Brad DeLong's Egregious Moderation

Ten Economics Pieces Worth Reading: January 30, 2009

1) Veronica Navarro EspinosaCurbing Irrational Exuberance: Brazil Tax May Encourage More Measures, Dennis Says:

Jan. 19 (Bloomberg) -- Brazil’s success in curbing the rally in the real by imposing a tax on foreigners’ purchases of stocks and bonds is a “scary” and “dangerous” precedent, said Citigroup Inc. equity strategist Geoffrey Dennis. The success of the tax may encourage officials to adopt more measures to stem the currency’s appreciation.... “It’s kind of scary because it might mean that the government wants to do more things over time should the currency stay strong,” Dennis said.

The real has weakened 3.1 percent against the dollar since the government implemented a 2 percent tax on the purchases of equity and fixed-income assets by overseas investors on Oct. 19. The currency surged 33 percent last year, the best performance among 16 major currencies tracked by Bloomberg, as an accelerating economic recovery and growing demand for commodities lured foreign investors to the country.

“Part of the success of the tax comes about because there’s an implicit threat by the government to actually increase the tax if the currency continues to appreciate,” Tony Volpon, a Latin America strategist for Nomura Holdings Inc., said at the conference. “The government has had a surprising success in putting the fear in the carry-trade community.” In carry trades investors borrow at a low interest rate to invest in markets where returns are higher, earning the spread between the cost of borrowing and the returns on their investment. Brazil’s benchmark lending rate is 8.75 percent, compared with the U.S. Federal Reserve’s near-zero target rate...

2) MR. JUSTICE "PLEASE DON'T PUT ANOTHER JEW ON THE COURT" McREYNOLDS: LABOR BOARD V. FRIEDMAN-HARRY MARKS CLOTHING CO., 301 U. S. 58 (1937): MR. JUSTICE McREYNOLDS delivered the following dissenting opinion.

MR. JUSTICE VAN DEVANTER, MR. JUSTICE SUTHERLAND, MR. JUSTICE BUTLER, and I are unable to agree.... We conclude that these causes were rightly decided by the three Circuit Courts.... The opinions there given without dissent are terse, well considered, and sound.... Considering the far-reaching import of these decisions, the departure from what we understand has been consistently ruled here... the obligation to present our views becomes plain.

The Court, as we think, departs from well established principles followed in Schechter Poultry Corp. v. United States, 295 U. S. 495 (May, 1935), and Carter v. Carter Coal Co., 298 U. S. 238 (May, 1936). Upon the authority of those decisions, the Circuit Courts of Appeals of the Fifth, Sixth, and Second Circuits in the causes now before us have held... the Act conferred upon the National Labor Relations Board no authority in respect of matters covered by the questioned orders.... Six District Courts, on the authority of Schechter's and Carter's cases, have held that the Board has no authority.... No decision or judicial opinion to the contrary has been cited, and we find none. Every consideration brought forward to uphold the act before us was applicable to support the acts held unconstitutional in causes decided within two years. And the lower courts rightly deemed them controlling...

3) Michael Woodford: Simple Analytics of the Government Expenditure Multiplier:

This paper explains the key factors that determine the effectiveness of government purchases as a means of increasing output and employment in New Keynesian models through a series of simple examples that can be solved analytically. Delays in the adjustment of prices or wages can allow for larger multipliers than exist in the case of fully flexible prices and wages; in a fairly broad class of simple models, the multiplier is 1 in the case that the monetary authority maintains a constant path for real interest rates. The multiplier can be considerably smaller, however, if the monetary authority raises real interest rates in response to increases in inflation or real activity resulting from the fiscal stimulus. A large multiplier is especially plausible when monetary policy is constrained by the zero lower bound on nominal interest rates; in such a case, expected utility is maximized by expanding government purchases to at least partially fill the output gap that would otherwise exist owing to the central bank's inability to cut interest rates.

4) Ezra Klein: Rahm Emanuel makes me very pessimistic about health-care reform:

It is very, very, very important to be clear on what the death of health-care reform looks like. It is not a vote that goes against the Democrats. It is not an admission that the White House has moved on from the subject. It is continued statements of commitment from the key players paired with a continued stretching of the timetable. Like everything else in life, policy initiatives grow old and die, even if people still love them.

The timetable Emanuel is laying out makes little sense. The jobs bill will take some time. Financial regulation will take much longer. Let's be conservative and give all this four months. Is Emanuel really suggesting that he expects Congress to return to health-care reform in the summer before the election? Forgetting whether there's political will at that point, there's no personnel: Everyone is home campaigning.

Moreover, there's a time limit on health-care reform. The open reconciliation instructions the Senate could use to modify the bill expire when the next budget is (there's disagreement over the precise rule on this) considered or passed.

