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“2021 Annual Economic Report,” Bank for International Settlements, June 2021, https://www.bis.org/publ/arpdf/ar2021e.pdf

The impact of inequality on the transmission of monetary policy

First I'd like to express my gratitude to Judge Buckley and to Judge Ginsburg and to all the judges on the circuit for inviting me here. This is a great occasion for those of us who have been trying to look at these problems over the last several years. And I must say that I'm really heartened by the comments of Congressman Cardin and Judge Coffin as to the possibilities of improving relations between the Congress and the judiciary. My task, as Judge Buckley has noted, is *323 to look at statutory revision, to think in terms of ways in which Congress and the courts can interact in ways that promote the concerns of each.

And to that end I have, as Judge Buckley has noted, conducted a pilot project. My purpose here today is to briefly describe the methodology of this pilot project, the results of that project and then to offer some thoughts on the kinds of mechanisms appropriate to the task of improving communications between the branches.

Third, the Coal Petitioners ask us to defer to the Office of the Law Revision Counsel's decision to codify the House Amendment rather than the Senate Amendment. The separate opinion reasons as well that the Office of Law Revision Counsel is “the leading candidate” for deference. Separate Op. 23.

No such deference is due. While the Office of the Law Revision Counsel has expertise in the technical aspects of the codification process, it has no license, without Congress' approval, to change the substantive meaning of enacted law or to throw away an entire statutory provision. See Ganem, 746 F.2d at 851. That is why the Public Law prevails over the United States Code in case of conflict. See 1 U.S.C. § 112; *192 Stephan, 319 U.S. at 426; United States v. Welden, 377 U.S. 95, 98 n.4 (1964).

V. DUTTON'S SIX AESTHETIC UNIVERSALS APPLIED TO U.S. LEGAL DOCUMENTS

Dutton's six aesthetic universals based on cultural psychology and developed with the goal to outline an objective approach to aesthetic understanding does not fail the instrumentalization test like Kant's. As above, United States Code will be contrasted with the Constitution, both as a control and to highlight the differences in Kant and Dutton's approaches when applied.

If I could take a crack at that. I guess I feel in somewhat of a unique position. I'm one of the few people who earns a living communicating between Article I and Article III. And I think that we have done a good job of improving the way that communication goes from the Congress to the courts with the creation of the offices of Senate legal counsel and the Office of General Counsel within the House.

With respect to communications going the other way, I find it rather amazing and rather appalling that it appears that the courts are the only people in America who don't know how to communicate with Congress. Congress receives the representations of interest groups on a daily basis. Yet those who are perhaps in the best position to advise Congress of changes that should be made in the law feel this compelling need to remain silent as if it were somewhat stepping out of the judicial mode to communicate with the Congress about a problem with a statute.

b. The Federal Example - Codification of the Federal Statutes

At the federal level, the Office of the Law Revision Counsel is charged with the preparation of the United States Code, “a consolidation and codification by subject matter of the general and permanent laws of the United States.”53 It is the Law Revision Counsel who has the initial responsibility for determining the structure, titles, and classification of laws. The Law Revision Counsel reviews a new law and parses it to fit into the overall subject matter arrangement of the United States Code resulting in a systematic organization of the general and permanent laws of the United States or a code.

Not everyone on Wall Street believes political gridlock will be a positive for the U.S. stock market.

Stocks rallied ahead of the midterm elections on hopes for a change in political leadership. Tuesday's elections allowed those hopes to become reality as Republicans took control of the House of Representatives, creating the sort of gridlock investors have longed for.

While these short-lived pain points can be estimated, the long-term consequences of such extreme political grandstanding may have the bigger impact. As American politics becomes more polarized, it gets harder for our government to pass necessary bi-partisan legislation that deals with real issues facing the economy.

Instead, the business community is increasingly stuck having to navigate uncertain policy environments. One political party takes power and shoves through their pet priorities, until the other side takes power and rolls those policies back.

Meanwhile, in order for Gridlock Good to play out, you need…gridlock.

We still have the Georgia Senate run-off on January 5; that result will decide that body's balance of power. PredictIt, the event futures market, gives Democrats a 26% probability of taking a majority in that chamber. If they pull it off, that is the “Blue Wave,” whereby Democrats control the White House, Senate and House of Representatives.

When “everyone” on Wall Street is expecting “Gridlock Good,” brace for downside.

Exhibit 1 shows every notable S&P 500 decline since we launched the WisdomTree U.S. LargeCap Dividend Fund (DLN). While it sometimes did not beat the S&P 500, DLN outperformed the S&P 500 Value Index in all 17 instances in which the S&P 500 declined 5% or more since we launched the Fund in 2006.

Divided governments are generally thought to be good for the stock market, with neither Democrats nor Republicans receiving a broad mandate from voters that would lead to extreme policy changes.

