The Impact of Inequality on Growth

December 11, 2013

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Jared Bernstein, “The Impact of Inequality on Growth.” Center for American Progress, December 2013.

In this paper, economist Jared Bernstein summarizes the research on a vital economic and political question: “Is there a causal linkage between higher inequality and slower macroeconomic growth”? If the increasing economic inequality in the United States is a drag on the growth of the economy, that would be one good reason–though not the only reason–for developing public policies to reduce it.

Bernstein reports that since the current economic expansion began in 2009, “the stock market is up 60 percent, GDP is up 8 percent, corporate profits as a share of national income are at historic highs, yet median household income is down 5 percent, with all figures adjusted for inflation.” The increasingly uneven distribution of economic rewards is getting a lot of national attention and criticism, with many critics charging that it violates basic fairness, impedes the longstanding drive to raise living standards for most people, and undermines the traditional American values of equal opportunity and social mobility. While Bernstein shares these concerns, believing they are good enough reasons to work for equality, he focuses this paper on the narrower question of inequality’s impact on the growth of the economy. He does this by reviewing the main theoretical reasons why inequality might impede growth, and then looking for empirical evidence to support them.

In a classic theory, Simon Kuznets described an inverted U-shaped curve relating inequality to economic growth, but with inequality as the dependent variable. He observed that inequality tends to increase in the early stages of economic development, when owners of productive assets such as land benefit more than others. But as industrialization proceeds, it gradually benefits more people such as factory workers, and inequality tends to fall. This theory does not work very well for the past century in the US, where inequality fell from the 1930s to the 1970s, but then went back up to “heights matched only by those last seen in the late 1920s.” It also proposes no causal effect of rising inequality on growth. For that, Bernstein looks at four kinds of theories: supply-side, demand-side, political-economy, and a more recent credit bubble theory.

Supply-side theories discuss how inequality might affect the quality of inputs to the production of goods and services, especially the quality of human labor. If too much wealth and income are concentrated in the hands of the rich, then more children will grow up in impoverished families and neighborhoods that cannot invest much in their human development and education. That will presumably hurt growth by making it harder to raise labor productivity.

Demand-side theories assert that the distribution of income affects the general demand for goods and services in the economy because of its effect on the “marginal propensity to consume.” A rich person who receives additional money is not as likely to spend it (as opposed to saving it) as a person with a modest income. Since it is consumer spending that accounts for 70 percent of economic activity, too much inequality can lead to underconsumption and economic recession. Saving and investment are important too, but a low demand for consumer goods and services also discourages investments to expand production.

Political-economy theories mostly concern a political mechanism through which economic inequality feeds on itself. The wealthy can use their power and influence to bring about public policies that benefit themselves at the expense of others, especially where campaign finance regulations are minimal. In extreme cases this dynamic can lead to “intense poverty, deep human exploitation, failed political systems, and ultimately failed states.” Democracies can defend against this by having inclusive political systems that create a countervailing force against this tendency toward oligarchy. How well those countervailing forces are working today is a good question. Political-economy theories do not necessarily say that inequality hurts economic growth; that would depend on the specific policies pursued by the rich and powerful. But the supply-side and demand-side theories suggest some ways that self-serving policies could take the economy in the wrong direction; for example, if elites oppose public spending on education or social insurance because the private market serves their needs just fine.

The credit bubble theory develops the connection between rising inequality and unsustainable bubbles of credit and debt. “The wedge of inequality diverts income growth from middle- and low-wage workers; at the same time, high-income households acquire more capital assets.” The middle class sustains its standard of living by borrowing more; the wealthy have ample capital to lend, and the financial sector expands by making loans more widely available, with decreasing regard for risk. The increasing ratio of debt to income is ultimately unsustainable, and when consumers have to cut back spending, the economy crashes. A political-economy notion can enter into this argument too, since those who profit the most from the bubble may have the power to block regulations that might keep the financial sector from taking on so much risk.

Macroeconomic theories are hard to test. I’d love to be able to conduct a controlled experiment on the economy, re-running the last thirty years while holding inequality constant. Would we have had better educational outcomes, more middle-class spending with less debt, less influence of big money in Washington, and–most to the point–more sustainable economic growth? None of the theories linking inequality and growth are conclusively supported by the data, although Bernstein finds the credit bubble theory very plausible.

