U.S. Has No Competent Leadership In The Current Crisis-- We Are Flying Blind

When Obama was elected in 2008, Bush left him a major financial crisis that came to be known as the Great Recession. Obama appointed Rahm Emanuel chief of staff who was widely quoted as having said "You shouldn’t let a crisis go to waste," meaning it could be used to pass otherwise difficult legislation and enact policies that might get more scrutiny and opposition under other circumstances.

Needless to say, the Trump Regime is trying to do that right now and we've discussed their economic wish list for the catastrophe. particularly lowering taxes and jeopardizing Social Security and Medicare. Politico's Betsy Swan, though, looked in a different direction for something they'd like to do: suspending constitutional rights under cover of the crisis. Enter, stage right: William Barr, the Trumpst Attorney General. "The Justice Department," she reported, "has quietly asked Congress for the ability to ask chief judges to detain people indefinitely without trial during emergencies-- part of a push for new powers that comes as the novel coronavirus spreads throughout the United States." Barr is targeting the statute of limitations, asylum, the way court hearings are conducted and is "seeking the authority to extend deadlines on merger reviews and prosecutions."

The move has tapped into a broader fear among civil liberties advocates and Donald Trump’s critics-- that the president will use a moment of crisis to push for controversial policy changes. Already, he has cited the pandemic as a reason for heightening border restrictions and restricting asylum claims. He has also pushed for further tax cuts as the economy withers, arguing it would soften the financial blow to Americans. And even without policy changes, Trump has vast emergency powers that he could deploy right now to try to slow the coronavirus outbreak.

...In one of the documents, the department proposed that Congress grant the attorney general power to ask the chief judge of any district court to pause court proceedings “whenever the district court is fully or partially closed by virtue of any natural disaster, civil disobedience, or other emergency situation.”

The proposal would also grant those top judges broad authority to pause court proceedings during emergencies. It would apply to “any statutes or rules of procedure otherwise affecting pre-arrest, post-arrest, pre-trial, trial, and post-trial procedures in criminal and juvenile proceedings and all civil process and proceedings,” according to draft legislative language the department shared with Congress. In making the case for the change, the DOJ wrote that individual judges can currently pause proceedings during emergencies but that their proposal would make sure all judges in any particular district could handle emergencies “in a consistent manner.”

The request raised eyebrows because of its potential implications for habeas corpus-- the constitutional right to appear before a judge after arrest and seek release.

“Not only would it be a violation of that, but it says ‘affecting pre-arrest,’” said Norman L. Reimer, executive director of the National Association of Criminal Defense Lawyers. “So that means you could be arrested and never brought before a judge until they decide that the emergency or the civil disobedience is over. I find it absolutely terrifying. Especially in a time of emergency, we should be very careful about granting new powers to the government.”

Reimer said the possibility of chief judges suspending all court rules during an emergency without a clear end in sight was deeply disturbing.

“That is something that should not happen in a democracy,” he said.

Matt Cartwright (D-PA) is self-quarantined and has had some time to think about this threat. "It is abhorrent to use 'emergency' as an excuse to curtail American civil rights," he told me today. "We in Pennsylvania are rightly proud of our own Supreme Court Justice Owen J. Roberts.  A lifelong Republican, not only did he vote to uphold Social Security as constitutional. But, just as consequentially, he also was one of the dissenting votes in Korematsu v. United States, in which the Court upheld our shameful imprisonment of thousands of innocent, loyal Americans of Japanese ancestry during Workd War II. Roberts dissented because he understood the truth:  that when we surrender the civil rights of any American, we forfeit a part of why America is even a nation in the first place."

Jim Harper is an attorney who is running for the open blue congressional seat in northwestern Indiana. "The Justice Department's ploy is shocking," he told us this morning, "but not surprising. Donald Trump does not care about due process, and he does not care about fixing our broken criminal justice system. At a time when governments should be releasing non-violent and low risk offenders to reduce the risk to inmates and employees alike, Trump and Barr are using this emergency to hold inmates for longer than the law allows. Trump is once again trampling on the Constitution. We should all be concerned. Today, he is using this emergency to take rights away from inmates and asylum seekers. Who will be next?"

Lev Menand and Ganesh Sitaraman went through seven lessons we should have learned from the Great Recession. McConnell failed to move any of his reactionary pandemic legislation yesterday-- in part due to all the Republican senators quarantined. Even before that, Menand and Sitaraman were urging that we look back at policy choices made in 2008 to help us navigate the current emergency. "Policymakers," they wrote, "pursued a variety of crisis-fighting strategies, from investing in banks and automobile companies, to cutting taxes and green-lighting infrastructure investments, to re-regulating financial institutions and setting up new agencies to protect Americans from some of the harmful practices that helped precipitate and worsen the crash. Looking back at what worked and what didn’t can help us reprise successful strategies while avoiding pitfalls."

