Antitrust’s Unconventional Politics

Introduction

Antitrust law stands at its most fluid and negotiable moment in a generation. The bipartisan consensus that antitrust should solely focus on economic efficiency and consumer welfare has quite suddenly come under attack from prominent voices calling for a dramatically enhanced role for antitrust law in mediating a variety of social, economic, and political friction points, including employment, wealth inequality, data privacy and security, and democratic values. To the bewilderment of many observers, the ascendant pressures for antitrust reforms are flowing from both wings of the political spectrum, throwing into confusion a conventional understanding that pro-antitrust sentiment tacked left and antitrust laissez faire tacked right.

On the left, the assault on the consumer-welfare-oriented status quo has migrated from reformist organizations like the Open Markets Institute[1] and anti-corporate progressives like senator Elizabeth Warren and the House Democratic Leadership, which has staked the 2018 mid-term elections on an economic platform including antitrust reform as a centerpiece.[2] In the Democratic Party’s center, the formation of a House Antitrust Caucus[3] and reform bills introduced in both the House[4] and the Senate[5] underscore increasing political traction to jettison the consumer-welfare status quo. The Democrats’ “Better Deal” plan asserts that consumers are but one of the classes that antitrust should protect, with workers, suppliers, and small business taking an equal place in the protected class.[6] Significantly, the document launches harsh criticisms of the past thirty years of antitrust enforcement as excessively lax—a period over which Democrats ran antitrust enforcement just over half of the time.[7] The Democratic leadership has made clear that it does not intend to exclude the Clinton and Obama administrations from its criticism, and that it intends to advocate a major trans-partisan rethinking of antitrust policy.[8]

On the right, President Trump has attacked concentrated economic power in technology and big media,[9] and his Justice Department launched a surprising, aggressive challenge to the AT&T–Time Warner vertical merger (the district court rejected the Administration’s challenge to the merger on substantive antitrust grounds and the case is now on appeal).[10] Trump’s trustbusting might be dismissed as a feature of his idiosyncratic populism or, less charitably, abusive vendettas against corporate political foes like CNN and Amazon, but the reformist sentiment on the right is far from limited to the President. Similar sentiments have been expressed by diverse conservative figures such as activist Steve Bannon, who wants to turn Google and Facebook into public utilities,[11] conservative economist Kenneth Rogoff,[12] and Trump’s decided political foe Bill Kristol, who criticizes Robert Bork’s consumer-welfare standard and proposed a significant reinvigoration of the antitrust laws to limit the growing power of tech’s Big Five (Amazon, Apple, Facebook, Google, and Microsoft).[13] The American Conservative recently turned with surprising ferocity on that conservative icon Bork, asserting that “[w]hereas prior generations of lawmakers protected the American citizenry as businessmen, entrepreneurs, and growers, Bork led a revolution that sacrificed the small producer at the altar of efficiency and cheap goods.”[14]

Standing against the anti-incumbent challengers from both political wings is a broad, bi-partisan establishment center seeking to defend the consumer-welfare framework. Until recently, this establishment center seemed far from unified. Since the rise of the Chicago School in the 1970s, antitrust law has been contested on terms that seemed generally to track left–right political ideology, with those on the left favoring more aggressive intervention and those on the right more laissez faire.[15] But the rising tide of calls for a radically different version of antitrust has led to a circling of establishment wagons around the consumer-welfare standard. Left-leaning organizations that once led the charge for more aggressive enforcement now find themselves defending the consumer-welfare idea in principle, even while calling for more aggressive enforcement within that paradigm.[16] Meanwhile, conventionally conservative or pro-business leaning organizations continue to defend the consumer-welfare standard against assaults from their own right flank.[17]

This Essay shows that, although unconventional in presentist terms, the emerging political dislocations over antitrust policy reflect longstanding ideological ambiguities about and within the antimonopoly tradition. In particular, the current political fracturing over antitrust is best understood by examining three ideological friction points that have emerged periodically within American history: (1) the ideological ambiguity surrounding the association between large scale in business and large scale in government; (2) the shifting meaning of “monopoly” from the exclusive grant of government privilege to purely private power, and a related question about the sources of monopoly power; and (3) pragmatic concerns about the ability of the capitalist order to survive without regulatory interventions to smooth its roughest edges. Taken in the context of these longstanding friction points, the strange-bedfellow coalitions uneasily rising around contemporary antitrust reform aren’t that strange at all.

I. The Ideological Ambiguity of Large Scale in Government and Business

A. Brandeis and Bork as Ideological Touchpoints

Although American antitrust policy has been influenced by a wide variety of ideological schools,[18] two influences stand out as historically most significant to understanding the contemporary antitrust debate. The first is a Brandeisian school, epitomized in the title of Louis Brandeis’ 1914 essay (subsequently made the title of a 1934 collection of his essays) in Harper’s Weekly: A Curse of Bigness.[19] Arguing for “regulated competition” over “regulated monopoly,” Brandeis asserted that it was necessary to “curb[] physically the strong, to protect those physically weaker” in order to sustain industrial liberty.[20] Brandeis evoked a Jeffersonian vision of a social-economic order organized on a small scale, with atomistic competition between a large number of equally advantaged units. In particular, he criticized industrial consolidation on economic, social, and political grounds.[21] As explained in a dissenting opinion by William O. Douglas in the 1948 case of United States v. Columbia Steel Co., Brandeis worried that “size can become a menace—both industrial and social. It can be an industrial menace because it creates gross inequalities against existing or putative competitors. It can be a social menace—because of its control of prices.”[22]

The Brandeisian vision held sway in U.S. antitrust law from the Progressive Era through the early 1970s, albeit with significant interruptions.[23] Its spirit animates a long chain of important cases from Chicago Board of Trade[24] in 1918 (authored by Brandeis himself) to Topco in 1972,[25] and a string of Congressional reforms including the Clayton[26] and Federal Trade Commission Acts of 1914,[27] the Robinson–Patman Act of 1938,[28] and the Celler–Kefauver Antimerger Act of 1950.[29]

The ascendant Chicago School of the 1960s and 70s threw down the gauntlet to the Brandeisian tendency of U.S. antitrust law. In an early mission statement, Robert Bork and Ward Bowman characterized antitrust history as “vacillat[ing] between the policy of preserving competition and the policy of preserving competitors from their more energetic and efficient rivals,”[30] the latter being an interpretation of the Brandeis School. Richard Posner struck a similar note in his 1976 book on antitrust, asserting that “the proper purpose of the antitrust laws is to promote competition, as that term is understood in economics.”[31] Chicagoans argued that antitrust law should be concerned solely with economic efficiency and consumer welfare[32] (more on these values in a moment). “Bigness” was no longer necessarily a curse, but often the product of superior efficiency. Chicago criticized Brandeis’ “sympathy for small, perhaps inefficient, traders who might go under in fully competitive markets.”[33] Preserving a level playing field meant stifling efficiency to enable market participation by the mediocre.[34] 

Beginning in 1977–78, the Chicago School achieved an almost complete triumph in the Supreme Court, at least in the limited sense that the Court came to adopt the economic efficiency/consumer welfare model as the exclusive or near-exclusive goal of antitrust law. (Adoption of Chicago School interpretations of consumer welfare and policy positions on particular competitive practices would occur neither immediately nor completely.)[35] In 1979, citing Bork, the Court declared that “Congress designed the Sherman Act as a ‘consumer welfare prescription.’”[36] Over time, the maxim that antitrust law should protect “competition rather than competitors” became canonical.[37] Brandeis had been displaced by Bork.

If the last three or four decades of U.S. antitrust policy have largely belonged to Bork—at least at an ideological level—the Bork-versus-Brandeis dichotomy is far from settled. The voices at the cutting edge of the rising reformist movement—particularly those aligned with the influential Open Markets Institute—explicitly style themselves as a “New Brandeis” school in order to re-up the historic contest between the Brandeisian and Chicago School orders.[38]

 

II. The Lingering Shadows of Jeffersonianism and Hamiltonianism

Although it is conventional to understand Brandeis’s anti-bigness ideology as an aspect of Progressivism standing in contrast to Chicago’s big-business conservatism, the story is historically more nuanced. Brandeis’s preoccupation with “bigness” was not limited to large corporate scale. He was also deeply concerned with large governmental scale generally, and a large-scale federal government in particular. As Jeffrey Rosen has observed, “Denouncing big banks as well as big government as symptoms of what he called a ‘curse of bigness,’ Brandeis was determined to diminish concentrated financial and federal power, which he viewed as a menace to liberty and democracy.”[39] Brandeis styled himself a Jeffersonian, and his ideology resonated with the Jeffersonian preference for small-scale yeomanry and localized political organization.[40]

In lionizing large corporate scale, the Chicago School aligned itself with the Hamiltonian vision for a robustly mercantile society grounded on powerful financial and economic institutions. By doing so, Chicago always risked alienating the libertarian right, with its affinity for Jefferson’s vision for small-scale government and industrial production.[41] Many libertarians have found it hard to attack bloated government without also worrying about bloated business (witness the rise of the Tea Party, which arose in large part as a reaction to corporate bailouts). Influential libertarians like Friedrich Hayek saw a role for antitrust law in curbing monopolistic abuses because they understand unfettered corporate power as a threat to personal liberty.[42]

The divide between the competing Hamiltonian and Jeffersonian ideals on organizational scale and their implications for efficiency and liberty thread through antitrust’s intellectual and ideological history, often disrupting conventional political alignments. Teddy Roosevelt, a deep admirer of Hamilton, was comfortable with large scale in both government and business. Far from a “trustbuster,” Roosevelt opposed breaking up Standard Oil, viewing large aggregations of capital as inevitable and necessary—so long as superintended by a strong federal government.[43] Roosevelt’s affinity for large-scale government and business earned him the epithet of “socialist.”[44] That charge was hyperbolic, but not directionally implausible. In the late nineteenth and early twentieth centuries, American socialists looked with suspicion on the antitrust laws because they viewed the rise of the Gilded Age trusts as salutary stepping stones to government appropriation of the means of production and industry.[45] Socialist Presidential candidate Eugene Debs, himself the defendant in an antitrust prosecution, argued: “Monopoly is certain and sure. It is merely a question of whether we will be collectively owned monopolies, for the good of the race, or whether they will be privately owned for the power, pleasure and glory of the Morgans, Rockefellers, Guggenheims, and Carnegies.”[46]

Conversely, influential conservatives in antitrust’s formative era favored aggressive antitrust enforcement as an antidote to the simultaneous aggrandizement of government and business. In the crucible election of 1912, William Howard Taft argued against Progressive proposals to create a new Federal Trade Commission, asserting that his administration’s aggressive enforcement record demonstrated how traditional prosecutorial and common-law processes could obviate the need to create new large governmental organizations to combat big business.[47] Taft’s pro-enforcement saber rattling reached such a crescendo that Wall Street began to wonder whether Roosevelt might be the candidate more sympathetic to their interests. [48]

The New Deal, too, saw the Democratic Party equivocate between contending Jeffersonian and Hamiltonian impulses on the question of governmental and business scale. The first New Deal period—from 1933 to early 1935—was dominated by the National Industrial Recovery Act (“NIRA”), which encouraged a centralization of both governmental and industrial power.[49] Brandeis led the charge on the Supreme Court to strike down the NIRA in 1935, warning the White House that the Court would not tolerate continued centralization of business or governmental power.[50] From 1935 until the beginning of World War II, the New Deal administration followed a policy of aggressively Brandeisian antitrust enforcement.[51] Then, facing a need to mobilize big business for the war effort, the administration abruptly shifted course and embraced a model of partnership between big government and big business.[52] 

After the war, the perception that industrial concentration in Germany and Japan had fueled the rise of fascism contributed to a two-decade period of intensive antitrust enforcement—particularly against mergers—launched by the Celler–Kefauver Antimerger Act of 1950.[53] Here again, the ideology of the antimonopoly movement was ambiguous in conventional left–right terms. The antimonopolist Senator Kefauver warned that the consequence of further industrial concentration would be government takeover, and that could lead either to fascism, on the one hand, or socialism or communism, on the other.[54] Other proponents of the act argued that the antitrust laws were “one of the greatest bulwarks against Communism,” and that the rising tide of industrial concentration was driving the country toward “collectivism.”[55] It is no coincidence that the most anti-consolidationist statute in American history was passed during the period of the Red Scare.