Supply-side theory proposes that inequality creates educational disadvantages, which in turn impede economic growth. The first part is well supported; for example, as the income gap has widened, so has the gap in college completion, as well as the gap in what households spend to provide private education and other “enrichment” experiences for their children. The impact on economic growth is not as clear however, since average educational attainment and worker productivity have both been rising for a long time, whether inequality was falling or rising. One can speculate that the economy would do even better if all segments of the population participated more equally in these advances [and even that an emerging high-tech economy depends on it], but the data reported here don’t really answer that question.

Demand-side theory says that the concentration of wealth and income reduces economic demand because the rich have a lower marginal propensity to spend. During the period of increasing inequality between 1979 and 2007, per-capita consumption grew a little more slowly than in the previous three decades, but the difference was only 0.2 percent. As in the case of educational advances, a general trend of rising consumption overshadows any growth constraints imposed by inequality.

However, the credit bubble theory provides an explanation for that. Economic demand can remain high despite rising inequality if consumers take on more debt. Especially after 2000, the housing boom financed by riskier lending made households with stagnating incomes feel wealthier and encouraged them to keep spending. So inequality may not slow down growth, but instead create a more volatile, unstable pattern of growth, with bigger booms and busts.

Cynamon and Fazzari, who wrote one of the major papers on credit bubble theory cited by Bernstein, put forth these facts in support of their theory: that after 1990 consumer spending rose more than income, that after 2000 the debt-to-income ratio rose dramatically for the bottom 95% of the population, and that this ratio became unsustainable when the housing bubble burst. They also calculate that if the share of income going to the lower 95% had not fallen, those households would have been able to support their increased spending without increasing their borrowing. Maybe other factors would have induced them to borrow too much anyway, but a role for inequality seems very plausible. Piketty and Saez wonder if it can be just a coincidence that both the Great Depression and Great Recession occurred after periods of rising inequality. Bernstein points out that inequality does not seem to be a necessary cause of financial bubbles, since bubbles have occurred in times of falling inequality as well. But it may be an important cause of certain very damaging ones.

With regard to the political-economy theories, it is easy to show that the rich often have a self-serving political agenda, such as favoring tax cuts for themselves. The theory does not say that they always have their way despite democratic resistance, or that the policies they endorse are always bad for economic growth. Research would have to proceed policy by policy, drawing on the other theoretical perspectives and empirical evidence as needed. Some policies raise fundamental economic questions, such as whether budget-balancing austerity measures hurt the economy by reducing aggregate demand, or help it by leaving more capital available for private investment. Bernstein acknowledges that many economists see a threat to growth and jobs coming more from efforts to combat inequality, such as by strengthening unions or raising the minimum wage. That made me wonder if there are credible theories that see positive rather than negative effects of inequality on economic growth. Another way of asking this is whether “trickle-down” economics has much serious intellectual support any more, or if it is mostly an ideological position popular with rich conservatives.

In the end, Bernstein reaches two main conclusions: First, that the research remains inconclusive even though some alleged negative effects of inequality on economic growth are plausible. Second, even if inequality turns out to have little effect on growth, excessive inequality is offensive for other reasons.

Fundamental American precepts–such as basic fairness, the conviction that opportunities and upward mobility should [be] available to all, and the social contract that links hard work and playing by the rules with a chance to get ahead–are at risk when inequality is where it is today. This will remain true no matter how inequality impacts macroeconomic growth.

In a previous post, I discussed Bernstein’s plea for pursuing full employment, with obvious relevance for both reducing inequality and stimulating economic growth.

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Posted by Ed Steffes

Getting Back to Full Employment (part 2)

December 4, 2013

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In the first part of their book, Dean Baker and Jared Bernstein argue for placing a higher priority on reducing unemployment, as opposed to the current policy preoccupations of holding down inflation and reducing the federal deficit. The later chapters discuss different ways of increasing labor demand and boosting employment.

Before the recent recession, the economy was creating more jobs, but growth was driven mainly by a housing bubble that both created a boom in construction and made homeowners feel wealthy enough to spend more. The problem now is to replace the economic demand that was lost when the bubble burst. That requires some combination of increases in consumption, investment, government spending or net exports.