It was certainly good for stocks last week. The S&P 500 rose 7.3%, its best weekly gain since April, ahead of Democrat Joe Biden taking the White House and Democrats and Republicans potentially splitting control of Congress.

In addition to advancing the theoretical literature on diversionary war, this paper tests these hypotheses with far better data than previously available. The new data for this paper consists of over 30,000 US diplomatic events between 1945 and 2006 drawn from a new corpus of all New York Times articles on foreign affairs over this period. Events are classified into 20 specific types (such as praise, threaten, or coerce) and four aggregate categories (material cooperation, verbal cooperation, verbal conflict, and material conflict). Verbal actions are those that occur in speech only (such as appeals or rejections) while material actions are those that involve physical action (such as the provision of aid or the exhibition of force posture). This represents the most detailed and comprehensive event dataset for this period. Its granularity allows for a better examination of domestic coalitional effects, and for an examination of diversionary cheap talk for the first time. Though other datasets like Militarized Interstate Disputes 3.0 under the Correlates of War project11 have greater historical range, they are censored in the sense that they only contain major events. While other day-level international relations event datasets exist, most notably King and Lowe (2003), they lack historical breadth, with most extending back only into the 1990s. Therefore, this new dataset is an advance in terms of detail and range. Modeling choices include fixed effects regression and Bayesian vector autoregression. I find strong empirical support for the theories outlined above. For Democratic administrations, a one percentage point increase in unemployment is associated with 12.85% more verbal conflicts per month than the baseline average (significant at the 1% level), but no more material conflicts. Unified government is associated with over 25% more verbal and material conflicts per month than divided government for both Democratic and Republican administrations (significant at the 1% level). Throughout, the estimates presented in this paper are conservative: I operationalize conflict as events the United States participated in, but if the sample is restricted to international events the United States initiated, the point estimates are larger and the statistical significance greater. This paper examines only the US case due to the wealth of data available on events, economic conditions, and public opinion ratings. However, future studies might broaden the analysis to OECD countries more generally. The broadest inference—that elected leaders verbally divert abroad to satisfy their core domestic constituency through rally around the flag effects, while avoiding paying the costs of war—should have theoretical traction in all democratic party systems. In the remainder of this paper, Section 2 reviews the literature, Section 3 advances a theory of diversionary behavior, Section 4 introduces the data, Section 5 presents the empirical analysis, and Section 6 concludes 2 Existing Literature Testing the diversionary aggression hypothesis has become somewhat of a cottage industry in political science. A recent review concludes that though the internal logic of diversionary war is “compelling and theoretically well supported,” the empirical evidence is “decidedly mixed.”12 Several studies have found empirical support for diversionary aggression in US foreign policy.13 A commonly cited example is President Reagan’s 1983 invasion of Grenada following the incident in Lebanon in which 200 Marines were killed. Other incidents that have raised scholarly interest are President Clinton’s strikes in Serbia, Sudan, and Afghanistan in 1998 and 1999 concurrent with his impeachment scandal.14 Other studies have found support for diversionary aggression in non-US and cross-national contexts.

This does not mean that global economic governance will continue to function effectively going forward. It is worth remembering that there were genuine efforts to provide global public goods in 1929 as well, but they eventually fizzled out. The failure of the major economies to assist Austria after the CreditAnstalt bank failed in 1931 led to a cascade of bank failures across Europe and the United States. The collapse of the 1933 London conference guaranteed an ongoing absence of policy coordination for the next several years.

The start of the Great Depression was bad. International policy coordination failures made it worse. Such a scenario could play out again. There is no shortage of latent or ongoing crises that could lead to a serious breakdown in global economic governance. The IMF’s reluctance to take more critical actions to address the eurozone crisis have already prompted one angry resignation letter from an IMF staffer. The summer 2012 drought in the midwestern United States could trigger another spike in food prices. The heated protectionist rhetoric of the 2012 presidential campaign in the United States, or the nationalist rhetoric accompanying China’s 2012 leadership transition, could spark a Sino-American trade war. If global economic growth continues to be mediocre, the surprising effectiveness of global economic governance could peter out. Incipient signs of backsliding in the WTO and G-20 might mushroom into a true “GZero” world.

The second question is handled similarly. Drezner acknowledges that the policies hastily enacted to combat the crisis were anything but optimal. By that measure, our governing institutions might be expected to deserve a failing grade. But that, he asserts, is an “absurd standard to apply. ... The question is not whether global governance has been flawless but whether it has been good enough” (p. 15). In effect, therefore, any minimal amount of achievement should be regarded a success. On this view, a grade of D is as good as an A. They all “work.”

