the unbroken historical record that defines marriage as a union between a man and a woman. Justinian’s Institutes of the sixth century AD, for example, apply the rules of marriage only to human beings, but treat them as part of “that law which nature teaches to all animals.” That code of law states: “Marriage, or matrimony, is a binding together of a man and woman to live in an indivisible union.”

The defense of the traditional understanding of marriage that was raised forcefully by Judge Jeffrey Sutton in the Sixth Circuit(and picked up by Chief Justice John Roberts in his pointed dissent in Obergefell) raises the question of how can the Court read the Constitution to invalidate the universal definition of marriage as between a man and a woman? Tradition is a legitimate ground on which to defend social legislation elsewhere, so why not here?

The best way to go is to try to understand why the traditional definition of marriage was universal. The defenders of traditional marriage claim that the purpose of marriage is procreation, which is impossible with same-sex couples. Kennedy denies that there is any good fit between marriage and procreation: After all, many men and women wish to marry when they do not or cannot have children, so the state could never condition a marriage license on couple’s commitment to have children.

Nonetheless, this response underestimates the role of procreation in defining marriage. Historically, procreation was widely regarded as the essential purpose of marriage. Indeed, the words in Genesis 1:28, “be fruitful and multiply and fill the earth and subdue it,” read as much like a command as a blessing. Within this framework, same-sex relationships are different: They can never add offspring to society, but they can reduce them by taking both men and women out of the reproductive market, and thus undercut that social imperative. The preservation of society through reproduction is strongly tied to traditional marriage, but not to same-sex marriage. So why condemn the traditional view as arbitrary when it tends to advance a desirable societal end?

Historically, this point found a constitutional home. Even though the traditional “morals” head of the police power is nowhere mentioned, it had long been used to give the state extraordinary leeway in regulating all sorts of sexual relations, as was detailed in Justice Byron White’s now-widely-reviled 1986 opinion in Bowers v. Hardwick, whose historical accuracy remains unquestioned. As late as 1961, all 50 states outlawed all forms of sodomy, even though many bans fell into desuetude. But throughout it all, no one, anywhere, has suggested that it would fall in the power of the state to abolish the traditional institution of marriage altogether. The overall consequences for child rearing would be disastrous.

It is fair to respond, as Kennedy does, that the advocates of same-sex marriage do not wish to ban marriage but to partake in it, so that there is nothing to fear from the decision except the fuzzy sentiments of individuals opposed to the practice. That is a good reason to ask the legislature to change the definition. But it is less clear that it is a good reason to allow courts to preempt the democratic process. On this point, the Kennedy response is to say that there has already been “far more deliberation” than the Sutton opinion acknowledges in every conceivable forum. In Kennedy’s view, the endless discussion has led to an “enhanced understanding” of the issue—namely his—which displaces the vote as a way to resolve the debate. The dignitary interests of these couples is so strong that it is “demeaning to lock same-sex couples” out of marriage.

Yet at no point does he ask whether the criminalization of polygamous marriages under the Supreme Court’s 1878 decision inReynolds v. United States—an uncommonly ugly invocation of the morals head of the police power—should be overturned given how it demeans and punishes polygamous families. His blinkered view of autonomy lets him attack the restriction of marriage to persons of opposite sexes, but not its limitation to two people.

The Scalia dissent scores big points in attacking Kennedy for judicial hubris, by insisting that the whole point of democracy is not just to inform the justices but to let the people decide on the issue. So Kennedy, like everyone else, must explain why a nationally consequential decision on same-sex marriage should be taken out of the democratic process. His answer is that it involves the assertion of a “fundamental right,” a term that he nowhere defines. Thus, when the fundamental rights of persons are violated, “the Constitution,” he writes, “requires redress by the courts, notwithstanding the more general value of democratic decisionmaking.”

At this point, his analysis turns wobbly. Kennedy eagerly talks about the “dignity” of the individual in two-person marriages. And he lauds the Court’s 1967 decision in Loving v. Virginia for striking down the ban of interracial marriage between a man and a woman, on the combined strength of the Due Process and the Equal Protection Clauses of the Fourteenth Amendment. The libertarian foundations of Loving are also evident.