The ambiguity in the relationship between corporate scale and governmental scale has translated into a historical ambiguity in the politics of antitrust enforcement. Just as the two major contemporary political parties each blend contradictory Hamiltonian and Jeffersonian elements, so too antitrust ideology has not neatly tracked left–right dichotomies. On a statistical basis, civil antitrust enforcement by the government peaked during the conservative Nixon and Ford administrations.[56] The Chicago School rode the wave of Ronald Reagan’s decoupling of the curse of bigness; bigness was a curse in the government only, not in business. But Chicago’s decoupling of the ideological aversion to large scale in government and business is not inevitable and may be, in historical perspective, anomalous. As historian Richard Hofstadter has written, American feelings about large organizational units in government and business have generally tracked in parallel: “From [America’s] colonial beginnings through most of the nineteenth century . . . Americans came to take it for granted that property would be widely diffused, that economic and political power would be decentralized.”[57] The gradual public acceptance of the rise of big business in the twentieth century is attributable in part “to the emergence of countervailing bigness in government and labor.”[58] Historically, it is no anomaly that small-government conservatives would find common ground with Brandeisian progressives in resenting the growth and power of large-scale industrial firms, which are not so easily distinguished from large-scale governmental agencies.

II. The Shifting Meaning of “Monopoly” and Contestation over its Sources

A. What Is a “Monopoly?”

The ideological valence of the antimonopoly principle is ambiguous in contemporary left–right terms, owing in large part to a historical shift in the meaning of the word “monopoly,” particularly in its popular and pejorative senses. Is a monopolist a private firm that corners a market through nefarious, shrewd tactics? If so, the law’s antimonopoly response codes “regulatory” and “interventionist” in left–right terms. Or is a “monopoly” a cronyist intervention by the state to prevent free-market competition? In that case, the antimonopoly principle codes as “deregulatory” and “free market.” Both of these senses of “monopoly” have been used historically, and their contemporary manifestations remain tangled.

The first sense of “monopoly”—of purely private market power—has a long-standing historical resonance. Legal regulation of private monopoly and unfair competition reportedly extends back as far as the Code of Hammurabi.[59] A primordial antitrust case against grain dealers appears in fourth-century B.C. Athens.[60] One finds an antimonopoly sentiment expressed in ninth-century B.C. Chinese thought, on the ground that monopolies increase prices to consumers.[61] A similar sentiment appears in early Islamic law[62] and in a fifth-century decree of the Byzantine Emperor Zeno and the Justinian Code.[63] A generally moralist antimonopoly strand runs through the Christian tradition from the medieval scholastics to the Protestant reformers.[64] The earliest common-law cases vitiating private monopolies date from the fourteenth century.[65]

On the other hand, constitutional historians recognize a long-standing antimonopoly tradition—defined by such attributes as prohibitions on governmental cronyism and special grants of economic privilege—in Anglo-American jurisprudence.[66] Debates over corporate chartering and monopoly pervaded the Founding era and continued through the Jacksonian period and into the corporate liberalizations of the late nineteenth century.[67] Antimonopoly themes played an important role in many of the landmark cases of U.S. constitutional law on such matters as the limits of federal power,[68] states’ impairment of contract obligations,[69] and the reach of the Reconstruction Amendments.[70] Indeed, the constitutional-democratic sense of the antimonopoly tradition predates the American political order, with deep roots in the British common law. Sir Edward Coke argued that all monopolies were against the Magna Carta because they stood against liberty and freedom,[71] and the well-known British Case of Monopolies asserted parliamentary jurisdiction over the grant of monopolies.[72]

Throughout much of the Anglo-American antimonopoly tradition, “monopoly” primarily denoted a governmental grant of an exclusive privilege—a “letter patent” in the sense of the classic common-law case: The Case of Monopolies.[73] Until the late nineteenth century, the American antimonopoly tradition was concerned primarily with governmental cronyism and exclusive privilege. As late as 1878, Thomas Cooley devoted the thrust of his essay on limits to state control of private business to the problem of state-granted monopoly, turning only in the last few pages to the subsidiary problem of “monopolies not created by the legislature.”[74]

Over time, however, the primary legal meaning of “monopoly” has shifted from the government-granted to the purely private. This shift became apparent in U.S. antitrust law in 1943, when, in Parker v. Brown, the Supreme Court held the Sherman Act inapplicable to anticompetitive structures created by state regulation. [75] Parker grew out of the Supreme Court’s post-1937 constitutional jurisprudence rejecting Lochner-era judicial scrutiny of regulatory schemes impairing property or contract rights.[76] Just as the post-1937 constitutional dispensation avoided second-guessing state regulatory judgments in favor of judicially preferred economic theories, so too the courts rejected efforts to use the Sherman Act to the same effect (to the dismay of conservatives, who favored the judiciary as a bulwark against over regulation).

From one perspective, Parker turned the meaning of “monopoly” on its head.[77] Whereas, the primary meaning of “monopoly” in the Anglo-American tradition had been a governmental grant of exclusive privilege—an interference with the natural rights of other market participants—that primary sense of “monopoly” was now to be excluded altogether from the Sherman Act’s antimonopoly legal regime. Only purely private monopolies—the second sense of the word discussed above—would be covered by antitrust.

The Parker doctrine of state-action immunity from antitrust has not developed to immunize state regulation from Sherman Act preemption as strongly as Parker’s language would suggest, and the doctrine’s evolution continues.[78] In the push-and-pull over the doctrine’s boundaries, advocates of the Chicago School’s consumer-welfare approach have been the principal proponents of narrowing state-action immunity on the view that states systematically distort competitive processes for the benefit of rent-seekers.[79] This simultaneously pro-antitrust and deregulatory perspective tracks that strand of the antimonopoly tradition that blames the government for various problems.

A. Are Private Monopolies the Product of Governmental Intervention?

This ambiguity over the meaning of “monopoly” and its attendant legal and policy implications cashes out also in legal and economic discourse over the sources of monopoly power. A neoclassical economic view, today associated with Chicago School ideology, holds that markets are contestable and that any monopoly power gained through anticompetitive means is quickly eroded, but with one important exception: governmentally created entry barriers.[80] If regulation and governmental favoritism are the only important sources of durable monopoly power, then one potential policy response is not to worry about privately acquired monopoly—essentially, to turn the Parker state-action immunity regime on its head and police only state-granted monopolies. But there is another possibility flowing from the opening premise, which is to hold that any observed instances of genuinely durable monopoly power must be owing to some seen or unseen governmental distortion. In this latter view, when what at first blush seems to be purely private monopoly power persists over time, there must be some underlying governmental distortion accounting for it. Then, even committed libertarians should favor antitrust intervention to terminate the monopoly.

This view is not hypothetical; it explains some of the right’s historical affinity for antitrust enforcement despite the right’s otherwise laissez-faire predilections. The clearest case in point is the 1982 consent decree breaking up AT&T.[81] How did the largest antimonopoly corporate break-up in history occur at the hands of the Reagan Administration and its decidedly Chicago School Justice Department?        The answer lies in Assistant Attorney General Bill Baxter’s conviction that AT&T was exploiting its status as a regulated monopolist to stifle competition.[82] What has come to be known as “Baxter’s law” posits that rate-regulated monopolists may extract monopoly profits from vertically integrated markets without running afoul of the “one monopoly profit” theorem.[83] Suspecting government regulation as the deep source of AT&T’s persistent monopolistic behavior, the conservative Reagan Administration was willing to break it up.

Similar suspicions that Big Tech companies, like Google and Facebook, are the monopolistic beneficiaries of subtle governmental cronyism show up today on the political right.[84] That Big Tech tends to be associated politically with the Democratic Party only furthers these perceptions.[85] Those inherently suspicious of governmental interventions in markets may understand Big Tech as the unnatural spawn of governmentally granted privilege and private greed. Conversely, those more sympathetic to governmental intervention may find nothing alarming about the multiple ways in which Big Tech appropriates governmental benefits through such vehicles as intellectual-property law, government subsidies, or the Digital Millennium Copyright Act. But these matters divide the left as well. The Open Markets Institute was forced out of the progressive-leaning New America Foundation over Open Markets’ criticisms of Google.[86] In light of the contestable boundaries of the public–private divide and the shifting meaning of monopoly, it is not surprising to see political alliances fraying over antitrust reform. 

III. Pragmatic Concerns Over Antitrust’s Alternatives and Capitalism’s Survival

A final reason that the politics of antitrust sometimes confound conventional left–right divides has to do with the pragmatic sense that some regulatory interventions may be necessary to preserve capitalism politically, and that antitrust may be the least objectionable one. This “antitrust or else” perspective has characterized the politics of antitrust from the beginning.

The conventional view that Congress intended the Sherman Act to seriously undermine the trusts is balderdash. According to Professor Merle Fainsod and Lincoln Gordon of Harvard University, “[T]he Republican Party, in control of the 51st Congress, was ‘itself dominated at the time by many of the very industrial magnates most vulnerable to real antitrust legislation.’”[87] A more realistic view is that the 51st Congress passed the Sherman Act to avert more radical reforms. Speaking on the Senate floor in 1890, Senator John Sherman warned his brethren, many of whom were controlled by the trusts, that Congress “must heed [the public’s] appeal or be ready for the socialist, the communist, and the nihilist.”[88] Sherman thus conceived of his eponymous antitrust statute as politically necessary to diffuse more radical political movements—as a sort of Band-Aid on capitalism. 

The idea that antitrust legislation and enforcement are necessary accommodations to public demand has a long pedigree in both conservative and more progressive circles. Writing in 1914, William Howard Taft described the Sherman Act as “a step taken by Congress to meet what the public had found to be a growing and intolerable evil.”[89] Notably, Taft did not own the public’s concern himself, nor did he attribute such a concern to Congress. Similarly, Theodore Roosevelt was relatively unconcerned with the trusts personally, but he “saw the trust problem as something that must be dealt with on the political level; public concern about it was too urgent to be ignored [90] 

Beyond the concern that, absent antitrust, capitalism itself might succumb to reformist pressures, there is a more modest possibility that, absent antitrust, political pressures would lead to overregulation. Antitrust and administrative regulation are conventionally viewed as alternatives to address market failures. From the Reagan Administration to the Financial Crisis of 2008, the overall arc of American law involved simultaneous deregulation and relaxation of antitrust enforcement. If popular dissatisfaction with the economic status quo grows, demand might grow to pull either the regulatory or antitrust lever. Those ideologically committed to a light governmental hand on the market might prefer the antitrust alternative.

It is hard to judge at any given moment how much political support for antitrust intervention is motivated by genuine concern over monopoly and competition, and how much of it derives from the fact that, in the face of popular demand for a governmental cure to a perceived evil, it is often easier to delegate the solution to antitrust than to propose a regulatory solution. From the Sherman Act forward, however, it is certain that antitrust has often been deployed as a foil to more interventionist forms of regulation. The ideological and political implications of that move are complex and not neatly housed in left–right categories.

Conclusion

Antitrust is back on the menu. Given the ebb-and-flow patterns of antitrust enforcement in American history, that should come as no surprise. Nor should it be surprising that the pressures for enhanced antitrust enforcement are coming from both wings of the political spectrum, as is the defense of the incumbent consumer welfare regime. Despite the appearance of a conventional left–right divide over antitrust enforcement since the 1970s, in broader historical perspective the ideological lines over monopoly and competition are far less determined.

 

 


    [1] Open Markets, https://perma.cc/G35H-LAFH (last visited Aug 23, 2018). Open Markets was affiliated with the left-leaning New America Foundation, until forced out over Open Markets’s criticisms of Google, a New America patron. Kenneth P. Vogel, Google Critic Ousted from Think Tank Funded by the Tech Giant, N.Y. Times (Aug. 30, 2017), https://www.nytimes.com/2017/08/30/us/politics/eric-schmidt-google-new-america.html.

    [2] U.S. House of Representatives Democratic Leadership, A Better Deal: Crack Down on Corporate Monopolies & the Abuse of Economic and Political Power, https://perma.cc/25G M-QFJX.

    [3] Tess Townsend, Keith Ellison and the New ‘Antitrust Caucus’ Want to Know Exactly How Bad Mergers Have Been for the American Public, N.Y. Mag. (Dec. 4, 2017), https://perma.cc/JE3W-THHS.