The authors do not expect consumption to return to its former level by itself, since consumers no longer feel very wealthy, and “tens of millions of baby boomers stand at the end of retirement with little or no savings.” They also reject the view that “investment will surge if we reduce the tax and regulatory burdens on business.” Over the last fifty years investment has averaged less than 9% of GDP, and so it would take an enormous increase to make up for much of the lost demand. And I might add, why invest in more production until one is confident that potential customers are willing and able to consume more?

Increasing net exports by reducing the trade deficit has the potential to create millions of jobs. The authors estimate that balancing exports with imports could increase GDP by 5.4% and lower the unemployment rate from over 7% to under 5%. Investments in infrastructure and education may make American products more competitive, but that is a long-term project. Letting the dollar fall in value against foreign currencies would have more immediate benefits by making our products cheaper, although it would also hurt big importers of cheap foreign products, such as Wal-Mart.

In Chapter 6, Baker and Bernstein make their case for public spending to create more jobs. Their reasoning is solidly in the Keynesian tradition:

Downturns are characterized by a drop-off in demand that the private sector is unable to fill. The government, with its capacity to borrow on favorable terms, can afford to spend when everyone else is hunkered down. Some forms of spending are better than others in terms of reinvigorating demand, and one of the best forms is public infrastructure investment, which can employ hundreds of thousands of workers in projects that yield long-term, continuing returns on the dollar.

They also recommend public investments in areas where the United States lags behind other developed countries, such as rail systems, energy-efficient construction and high-speed internet access.

But won’t additional public spending make the federal deficit even worse? The authors reject the popular but simplistic argument that debt is just as bad for a government as for an individual. How much an individual can ever repay is limited by the human lifespan. The government never dies [unless Grover Norquist succeeds in drowning it in that bathtub!], and can draw on revenue from a growing economy to finance its debts. Public investments that stimulate growth pay off in additional tax revenues, while “austerity measures that would cut spending in order to generate growth have the counterproductive effect of hurting growth, and they typically fail to reduce deficits because slower growth lowers tax revenues and requires more spending on economic stabilizers” like public assistance and unemployment benefits.

The best way to measure the burden of debt on government is to consider the interest paid as a percentage of GDP. That percentage rose steeply in the 1980s but declined steeply in the 1990s. It has remained relatively low since 2000, as interest rates have come down. The ratio of the deficit itself to GDP has declined from 10% in 2009 to 4% in 2013. “The bottom line is that the government is nowhere near the limit of its ability to take on additional debt.”

The United States does have a longer-term problem of containing health care costs, which impact government through spending on Medicare and Medicaid. “The United States spends more than twice as much per person on health care than do other wealthy countries, with too little to show for it in the way of outcomes relative to these other advanced economies.” But that is a problem for the country whether we finance it with tax dollars or consumer dollars, and the best solution is to reduce health care costs, not reduce other economically and socially beneficial public spending.

Baker and Bernstein have an excellent response to the common argument that government borrowing is hurting the next generation:

One of the most peculiar arguments about deficits is that we must save our children from the phantom menace of future debt tomorrow by severely underinvesting in them today. We must defund Head Start, public schools, universities, libraries – not to mention our own employment opportunities. This absurdity is accepted wisdom in today’s fiscal debates, even though the extraordinarily low interest rates at which the government can borrow money would be taken as a signal by any private investor that now is a good time to borrow. If government were run like a business, it would be taking advantage of low interest rates to finance a wide variety of public investments. Franklin Roosevelt did that during the New Deal, undertaking infrastructure projects that still support the economy today.

The authors also recommend “a flexible program of publicly funded jobs that can ramp up and down as needed.” The jobs themselves can be in the private sector, with public subsidies to promote additional hiring, as long as regulations are in place to make sure that the new jobs are truly new, not just replacements for existing jobs.

Finally, they recommend policies to promote shorter work hours, more paid vacation days and more generous family leave policies. These would spread the available work among more people and reduce the number without jobs altogether. It would also save money on unemployment compensation and keep workers attached to the workforce so that their skills don’t deteriorate. Germany’s average work year is only 1,400 hours, compared to 1,800 hours in the United States. Germany also uses public money to supplement the wages of workers whose hours are cut during economic downturns.