But why stop there when the concept of liberty goes a lot further? In particular, Kennedy never explains why his notions of dignity and autonomy do not require the Supreme Court to revisit its 1878 decision in Reynolds upholding criminal punishment for polygamy, which is still on the books. Nor does he ask whether the dignity of workers could, and should, be used as a reason to strike down the full range of labor regulations on both wages and hours that make it flatly illegal for two individuals to enter into a simple employment contract on mutually agreeable terms.

To his credit, Chief Justice Roberts—no libertarian—sees the connection, and thus uses his condemnation of the 1905 Supreme Court decision, Lochner v. New York, for striking down a maximum hours law, as a cudgel to explain why the Constitution has nothing to say about same-sex marriage. Unfortunately, Roberts lurches too far in the opposite direction. Historically, the case for economic liberties is far stronger than that for same-sex marriage because labor never got entangled with the morals head of the police power. Indeed, much recent scholarship, especially by David Bernstein, shows the dubious special interest, anticompetitive politics that Lochner helped thwart. It would be a lot easier to accept the Kennedy position if he were prepared to embrace a concept of liberty for all by overturning Reynolds and restoring Lochner. But on those areas, inexplicably he flips back to the democratic side, without ever defining the state interest in squashing the operation of competitive labor markets.

It gets worse because in the wake of Obergefell, we have to ask what the next step in the struggle over same-sex marriage will be. By insisting that same-sex marriage is a fundamental right, Kennedy has consciously introduced an equivalence between race and sexual orientation. How far is he prepared to go? In the 1983 case of Bob Jones University v. United States, the Supreme Court upheld an IRS decision to deny tax-exempt status to schools engaging in racial discrimination. The Court acknowledged that it could not outlaw the Church’s practices, which were protected as a free exercise of religion. But the differential tax treatment was fine because “the Government has a fundamental, overriding interest in eradicating racial discrimination in education.”

Can the IRS now deny tax exemption to the Roman Catholic Church on the ground that it rejects, on religious grounds, same-sex marriage? If so, that judicial notion of “fundamental interests” works effortlessly both to expand and contract state power. It can insulate the exercise of some liberties from state control, but allow other liberties to be burdened by differential treatment of other liberties, including those expressly embedded in the Constitution.

The point here is not idle speculation. Here are three data points. In Martinez v. Christian Legal Foundation (2010), a five-to-four majority with Justice Kennedy concurring, held that it was perfectly proper for Hastings Law School, a public institution, to deny the tiny Christian Legal Foundation the full benefit of school facilities largely because of its opposition to same-sex marriage. The government can offer its subsidies to some groups but not to others, and in so doing, force small isolated groups to subsidize powerful gay rights organizations. Religious intolerance best describes that outcome.

Since then, the situation has only gotten worse. Last year there was public outrage at the Supreme Court’s decision in Burwell v. Hobby Lobby, which upheld claims under the Religious Freedom Restoration Act that a closely held company did not have to supply contraceptives to its female employees in a fashion inconsistent with its owners’ religious beliefs. And more recently, claims for religious autonomy have been crushed in state court decisions that have fined individuals who have refused on religious grounds to make wedding cakes for same sex couples. No one seems to be concerned with the autonomy and dignity of those under the state’s thumb. They will have to abandon their chosen profession to honor their religious beliefs. I see no evidence that gay and lesbian rights advocates are prepared to back off of these statist claims.

The hard question is how Justice Kennedy—now the swing vote on all matters “fundamental”—thinks about this issue. Here the evidence is decidedly mixed. To be sure, his opinion in Obergefell talks about the importance of letting religions “teach” the central principles of their faith. But as Justice Thomas’s dissent points out, a religion that is allowed to teach its beliefs may be forced to give up its tax-exempt status if it puts those beliefs into practice, and its adherents can be hounded by the state if they decide to run their personal lives in accordance with their religion. We thus face a serious risk in the aftermath of Obergefell: liberty in gay rights will turn out to be a one-way street. Some liberties will be guaranteed for some people while other liberties will be squashed for others. As I write, the gay rights movement is gearing up to expand the scope of the antidiscrimination laws in housing and labor markets.

