Doubling the SEC and CFTC budgets

According to a blog post yesterday by Jeff Zients, assistant to the President for economic policy and director of the National Economic Council, President Obama’s fiscal year 2017 budget proposal includes funding of $1.8 billion for the Securities and Exchange Commission and $330 million for the Commodity Futures Trading Commission, up 11% and 32% respectively. More significantly, Zients’ post says that the President is calling for doubling the budgets of the SEC and the CFTC (albeit only from their substantially lower fiscal year 2015 levels) by fiscal year 2021. This has prompted the usual sputtering about excessive regulation and its dolorous effects on economic growth and the price of financial services. Raising barriers to entry in the financial sector. Stifling innovation.

Yadda yadda yadda. As if no serious person would deny the empirical truth of these statements. Far be it from me. But I have some questions:

How much of the 5-year increase in SEC and CFTC rulemaking, examination and enforcement activity will be directed at issuers and end-users (not otherwise engaged in financial activities) and how much will be directed at financial intermediaries (banks, broker-dealers, swap dealers, investment advisers, commodity trading advisers, etc.)?

The growth of the financial sector—particularly in the asset management and household credit sub-sectors—has consistently outpaced GDP growth over the last 35 years, during intervals of both comparatively strict and comparatively permissive financial regulation. To the extent the increased regulatory burdens in the next five years fall on financial intermediaries, what is the evidence that the resulting impediments (if any) to financial sector growth would adversely affect the real economy? That a smaller financial sector might in fact benefit the real economy by releasing some of the human capital and other scarce resources now devoted to extracting rents from the intermediation of financial assets?

The efficiency of the financial sector—as measured by the unit cost of financial intermediation—is today about what it was in 1900. This despite the reduced transaction and other marginal costs resulting from advances in information technology, the use of derivatives to manage risk and the move to an “originate-to-distribute” banking model. Is there any evidence that a 5-year increase in SEC and CFTC rulemaking, examination and enforcement activity would make the financial sector even less efficient and financial intermediation even more expensive, given the insensitivity of unit cost to changes in marginal costs over the very long term?

And if the financial sector’s persistent inefficiency results from the same oligopolistic and other anticompetitive behaviors that seek complex and arbitrary regulation as a means to bar entry and stifle innovation, then wouldn’t it be better to reduce the financial sector’s size and influence (e.g., through antitrust enforcement and campaign finance reform) than to “starve” our only means of goading it into more responsible behavior?

Spidey decisis

The final paragraphs of this morning’s opinion of the Supreme Court in Kimble v. Marvel Entertainment, LLC—a patent case involving Spider-Man web-shooters—in which the Court’s decision turned on whether it would overrule its prior decision in Brulotte v. Thys Co., 379 U.S. 29 (1964):

marvel

One of Justice Kagan’s clerks is having a really, really good day today.

Good textualism vs. bad textualism

Around here, the reaction to President Obama’s speech at the Catholic Health Association conference a couple of days ago, where the President called out the “cynicism” underlying the petitioners’ claims in King v. Burwell – being the second attempt by die-hard Obamacare opponents to recruit five willing executioners on the Supreme Court – was nothing short of hysterical.  In addition to the usual attacks on the President’s disrespect for the rule of law and Nietzschean impulses, there was renewed finger-wagging to the effect that the language in dispute is not a “a drafting error or a typo” but rather stands on its own as wholly dispositive of the matter at hand.

So, while we wait for the ruling to come down, let’s read the amicus curiae brief filed by Eskridge, et al., and see statutory interpretation done as God and Oliver Wendell Holmes intended.  The introduction and summary of argument:

The court of appeals held that the Patient Protection and Affordable Care Act (ACA) does not prohibit the Internal Revenue Service (IRS) from providing tax credits to individuals who purchase health insurance on exchanges created by the Department of Health and Human Services (HHS). Petitioners challenge that conclusion on the sole ground that seven words in 26 U.S.C. § 36B – “established by the State under section 1311” – foreclose tax credits on HHS-created exchanges. The text, they say, is clear, so by holding otherwise, the court below elevated statutory purpose over statutory text.

But this is not, as Petitioners suggest, a case about textualism vs. purposivism. It is a case about good textual analysis vs. bad textual analysis. Textualism does not require courts to read statutory provisions in a vacuum. To the contrary, it is a “fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (internal quotation marks omitted). By focusing exclusively on Section 36B’s seven words in isolation, Petitioners violate textualism’s core tenets and adopt an interpretation that would nullify the Act as a whole.

Modern textualism developed as a response to purposivism, which held that the letter of the law must yield to legislative “intent.” A search for legislative intent, textualists have explained, violates the constitutionally prescribed process of bicameralism and presentment: The only “law” to interpret is the text of a statute passed by both houses of Congress and signed by the president. By combing the legislative history for indicia of legislative intent, moreover, purposivist analysis risks substituting judicial judgment for the judgment of Congress. Thus, by focusing on the text of a statute – rather than on ethereal notions of legislative “intent” – textualism cabins judicial discretion, respects legislative supremacy in the policymaking process, and renders the interpretive process more predictable.

But textualism is not hyperliteralism, and textualists do not read the words of a statute in a vacuum. To the contrary, “reasonable statutory interpretation must account for both ‘the specific context in which … language is used’ and ‘the broader context of the statute as a whole.’” Utility Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2442 (2014) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997)). Thus, a statutory phrase that has one apparent meaning when read in isolation may have a different meaning when read in the context of the statute as a whole.

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