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January 12, 2005

Nekkid Economic Favoritism Rears Its Ugly Head...

And before you jump all over me for the title of this post, I did decide to opine before Eugene Volokh's "naked economic favoritism" almost made me spit out my morning coffee (doesn't take much some days...).

As usual, it's all Robert Prather's fault anyway.

Kind of interesting if you've been following the Wine Wars controversy. Back in August, the 10th Circuit upheld a funeral directors' monopoly on casket sales. 'That other VC's' Todd Zywicki commented:

One of the more disturbing aspects about this opinion is that it suggests that protecting an interest-group from economic competition is itself a legitimate government purpose. "In contrast, the Supreme Court has consistently held that protecting or favoring one particular intrastate industry, absent a specific federal constitutional or statutory violation, is a legitimate state interest." On the other hand, there is a refreshing honesty to the court's characterization of the realities of the political process (especially when it comes to regulation of the licensed professions): "We also note, in passing, that while baseball may be the national pastime of the citizenry, dishing out special economic benefits to certain in-state industries remains the favored pastime of state and local governments." The court goes on to state, however, "While the creation of such a libertarian paradise may be a worthy goal, Plaintiffs must turn to the Oklahoma electorate for its institution, not us."
In fact, according to FTC studies of the funeral industry, it turns out that in many families there is one person who essentially specializes in buying funerals--i.e., "Uncle Joe" or "Aunt Sue" handles all the funeral arrangements for family funerals. So in fact the decision-maker can and will shop--if given the chance. These sorts of laws like the Oklahoma decision in Powers instead just deliver up consumers to get ripped-off by a licensed monopoply. And it has been well-recognized since at least Mancur Olson that the political process is likely to fail in exactly this situation--where there is a delivery of concentrated benefits to a well-organized interest group and the costs are borne by dispersed consumers as a whole who lack the incentive and ability to organize themselves to overturn these regulations. Indeed, in this situation the incentives would appear to be even more attenuated, in that purchase of funeral goods and services is at best a rare shopping incursion, distinguishing it from such goods and services as plumbers, lawyers, and doctors.

Having lost on appeal, the Institute for Justice has filed (I assume) a cert petition asking the Supreme Court to review the decision. Volokh comments:

In fact, the court of appeals held that, under its view of the Constitution, naked economic favoritism is quite permissible: "We also note, in passing, that while baseball may be the national pastime of the citizenry, dishing out special economic benefits to certain in-state industries remains the favored pastime of state and local governments." I'm surprised the issue hasn't gotten more attention. I'm not sure that the Constitution should be interpreted as providing broad economic liberty protections. I support economic liberty as a policy matter, but while the Constitution does clearly block some interferences with such liberty (consider the Takings Clause, the Contracts Clause, and the part of the Due Process Clause that prevents the deprivation of property without due process), it leaves the government with lots of room to regulate. I'm not sure how much room it leaves — I haven't done serious research on the subject — but I suspect that it leaves enough even for legislation that simply tries to favor one business group over another.

I know, though, that my friend and coblogger Randy Barnett takes a different view; and in any event, this is a very interesting subject. And even if it turns out that the Tenth Circuit is right and that naked economic favoritism for one industry is constitutional, it's still a pretty bad idea, and I wish that the media did more to cover how these laws harm consumers as well as competitors.

As a good little Federalist and one who has often wished the courts would leave lawmaking up to the Legislative Branch, I can't help but find the Court's reasoning amusing, even as I deplore the practical outcome:

[R]ational-basis review does not give courts the option to speculate as to whether some other scheme could have better regulated the evils in question. [citation omitted]. In fact, we will not strike down a law as irrational simply because it may not succeed in bringing about the result it seeks to accomplish, [citations omitted], or because the statute's classifications lack razor-sharp precision, [citation omitted]. Nor can we overturn a statute on the basis that no empirical evidence supports the assumptions underlying the legislative choice. [citation omitted]. ***

These admonitions are more than legal catchphrases dutifully recited each time we confront an equal protection challenge to state regulation--they make sense. First, in practical terms, we would paralyze state governments if we undertook a probing review of each of their actions, constantly asking them to "try again." Second, even if we assumed such an exalted role, it would be nothing more than substituting our view of the public good or the general welfare for that chosen by the states. As a creature of politics, the definition of the public good changes with the political winds. There simply is no constitutional or Platonic form against which we can (or could) judge the wisdom of economic regulation. Third, these admonitions ring especially true when we are reviewing the regulatory actions of states, who, in our federal system, merit great respect as separate sovereigns.***

(Oh my dear Lord... such humility!)