    [4]  21st Century Competition Commission Act of 2017, H.R. 4686, 115th Cong. (2017), https://perma.cc/JE3W-THHS; Merger Retrospective Act of 2017, H.R. 4538, 115th Cong. (2017), https://perma.cc/6CW7-QNCC.

    [5] Merger Enforcement Improvement Act, S. 1811, 115th Cong. (2017), https://perma.cc/ H9XS-GSUH.

    [6] U.S. House of Representatives Democratic Leadership, supra note 2.  

    [7] Id.

    [8] Chuck Schumer, A Better Deal for American Workers, N.Y. Times (July 24, 2017), https://www.nytimes.com/2017/07/24/opinion/chuck-schumer-employment-democrats.html (“Democrats have too often hesitated from taking on those misguided policies directly and unflinchingly — so much so that many Americans don’t know what we stand for.”).

    [9] Trump Says Amazon has ‘a huge antitrust problem,’ CNBC (May 13, 2016), https://perma.cc/2SYD-W6HF; Trump’s comments create a lose-lose position for Justice, Wash. Post (Nov. 13, 2017), https://www.washingtonpost.com/opinions/trumps-comments-create-a-lose-lose-position-for-justice/2017/11/13/6fd7b28e-c596-11e7-aae0-cb18a8c29c65_story.html?utm_term=.3fa9eb549b54.

    [10] United States v. AT&T, Inc., 310 F. Supp. 3d 161 (D.D.C. 2018), appeal docketed, No. 18-5214 (D.C. Cir. July 13, 2018).

    [11] Robinson Meyer, What Steve Bannon Wants to Do to Google, The Atlantic (Aug. 1, 2017), https://perma.cc/ZL8L-7URB.

    [12] John Kehoe, Kenneth Rogoff Concerned by the Dark Side of the Technology Revolution, Fin. Rev. (Mar. 9, 2018), https://perma.cc/94G5-HY8W.

    [13] The New Center, Ideas to Re-Center America 10–17, https://perma.cc/L9H6-6QY2.

    [14] Daniel Kishi, Robert Bork’s America, The Am. Conservative (Mar. 1, 2018), https://perma.cc/KD9E-YLGT.

    [15] See generally How The Chicago School Overshot the Mark: the Effect of Conservative Economic Analysis on U.S. Antitrust (Robert Pitofsky ed., 2008) (presenting arguments, generally from “the left,” against reigning Chicago School orthodoxy).

    [16] See Danny Vinik, Inside the New Battle Against Google, Politico (Sept. 17, 2017), https://perma.cc/G9JV-77WL (reporting on resistance to Open Markets’ assault on the consumer-welfare standard by traditionally left-leaning, pro-enforcement groups like American Antitrust Institute and New America Foundation).

    [17] See, e.g.¸ Federalist Soc’y Regulatory Transparency Project, Antitrust & Consumer Protection Working Group, https://perma.cc/JSM3-2NYB (defending the consumer-welfare standard); U.S. Chamber of Commerce, Competition Policy & Antitrust, https://perma.cc/ 52L2-6ZHV (“Antitrust remedies should enhance consumer welfare and make sense in an interconnected world.”).

    [18] See generally Daniel A. Crane & Herbert Hovenkamp, The Making of Competition Policy: Legal and Economic Sources (2013) (summarizing the intellectual influences that have shaped competition policy).

    [19] Louis D. Brandeis, A Curse of Bigness, Harper’s Wkly., Jan. 10, 1914, at 18.

    [20] Louis D. Brandeis, Shall We Abandon the Policy of Competition? (1934), reprinted in Crane & Hovenkamp, supra note 18 at 185. On Brandeis’ influence in antitrust, see generally Kenneth G. Elzinga & Micah Webber, Louis Brandeis and Contemporary Antitrust Enforcement, 33 Touro L. Rev. 277 (2017).

    [21] See Jeffrey Rosen, The Curse of Bigness, The Atl. (June 3, 2016), https://perma.cc/6QQG-GQS5 (summarizing Brandeis’ vision).

    [22] United States v. Columbia Steel Co., 334 U.S. 495, 535–36 (1948) (Douglas, J., dissenting).

    [23] See, e.g., Ellis W. Hawley, The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence 3–16 (1995) (detailing the place of Brandeisian School among prevailing New Deal ideologies).

    [24] Bd. of Trade of Chi. v. United States, 246 U.S. 231 (1918).

    [25] United States v. Topco Assocs., Inc., 405 U.S. 596 (1972).

    [26] Clayton Act, 15 U.S.C. §§ 12–27, 29 U.S.C. §§ 52–53 (2012).

    [27] Federal Trade Commission Act of 1914, 15 U.S.C. § 41 (2012).

    [28] Robinson-Patman Price Discrimination Act, 15 U.S.C. § 13 (2012).

    [29] Act of December 29, 1950 (Celler-Kefauver Antimerger Act), 64 Stat. 1125–26, 15 U.S.C. § 18 (2012).

    [30] Robert H. Bork & Ward S. Bowman, Jr., The Crisis in Antitrust, 65 Colum. L. Rev. 363, 363–64 (1965).

    [31] Richard A. Posner, Antitrust Law: An Economic Perspective ix (1976).

    [32] Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself 9 (1978).

    [33] Id. at 41.

    [34] Id. at 137 (“Any firm that operates excludes rivals from some share of the market. Superior efficiency forecloses. Indeed, exclusion or foreclosure is the mechanism by which competition confers its benefits upon society. The more efficient exclude the less efficient from the control of resources, and they do so only to the degree that their efficiency is superior.”). Years later, as a paid consultant for Netscape against Microsoft, Bork employed the level-playing-field metaphor affirmatively, asserting, “The object is to create a level playing field benefiting consumers. That is what antitrust is about . . . .” Robert H. Bork, What Antitrust Is All About, N.Y. Times, May 4, 1998, at A19. 

    [35] See Daniel A. Crane, Chicago, Post-Chicago, and Neo-Chicago, 76 U. Chi. L. Rev. 1911, 1922 (2009).

    [36] Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (citing Bork, The Antitrust Paradox, supra note 32 at 66).

    [37] E.g., Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225 (1993) (“It is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.’”) (citing Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)).

   [38] David Dayen, This Budding Movement Wants to Smash Monopolies, The Nation (April 4, 2017), https://perma.cc/7ZMB-XHVM; Vinik, supra note 16; see also Matt Stoller (@matthewstoller), Twitter (Jul. 9, 2018, 9:29 AM), https://perma.cc/P22E-U2EY (showing a leading member of Open Markets self-identifying the organization as “neo-Brandeis”).

    [39] Rosen, supra note 21; see also Jeffrey Rosen, Louis D. Brandeis: American Prophet 1 (2016) (discussing Brandeis’ concern with big corporations and centralization of government power under the New Deal).

    [40] Alfred Lief, Brandeis: The Personal History of an American Ideal 478 (1936).

    [41] Rosen, Louis D. Brandeis: American Prophet, supra note 39, at 10–14; see also Albert Joy Nock, Jefferson (1983).

    [42] Ellen Frankel Paul, Hayek on Monopoly and Antitrust in the Crucible of United States v. Microsoft, 1 N.Y.U. J. Law & Liberty 167, 174–80 (2005).

    [43] See Letter from President Theodore Roosevelt to Arthur B. Farquhar (Aug. 11, 1911), in Theodore Roosevelt: Letters and Speeches 652 (Louis Auchincloss ed., 2004).

    [44] Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890–1916, at 344–46 (1988).

    [45] See generally Henry Rand Hatfield, The Chicago Trust Conference, 8 J. Pol. Econ. 1, 4 (1899) (reporting that some socialists favored consolidation as a means to nationalization).

    [46] Eugene V. Debs, A Study of Competition, Appeal to Reason, May 28, 1910, at 2, reprinted in Brett Flehinger, The 1912 Election and the Power of Progressivism 163 (2003).

    [47] Daniel Crane, Progressivism and the 1912 Election, in Crane & Hovenkamp, supra note 18, at 104–05.

    [48] Id. at 106.

    [49] Hawley, supra note 23, at 43–46.

    [50] Shortly before voting to strike down the NIRA in the Schechter Poultry and Panama Refining decisions, Brandeis conveyed the following message to the White House: “This is the end of this business of centralization, and I want you to go back and tell the President that we’re not going to let this government centralize everything. It’s come to an end.” Peter H. Irons, The New Deal Lawyers 104 (1982).

    [51] Hawley, supra note 23, at 360.

    [52] Richard M. Steuer & Peter A. Barile, Antitrust in Wartime, Antitrust, Spring 2002, at 72–73 (reporting the government’s suspension of major antitrust prosecutions during World War II).

    [53] Robert Pitofsky, The Political Content of Antitrust, 127 U. Pa. L. Rev. 1051, 1053–54 (1979).

    [54] 96 Cong. Rec. 16,452 (1950) (statement of Sen. Kefauver).

    [55] Herbert Hovenkamp, Distributive Justice and the Antitrust Laws, 51 Geo. Wash. L. Rev. 1, 25 (1982) (quoting House and Senate debates).

    [56] Daniel A. Crane, The Institutional Structure of Antitrust Enforcement 36–37 (2011).

    [57] Richard Hofstadter, What Happened to the Antitrust Movement (1964), reprinted in Crane & Hovenkamp, supra note 18, at 227.

    [58] Id. at 238.

    [59] Fritz Machlup, The Political Economy of Monopoly: Business, Labor and Government Policies 185 (1952).

    [60] Lambros E. Kotsiris, An Antitrust Case in Ancient Greek Law, 22 Int’l Law. 451, 454–55 (1988).

    [61] 2 Chen Huan-Chang, The Economic Principles of Confucius and His School 535 (1911).

    [62] Arvie Johan, Monopoly Prohibition According to Islamic Law: A Law and Economics Approach, 27 Mimbar Hukum 166, 167 (2015), https://perma.cc/24W9-V2BX (“Whoever withholds food (in order to raise its price), has certainly erred.” (citation omitted)).

    [63] Code Just. 4.19.25, in 13 S. P. Scott, The Civil Law 120 (2d ed. 1932) (prohibiting monopolies and cartels upon pain of confiscation and banishment).

    [64] See Kenneth Elzinga & Daniel A. Crane, Christianity and Antitrust, in Daniel A. Crane & Samuel Gregg, Christianity and Economic Regulation (forthcoming Cambridge University Press) (on file with author).

    [65] William L. Letwin, The English Common Law Concerning Monopolies, 21 U. Chi. L. Rev. 355, 356–58 (1954).

    [66] See, e.g., Steven G. Calabresi & Larissa C. Leibowitz, Monopolies and the Constitution: A History of Crony Capitalism, 36 Harv. J.L & Pub. Pol’y 983, 985–86 (2013); Michael Conant, Antimonopoly Tradition under the Ninth and Fourteenth Amendments: Slaughter-House Cases Re-Examined, 31 Emory L.J. 785, 789–90, 797–800 (1982); Kenneth Lipartito, The Antimonopoly Tradition, 10 U. St. Thomas L.J. 991, 991 (2013).

    [67] Daniel A. Crane, Antitrust Antifederalism, 96 Cal. L. Rev. 1, 1–5 (2008).

    [68] McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 365, 378 (1819).

    [69] Charles River Bridge v. Warren Bridge, 36 U.S. (11 Pet.) 420, 451–52 (1837).

    [70] Slaughter-House Cases, 83 U.S. 36, 64–66 (1872).

    [71] Edwardo Coke, The Third Part of the Institutes of the Laws of England: Concerning High Treason, and Other Pleas of the Crown and Criminal Causes 181 (1817).

    [72] Darcy v. Allein (The Case of Monopolies) (1603) 77 Eng. Rep. 1260, 1264–65, 11 Co. Rep. 84b, 86b–87b.

    [73] See Edward S. Mason, Monopoly in Law and Economics, 47 Yale L. J. 34, 44 (1937) (discussing a shift in meaning of the word “monopoly,” from “an exclusion of others from the market by a sovereign dispensation in favor of one seller” to a “broad sense of restriction of competition”).

    [74] Thomas M. Cooley, Limits to State Control of Private Business, reprinted in Crane & Hovenkamp, supra note 18, at 67.

    [75] 317 U.S. 341, 350–51 (1943).

    [76] Daniel A. Crane & Adam Hester, State-Action Immunity and Section 5 of the FTC Act, 115 Mich. L. Rev. 365, 370–73 (2016).