Baker and Bernstein believe that a high rate of unemployment is unnecessary, and that it can be ameliorated with the right policies. Although the economic demand for labor is too low, the ultimate need for labor is not a problem. True, new technologies and higher productivity are reducing the need for labor in many traditional industries, but that’s been going on for a long time. In the twentieth century, new technologies like the assembly line also boosted productivity, but the country was ultimately richer for it. Workers whose productivity went up eventually received a share of the benefits in the form of higher wages, and the money they spent created new jobs in expanding industries. Workers also got some of the benefits in the form of a shorter work week, when the 40-hour week became standard with the Fair Labor Standards Act of 1938. So what’s not to like? Pay went up, hours went down, massive unemployment was avoided, and living standards improved dramatically from the 1940s until the 1970s.

The point here is simple: We need never worry that a reduced need for labor will lead to massive unemployment. If workers are sharing in the gains of productivity growth, and they take a portion of these gains in the form of more leisure time, then the supply of labor will to some extent adjust to any reduction in need due to improved productivity. When productivity growth is translated directly into shorter work years, the sense in which these gains are a source of wealth rather than impoverishment is more clearly visible. If workers can have the same living standard by working fewer hours, then they are obviously better off.

What is stopping us from making the same kind of progress again? In Baker and Bernstein’s view, the policies that tolerate high unemployment and stagnating wages derive from the mistaken belief that any measures to stimulate economic demand can only bring back inflation. That in turn depends on the assumption that the productive labor is already employed, and that the rest just aren’t worth being paid a wage they could live on because they can’t produce enough to justify it. The weak demand for labor hurts the bargaining power of all workers, helping to hold wages down even when their productivity is rising. So we try to keep the economy expanding and profits growing while refusing to place a higher value on human labor. Except, of course, for executive labor, since executives, after all, are the “job creators”(!)

I would also suggest that an underlying problem here is a zero-sum mentality, a fear that nothing can be done for the unemployed, or for low-wage workers, without taking something away from someone else, either in higher taxes or higher prices. Anyone who speaks up for workers is quickly accused of engaging in “class warfare,” which is another way of calling someone a communist. How did we lose our confidence in our nation’s ability to prosper and to create opportunity for all?

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Getting Back to Full Employment

December 2, 2013

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Dean Baker and Jared Bernstein. Getting Back to Full Employment: A Better Bargain for Working People. Washington, DC: Center for Economic and Policy Research, 2013.

In this short but cogent book, Baker and Bernstein make their case for focusing public policy more on the goal of achieving full employment. That goal seems strangely out of fashion, considering how high unemployment has been since the financial crisis of 2008. Reducing the federal deficit and holding down inflation are the goals that preoccupy policymakers, but the authors see that as economically counterproductive.

As economists use the term, “full employment” doesn’t mean that everyone who would like a job is actually working. The labor force always includes some people who are currently between jobs (the “frictionally” unemployed) and some who lack the ability or skill for the existing jobs (the “structurally” unemployed). An economy does not have to employ those groups to be considered at full employment, but it does have to have enough jobs to eliminate “cyclical unemployment,” unemployment resulting from a weak demand for labor in general. While structural unemployment is a problem of labor supply, requiring improvements in the qualifications of workers, cyclical unemployment is a problem of labor demand, potentially responsive to stimulatory fiscal and monetary policy. To the degree that government can stimulate demand through such measures as cutting interest rates or increasing public spending, it can reduce cyclical unemployment and move the economy toward full employment.

If, however, the economy is already near full employment, and most of the remaining unemployment is structural, then policies intended to promote additional employment could mainly generate inflation instead. If the job-seekers are mostly underqualified for existing jobs, then employers who wish to hire must either bid up the price of the qualified workers or pay the unqualified more than the value of what they can actually produce. Either puts upward pressure on wages and/or prices. Theoretically, there is a rate of unemployment at which cyclical–but not structural–unemployment is absent, and below which unemployment cannot go without increasing the rate of inflation. Economists call that the “non-accelerating inflation rate of unemployment,” or NAIRU. It is the theoretical sweet spot of “full employment and stable inflation.”

In practice, economists have trouble agreeing on the NAIRU rate, or on the inflationary cost of trying to get unemployment even lower once that rate has been reached. Baker and Bernstein are concerned that an excessive fear of hitting an inflation threshold makes policymakers too timid about fighting today’s high unemployment, unemployment at a rate they consider well above NAIRU.