In fact, a realistic grade would be closer to D than A. Yes, as Drezner demonstrates, powerful interests went to work to maintain the openness of the trading system. Yes, the United States turned out to have the power to exercise a degree of leadership. And yes, there was no serious challenge to prevailing neoliberal norms. But on balance, protectionist measures did proliferate, mainly in the form of “behind-the-border” nontariff barriers. Many governments, most notably the authorities in Berlin, stubbornly resisted American calls for greater stimulus. And some less market-friendly ideas did begin to gain legitimacy, such as a newfound respect for capital controls. If the system “worked,” it did so barely enough to pass. It seems almost unseemly to boast about what is at best a gentleman’s C.

At the heart of the presumed linkage between patriotism and support for leadership lies the identification of the flag with its current carrier and the belief that rallying around the former bestows public support upon the latter—as if by ousting the flag carrier, the flag will inevitably fall, and with it the nation as a whole. Note again, however, that what matters is not whether patriotism—even if engendered by nuclear diversion—would confer public support on the leadership; in fact, the linkage between the two is far from self-evident, as Churchill’s loss of the 1945 U.K. election half-anecdotally suggests. What matters is that this linkage is strongly believed (we are surprised by Churchill’s domestic defeat in the aftermath of defeating the Nazis) and that leaders might act upon this belief, even if it is largely wishful thinking.

Hypothesis 1 thus receives strong support via the unpopularity variable but only weak support via the economic growth variable. These results suggest that embattled leaders are much more likely to respond with territorial diversions to direct signs of their unpopularity (e.g., strikes, protests, riots) than to general background conditions such as economic malaise. Presumably, protesters can be distracted via territorial diversions while fixing the economy would take a more concerted and prolonged policy effort. Bad economic conditions seem to motivate only the most serious, fatal territorial confrontations. This implies that leaders may be reserving the most high-profile and risky diversions for the times when they are the most desperate, that is when their power is threatened both by signs of discontent with their rule and by more systemic problems plaguing the country (i.e., an underperforming economy).

Next, I conduct a series of follow-up tests suggested by an anonymous Reviewer; results based on the reanalysis of Model 1 are presented in the online appendix. Evaluating the implication that territorial diversions are indeed more likely to result from diversionary conditions than nonterritorial diversions, I set up a multinomial logit model that contrasts the initiation of territorial MIDs versus nonterritorial MIDs (base outcome). The results show a positive and statistically significant coefficient for the government unpopularity variable (first column of Table 3), meaning that higher levels of government unpopularity are more likely to produce territorial rather than nonterritorial MIDs. Further checks include performing rare events logit (King and Zeng 2001) and population-averaged logit analyses to verify whether the rare events nature of the dependent variable or cross-sectional characteristics of the data alter the findings, respectively. The findings for the two independent variables remain unchanged (see Table 3, columns two and three). Finally, protesting behavior in more populous countries could be considered more ‘‘normal’’ and less threatening to the government, potentially lowering the incentive to divert. Dividing the government unpopularity variable by the log of country’s population (from the Correlates of War National Capabilities data set, Singer 1987) reveals that the population size-standardized government unpopularity variable remains positive and significant; see Table 3, final column.

Prompted by a 2001 article by King and Zeng, many researchers worry about whether they can legitimately use conventional logistic regression for data in which events are rare. Although King and Zeng accurately described the problem and proposed an appropriate solution, there are still a lot of misconceptions about this issue.

The problem is not specifically the rarity of events, but rather the possibility of a small number of cases on the rarer of the two outcomes. If you have a sample size of 1000 but only 20 events, you have a problem. If you have a sample size of 10,000 with 200 events, you may be OK. If your sample has 100,000 cases with 2000 events, you’re golden.

This comparison leaps to mind as Summers sounds the alarm about 2018. Summers’s core policy belief is this: even when the periphery of the global economy (emerging markets) plunges, the centre (developed ones) is solid enough to hold capitalism together. Increasingly, Summers believes that centre might crack in the event of new turmoil—even within the 12 months ahead.

Stock markets, as Summers points out in recent speeches and op-eds, are going gangbusters. That’s despite the US being in the hands of a leader threatening trade wars, redistributing wealth to the top 1%, taunting nuclear states via Twitter, spouting untruths, attacking the media, flouting international laws, trampling on democratic values and cozying up to autocrats Washington used to abhor.

Economic recovery efforts since the 2008-2009 global financial crisis have mainly depended on unconventional monetary policies. As fears rise of yet another international financial crisis, there are growing concerns about the increased possibility of large-scale military conflict.

More worryingly, in the current political landscape, prolonged economic crisis, combined with rising economic inequality, chauvinistic ethno-populism as well as aggressive jingoist rhetoric, including threats, could easily spin out of control and ‘morph’ into military conflict, and worse, world war.

Economically, the outcome of the election could not be worse than where we seem to be headed: A Biden presidency with a Republican Senate.

Why it matters: "Gridlock" — where the president's party doesn't control both houses of Congress — is being cheered by financial markets wary of political overreach. Stocks are not the economy, however. In the depths of a global pandemic, fiscal boldness is exactly what's needed for the economy as a whole. The problem is that political obstructionism is all but certain.