    [77] Richard A. Epstein, The Narrow Province of the Antitrust Laws, Or, Doing a Few Things Well, Presentation Before the Institute for Consumer Antitrust Studies, (1997), in 9 Loy. Consumer L. Rev. 113, 125 (“What happens [under Parker] is that this legal regime marks a complete inversion of the proper approach. State-sponsored cartels in the aftermath of the New Deal legitimation are more permanent and more dangerous than privately-operated ones, but they are given complete immunity from the antitrust act.”).

    [78] Crane & Hester, supra note 76, at 365–76.

    [79] Id. at 366–70 (arguing for a more preemptive role for the FTC Act over anticompetitive state regulations that harm competition and consumer welfare); Frank H. Easterbrook, Antitrust and the Economics of Federalism, in Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy 189–213 (Richard A. Epstein & Michael S. Greve, eds., 2004) (proposing a modification to Parker immunity doctrine to curb excesses of state anticompetitive regulation); Frank H. Easterbrook, The Chicago School and Exclusionary Conduct, 31 Harv. J. L. & Pub. Pol’y 439, 446–47 (2008) (discussing Robert Bork’s concern about use of government as an agent of exclusion); Richard A. Epstein & Michael S. Greve, Introduction: The Intractable Problem of Antitrust Jurisdiction, in Competition Laws in Conflict, supra note 80, at 13 (describing the Parker doctrine as enabling mutual exploitation of citizens by the states).

    [80] See Bork, The Antitrust Paradox, supra note 32 at 347–64 (examining predation through governmental process, which Bork described as a serious and growing problem); Milton Friedman, Capitalism and Freedom 129–31 (2d ed. 1982) (discussing the problem of government-created labor monopolies); Howard P. Marvel, Hybrid Trade Restraints: The Legal Limits of a Government’s Helping Hand, 2 Sup. Ct. Econ. Rev. 165, 180 (1983) (“Government may or may not be the source of all monopolies; it is clearly at the heart of a substantial number of monopolies.”); Stephen A. Siegel, Understanding the Lochner Era: Lessons from the Controversy Over Railroad and Public Utility Rate Regulation, 70 Va. L. Rev. 187, 202–03 (1984) (examining the neoclassical view that only monopolies created by law are durable).

    [81] United States v. AT&T, Inc., 552 F. Supp. 131 (D.D.C. 1982).

    [82] Lawrence A. Sullivan & Ellen Hertz, The AT&T Antitrust Consent Decree: Should Congress Change the Rules?, 5 High Tech. L. J. 233, 238 (1990).

    [83] William F. Baxter, Conditions Creating Antitrust Concern with Vertical Integration by Regulated Industries––“For Whom the Bell Doctrine Tolls”, 52 Antitrust L. J. 243 (1983); see generally Einer Elhauge, Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harv. L. Rev. 397, 403 (2009) (“The single monopoly profit theory holds that a firm with a monopoly in one product cannot increase its monopoly profits by using tying to leverage itself into a second monopoly in another product.”); Tim Wu, Intellectual Property, Innovation, and Decentralized Decisions, 92 Va. L. Rev. 123, 138–39 (2006) (explaining that the doctrine described by William Baxter is referred to as Baxter’s Law).

    [84] E.g., Seton Motley, Democrats Want Big Government Crony Socialism—Why Are Some Republicans Giving It to Them?, Red State (July 8, 2015, 10:13 AM), https://perma.cc /PVU7-39WD.

    [85] See Ryan Grim, Steve Bannon Wants Facebook and Google Regulated Like Utilities, The Intercept (July 27, 2017, 12:31 PM), https://perma.cc/TB99-MEB7; Farhad Manjoo, Silicon Valley’s Politics: Liberal, With One Big Exception, N.Y. Times (Sept. 6, 2017), https://www.nytimes.com/2017/09/06/technology/silicon-valley-politics.html.

    [86] See supra note 1.

    [87] William J. Letwin, Congress and the Sherman Act: 1887–1890, 23 U Chi. L. Rev. 221, 221 (1955) (quoting Merle Fainsod & Lincoln Gordon, Government and the American Economy 450 (1941)).

    [88] 21 Cong. Rec. 2454, 2460 (1890).

    [89] William Howard Taft, The Anti-Trust Act and the Supreme Court 2 (1914).

    [90] Hofstadter, supra note 57, at 231–32.

Regulation and Deregulation: The Baseline Challenge

Introduction

What does it mean to deregulate? Is deregulation just about the repeal of existing rules? In a closed and static system, this definition seems apt. But what if the bounds are porous? Or the internal workings of the system are dynamic? Once a system is structured to allow the option set to change, do the proscriptions embedded in law at Time A remain the appropriate baseline? Or should the baseline evolve, recreating the balance struck at Time A given the option set that exists at Time B? What if the reasons for the balance struck at Time A are myriad, and drawing a line at Time B requires some values to be sacrificed to protect others? What if jurisdictional or other logistical challenges preclude replicating Time A’s line at Time B? Is the expectation of such challenges a reason to limit dynamism?  Should it matter whether the innovations underlying the dynamism enhance welfare in ways unrelated to the regulatory regime?

These questions are core to Professor Paul Mahoney’s thoughtful critique of the deregulation hypothesis, that is, the claim that the 2007–2009 financial crisis was a byproduct of deregulation in the period leading up to it.[1] They also illuminate why the debate over the deregulation hypothesis remains important. The issue is not just about allocating blame for a crisis that erupted a decade ago, though there is plenty of that in these discussions. Nor can the conflicting views on the deregulation hypothesis be reduced to one’s priors about whether the government or the market is to blame when things go wrong, though these predispositions too trickle in. Rather, the important and contested question at the core of the ongoing debate about the role of deregulation in contributing to the financial crisis is what it means to regulate.

Advocates of the deregulation hypothesis typically highlight the ways that finance changed in the decades leading up to the crisis. Gone, or at least radically diminished, are the small, boring banks that dominated the U.S. landscape for most of the twentieth century. The three decades leading up to the crisis witnessed a dramatic rise in the concentration of banking assets among a small number of ever larger and more complex banking organizations.[2] At the same time, thanks to the rise of securitization and derivatives, financial instruments and the markets in which they traded became increasingly complex, interconnected, and opaque.

Prominent legal academics, like Professors Lynn Stout and Arthur Wilmarth, and economists, like Professors Simon Johnson and Joe Stiglitz, view these changes as central to the crisis and as byproducts, at least in part, of deregulatory maneuvers in the decades before the crisis.[3] Mahoney’s rebuttal does not deny these radical changes, but rather emphasizes that many of these developments, and the dramatic increase in the issuance of subprime mortgages, would likely have occurred even without Congress smoothing the way for commercial banks to engage in investment banking and for derivatives to spread unregulated.[4] His account instead places the emphasis on innovation, spurred by macroeconomic developments that undermined the viability of the small commercial banks and thrifts, in contributing to these changes.[5]

The two sides in this debate are thus effectively talking past each other. Mahoney shows that subprime lending and securitization were already allowed;[6] defenders of the deregulation hypothesis argue that the expansion of banks into trading and other investment banking activities fundamentally altered their risk appetites and culture in ways that were critical to the excesses that followed.[7] Mahoney focuses on the state of the law just before Congress adopted the two critical acts;[8] deregulation’s critics view these acts of Congress as emblematic of an overall deregulatory posture that also pervaded regulators and courts, and thus degraded the law even before Congress intervened.[9] He argues that competitive pressures from new innovations and high inflation undermined the viability of the old model of banking;[10] they view the decision to allow such innovation as further evidence of an overall deregulatory stance and a failure to fully enforce the spirit of laws meant to keep banking boring.[11]

The difficult truth is that both sides are right. Mahoney’s core contribution is to reveal the danger of nostalgia. Finance, at least in the United States, has long been dynamic, responsive to regulation and macroeconomic developments alike. The stability the United States enjoyed for much of the twentieth century was due both to repressive regulation and a favorable macroeconomic climate. Reinstituting the former would not necessarily bring about the latter, and might well just invite greater gamesmanship. We forget this at our peril.

At the same time, critics of deregulation and others are drawing attention to the importance of understanding the myriad mechanisms through which law shapes the structure and resilience of the financial system.[12] Laying the demise of the twentieth century Quiet Period entirely at the feet of macroeconomics and market forces without acknowledging the way the law contributed to changes in the competitive playing field could lead to similarly misguided policy prescriptions.

That this dialogue is framed as a fundamental disagreement about deregulation reveals very different understandings regarding the initial balances struck in the regimes that were subsequently changed. There is, in short, no agreement about the correct baseline. To simplify: Defenders of the deregulation hypothesis implicitly assume that the law should evolve to protect the fundamental values it protected at Time A or it should find a way to outlaw change. It is spirit, not substance, that counts. When an environment is dynamic, even static rules can be deregulatory in effect. In contrast, Mahoney and critics of the deregulation hypothesis assume that the law as written at Time A remains the relevant baseline at Time B, regardless of the changes that have occurred or the reasons for those changes.  The debate about deregulation matters today not because it reveals a fundamental tension between a static legal regime and a dynamic environment. Determining when a change in the law is merely updating the rules of the game to maintain the status quo in a new environment, or is instead changing the rules of the game, has important implications for the type of processes that ought to accompany the action. Digging into the baseline problem further reveals how failures to update the law can also be deregulatory in effect, and thus might merit closer scrutiny than such inaction often receives.    

Given the broad range of issues addressed by Mahoney and advocates of the deregulation hypothesis, this Essay will not try to tackle them all. Rather, it uses the disintegration of the Glass–Steagall divide between investment and commercial banks ––what steps along this path are appropriately characterized as deregulatory and the myriad rationales for this type of structural separation––to illuminate the core tensions. This focus is also quite relevant to policy debates today, as there is now a renewed interest in structural divides of the type embodied in Glass–Steagall, both within banking and beyond. The Essay concludes with some thoughts about how financial regulation can best incorporate the insights from both sides of this debate.

I. What it means to deregulate

The rise of money market mutual funds as a competitor for banks provides a nice starting point for thinking through the challenge of disentangling deregulation from changes external to the regulatory regime. In a Section titled, “Market Forces and the End of Interest Rate Caps,” Mahoney provides a now-familiar account of the ways the rise of interest rates in the 1970s strained banks along numerous dimensions.[13] A core challenge was how to hold on to deposits. Until that time, Glass–Steagall limited the interest rate a bank could pay on deposits. This was embodied in Regulation Q.[14] This was but one element of an overall repressive financial regime. One way of understanding Glass–Steagall (and there are many)[15] is that it simultaneously handicapped and advantaged commercial banks and thrifts, on the one hand, and investment banks, on the other, by providing each domains where they were effectively free from competition from the other.[16] As a result of a mixture of state and federal laws, for much of the twentieth century, banks were small, local enterprises that compensated for shortcomings in scale and scope by dominating the domains where they were active.[17]

Most importantly, banks dominated the issuance of private money-like assets.[18] Recent empirical literature demonstrates the strong demand for these types of assets, as evidenced by investors’ willingness to pay a premium for financial instruments that have some degree of “moneyness.”[19] Thus, although Regulation Q helped reduce competition among banks, it was banks’ status as the primary source of private money that was key to allowing them to attract and retain deposits while paying relatively little, and often no, interest on those accounts. This was critical to the profitability of banks, which at the time was largely the difference between the interest they earned on outstanding loans and the interest they paid to depositors. As Professor Gary Gorton, among others, has argued, the profitability enabled by cheap financing made bank charters valuable and bank owners risk averse. This is a key factor, even if not the only one, in helping to explain the Quiet Period.   