To acknowledge this relationship between low unemployment and price pressure is common sense. But there is a huge difference between acknowledging the relationship and believing that public policy must avoid full employment because it will cause inflation, or that it must tolerate a cruelly high level of unemployment simply to avoid a slight risk of inflation.

In the early 1990s, most economists thought that unemployment couldn’t go below 6% without triggering more inflation, but it actually came down to 4% by the end of the decade, while wages remained stable. Today, the Congressional Budget Office estimates NAIRU at 5.5%, and a few economists regard unemployment rates over 7% as mostly structural rather than cyclical. That view blames unemployment primarily on the poor qualifications of the workers and discourages efforts to stimulate economic demand by warning of inflationary consequences.

Baker and Bernstein disagree. They reason that if employers generally were having trouble finding qualified workers, they would be offering higher pay or lengthening the workweek for existing workers. That’s true for a few jobs, but not for the economy generally. The authors also point out that unemployment that appears structural could actually be cyclical, since employers are much more likely to upgrade worker qualifications through training when the demand for labor is high.

I would add that a lack of high-paying jobs has a structural dimension, since it is at least partly due to a lack of education or skills in a particular population. But as Arne Kalleberg argues in Good Jobs, Bad Jobs, it also reflects how employers choose to organize work. Some companies deliberately create jobs that can be performed by cheap, low-skill labor, and such jobs have proliferated in our “post-industrial” economy, especially in service industries. When labor demand is high, skill requirements are not as significant an obstacle to employment as all the talk about hi-tech industries would suggest.

Believing as they do that today’s very high unemployment is mostly cyclical, Baker and Bernstein argue that the benefits of reducing it far outweigh any inflationary costs of doing so. “If the unemployment rate could in fact fall to 4.0 percent, and possibly lower, without leading to accelerating inflation, then the result of a policy that kept it higher would be the needless unemployment of millions of workers and lower wages for tens of millions.”

When the demand for labor is low, as it has been since the financial crisis, that creates unemployment for some and low wages for many more. Workers are in a much stronger bargaining position when labor markets are tight. Long-term unemployment has negative effects on earnings that last for many years beyond the actual period of unemployment. Since these effects are greatest for workers at the low end of the income scale to begin with, slack labor markets tend to widen the income gap between rich and poor.

Moreover, the damage of job loss extends beyond earnings and hours worked, as job losers have been found more likely to experience a number of noneconomic negative impacts, including increased rates of stroke and heart attack, higher rates of divorce, lower rates of home ownership, and even lower life expectancy. Generational effects have also been found as the children of parents facing long-term unemployment are more likely to have lower test scores and reduced earnings as adults than similarly placed children whose parents avoid long jobless spells.

Beyond the effects on workers and their families, economic downturns that drag on needlessly have huge costs for the entire country through lost productivity. Since 2008, United States has produced $6 trillion less than the CBO projected it would before the recession. “This is a large cost that dwarfs the estimates of the losses associated with modestly higher rates of inflation.” Unemployment also affects the federal budget deficit, since it reduces tax revenue and increases the number of people qualifying for government assistance. For example, workers with chronic health problems who could find jobs when labor demand is high have been applying for disability benefits since demand declined.

Baker and Bernstein see the costs of inflation as much smaller than all that. Even if stimulatory economic policies were to push the unemployment rate a full percentage point below NAIRU–and they believe that it is well above that point now–the research indicates that the rise in inflation would only be in the range of 0.3 to 0.5 percent. The costs in terms of economic growth would be less than those of persistently high unemployment. Although some studies have found a negative impact of inflation on economic growth, “the size of the estimated impact of inflation on growth in the studies that found an effect is certainly well within the range that could be explained by measurement error.” (Here they discuss a particular type of measurement error that plagues these studies. If, as many economists believe, conventional measures often overstate inflation, such overstatements would both increase measured inflation and decrease measured GDP growth, since real growth is nominal growth minus inflation. Such cases could skew the results so that the same countries appeared to have both higher inflation and lower real growth.)

A modest amount of inflation can even help with some policy issues. Suppose the Federal Reserve reduces the federal funds rate to 2%, in order to stimulate the economy by making borrowing more affordable. If inflation is 1%, the real federal funds rate (nominal rate minus inflation) also becomes 1%. But a higher inflation rate can bring the real rate down to 0% or even below zero, making borrowing really pay.