[F]avoring one intrastate industry over another is a legitimate state interest.… [W]e hold that, absent a violation of a specific constitutional provision or other federal law, intrastate economic protectionism constitutes a legitimate state interest.

I await with my usual resignation the beatings that inevitably follow my temerity.

Posted by Cassandra at January 12, 2005 07:35 AM

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Oh boy!!!!!!!
Is this a juicy topic! I promise I get back to this, but duty calls at the moment. Suffice it to say at the moment, without having studied the opinion in its entirety, that the court's rationale is succinct: "There simply is no constitutional or Platonic form against which we can (or could) judge the wisdom of economic regulation." That's it. If it involved interstate commerce, rather than intrastate state commerce, that regulation would have been squashed flat in the blink of an eye. It's nice to see the federal bench still understands federalism.

Posted by: spd rdr at January 12, 2005 10:06 AM

However, it is still requiring that those who sell caskets become something they may not WANT to be,
and imposing a higher cost as a result.

Insurance barely covers expenses as it is.

On the otter heiny, I can just see John Kerry as a funeral director telling people he uses coffins all the time....

oh helk. I laughed until I cried.

Posted by: Cricket at January 12, 2005 10:23 AM

Actually my dear Femme Crickita, I believe the quote might be "I have a plan for caskets...."

Otter heinies to the contrary, I was astonished (and gratified) to see a court actually recognizing limits to their own power and contemplating the value of not enlarging the power of the federal govt. at the expense of the state government. 'The end justifies the means' is becoming an argument, whereby all sorts of nonsense is rationalized. We seem to live in a society that no longer recognized roles; in which each party feels that, if he or she does not act (whether or not it is proper that he or she in fact do so) all will be irretrievably lost to future generations.

I often wonder if things are quite that dire :)

Posted by: Cassandra at January 12, 2005 12:51 PM

All I would ask is, have any of the actual users of the product sent in any complaints?

Posted by: RIslander [TypeKey Profile Page] at January 12, 2005 01:37 PM

The real shame is that the state courts can't find a state constitutional provision to squash such absurd policies. Please explain to me how naked favoritism is legitimate. Really.

Lee v. something Optical-oranother was a Supreme Court decision in which Hugo Black stated that the Supreme Court would not get into striking economic legislation anymore. In that case, Oklahoma favored optomitrists over opthomologists on some eye glasses issue that both were qualified to do. It was naked favoritism done in the name of consumer protection.

Many states require a new eye test if you were repairing or replacing glasses/contacts and the last eye test was more than one year old. Georgia has this law, as I discovered trying to get new contacts one time. This law has one purpose: welfare for optomitrists. But at least it has a "rational legitimate purpose" - its "offical" purpose is to protect consumers from deteriorating eye conditions. All protectionist measures are done in the name of the public interst.

I have some bad news for this so-called abdication Federalism -- economic interests are in the Constitution, and due process means the govt. must have, even under low level scrutiny, a legitimate government purpose. We like well funded funeral directors better than who ever their competitors would be, and we have no other real purpose for the law, is a violation of the legitimate government purpose test under the due process clause. Period.

NOTE: I haven't read the opinion and probably won't. I just don't think the Court is right if the only justification it could find for the law is naked favoritism between two competitors. That isn't a legit government value judgment. If you can't even make up a consumer protection reason, you don't deserve to be a government lawyer.

Posted by: KJ at January 12, 2005 01:40 PM

I think you should read the decision.

I don't have time right now to go back and read it, but if I recall correctly, they didn't justify the decision based on nekkid favoritism. They based it on the lack of what they saw as Constitutional authority for them to overrule state legislative authority.

The remarkable argument (in my view) was this:

We are not going to start substituting our judgement for that of the state legislature's unless there's a pretty darned good reason.