The introduction of money market mutual funds, which Mahoney aptly describes as “an attractive and intuitive alternative to checkable bank deposits,”[20] was thus a watershed moment in “financial structure law”—one that fundamentally disrupted a core component of a regime that had allowed small, boring banks to thrive.[21] The challenge, for both Mahoney and those who advocate the deregulation hypothesis, is that the decline in bank charter value, and the increased competition banks faced on numerous dimensions, is overdetermined.[22]

Mahoney’s focus is on the challenge posed by soaring interest rates. In an environment with money market mutual funds, that is, in an environment where firms and individuals could get a more competitive interest rate, without sacrificing the “moneyness” they held dear, it was extremely challenging for banks to retain sufficient deposits and comply with Regulation Q.[23] Mahoney explains how banks fought back, developing a new form of account meant to compete with money market mutual funds, and how Congress allowed banks to experiment and innovate to stave off this new form of competition.[24] But in his account, the rise of money market mutual funds was antecedent to, rather than part of, the deregulatory modus operandi that preceded the 2007–2009 financial crisis.[25]

One could just as easily spin a very different narrative from the same set of developments by emphasizing the myriad ways that regulators paved the way to allow nonbanks to issue private money. The most obvious way that regulators helped money market mutual funds become direct competitors for bank deposits was the decision by the Securities and Exchange Commission allowing these funds to use a net asset value (NAV) of $1.00, even when the value of the underlying assets fluctuated, making shares more money-like.[26] But other actors also played a role. States, for example, have long prohibited nonbanks from engaging in the business of banking[27] and frequently take the position that accepting deposits is a defining feature of banking.[28] Although some states challenged money market mutual funds and the suite of services that investment banks increasingly offered in conjunction with such funds, none ultimately prevented the spread of the funds.[29]

Most relevant, given Mahoney’s framing, is the question of whether the issuance of money market mutual funds violated the Glass–Steagall separation of investment and commercial banking. Many contemporaries thought so. As James Butera explained at the time,

Glass–Steagall is a two way street in that it not only restricts the securities activities of commercial banks, but circumscribes as well the bank-like activities of securities firms. In particular, Section 21 of the Act prohibits a securities firm [and the like] . . .from engaging . . . ‘to any extent whatever in the business of receiving deposits.’[30]

John Adams similarly opined at the time that regardless of the normative questions of whether money market mutual funds should be allowed, allowing money market mutual funds to use a $1.00 NAV, and provide features like check writing and free credit balances crossed the line at the heart of the Glass–Steagall regime.[31] Paul Volcker, then at the Federal Reserve, recalls readily recognizing money market mutual funds as “a clear instance of regulatory arbitrage,”; in his view, they were a product specifically designed to “skirt banking regulations.”[32] Ultimately, the Justice Department decided that money market mutual funds were permissible and Congress decided not to adopt proposed legislation that would have subjected money market mutual funds to reserve requirements akin to those imposed on banks. But that the entry of these funds disrupted the Glass–Steagall balance was quite clear even at the time.[33]

This version suggests that the growth of money market mutual funds, in forms that made them ready substitutes for bank deposits, was not external or antecedent to the tearing down of the Glass–Steagall wall but in fact core to that process.  Putting these two stories alongside each other shows why Gorton (among many others) is of the view that “competition and deregulation” worked together to undermine bank profitability during this period.[34]

II. Why the characterization matters

When one moves from the details to the bigger picture, there are important commonalities in the various depictions of the three decades leading up to the crisis. Most recognize that innovation and macroeconomic developments strained a repressive regulatory regime that had given both banks and investment banks domains in which they could flourish largely protected from competition by the other. And there is general agreement that in response to these developments, Congress and regulators faced a choice: double down on that regime or move away from it. They chose the latter. But despite this level of agreement, the narratives each side tells remain quite different.

Mahoney grounds the end of the Quiet Period in a macroeconomic climate that virtually ensured the demise of the particular model of banking that pervaded during the Quiet Period. As he rightly points out, the increasingly global nature of financial markets during this time further undermined the oligopoly local banks once enjoyed over the process of private money creation, and investors may have been willing at times to hold non-money-like assets in lieu of bank deposits if the costs of deposits was too dear.[35] Other innovations, from sale and repurchase agreements to asset-backed commercial paper, would likely have undermined banks’ monopoly over private money creation even without the advent of money market mutual funds unless the repressive dimensions of the prior regime had been expanded significantly. Mahoney’s account thus successfully casts doubt on the viability of any effort to try to recreate the Quiet Period by reintroducing a far more repressive approach to financial regulation and money creation.[36]

Just as importantly, even when it succeeded in bringing about stability, the structural limitations imposed on banks and other types of financial institutions in the United States had real costs.[37] Mahoney’s account provides an important reminder that, when undertaking financial structure law, lawmakers’ options are inherently constrained by the building materials and macroeconomic conditions they are facing. Attempts to shape the financial markets without understanding those constraints can bring about unintended consequences that run counter to desired aims.[38]

At the same time, something is lost in the refusal to recognize the regulatory decisions and legislative failures to act that contributed to the erosion of a powerful structural separation as part of (rather than merely antecedent to) deregulation. It is precisely because macroeconomic developments and innovation can be expected to test and push against the balance struck in any financial regulatory regime that a theory of deregulation that focuses solely on major repeals by Congress misses the boat. Absent static conditions, even static rules can be deregulatory in effect. This is particularly true in finance, where so much innovation entails efforts to replicate a regulated activity in a form that is just outside the regulatory perimeter.

This is the baseline problem. In a static world, Mahoney’s definition suffices. But as he himself emphasizes, financial markets are neither static nor closed, and he is not suggesting that they ought to be. Whether to characterize the actions facilitating the growth of money market funds as deregulatory matters because deregulation implies a change in the existing regulatory regime.  Just as importantly, the conflicting views of how best to characterize the actions and inactions that allowed money market funds to flourish suggests very different views of how best to characterize the hypothetical alternative path in which regulators had sought to protect banks’ control over private money creation. 

The United States legal system rests on the assumption that changing the law is different than updating the law to address new circumstances. Changes in the law generally require approval by both Houses of Congress and the President.  In contrast, applying existing law in a new way because novel circumstances necessitate evolution is something that trial courts do daily. This characterization has important implications for the range of actions that regulators can take without going back to Congress. One reason to delegate lawmaking to regulatory bodies is     to give technocratic bodies the authority to update the law in a         timely fashion when industry-specific developments so warrant.[39] When agencies are instead changing the law in a fundamental way, this is the type of action that merits Congressional attention.[40]

The aim here is not to suggest that the baseline used for legal purposes is the right baseline for policy purposes; it often is not. Rather the point is to emphasize the importance of the baseline issue. Underlying these distinctions is a normative assumption that rule changes merit broad-based engagement and debate; application of established principles to new circumstances does not. To put this distinction into practice, however, requires a common understanding of when the law is changing. In Mahoney’s account, the Gramm–Leach–Bliley Act contributed little to the recent crisis precisely because the divide separating investment and commercial banking had eroded long before its passage.[41] Rather than resolving the truth (or error) in the deregulation hypothesis, his careful analysis brings to the fore the importance of understanding the nature of the original balance struck in Glass–Steagall and the myriad actions that led to its demise. If earlier decisions were in fact critical in undermining the balance embodied in Glass–Steagall, this begs the question of why there was not more democratic engagement in those decisions.

To return to the opening framing of the issue, inherent in the debate about deregulation are very different understandings of which actions are protecting the status quo and which actions are changing it. Those who take a more expansive view of the role of deregulation in leading to the crisis often implicitly ground their analysis in a broader understanding of the range of regulatory actions and inactions that were in fact deregulatory. These different views can largely be attributed to different understandings of the nature of the original regulatory scheme and what it means to alter or preserve it in the face of changing circumstances.

The reason neither position is fully satisfying is that there is no single right answer to this quandary. The changed circumstances that are center stage in Mahoney’s account precluded replicating the previous protections granted to banks without simultaneously implementing a far more repressive financial regime. Decisions had to be made one way or the other. To do nothing would have been a choice to allow the regime to erode, but to defend the regime would also have required new judgments. We have no good paradigm for understanding how the law should evolve, or what the process for evolution ought to look like, when the law itself has helped spur the dynamism now demanding a response and the multifactor balance the law previously embodied cannot be replicated in the new environment.

III. Rules and the Reasons for Them

Having established why the baseline matters and why it is so difficult to establish in the face of change, the question is where do we go from here. If the question at issue was merely one of statutory interpretation, rather than how best to regulate finance, we would have familiar frames in which to ground our analysis, from purposivism to textualism. At the other end of the spectrum, if we resided in an economist’s dream world, we might have perfect alignment between policy aims and tools, with no overlap or deficiencies, and at least one tool for each aim.[42] But we cannot construct reality to fit models any more than we can use purely legalistic thinking to answer pressing policy questions.

The reasons for most laws are numerous, and this is no less true in finance. Moreover, because of the inherent endogeneity between the legal regime and the financial system that emerges from it,[43] and the inevitably incomplete information that shapes policy decisions in this domain, rationales too can evolve over time. Again, the Glass–Steagall separation between investment and commercial banking is illustrative. One view, reflected in the work by Gorton, is that in protecting banks from both external competition and vigorous competition with each other, the regime made bank charters valuable and thus made bank managers and shareholders more risk averse.[44] Few think this could be readily recreated today. Other rationales have also been questioned. For example, a core concern animating Senator Carter Glass was that conflicts of interests would cause commercial banks to underwrite low-quality securities, a proposition challenged by subsequent empirical work on the activities of universal banks prior to the passage of the Glass–Steagall Act.[45]

 Nonetheless, the debate about whether to use structural separations to limit the scope of banks remains alive and well. This is both because the aims the structural separation was meant to achieve were diverse and because that separation proved to have benefits (and costs) beyond those envisioned by its promoters. According to Professor Adam Levitin, for example, the “unintended genius of Glass-Steagall” was that in “splitting up the financial services industry into commercial banks, investment banks, and insurance companies, Glass-Steagall broke up the political power of the financial services industry.”[46] What Levitin’s frame highlights is that once we recognize financial markets and regulation to both be inherently dynamic, setting up a structure that allows for a fair fight among informed and well-financed participants may be the best way to ensure the system will continue to evolve in ways that are not overly beholden to any one of these groups.

Others have similarly suggested that there may have been great virtues in Glass–Steagall that were not fully apparent until in was gone. Professor Joseph Stiglitz has argued “[t]he most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture.”[47] As he explains it,

[c]ommercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking.[48]

In a similar spirit, Professor John Coates has argued that the Volcker Rule’s[49] prohibition on proprietary trading is better understood as a structural law intended to change the culture of banks than a mere activities restriction meant to curb risk taking.[50]

The culture issue is interesting because a wide swath of policymakers are paying increased attention to the important role that bank culture can play in the success of any regulatory effort, whether aimed at stability or consumer protection.[51] Nonetheless, culture is difficult to regulate directly. As Professor Larry Lessig long ago highlighted, social meanings are constructed, dynamic, and shaped by law, but that does not mean lawmakers have the power to dictate or control social meaning.[52] When seeking to alter the social meaning of a behavior (or the culture that permeates an institution), lawmakers will often have to think creatively and expansively about the interventions most likely to bring about the desired effect. 

Whether Glass–Steagall should be reinstated is beyond the scope of this Essay, just as it is outside Mahoney’s critique of the deregulatory hypothesis. Like Mahoney, I am skeptical that reinstituting a hard separation between banks and investment banks is the best path forward. But that view is tangential to my analysis, as it is to his. The core point here is to acknowledge the difficulty of updating any balance struck at a particular point in time, under particular circumstances. New developments may well cast doubt on the original rationales or undermine the capacity of chosen tools to accomplish desired aims, but they can also yield new insights into the benefits of particular types of interventions.

IV. Looking ahead

The analysis here may seem to do little more than problematize any effort to sort out a root cause of the financial crisis. But, in muddling through the shortcomings of both the deregulatory narrative and Mahoney’s rebuttal, and in exploring the mismatch between the dynamism inherent in finance and a legal system that tends to focus on form over context, the analysis also lays the groundwork for addressing these procedural shortcomings. 

At the core, the baseline problem reveals the need for a more robust and ongoing discussion about the myriad aims a regulatory regime is designed to further and the various mechanisms through which it is expected to further those aims. Absent a static environment, a legal scheme will change in substance even if not in form. This means that even inaction can be deregulatory. A flipside is that actions that appear to be regulatory, in the sense of imposing new or heightened obligations on parties or by nominally expanding restrictions, may in substance be doing little more than updating the form of the regime to maintain the original balance struck. As reflected in the discussion of the Glass–Steagall divide between banks and investment banks, experience may reveal both advantages and disadvantages that could not have been known in advance. But as that discussion further reveals, there is no built-in mechanism for assessing such benefits and drawbacks other than moments when there are proposals to change the form of the law. This is reflected in the fact that most of commentators singing the praises of the unexpected benefits were doing so only after the crisis, but it also comes through in the slow degradation of the Glass–Steagall divide in the decade prior to the passage of Gramm–Leach–Bliley. The analysis here thus suggests the value of institutionalizing review of how a particular regime is working and the changes that may be undermining or enhancing its efficacy without waiting for a crisis or a major legislative change to prompt consideration.

