Author: Gerard Magliocca

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Financial Innovation?

As Lawrence noted (if you scroll down), the President’s financial reform package is before Congress.65px-dollar_symbol_goldsvg Who knows what it will look like when it emerges from the legislative process, but there is an issue that I’d like to raise now.

The focus of the proposal appears to be on the regulation of exotic financial products rather than on their existence.  Maybe that is the right approach, but I wonder whether a more sweeping question should be asked.  Was the financial innovation of the last two decades a good thing?  There is an argument that we need a return to “bankers’ hours,” which was shorthand for the idea that financial products should be dull due to the tendency (described by Minsky) for the banking system to run off the rails.

I mention this because it may be a subtext (or actual text) of the Supreme Court’s consideration of Bilski.  Since financial instruments are a significant subset of “business method patents,” I can imagine some of the briefs making the argument that these incentives for innovation were actually pretty harmful.  When the Justices hear the case in the Fall, the atmospherics may not be so great for those who want a broad reading of patentable subject matter.

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Canonical Statutes

There’s been a lot of discussion recently about the idea that certain statutes (whether you call them canonical, super-statutes, or super-duper statutes) are now part of the Constitution.  This idea comes from the British Constitution, where certain statutes (The Reform Act of 1832, the 1911 Parliament Act) are considered fundamental and not subject to repeal even though formally they could be.

I tried to put together a list of what statutes might qualify for this exalted status.  Here’s what I came up with:

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The Great Recession

Consider some recent political events:

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1.  Civil unrest in Iran.

2.  The Honduran military arrests the country’s President and gives him a free trip out of the country.

3.  China (at least according to Friday’s Washington Post) launches a crackdown on human rights lawyers by letting their bar licenses “lapse.”

4.  Vietnam arrests a leading human rights lawyer and charges him with treason (last week)

5.  Thailand continues to face turmoil between supporters and opponents of ex-Prime Minister Thaksin (that started last fall with the airport shutdown, but it’s still going on).  

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The Six Stages of Scandal

The Sanford tango gives me an excuse to repeat this classic from Mickey Kaus, which works for almost any political scandal.

Stage 1:  That’s ridiculous.  It can’t possibly be true.

Stage 2:  It’s not true.

Stage 3:  You can’t prove it’s true.

Stage 4:  Why are you trying to prove it’s true?

Stage 5:  It’s disgusting that you proved it’s true.

Stage 6:  What’s the big deal anyway?

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Walter Bagehot

95px-walter_bagehotIt is ironic that one of the greatest books on constitutional law was written by a journalist.  Walter Bagehot’s The English Constitution is a classic study of British politics during the 1860s, but it is also worth reading for its general observations. Most people are familiar with Bagehot’s distinction between the “dignified” parts of a constitution, which give the government its legitimacy but are largely ceremonial, and the “efficient” parts that actually do the governing.  (Bagehot put the monarchy in one category and the Cabinet in the other.)  Few are aware of his commentary on our Constitution, which is full of gems that rival de Tocqueville’s analysis of American society.  

I’ve spent years trying to figure out what Bagehot’s analysis can tell us about contemporary constitutional law, and I think I’m finally getting close to some answers.  

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The Voting Rights Act

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The Court’s decision to avoid addressing the constitutionality of the Voting Rights Act is interesting for two reasons.  First, the opinion fits within the “generational cycle” that I discussed last week in the sense that the Justices usually tread carefully in the initial stages of a turnover from one constitutional order (the Reagan Revolution) to another (the Obama whatever you call it).  When Chief Justice Marshall first confronted Jacksonian Democracy in Cherokee Nation, the Court expressed its doubts about the legality of what was going on but dismissed the case for want of jurisdiction.  A year later, of course, the Court came up with something much stronger in Worcester v. Georgia.  During the 1890s, the Justices started their resistance to Populism with a statutory case (E.C. Knight) that avoided the constitutional issue under the Commerce Clause.  Not long after that, the Court got much more aggressive.  Thus, one cannot say that this decision (or the decision to allow the Chrysler sale to go ahead) means that the Justices will keep their powder dry for long.

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The Iranian Constitution

I wrote my undergraduate thesis on Iranian politics, so naturally I’ve been interested in what’s going on and thinking about what I might say that would be useful.80px-imam_khomeini_-_has_exiled  The first thought that comes to mind is actually a line from “I, Claudius” where a Senator responds to the tyranny of the Praetorian Guard with:  “I never fully realized how a small mind, allied to unlimited ambition and without scruple, can destroy a nation full of clever men.”

The 1979 Revolution, led by the Ayatollah Khomeini, created a system called “Velayat-e-faqih” or “Rule of the Jurist.”  The Supreme Leader in Iran derives his legitmacy as the regent for the “Hidden Imam,” who according to Shia teaching is the legitimate heir of Mohammed and will return at end time to establish the kindgom of Allah.  This is not all that different from the idea of divine right that was the organizing principle of European monarchies for centuries.

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Secondary Factors in Bilski

In a prior post I talked about my idea that the Supreme Court should use Bilski to reinterpret the statutory provision on patentable subject matter (35 U.S.C. s 101) by borrowing the test from the section on obviousness (35 U.S.C. s. 103).  By asking whether an “ordinary person skilled in the art” would think that the class of processes at issue (not just the particular process being litigated) should be patentable, the Court would directly inject industry norms (and policy considerations) into that examination and make the  s. 101 analysis more practical.  

When I presented my paper to a conference last week, the chief criticism was that such a test would create too much uncertainty.  In effect, the argument is that this would force every industry that relies on these patents (software companies, banks, etc.) to start from scratch and prove that their patents are valid.  I’m not sure I agree with this line of thought (is Bilski any better in this respect?), but let’s say that I’m wrong.  Is there another alternative?

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The Generational Cycle — Part Two

Yesterday I talked about the theory that is the foundation of my two books.  The basic idea is that constitutional law follows a generational pattern that unfolds in a similar way about every thirty years.  (As a side note — the pattern holds pretty well for British politics and can even be applied to what’s going on Iran (thirty years between the fall of the Shah and now), although in a dictatorship there are obviously powerful means available to crush dissent.)

The key inflection point in this cycle is when one generation supplants another.  As scholars from Robert Dahl to Keith Whittington have said, these transitional periods typically see the greatest friction between the political branches and the Court.  Why?  Because the Court is still controlled by what Justice Robert H. Jackson once called the “rejected regime.”  Thus, the Justices are likely to challenge the initiatives and assumptions of the new political leadership.

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The Generational Cycle

With President Obama’s nomination of Judge Sotomayor and the close of the Supreme Court’s term coming soon, this is a good time to assess where we are from a broader constitutional perspective.  I’ll divide this analysis into two posts, as I think one might be too long.

Two years ago, I wrote a book called Andrew Jackson and the Constitution:  The Rise and Fall of Generational Regimes, which argued that constitutional change is partly driven by a “generational cycle.” The idea is that every thirty years or so there is a realignment of the party system that ushers in major constitutional reform.  Moreover, the way in which this change occurs follows a similar pattern for each generation.   The Obama Administration marks the most recent turn of this cycle, and there is a lot that this theory can tell us about where things are heading.

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