Posted by: Cassandra at January 12, 2005 01:58 PM

Well, Cass, your excert makes it sound like they decided that favoritism was a legimate govt purpose. The due process clause of the 14th Amendment applies to the states.

My point is this - under the 14th Amendment ALL govt action (States, cities and counties, etc.) at any level is subject to low level scrutiny. I submit that if the ONLY rationale for a law is to favor one type of entity over another for no other reason than pure political power (and keep in mind that not many laws are so obviously stupid, but some, like this casket law, are), then the court should DO ITS JOB and apply that low level scruitiny and say that some rationales are not sufficient.

This was just like the sodomy decision. Kennedy's decision applied no clear standard but implied that the law lacked even "rational basis" b/c morals alone could not justify the law. I made the argument that the health arguments put forth by Texas failed b/c the law applied only to same sex couples, not sodomy between hereros, and the health risks would have been the same (for the recipient).

The Federal Courts are being activist when they strike state laws contrary to the Constitution. We lamented the Court's refusal to strike Oregan's no money for religion majors law, but now we applaud not striking an even dumber law on the grounds of Federalism? I just don't get it.

I don't think the Constitution requires libertarianism at all. But I do think that we sell our system of government short if we admit that "favortism to one well funded political group is OK without any other rational is legitimate."

Posted by: KJ at January 12, 2005 02:07 PM

Errata sheet for last post:

"excert" should be "excerpt"
"hereros" should be "heteros"
"Federal courts are being activist" should read "Federal courts are NOT being activist"

Posted by: KJ at January 12, 2005 02:09 PM

They did, KJ - it just wasn't their PRIMARY reason for not striking down the law. You can recognize an interest while still not liking it if you think you lack the authority to do something about it.

Again, you have to read the decision to get the whole 'nuance'. And I didn't read it as carefully as I'd like to have, but will, later, when I have more time. I was just struck - and amused - by the part I excerpted.

Posted by: Cassandra at January 12, 2005 02:29 PM

Volokh's excerpt implies his belief that the opinion holds that naked favoritism, without more, is permissible. With that proposition, I disagree, and the Court's obligation to apply "rational basis" scrutiny to all laws and rule accordingly.

I don't disagree with anything from the excerpt of the opinion. I don't submit that the Court's should strike laws b/c there are "better" ways. I only submit that we betray our heritage if we rubber stamp that which we know is favoritism and nothing more, w/o any other justification. And the 14th Amendment give the Federal Courts that power. It is not a violation of Federalism.

That's all I'm saying. Nothing more. Nope - that it is. Not another word.

Posted by: KJ at January 12, 2005 02:45 PM


I'm done discussing it.

Posted by: KJ at January 12, 2005 02:46 PM

Man, you guys get to have all the fun.
And here I am on opening day of the General Assembly Session with a raft of economic favoritism legislation on my desk! Damn, I love working for The Man.

Posted by: spd rdr at January 12, 2005 03:00 PM

But is it naked favoritism legislation?

Inquiring minds want to know.

Posted by: Cassandra at January 12, 2005 03:10 PM

I hate it when different segments of The Man fights over the economic spoils. It is like when your parents fight. So sad.

Posted by: KJ at January 12, 2005 03:43 PM

And poor spd is caught in the middle. My heart bleeds for him.

Posted by: Cassandra at January 12, 2005 04:02 PM

What compelling interest could the feds have anyway?
Isn't that what the tenth amendment does, protect the rights of states?

The Supreme Court can't argue with that.

Posted by: Cricket at January 12, 2005 05:57 PM

The Feds don't need a compelling interest. The interest at stake is the liberty of the citizens of Oklahoma.

The State must show that the law has a rational basis. The 10th Amendment says that stuff not given to the Fed Govt is reserved to the states. But the 14th Amendment, passed later and thus controlling, applies the due process clause to the States. Thus, there is nothing inconsistent with the 10th Am. by applying the 14th Am. DPC to a State law.

Posted by: Hummer at January 12, 2005 07:09 PM

Hummer shows some non-automotive education.

Posted by: KJ at January 12, 2005 10:42 PM

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