The analysis here also has important implications for the scope of such review.   The discussion of culture, for example, demonstrates not only the importance of ongoing learning, but also the value of thinking creatively about the relationship between means and ends. Currently, at the one point when rigorous assessment is often formalized—the adoption or modification of a regulation—the analysis is often cramped into a cost-benefit analysis that is not only speculative but requires these types of dynamics to be collapsed into a paradigm ill suited to reveal what is at stake.[53] A far more expansive approach is needed. 

The analysis also provides yet another reminder of the challenges that arise from the financial regulatory architecture in the United States. In an environment where a decision by a market regulator can have first-order implications on the viability of banks under the purview of prudential regulators, there is a need for alternative institutions or mechanisms that can take a more global view. The Financial Stability Oversight Council and the Office of Financial Research, both still relative newcomers to the stage, are theoretically well positioned to play this type of role.[54] They cannot do so, however, without broad support and leadership from a Treasury secretary who recognizes the need for an expansive lens when assessing the relationships among innovation, legal change, and aims like systemic resilience.[55]

Clarifying aims and their relationship to tools is not meant here to serve as a straitjacket. Lawmaking is a messy process and efforts to flatten multifaceted regimes into two dimensions are destined to elide core tradeoffs. It instead can serve as a prism to shape ongoing learning, encouraging rigorous analysis of whether a law is achieving its intended aims and the tradeoffs at stake in using a particular tool. The aim here is to enable a richer and more multidimensional learning process than a tool like cost-benefit analysis can provide. And it draws attention to the need for rigorous examinations to occur more frequently, and with broader input across the regulatory spectrum.

The effort to try to clarify and refine understandings of what a regulatory regime is meant to achieve and how it is meant to achieve that aim could help to address the core tensions in the ongoing debate about the deregulation hypothesis. Even when contested and plural, these frames can serve as the elusive baseline needed to understand whether a changed environment in fact caused a finely wrought balance to shift, and it can help to inform how policymakers should respond given such developments. Although laying out the details for how to institutionalize these types of changes is beyond the scope of this Essay, Mahoney’s thoughtful Article serves as a wonderful prompt for examining the significant shortcomings of the current regime and the value of doing better.

Conclusion

Ultimately, Professor Mahoney’s critique of the deregulation hypothesis works, even if not quite in the way he intends. In his willingness to both grapple with detail and take a big-picture view, Mahoney provides the material needed to understand why any effort to paint the crisis as solely the product of regulation, deregulation, innovation, or changing macroeconomic conditions is going to elide other critical elements. In financial markets and financial regulation, these forces are constantly feeding on and shaping each other. It is these interactions that produce, reproduce, and change the financial system. For regulation to succeed, it must embrace and build on an understanding of the richness of these dynamics.

 


[1] Paul G. Mahoney, Deregulation and the Subprime Crisis, 104 Va. L. Rev. 233, 236 (2018).

[2] Jeffrey N. Gordon & Kathryn Judge, The Origins of a Capital Market Union in the United States 9 (Columbia Law Sch. Ctr. for Law & Econ. Studies, Working Paper No. 584, 2018), https://perma.cc/8EZS-LZM6.

[3] See, e.g., Lynn A. Stout, Derivatives and the Legal Origin of the 2008 Credit Crisis, 1 Harv. Bus. L. Rev. 1, 1–5 (2011); Arthur E. Wilmarth, Jr., The Road to Repeal of the Glass-Steagall Act, 17 Wake Forest J. Bus. & Intell. Prop. L. 441, 444 (2017); Simon Johnson, The Quiet Coup, The Atlantic (May 2009), https://perma.cc/YEE3-3W67; Joseph E. Stiglitz, Capitalist Fools, Vanity Fair Hive (Dec. 9, 2008), https://perma.cc/QEN3-UKKV.

[4] Mahoney, supra note 1, at 236–37.

[5] Id. at 286–89.

[6] Id. at 252.

[7] E.g., Stiglitz, supra note 3 (“The most important consequence of the repeal of Glass-Steagall was indirect – it lay in the way repeal changed an entire culture.”).

[8] Mahoney, supra note 1, at 252–53, 265–70.

[9] See, e.g., Thomas Philippon & Ariell Reshef, Wages and Human Capital in the U.S. Financial Industry: 1909-2006, 127 Q J. Econ. 1551, 1578 fig.8 (2012) (developing a deregulation index and showing that over the past century, deregulation increased starting in the 1970s and continuing virtually unabated until leveling off a few years before the crisis at a higher level of deregulation than at any point in the preceding century); Wilmarth, supra note 3, at 491.

[10] Mahoney, supra note 1, at 237.

[11] See, e.g., Stout, supra note 3, at 1–5; Stiglitz, supra note 3 (“As we stripped back the old regulations, we did nothing to address the new challenges posed by 21st-century markets.”).

[12] Stout, supra note 3, at 3–4; Wilmarth, supra note 3, at 443–45; see also Jeffrey N. Gordon, The Empty Call for Benefit-Cost Analysis in Financial Regulation, 43 J. Legal Stud. S351 (2014); Kathryn Judge, Investor-Driven Financial Innovation, 7 Harv. Bus. L. Rev. (forthcoming 2018) [hereinafter Judge, Investor-Driven Financial Innovation]; Katharina Pistor, A Legal Theory of Finance, 41 J. Comp. Econ. 315 (2013); Gordon & Judge, supra note 2.

[13] Mahoney, supra note 1, at 286.

[14] 12 C.F.R. § 217.1 (2010). Regulation Q’s prohibition on interest-bearing demand deposit accounts was effectively repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 627, 124 Stat. 1640 (2010).

[15] See infra Part III.

[16] Gordon & Judge, supra note 2, at 15–16.

[17] Id. at 12.

[18] Gary Gorton, Misunderstanding Financial Crises: Why We Don’t See Them Coming 10–28 (2012). For more background on what constitutes “money” for these purposes, see Morgan Ricks, The Money Problem: Rethinking Financial Regulation 30–40 (2016); Kathryn Judge, The Importance of “Money,” 130 Harv. L. Rev. 1148, 1154–55 (2017) (reviewing Morgan Ricks, The Money Problem: Rethinking Financial Regulation (2016)) [hereinafter Judge, Importance of Money].

[19] Arvind Krishnamurthy & Annette Vissing-Jorgensen, The Aggregate Demand for Treasury Debt, 120 J. Pol. Econ. 233, 258 (2012) (finding a monetary premium that averaged 73 basis points per year between 1926 and 2008).

[20] Mahoney, supra note 1, at 286.

[21] Gordon & Judge, supra note 2, at 3.

[22] For a thoughtful account suggesting that the costs of allowing money market mutual funds to compete for bank deposits was revealed only slowly, over time, see Gordon, supra note 12, at S360–66 (2014).

[23] Mahoney, supra note 1, at 237–38.

[36] Id. at 287.

[25]  Id. at 280–82.

[26] See 17 C.F.R. § 270.2a-7 (1984). The importance of the $1.00 NAV to the success of money market funds as a substitute for deposits has been brought home recently by changes to Rule 2a-7, which now requires that money market mutual funds holding non-government debt and issued to institutional holders use a floating NAV. See U.S. Sec. & Exch. Comm’n, Rule 2a-7 Amendments Adopted by SEC in July 2014 Marked to Show Changes from Previous Rule 2a-7 (2014), https://perma.cc/YTS9-BEKF. The net effect has been a massive decline in the money market mutual funds forced to use the floating NAV. Catherine Chen et al., Money Market Funds and the New SEC Regulation, Fed. Res. Bank N.Y.: Liberty Street Econ. (Mar. 20, 2017), https://perma.cc/DRZ9-LUWX (finding that “the prime and muni segment of the MMF industry,” which is the segment of the market forced to use floating NAV, “ha[s] fallen by more than half,” losing $1.1 trillion in assets, as a result of the rule change).

[27] Michael S. Barr, Howell E. Jackson, & Margaret E. Tahyar, Financial Regulation: Law and Policy 101–03 (2016).

[28] John A. Adams, Money Market Mutual Funds: Has Glass-Steagall Been Cracked?, 99 Banking L.J. 4, 21–22 (1982).

[29] Barr et al., supra note 27, at 1201–02.

[30] Id. at 1201–03 (quoting James J. Butera, Money Market Mutual Funds: The Legal and Regulatory Background, 28 Fed. B. News 91, 92 (1981)).

[31] Adams, supra note 28, at 9–11.

[32] Barr et al., supra note 27, at 1203 (quoting Letter from Paul Volcker to SEC concerning Release No. IC-29497 (Feb. 11, 2011), https://perma.cc/DYK3-DXEG).

[33] Id. at 1203–04.

[34] Gorton, supra note 18, at 128 (emphasis added).

[35] Mahoney, supra note 1, at 259–62.

[36] See William D. Cohan, Bring Back Glass-Steagall? Goldman Sachs Would Love That, N.Y. Times (Apr. 21, 2017), https://www.nytimes.com/2017/04/21/business/dealbook/bring-back-glass-steagall-goldman-sachs-would-love-that.html; Matt Egan, Trump Wants to Revive a 1933 Banking Law. What That Means is Very Unclear, CNN Money (May 9, 2017 2:42 PM), https://perma.cc/79K9-7AVR.

[37]  See Charles W. Calomiris & Stephen H. Haber, Fragile By Design: The Political Origins of Banking Crises and Scarce Credit (2014); Mark Roe, Strong Managers, Weak Owners: The Political Roots of American Corporate Finance 95–101 (1994).

[38] E.g., Judge, Investor-Driven Financial Innovation, supra note 12 (showing how legal interventions can prompt destabilizing financial innovations, and arguing that regulators should take a more systemic and structural approach to rulemaking to minimize such ramifications).

[39] See Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, Inc., 467 U.S. 837, 864–66 (1984).

[40] MCI Telecomms. Corp. v. AT&T Co., 512 U.S. 218, 231–32 (1994).

[41] Mahoney, supra note 1, at 238, 259–62.

[42] See Jan Tinbergen, On the Theory of Economic Policy 1–5, 27–32 (1952).

[43] Pistor, supra note 12, at 315; Gordon & Judge, supra note 2, at 2.

[44] Gorton, supra note 18, at 27–28.

[45] Randall S. Kroszner & Raghuram G. Rajan, Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking Before 1933, 84 Amer. Econ. Rev. 810, 810 (1994) (citing other sources expressing similar viewpoints).

[46] Adam J. Levitin, The Politics of Financial Regulation and the Regulation of Financial Politics: A Review Essay, 127 Harv. L. Rev. 1991, 2060–61 (2014) (reviewing several books about the Financial Crisis of 2007–2008).

[47] Stiglitz, supra note 3.

[48] Id.

[49] 12 U.S.C. § 1851 (2012).

[50] John C. Coates IV, The Volcker Rule as Structural Law: Implications for Cost-Benefit Analysis and Administrative Law, 10 Cap. Markets L.J. 447, 453–58 (2015). 

[51] William C. Dudley, President and Chief Executive Officer, N.Y. Fed. Res. Bank., Remarks at the U.S. Chamber of Commerce: The Importance of Incentives in Ensuring a Resilient and Robust Financial System (Mar. 26, 2018) (transcript available at https://perma.cc/FHM6-GVQ7); David Zaring, The International Campaign to Create Ethical Bankers, 3 J. Fin. Reg. 187, 187–190 (2017).

[52] Lawrence Lessig, The Regulation of Social Meaning, 62 U. Chi. L. Rev. 943, 957–58 (1995).

[53] John C. Coates IV, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale L.J. 882, 885–89 (2015); Gordon, supra note 12.

[54] U.S. Dep’t of the Treasury, About the FSOC, https://perma.cc/DBB9-G7BHaspx (“The Financial Stability Oversight Council has a clear statutory mandate that creates for the first time collective accountability for identifying risks and responding to emerging threats to financial stability.”); Office of Financial Research, About the OFR, https://perma.cc/DBB9-G7BH. (“The Office of Financial Research (OFR) helps to promote financial stability by looking across the financial system to measure and analyze risks, perform essential research, and collect and standardize financial data.”).