The authors are especially critical of central bankers who make low inflation their overriding policy objective, especially when the central bank has a legal mandate to pursue both price stability and high employment, as it does in the United States. They summarize:

The evidence used to support inflation-targeting policy is dubious. If the general public and even most politicians fully understood the costs and risks associated with the inflation policy pursued by central banks, few would agree that it is appropriate to keep millions out of work and deny wage growth to tens of millions simply to reduce the risk of modestly higher inflation.

While Baker and Bernstein focus on the economics rather than the politics of unemployment, one may observe how easily full employment gets relegated to the back burner. Although high unemployment hurts the entire economy, the costs fall disproportionately on the have-nots, the workers whose labor is in least demand. Inflation, on the other hand, erodes the value of whatever wealth and income people already have. In a society with extreme inequality and minimal restrictions on political spending, the haves can use their influence to create a systemic bias toward fighting inflation instead of unemployment. Prevailing policies may not be optimal for economic growth, but they help perpetuate the unequal distribution of the benefits that flow from whatever growth occurs. Much of the resulting unemployment may not be structural in the economic sense, that is, resulting from the workers’ inability to do today’s jobs. But it could be structural in a more political sense, resulting from the weak position in the power structure of workers in general and unemployed workers in particular. That would explain how unemployment could be technically cyclical as Baker and Bernstein argue, and yet so persistent.

Continued

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Religious Exemptions for Corporations?

November 30, 2013

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The Supreme Court has agreed to hear the cases of two corporations–Hobby Lobby and Conestoga Wood Specialties Corp.–that want an exemption on religious grounds from providing their employees contraception coverage under the Affordable Care Act. The owners maintain that having to include such coverage in their corporate health care plans violates their religious rights.

In order to make their case, they will have to convince the Court that for-profit corporations as well as individuals and religious organizations have first-amendment religious rights, and also that this particular exemption from the law is constitutionally required. Lower courts have disagreed over these issues.

Do corporations have religious rights?

Advocates for the religious exemption argue that the corporate form of ownership shouldn’t stand in the way of exercising religious rights. Individuals who have a controlling interest in a corporation should be as free to follow their religion in their corporate policies as in their personal choices.

Although courts have considered corporations “persons” in some respects, they have always maintained some distinction between individual rights and corporate rights. Individuals are natural persons with natural or “God-given” rights that the state must respect. Corporations are legal entities that owe their very existence to a state charter. The state can decide which rights they need in order to carry out their social functions, such as the right to make contracts and take positions on social issues. In Citizens United, the Supreme Court went farther than courts have gone before in defining corporate spending on political campaigns as a speech right required by the Constitution. Nevertheless, some rights are still reserved for natural persons, such as the right to vote. The right to practice a religion is among the most personal of rights, and one would think it would be the last one to be associated with for-profit corporations. Individuals who share ownership of a corporation separate themselves from it by disclaiming any liabilities for its losses beyond the value of their shares. Can they at the same time expect to use the corporation as a vehicle for exercising their personal religion?

If the Court does take the novel position that corporations have religious rights, that will invite a great deal of future litigation to establish just what those rights are.

Is an exemption from contraceptive coverage a legitimate religious exemption?

Even if the Court does agree that corporations as well as individuals can claim exemptions from federal laws on religious grounds, it still will have to deal with the legitimacy of the contraceptive exemption in particular.

Eugene Volokh has provided a good summary of religious exemption law. Before 1993, the Supreme Court had ruled in somewhat conflicting ways on the issue. In Sherbert v. Verner in 1963, the Court recognized a presumptive constitutional right to exemptions on religious grounds, placing the burden on the state to show why the exemption should not be granted.

Obviously, the state had to be able to draw the line somewhere; otherwise a Muslim could claim that only governments based on Islamic law are legitimate, and that Muslims living in the United States can’t be compelled to support the government in any way, such as by paying taxes.

To distinguish cases where religious objectors win from those in which they lose, the Sherbert-era Court used what it called “strict scrutiny” when the law imposed a “substantial burden” on people’s religious beliefs (e.g., when it banned behavior that the objectors saw as religiously compelled, or mandated behavior that the objectors saw as religiously prohibited):  Religious objectors must prevail unless applying the law to them is the least restrictive means of serving a compelling government interest.