No one says that democratic theory is easy to understand. But there is nothing in the Kennedy opinion that offers any assurance that the religious beliefs and practices of the shrinking religious minority who are opposed to same-sex marriage will be respected by the Supreme Court. As a libertarian, I support same-sex marriage. As a libertarian, I fear the totalitarian overtones sounding from the next round of gay rights initiatives.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Protecting Hatred Preserves Freedom

Andrew P. Napolitano*

Judge Napolitano

Judge Napolitano

The tragedy of a mass murder in Charleston, S.C., last week, obviously motivated by racial hatred, has raised anew the issue of the lawfulness of the State expressing an opinion by flying a Confederate flag at the Statehouse, and the constitutionality of the use of the First Amendment to protect hate speech and hate groups. The State has no business expressing opinions on anything, and it is required to protect hate. Here is the law.

Let’s start with the proposition that hatred of persons is a profound disorder, and it is no doubt motivated by far deeper errors of thought and judgment than admiration for a flag. I recognize that to some in our society, the Confederate flag represents resistance to federal authority enforced by military aggression; while to others, it represents racial oppression under color of law bringing about the worst violations of the natural rights of born persons in American history -- namely slavery. To me, it represents both. Yet, the government has no business flying it.

In a lawsuit brought against the State of Texas seeking to compel Texas to offer automobile license plates bearing the Confederate flag, the Supreme Court in dismissing the suit ruled just two weeks ago that the government enjoys the same freedom of speech as do persons. This is a novel and dangerous idea. It places government -- an artificial creature based on temporary consensus and a monopoly of force -- on the same plane as human beings, who are natural creatures with immortal souls endowed by our Creator with natural rights.

Natural rights, foremost among which after life itself is freedom of expression, are gifts from God. They are not manmade and hence cannot be transferred to a manmade entity. They are as natural to us as are the fingers on our hands. We don’t need a government permission slip in order to exercise them.

In the case of speech, it is especially dangerous to accord the natural rights of persons to the government because the state can use its monopoly of force to silence, drown out or intimidate the speech of any persons it hates and fears. When the state speaks, its expressions have an aura of legitimacy and can be used for narrow, sectarian, even hateful purposes. But the whole purpose of the First Amendment is to keep the government out of the business of speech.

If I were in the South Carolina legislature, I'd vote to remove the Confederate flag from the Statehouse because I'd silence all government speech except that which is universally accepted (like the American flag), utterly innocuous (like the library is closed on Sundays) or absolutely necessary for governance (like speed limits on state roads). Otherwise, who cares what the government thinks?

The First Amendment to the Constitution also protects the rights of every person to embrace hatred. It guarantees all persons the freedom of thought, expression and association. Thought and association are guaranteed unconditionally. Imagine the dangers of the government telling us how to think.

The rule on speech is that all innocuous speech is absolutely protected, and all speech is innocuous when there is time for more speech to address it before the violence it suggests may come about. Stated differently, the First Amendment absolutely bars the government from interference with a person’s thoughts or associations, and permits interference with a person’s expressions only if necessary to prevent immediate lawless violence when there is no time for more expression to do so first.

But the government may never, consistent with the First Amendment, interfere with expression because it despises or fears the views animating the expressions. This temptation is another danger of according the government the freedom of speech.

Hatred, though invariably destructive to those it animates, is a protected mode of thought and expression and may form the basis for association. Groups may be formed based on hate, and the government may not interfere with them because it hates and fears their hatred. Some hate groups are merely a vessel for folklore and group comfort; some are willing to use violence to advance their nefarious beliefs.

But the willingness alone to use violence is not criminal; it is only the actual use of violence that is. Thus, it is the manifestation of hatred as lawless violence that may be prosecuted, but the manifestation of hatred as a unifying idea is protected and may not be prosecuted.

The remedy for hatred is reason. Hatred of persons is always unreasonable. It takes a characteristic of birth -- color, ethnicity, religion, for example -- and unreasonably ascribes mythological and unitary traits to it. Those ascribed traits usually appeal to the base fears and biases of the hater, feed his weaknesses, and provide him with a mental haven for his failings. Yet, reason and overwhelming opinion to the contrary can dilute hatred.

Hatred sometimes provides a dark place of comfort for the weak, and it can be addictive. We must guard against its allurements. Lord Byron in “Don Juan” warned of hatred’s irony:

             Now hatred is by far

             The longest pleasure.

             Men love in haste, but they

             Detest at leisure.

Yet, God, too, hates. He hates sin, and we, as well, must hate sin. But like the families of those murdered in Charleston, we must imitate our Creator: We must love the sinner and the hater.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.