[55] There are reasons to suspect that the current administration is not setting these bodies up to fulfill their more ambitious mandates.  See, e.g., Rebecca Savransky, Trump Slashing Staff, Budget at Office of Financial Research: Report, The Hill (Dec. 6, 2017 9:00 AM), https://perma.cc/4Z78-P52R (describing cuts to the OFR staff and budget).

Underwrites, Overrides, and Recovered Precedents

In this Comment, I examine the “underwrite,” a concept first developed by Professors Ethan Leib and James Brudney in their article, “Legislative Underwrites.” There are plenty of law review articles discussing “overrides” (when Congress rejects a court’s statutory interpretation decision). Theirs is the first article to explore the “underwrite” (when Congress approves a statutory interpretation). This comment explores the concept as it relates to overrides and calls for a major empirical study linking the two. Rejecting Leib and Brudney’s focus on interbranch cooperation, I present a different positive political story of the underwrite based on endogenous legislative incentives. No judge should worry, in my opinion, about Congress sitting around willy-nilly underwriting the latest Supreme Court case. Underwrites must compete with far more salient policy disputes important to members’ constituents. Finally, this Comment argues that textual underwrites deserve super-charged deference but raises questions about whether courts will be willing to embrace such a rule.

I. Introduction

Professors Ethan Leib and James Brudney have given us an intellectual treat.[1] There are plenty of law review articles discussing “overrides” (when Congress rejects a court’s statutory interpretation decision). Theirs is the first article to explore the “underwrite” (when Congress approves a statutory interpretation). Bravo for their discovery. The “Leib–Brudney underwrite” has been born, and, for reasons I explain, it is likely to produce a good deal of important scholarship.

Although one of the most fascinating and important parts of the Article involves interbranch dialogue in the states, I focus on the federal level. And like the authors, I concentrate on judicial statutory interpretation even if, as they recognize, underwriting of administrative agency decisions is an important topic for future inquiry. Part I explains why the underwrite concept may be more important or prevalent than Leib and Brudney suggest, based on the ties between overrides and underwrites. It is in Part II that I part company with the authors by offering a different causal theory of underwrites. No one should read Leib and Brudney and imagine that members of Congress are sitting around trying to decide whether to be helpful to the courts by underwriting the latest Supreme Court case. At the federal level, given our unique system of separated powers, underwrites are unlikely to reflect conscious or even unconscious desire for interbranch cooperation; they only exist if they serve Congress’s interests. In Part III, I tease out some problems of application that the authors themselves acknowledge, particularly when it comes to legislative evidence¾even the evidence that Leib and Brudney consider a gold standard. In Part IV, I conclude by arguing that textual underwrites may deserve judicial super-deference, albeit for reasons somewhat different from those advanced by Leib and Brudney. Nevertheless, courts will have to be convinced.

II. The Connections Between Overrides and Underwrites

Congressional override of statutory-interpretation decisions has been the subject of many fine empirical studies from the leading lights of the academy and their critics. Professor Bill Eskridge has done two comprehensive studies showing the rise and ebb of overrides over time.[2] Professor Rick Hasen has countered with his own study, rejecting some of Eskridge’s conclusions.[3] Political scientists have weighed in on the question as well.[4] Not until now, however, have legal scholars seriously attempted to study the fact that Congress supports, affirms, and underwrites judicial statutory decisions. Having seen this happen during my tenure as a Senate lawyer, it does not surprise me. What surprises me is that it took so long for legal academics (including myself) to notice. Such significant discovery in the academy is rare; this discovery delights.

To the casual reader, the underwrite might seem the opposite of the override, but that conclusion is deceptive. In the override, Congress rejects the Supreme Court’s interpretation; in the underwrite, Congress accepts the Supreme Court’s interpretation. [5] The distinction merits emphasis here because it shows the importance of their study and provides guidance for future empirical work. Consider the following scenario: In 1982, there exists Interpretation A. Ten years later in 1992, the Supreme Court substitutes Interpretation B. Twenty years later in 2012, the Congress rejects the Supreme Court’s Interpretation B because it wants to reinstate Interpretation A. If this is correct, the 2012 Congress has simultaneously overridden Interpretation B and underwritten Interpretation A. This is significant for the status of Interpretation A. Once a mere creature of the judicial branch, it is now a rule endorsed by Congress.

Consider one of Leib and Brudney’s examples of this interaction between overrides and underwrites, the Civil Rights Act of 1991.[6] That legislation included a number of overrides.[7] In one instance, Congress sought to overrule Patterson v. McLean Credit Union.[8] In Patterson, the Supreme Court held that a post–Civil War statute, 42 U.S.C. § 1981,[9]did not protect an employee from racial harassment by her employer, since the harassment occurred after the formation of the contract.[10] Congress balked. By 1991, President George H. W. Bush agreed that Patterson should be overruled.[11] In overriding Patterson, however, Congress retur- ned to preexisting law. The Patterson legislative “fix” reaffirmed a well-known earlier precedent, Runyon v. McCrary,[12] which allowed African-Americans to sue to integrate private schools under Section 1981. In Runyon, the Court rejected the argument made by the schools that the plaintiffs had to show “state action” because Section 1981 did not reach private acts of discrimination.[13] The statutory override of Patterson un- derwrote Runyon. The text of the resulting statute affirmed the principle that racial discrimination by “nongovernmental parties” is barred by 42 U.S.C. § 1981.[14]

The bottom line: overrides are not necessarily the opposite of underwrites in practice. They may go hand in hand, revealing “recovered precedents.” In the example above, Runyon is the recovered precedent, underwritten in the override of Patterson. I highlight this simple relationship for two reasons. First, Leib and Brudney’s study warrants a full-blown empirical study of underwrites. If one is going to do such a study, one should start by looking at overrides. To be sure, there may be “stand-alone” underwrites, but my suspicion is that the conjoined override–underwrite pair may well predominate. Second, the potential link between overrides and underwrites reinforces the importance of Leib and Brudney’s study. In many cases, scholarship has focused on overrides (the 1991 Civil Rights Act is a prime example), ignoring the underwriting aspects of the legislation. In some cases, these underwrites will be codified, as in the PattersonRunyon case. But in other cases, the recovered precedent may be less obvious. That, in turn, raises theoretical questions about the scope of underwrites, since every override leaves the court back at the prior status quo. Leib and Brudney carefully limit their definition of an underwrite to those instances in which Congress has specifically embraced the decision in the text of the adopted statute or in its legislative history, but one wonders why that is always necessary, or whether one will find that there is a hierarchy of underwrites: super-underwrites (in the text of the statute), normal underwrites (in the legislative history), and the simple recovered precedent. Presumably, if Congress is willing to override a decision, it must be aware of the recovered law. Even if that law does not merit the super-deference of explicit underwrites, perhaps it deserves more weight than the average precedent. A future empirical study of the underwrite should take all these things into account.

III. Underwrites: A Different Causal Story

When and why does Congress underwrite? Leib and Brudney spend a good deal of time analyzing the virtues and vices of underwriting as an institutional matter. They note opportunity costs¾legislators might well be doing something better with their time¾and the potential for both increased legal uncertainty and policy conflict. Put another way, the fear is that there will be too much underwriting.[15] On the other hand, they explain that underwriting provides legal clarity, promotes interbranch cooperation, and reduces reading tea leaves from congressional inaction. They imagine that if underwriting becomes a more regular feature of lawmaking, it may be used more often. In other words, there exists a contrasting fear of too little underwriting.[16]

All of this may lead the reader to imagine members of Congress sitting around trying to decide whether they should underwrite Supreme Court decisions. Such a vision could cause a good many judges heartburn. One imagines the judicial mind roiled with the angry thoughts that hapless members of Congress have deemed themselves super-judges. That view is wrong, but it is important to see why. Put bluntly, Congress is not a court.[17] The incentives of members of Congress are structured by institutional realities that are entirely different from judicial incentives. Congress is a busy, sometimes chaotic institution. Its members focus on how to solve national crises, not on how to draft a legal decision, particularly a legal decision no voter has ever heard of. This explains why there are plenty of legal issues that Congress might¾and even should¾resolve, but that Congress entirely ignores, to the chagrin of law professors and judges: the status of administrative guidance,[18] crazy scrivener’s errors in evidentiary rules,[19] and problems with the habeas corpus statute,[20] to name a few. Why no congressional action? Because no one votes on those issues. Congress spends its limited time on matters important to members of Congress and their constituents. That is, after all, what the Constitution directs members of Congress to do: represent the people.[21]

All theories provide implicit causal stories. The reader might think Congress can on a whim, or at a moment’s notice, decide to underwrite any particular Supreme Court or other judicial decision. I doubt Leib and Brudney would subscribe to that causal claim. As they explain, they originally believed that the underwrite was a rather “impractical way for a legislature to spend its time.”[22] The authors’ cost–benefit analysis, however, appears to take an exogenous view¾from outside the legislative process¾to look at something that, in my opinion, is dominated by that process. They are writing as legal scholars, carefully attempting to tie the virtues and vices of their discovery to an abstract idea of interbranch cooperation. But this exogenous approach may lead to causal misunderstandings.

Underwrites are an endogenous phenomenon: they exist within and because of institutional processes and realities. Lawmaking is difficult, time-consuming, and full of partisan bickering. In such a context, there must be very strong incentives for Congress to underwrite. Where do these incentives come from? The need for action [23] and the “electoral connection.”[24] First, the need for action: in areas of complex law, Congress may choose to borrow precedents or language¾using the putatively “neutral” language of the Supreme Court¾to effect compromise and thus achieve action in an institution where action is exceedingly difficult. For example, when Senator A and Senator B cannot agree upon a standard for voting-rights cases, they pull language from a Supreme Court case,[25] using that case as a neutral arbiter that allows the Senators to agree upon statutory text (effectively punting the case back to the Supreme Court). Even if that produces congressional agreement, however, Professor Mayhew’s “electoral connection” thesis tells us that agreement must be at least neutral if not positive for members’ electoral interests—otherwise it will not happen.

If this causal story is correct, certain theoretical “costs” and “benefits” of underwrites should not worry us. For one, we should not be terribly concerned about “too many” underwrites; members of Congress simply do not have the time or inclination. Unless the underwrite is worth more than competing legislative agenda items, the underwrite will not happen. Members of Congress do not spend their days poring over SCOTUSblog wondering what kinds of cases they can underwrite. Nor should we worry about “too few” underwrites, because if underwriting helps to achieve compromise on a politically salient bill, underwrites will happen whether we like them or not. Consider the 1991 Civil Rights Act: liberal interest groups and voters were incensed at Supreme Court interpretations which they viewed as anti-African-American and anti-woman.[26] Congress responded. It is a crude heuristic, but well established within the political science literature, that Congress, as a whole, and individual legislators act according to electoral incentives.[27] In this case, those electoral incentives¾the voters¾led them to override and underwrite.

Positive political theory tells us that underwrites will exist when, to achieve action on an issue of political salience, the President and the Congress prefer the underwritten precedent to a newer precedent as a policy matter [28] By “policy” matter, I mean here what these political actors predict to be the preferences of their constituents.

As we know, courts, over the long haul, tend to be majoritarian institutions.[29] When courts deviate from that principle in ways that are politically salient, then majoritarian institutions will respond. They will respond with overrides and, potentially, underwrites.

One might argue that I have called for much further work on the underwrite only to suggest that underwrites are contingent on political incentives. The two positions are not inconsistent. The first suggests that we should take a new look at the override literature because it is likely to reveal additional underwrites, and that we should consider more thoroughly the role of recovered precedents. The second suggests that both overrides and underwrites will depend upon Congress’s political incentives. For those who worry about Congress sitting as a Supreme Court, do not fear. In their minds, members of Congress have better things to do¾their job, responding to voters, or at least what they think the voters want.

IV. Underwrites: Definitional Issues

What exactly is an underwrite? Any future empirical work must grapple with serious definitional issues, as Leib and Brudney recognize. No one is likely to quibble with the proposition that an underwrite specifically mentioned in statutory text qualifies, but this apparent agreement may well dissolve in practice: even statutory underwrites can raise questions of scope and application. More obviously, many will reject any claim that underwrites in legislative history (what I shall hereafter call “legislative evidence”) should be considered at all. Any future empirical study will have to address these problems of scope and evidence.