In the hypothetical Muslim case, the state could argue that collecting taxes on all incomes is the least restrictive means of serving the compelling interest of funding the government, whether each individual likes that government or not. On the other hand, a law banning head scarves would probably not be acceptable in this country, since the state would have trouble showing a compelling government interest that justified making Muslims violate their beliefs.

In 1990, the majority in Employment Division v. Smith gave legislators much more freedom to grant or refuse religious exemptions at their discretion. Laws were constitutional as long as they applied to citizens without regard to their beliefs and didn’t discriminate against any religion. However, in 1993 Congress passed the Religious Freedom Restoration Act, which essentially wrote the older Sherbert standard into law, at least with regard to federal law. (In 1997, the Supreme Court recognized the right of the states to make their own laws regarding religious exemptions.)

Even under the Sherbert standard, religious exemptions have not been easy to obtain. In the contraception cases, the corporations will first have to show that providing contraceptive coverage to their employees places a substantial burden on the exercise of their religion, since it compels them to engage in religiously prohibited behavior. This might be considered something of a stretch, since the law doesn’t require them either to use contraceptives themselves or provide them directly to others, but only share the cost if employees exercise their own freedom to use them. Perhaps more challenging, they will also have to show that the state has no compelling government interest in making contraception affordable, or that there are less restrictive ways of accomplishing that end. The Center for Reproductive Rights argues that the Court has already recognized the state’s compelling interest in preserving women’s health, and that the negative effects of unintended pregnancy have already established “the essential role of contraception as a preventive health service to prevent those health impacts.”

In some cases, courts have considered the effect that someone’s exercise of religion could have on people of other religions. In Griswold v. Connecticut (1965), the Supreme Court struck down Connecticut’s ban on contraceptives as a violation of a personal right of privacy. One could argue that the state’s compelling interest extends to protecting the individual’s right to contraceptive access, and that a corporate exemption from contraceptive coverage would expand the employer’s freedom at the expense of the employee’s freedom.

If the Court rules that corporations as well as individuals can obtain religious exemptions, then drawing the line between acceptable and unacceptable exemptions will become even more important. One hotly contested area is sure to be antidiscrimination law. Religious organizations already have a “ministerial” exemption; they are free to discriminate in favor of their own believers in filling important positions. They are also free to discriminate against women, as the Catholic Church does by refusing to ordain them. And even if the Employment Non-Discrimination Act (ENDA) is passed, churches will still be allowed to discriminate against gays and lesbians. If the argument for religiously-based corporate exemptions is upheld, some corporate owners will no doubt claim a right to discriminate on a wide variety of religious grounds.

One of the provisions of the Religious Freedom Restoration Act that I find most troubling is that the beliefs on which an exemption is based do not even have to be “longstanding, central to the claimant’s religious beliefs, internally consistent, consistent with any written scripture, or reasonable from the judge’s perspective. They need only be sincere” (Volokh). Senator Jim Inhofe of Oklahoma has said that we don’t need to worry about catastrophic climate change, since God wouldn’t allow it. If personal religious beliefs can be the basis for corporate exemptions, then a corporation could claim exemption from environmental regulations on such grounds. Hobby Lobby maintains that its real moral concern is abortion, since contraceptives sometimes work by preventing implantation of a fertilized egg. But if the effect of their exemption is that fewer health insurance policies cover contraception, the result could easily be more unwanted pregnancies and more abortions. The corporation’s position doesn’t have to be reasonable in order to be upheld.

The state cannot compel individuals to think rationally, but maybe it needs to be less permissive when it comes to corporate and public policy. Those who dislike federal regulation in general–which includes a number of our current Supreme Court justices–may welcome exceptions for anyone with a sincere objection, no matter what it is. But corporate behavior has too many public consequences to be too easily exempted from public laws. If a corporation dislikes a law, let it make an argument for changing it in the public forum, providing facts and reasons that people of all religious perspectives can understand.

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Curbing the Filibuster

November 22, 2013

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Yesterday a majority consisting only of Democrats changed the rules of the Senate to eliminate the filibuster for presidential appointments to the executive branch and the judiciary. A simple majority will now be enough to bring such appointments to a vote, instead of the “supermajority” of 60 needed to end a filibuster.

Democrats hailed this as a victory for majority rule, while Republicans condemned it as a power grab trampling on minority rights. Mainstream media like the Washington Post and NPR made it sound bad for everybody by describing it as an “escalation of partisan warfare.” The CBS Evening News called it a “new low,” as the Democrats “swept away 200 years of tradition.”