1 Fiscal Stimulus Should be Big, Salient, and Recurring. The 2009 stimulus was big, but not big enough. Famously, Christina Romer, President Obama’s chief economic advisor, proposed a stimulus of greater than $1 trillion, but was rebuffed by political advisors who thought that amount would appear too large. The stimulus that passed was not only too small, but it was largely composed of withholding tax reductions. This tax cut went unnoticed by most people, compared to getting a check from the federal government. (Incredibly, that was by design.) For a stimulus to work well, people should know and feel that they are getting money in their pockets. Ideas like cancelling student loan debt, expanding Social Security payments, and direct transfers are therefore far better than payroll tax cuts. And as economic crises generally do not resolve themselves immediately, a stimulus should not be a one-time-only action. Indeed, after the last stimulus, the federal government adopted sequestration, a disastrous austerity policy that ran directly counter to continuing to spark growth and recovery. A stimulus should be sustained with recurring elements to restore confidence and ensure that recovery does not depend on the legislature reauthorizing expansionary policy every six months.

2 Target Main Street. During the 2008 crisis, policymakers targeted the bulk of the bailout money at Wall Street financial institutions, rather than homeowners. The result was twofold. Wall Street recovered relatively swiftly, while homeowners did not; and the economy was rebuilt on a shaky foundation as homeowners struggled for years to get above water on their mortgages. Some at the time argued for rescuing homeowners, rather than big financial institutions, but their arguments went unheeded. This time, instead of homeowners, it’s small businesses and workers who are in trouble. Restaurants, bars, mom-and-pop retail, and other local enterprises are suffering from physical distancing. Workers are losing their jobs. Policymakers’ focus needs to be on proposals that will keep these businesses and individuals afloat. Stabilizing household balance sheets will address one of the roots of the crisis and lay the foundation for economic recovery.

3 Reforms Should Make Structural Improvements. Both bailouts and a stimulus can be designed as one-time policies or can be designed to have structural implications to get the economy on a safer, stronger, more secure footing in case of a future crisis. Reducing withholdings-- as the 2009 stimulus did-- or the payroll tax cut that the White House proposed recently do not serve that purpose; in fact, they could weaken important safety net programs. Instead, policymakers should push for proposals like paid leave, and condition bailouts on higher wages and governance reforms. These kinds of changes strengthen the economy after the crisis subsides-- and make it more resilient for when the next crisis hits.

4 Bailouts Without Stringent Conditions are a Bad Idea. When the government bailed out financial institutions in 2008, it did so with few conditions. This created two sets of problems. First, rescued firms were free to use taxpayer funds to pay bonuses, rather than for shoring up the economy at the household level. And second, it re-established that these institutions were too big to fail, and gave them license after the fact to return to irresponsible, risky behavior. Thus, many of the biggest banks have grown since 2008 and pushed for deregulation, increasing the likelihood of future bank bailouts. Executives and investors did well during the boom years, knowing that the government would likely rescue their firms if things went bad. While some say that we should simply let irresponsible private companies fail, certain businesses are effectively public utilities for which continuity of service is of critical importance. Banks are essential to economic functioning, and in a crisis the government is typically the only source of new capital to keep them operational. Airlines, which face serious distress today, also provide basic infrastructure. Policymakers need to keep these businesses running but they do not need to bail them out unconditionally.

5 Debt Restructuring Should Focus on Forgiveness. In a shrinking economy, facing growing deflationary pressures, some debts cannot be repaid. But default and foreclosure are hugely disruptive and damaging, and in the current environment, actively dangerous. During the Great Recession, policymakers adopted technical, complicated policies like the Home Affordable Modification Program (HAMP) to get at the ongoing mortgage crisis. But HAMP was difficult to navigate, slow to act, helped too few people, and disproportionately benefited big companies. HAMP was also inadequately sized. Mortgage debt overhang continued, holding back consumer spending and impeding the recovery. A better, simpler, and more effective response would alleviate suffering by simply forgiving debt and eliminating debt overhang.

6 Technocratic Regulation Is Fragile and Often Ineffective. After the financial crash, Congress passed the Dodd-Frank Act, a law that reformed the financial system largely by requiring technocratic governance by administrative agencies, rather than through structural improvements to the design of financial institutions. For example, instead of breaking up the banks through a simple, clear Glass-Steagall regime, the Volcker Rule prohibited proprietary trading, but with some carve-outs. Companies heavily lobbied regulators on the specifics, ultimately stretching the rule to hundreds of pages of obscure language. A few years later, banks succeeded in rolling back several aspects of the Volcker Rule. Looking forward, policy reforms shouldn’t focus on either deregulation or technocratic regulation—they should focus on structural reforms that create the conditions for enduring economic stability.

7 If it Functions as Money, it Should be Regulated as Money. The Federal Reserve recently announced it would back commercial paper markets, repo markets, and money market mutual funds, serving as a lender of last resort for issuers of these deposit-substitutes. This gives these firms the benefits of a public subsidy without imposing any of the prophylactic safeguards designed for bank deposits. Ordinarily, banks get the benefit of federal insurance through the FDIC, in return for being regulated and paying fees to the government. This prevents a “run” on the banks, and it was a critical part of the New Deal. In 2008, a run in the money markets helped deepen the financial panic and amplify the recession, and yet this market was never fully reformed. We shouldn’t make the same mistake twice. If the Fed is going to backstop these money-substitutes, they should be brought into the bank regulatory regime.

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