A. Questions of scope: facts versus principle

Leib and Brudney acknowledge that identifying an underwrite may lead to new problems. Assume that we identify the 1991 Civil Rights Act as underwriting the principle that the law bars private as well as governmental discrimination. Let us assume everyone agrees that the amended statutory text supports that proposition and amounts to an underwrite of Runyon v. McCrary. Questions may still arise about the scope of the underwrite.

In fact, this is precisely what has happened with respect to Section 1981’s application to nongovernmental actors. Section 1981 protects contracting, but it also protects against racially biased deprivations of the “equal benefit of all laws.”[30] The Circuits have split on whether the “equal benefit” clause applies in the absence of state action.[31] One could argue that the Runyon underwrite should resolve this controversy. In 1991, Congress explicitly rejected Patterson and underwrote Runyon in Subsection (c) of the statute: “The rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State law.”[32] As a matter of textual analysis, the ordinary reader would presume that “rights protected by this section” refers to the substantive guarantees in Subsection (a). But, if there were doubt, the underwrite should reinforce the claim that Congress really meant it when it said private actions count.

Critics, however, will argue that the underwrite should be limited to its facts: both Runyon and Patterson involved classic contract situations, while the “equal benefit” cases involve different factual scenarios. The application question becomes: does the underwrite apply to the general concept (non-state action) or is it limited to the particular facts (contract claims)? Of course, this standard problem in legal interpretation does nothing to undermine the underwrite concept, but it may provide critics with a reason to cry foul. A situation like the conflict above invites more research: what did Congress say about its underwrite? That means legislative evidence. And if underwrites propel interpreters into the legislative history debate, many will balk.

B. The legislative evidence problem

Leib and Brudney know that using legislative evidence in statutory interpretation is controversial.[33] I am an arch defender. But I do not necessarily believe that committee reports are the “gold standard,” even if courts sometimes say that. Given the way that statutes are constructed over time, it is entirely possible that a committee report on Senate Bill A and House Bill A will be completely irrelevant by the time the final legislation has passed. Leib and Brudney make a passing reference to underwrites “in the air.”[34] The following is the kind of problem they may have envisioned.

Consider this scenario, increasingly true as the complexity of legislation grows: In considering a lengthy bill, a House committee decides to underwrite Case A about Title 13 of the Bankruptcy Code. On the Senate side, there is a similar desire. The committee reports are crystal clear that Case A should govern for Title 13 cases. Fast forward to bill debate. Before the bill is introduced in the Senate, the bill’s proponents will need 60 votes. To get those votes, proponents compromise significantly on the bill’s language, taking any language relating to Title 13 off the agenda and out of the bill. The resulting bill deals only with Titles 7 and 11, and has no text to which the underwrite relates at all.

Now imagine a litigant arrives in court with the committee reports in a Title 13 case. Should the court believe that Congress underwrote Case A? Congress agreed to take Title 13 off the table. Legislative evidence takes its power from the text to which it relates, and if it relates to no text, then critics are likely to balk. One of the most insistent critiques of legislative evidence is that it comes from a few committee members, not the whole of Congress.[35] This critique is wrong, in my view, and deliberately overstated: committee reports gain institutional legitimacy from the rules Congress creates to delegate authority to subgroups. Just as any corporation delegates its work to agents, so does Congress. The problem in this scenario is that there is no final product to which to tie the relevant agent’s decision. If a corporation left out any consideration of Title 13 in its 10-K, the internal documents on Title 13 are not relevant to interpreting the 10-K. The same rules should apply to Congress. Free-floating committee underwrites untied to actual legislation may bear some weight in difficult cases, but not the super-majoritarian imprimatur one might hope to give full-blown statutory underwrites.

V. Should courts pay attention to underwrites?

Having sung the praises of underwrites, I will end by saying I do not believe they should be praised for the reasons Leib and Brudney suggest¾cooperation between the departments. Based on my work on the separation of powers, my own view of our constitutional structure envisages the departments in competition for political and bureaucratic power. Siloed departments seek to advantage their own constituencies and policy space. They typically cooperate only when doing so enables them to further these interests. If this is correct, underwrites are not to be valued any more than overrides because of an imagined conversation between the branches. The point is that even without any intent to cooperate, there has been agreement between the judiciary and the Congress and that agreement merits super-deference. Underwrites gain power because they unite the Congress and the Court on a single interpretation, increasing the democratic legitimacy of interpretive rulings. Courts should give textual underwrites super-deferential weight.

When Congress and the Court agree upon a legal principle, it should have enormous weight for reasons grounded in democratic representation. Imagine that we redefine the departments not in terms of adjectives¾executive, legislative, or judicial¾but in terms of their constituencies.[36] As a relative matter, the President speaks to the nation more than the representative from the Fifth District of Texas, who will care relatively more about the voters in that district. If this is correct, even if the departments do not intend to cooperate, or are hostile to each other (because, for example, they have different dominant party affiliations), rules that have the support of a broad cross section of constituencies will be more robust and stable. The most stable rules are ones accepted by the President, the House, the Senate, and the courts. Underwrites can, in theory, represent the position of each relevant constituency¾the nation, states and localities¾plus the (more abstract) constituency of principle, the courts.

Brudney and Leib are careful to explain that different kinds of underwrites may deserve different kinds of judicial deference. The separation-of-powers analysis I have just elaborated shows, at a minimum, why a textual underwrite, like the Runyon underwrite in our Section 1981 case, deserves judicial super-deference. It is unclear, however, whether courts will be ready to accept the invitation. As I mentioned earlier, the departments compete as much as cooperate. Courts remind us regularly that they “say what the law is,” even as they know that Congress and the President say precisely the same thing. A court whose membership has shifted in policy orientation relative to a recovered precedent may balk. If, for example, the court believes we are in a post-racial society, will it have any interest in rediscovering Runyon’s earlier attempts to rectify the deep racial inequality of segregated schools? That textual underwrites may deserve super-deference does not mean that courts will, in the end, grant it.

 


[1] Ethan J. Leib & James J. Brudney, Legislative Underwrites, 103 Va. L. Rev. 1487, 1511 (2017).

[2] Matthew R. Christiansen & William N. Eskridge, Jr., Congressional Overrides of Supreme Court Statutory Interpretation Decisions, 1967–2011, 92 Tex. L. Rev. 1317 (2014); William N. Eskridge, Jr., Overriding Supreme Court Statutory Interpretation Decisions, 101 Yale L.J. 331 (1991).

[3] James Buatti & Richard L. Hasen, Response: Conscious Congressional Overriding of the Supreme Court, Gridlock, and Partisan Politics, 93 Tex. L. Rev. See Also 263 (2015).

[4] See, e.g., Beth Henschen, Statutory Interpretations of the Supreme Court: Congressional Response, 11 Am. Pol. Q. 441 (1983); Pablo T. Spiller & Emerson H. Tiller, Invitations to Override: Congressional Reversals of Supreme Court Decisions, 16 Int’l Rev. L. & Econ. 503 (1996).

[5] Leib & Brudney, supra note 1, at 1520.

[6] Pub. L. No. 102-166, 105 Stat. 1071.

[7] See Christiansen & Eskridge, supra note 2, at 1492–93 (listing twelve Supreme Court decisions, nine of which were decided between 1986 and 1991, that were overridden by the 1991 Civil Rights Act).

[8] 491 U.S. 164 (1989).

[9] Originally passed as § 1 of the Civil Rights Act of 1866 § 1981(a) reads as follows:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.

42 U.S.C. § 1981(a) (2012).

[10] Patterson, 491 U.S. at 179.

[11] See Steven A. Holmes, Critics of Rights Law Fear A Flood of Suits Over Jobs, N.Y. Times, May 27, 1990, at 8 (Bush administration supports reversal of Patterson v. McLean Credit Union).

[12] 427 U.S. 160, 170 (1976).

[13] Id. at 173–74.

[14] In 1991, Congress added the following two subsections to 42 U.S.C. § 1981. Note that section (c) explicitly underwrites the idea that section 1981 plaintiffs can sue private actors:

(b) For purposes of this section, the term “make and enforce contracts” includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.

(c) The rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State law.

42 U.S.C. § 1981 (2012) (emphasis added).

[15] Leib & Brudney, supra note 1, at 1520.

[16] Id. at 1522–26.

[17] I have written an entire book to prove this rather obvious point. Victoria Nourse, Misreading Law, Misreading Democracy (2016).

[18] One of the thorniest issues in administrative law is the status of policymaking documents, typically called “guidance,” which are deemed nonlegislative rules and thus do not require notice and comment rulemaking. See, e.g., Texas v. United States, 86 F.Supp.3d 591, 671 (S.D. Tex. 2015) (striking down Obama DAPA guidance because it was a legislative rule that had to go through notice and comment rulemaking), aff’d, 809 F.3d 134 (5th Cir. 2015), aff’d by an equally divided court, United States v. Texas, 136 S.Ct. 2271 (2016) (per curiam); John Manning, Nonlegislative Rules, 72 Geo. Wash. L. Rev. 893 (2004) (highlighting judicial manageability concerns associated with nonlegislative rules).

[19] Green v. Bock Laundry, 490 U.S. 504, 511 (1989) (“[A]s far as civil trials are concerned, Rule 609(a)(1) ‘can’t mean what it says.’” (citation omitted)).

[20] On the multiple problems with the statute, passed in the crisis atmosphere of the Oklahoma City Bombing, see Carlos M. Vázquez, Habeas as Forum Allocation: A New Synthesis, 71 U. Miami L. Rev. 645 (2017); Larry W. Yackle, State Convicts and Federal Courts: Reopening the Habeas Corpus Debate, 91 Cornell L. Rev. 541 (2006).

[21] Nourse, supra note 17, at 21.

[22] Leib & Brudney, supra note 1, at 1514.

[23] See Victoria F. Nourse & Jane S. Schacter, The Politics of Legislative Drafting: A Congressional Case Study, 77 N.Y.U. L. Rev. 575, 594–95 (2002).

[24] The “electoral connection” is David Mayhew’s fine term. See David R. Mayhew, Congress: The Electoral Connection (1974).

[25] See Chisom v. Roemer, 501 U.S. 380, 398 (1991) (explaining that the 1982 amendments to the Voting Rights Act borrowed the phrase “to participate in the political process and to elect representatives of their choice” from a Supreme Court case).

[26] See Ronald D. Rotunda, Civil Rights Act of 1991: A Brief Introductory Analysis of the Congressional Response to Judicial Interpretation, 68 Notre Dame L. Rev. 923, 924–26 (1993).

[27] See generally Mayhew, supra note 24, at 11–78.

[28] On such modeling, see Daniel B. Rodriguez & Barry R. Weingast, The Positive Political Theory of Legislative History: New Perspectives on the 1964 Civil Rights Act and Its Interpretation, U. Pa. L. Rev. 1417, 1431–37 (2003).

[29] See Barry Friedman, The Will of the People 14–16 (2009) (discussing the influence of the popular will on the Supreme Court).

[30] See 42 U.S.C. § 1981(a) (2012).

[31] The Eighth and Third Circuits have held that for a plaintiff to state a claim under the “equal benefit” clause, the plaintiff must allege state action. See Elmore v. Harbor Freight Tools USA, Inc., 844 F.3d 764 (8th Cir. 2016); Bilello v. Kum & Go, LLC, 374 F.3d 656 (8th Cir. 2004); Youngblood v. Hy-Vee Food Stores, Inc., 266 F.3d 851 (8th Cir. 2001); Adams ex rel. Harris v. Boy Scouts of Am.-Chickasaw Council, 271 F.3d 769 (8th Cir. 2001); Brown v. Philip Morris Inc., 250 F.3d 789 (3d Cir. 2001). The Second and Sixth Circuits have held that such a plaintiff need not allege state action. See Chapman v. Higbee Co., 319 F.3d 825 (6th Cir. 2003) (en banc); Phillip v. Univ. of Rochester, 316 F.3d 291 (2d Cir. 2003).

[32] 42 U.S.C. § 1981(c) (2012) (emphasis added).

[33] Leib & Brudney, supra note 1, at 1497.

[34] Id. at 1515.

[35] See, e.g., Blanchard v. Bergeron, 489 U.S. 87, 98–99 (1989) (Scalia, J., concurring in part and concurring in the judgement) (criticizing the use of committee reports).

[36] Victoria Nourse, The Vertical Separation of Powers, 49 Duke L.J. 749, 751–52 (1999); Victoria F. Nourse, Toward a New Constitutional Anatomy, 56 Stan. L. Rev. 835, 850–52 (2004).