Well, not exactly. The filibuster as it has existed for the last few decades–and especially for the first five years of the Obama Administration–is hardly a longstanding historical tradition. The Senate has revised its rules repeatedly as it has struggled to balance the right of a minority to be heard with the right of a majority to get something done. Now it has acted again because previous rule changes combined with extreme political polarization to let filibustering get out of control.

Webster’s dictionary defines the filibuster as “the use of extreme dilatory tactics in an attempt to delay or prevent action esp. in a legislative assembly.” The most common tactic associated with the term is the refusal to stop debating so that a proposal can come to a vote. Until 1917 the Senate had no formal way of ending debate; votes were taken after all those who wished to speak had had their say. That made filibusters possible, but they rarely occurred in practice. In 1917, the Senate adopted a cloture rule ending debate by a two-thirds majority, which remained the rule until 1975. (Two-thirds meant two-thirds of those voting, except during the period 1949-1959, when it was changed to two-thirds of the entire Senate.)

Two more important changes occurred in the 1970s. After filibusters of civil rights legislation got in the way of other Senate business, the Senate created a two-track system allowing other bills to be considered even while a filibustered bill was still pending. In 1975 the Senate made it easier to end debate by reducing the cloture requirement from two-thirds to three-fifths. However, it also removed the requirement that Senators actually have to keep speaking on the floor in order to filibuster. The result of these changes was that filibusters increased dramatically. When filibustering meant speaking continuously and impeding all other business, it was a tactic too extreme to be used lightly or very often. But once Senators could require a vote of 60 simply by announcing their intention to filibuster, the power of a minority of at least 41 to block legislation was greatly enhanced. The filibuster was transformed from a tactic for continuing debate into a tactic for blocking consideration of a measure altogether.

Political polarization made it hard for either party to get enough support from the other to get 60 votes. As Ezra Klein puts it, “Before the two parties became reasonably unified and disciplined ideological combatants, filibusters were rarely used as a tactic of inter-party warfare because each political party had both members who supported and opposed the bills in question. As that era waned, the filibuster became constant because parties could agree on what to oppose.”

Both parties now have a stronger temptation to filibuster when they are in the minority. The last time the Republicans controlled the Senate, the Democrats filibustered some of President Bush’s judicial appointments, and it was the Republicans who got them to stop by threatening to change the rules. During the Obama administration, the Republicans have far surpassed the Democrats in both the frequency and obstructionist nature of their filibusters. In the case of presidential appointments, they have gone beyond challenging candidates on their merits to trying to prevent vacant positions from being filled at all. Sometimes this is to prevent an agency they don’t like from functioning, such as the Consumer Financial Protection Agency or National Labor Relations Board. Sometimes it is to maintain the current balance of Republican and Democratic judges in the courts. The last straw for Democrats was when the Republican leadership declared its opposition to filling any of the three vacancies on the D.C. Circuit Court of Appeals, the court with jurisdiction over many cases involving federal agencies. That court can affect the fate of many federal regulations, such as environmental regulations and implementation of the Dodd-Frank financial reforms. Although the Constitution gives the President the responsibility to fill such vacancies and the Senate the responsibility to consider them, the Republicans decided unilaterally that no Obama nominees should be voted upon, regardless of their qualifications.

Some commentators are now suggesting that the filibuster rules are too broken to be fixed, and that the 60-vote requirement will soon disappear entirely. Senate Minority Leader Mitch McConnell already threatened that if the Democrats eliminated it for presidential appointments, the Republicans would eliminate it for other legislation the next time they are in the majority. Once it is gone, what majority would weaken its own position by bringing it back? An alternative would be to keep the 60-vote requirement for ending legislative debate, but go back to making Senators continue speaking on the floor until a cloture vote succeeds or the filibusterers give in to the will of the majority.

The filibuster rules were once a way of insuring that all Senators had their say, and that a minority could have ample opportunity to persuade the majority. What they became more recently was a way for a minority to block consideration of measures they disliked, without even having to present arguments on their merits. Minority rights are one thing, but denying the majority a right to take a vote is something else. In that context, yesterday’s rule change is a return to democratic process, not a radical departure from it.

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Posted by Ed Steffes

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