5) Mike Konczal: Fake Homeownership:

I saw an ad on craigslist (though most story that starts with that line are shady, this one is not especially so) for apartment rental opportunities in Sacramento, CA. The rent was very cheap, but you had to post a gigantic security deposit, sign away rights related to eviction and give proof that you’ve never been convicted of a crime. Digging a bit deeper, it was clear that the owner was an out of state company that was buying up sections of foreclosed homes in abandoned neighborhoods. And what they needed was less a “renter” but a controlled “squatter.” If left alone, these buildings would become homes for the homeless, gang activity, looters and pranksters, etc. So what the investment company wanted to do, since they wanted to sell the properties as homes in the long run but couldn’t in the short run, was get someone to squat in these buildings for them; they were looking to hire a respectable squatter, get him on the payroll through really cheap rent, and he or she who could do whatever in the building as long as it wasn’t destructive of value.

I think that’s a good metaphor for what homeownership is like with a regime of subprime loans. I like discussing this because it blurs the line of the ideals of homeownership of the late 20th century – a yeoman ownership society where nobody ever washes a rented car – with something more feudal. We’ve had this discussion before, but it only focused on the way up – what’s interesting now is we can begin to play with a theory of fake homeownership on the way down.

6) Michael Pomerleano and Andrew Sheng: A failure of public financial sector governance:

We are driven to the conclusion of Hyman Minsky that conventional wisdom and the “trend is your friend” invariably lead to complacency: “Stability leads to instability.” The cycle between greed and fear will be such that even if regulatory standards are toughened and independent systemic stability councils are put in place, fading memories of disasters will cause the public and policy makers alike to relax their vigilance, leading to the next crisis. The flawed public financial sector governance incentives that led to the present crisis have not been addressed in the prospective reform agenda. This article is intended to stimulate thinking and discussion about what can be done.

7) GRAPH OF THE DAY: The Failure of Okun's Law:

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Sam Stein: Obama Goes To GOP Lions' Den -- And Mauls The Lions:

President Obama traveled to a House Republican retreat in Baltimore on Friday and delivered a performance that was at once defiant, substantive and engaging. For roughly an hour and a half, Obama lectured GOP leaders and, in a protracted, nationally-televised question-and-answer session, deflected their policy critiques, corrected their misstatements and scolded them for playing petty politics. White House officials told the Huffington Post they were absolutely ecstatic. MSNBC's Luke Russert, who was on the scene in Baltimore, relayed that a Republican official and other GOP aides had confided to him that allowing the "cameras to roll like that" was a "mistake."

So effective was the president that Fox News cut away from the broadcast 20 minutes before it ended...

9) STUPIDEST THINGS I HAVE SEEN TODAY: The Dumb-as-a-Post Mike Pence (R-House) and the Underbriefed and Lazy Chris Matthews: Outsourced to Matthew Yglesias:

For an example of what I’m talking about with regards to dumb-as-a-post Representative Mike Pence, watch his answer to the question of what kind of compromise he would propose for health reform: “Well, look, you know, I was, uh, yeah, yeah, look, uh” Pence then pivoted away from addressing the issue to a kind of stammering evocation of the idea that the health insurance industry should be completely deregulated under the guise of allowing you to buy insurance across state lines. This, of course, is just a longstanding conservative proposal and not an idea for a compromise.... Chris Matthews didn’t... have the policy chops to dig deeper with Pence on the insurance regulation issue. But this is the point.... Pence’s proposal... is that one revenue-hungry state should cut a deal with insurers—move your headquarters’ to Sioux Falls (or just bribe enough state legislators) and we’ll let your lobbyists write whatever lax regulations you like. Then next thing you know everyone is “allowed” to buy this unregulated South Dakota health insurance and no other kind of insurance policies are available. This is what’s been done with the credit card industry and it’s the model that Pence wants to extent to health insurance...

10) HOISTED FROM THE ARCHIVES: DeLong (1999): Why We Should Fear Deflation:

After more than sixty years, deflation has reappeared as something to worry about. In the past six months major newspapers printed 438 articles classified under the keyword "deflation"--compared to 36 such in the first half of 1997 and 10 such in the first half of 1990. For sixty years, ever since the middle years of the Great Depression, next to no one had worried about deflation. Next to no one had seen actual falls in the price level as even a remote possibility. Now people do....

Given that deflation is back on the agenda, should it be feared?...

If the danger of deflation springs from its effect on net worth and depends on the degree of financial fragility in the economy, then economies may well have more to fear than declines in broad goods-and-services price indices alone. If securities and real estate holdings have been pledged as collateral for debt contracts, then large-scale asset price declines also trigger the confusion of macroeconomic events with entrepreneurial failure that makes deflation feared.

Is the United States today potentially vulnerable to large-scale asset price declines in this way? In real estate no. In the stock market yes. Perhaps fundamental patterns of equity valuation have truly changed, as investors have recognized that the equity premium over the past century was much too large--in which case stock prices have reached a permanent and high plateau. But it seems more likely that there are substantial risks of stock market declines on the order of fifty percent back to Campbell-Shiller fundamentals.

A second source of potential deflation-like pressure--seen during Sweden's exchange rate crisis of 1992, during Mexico's exchange rate crisis of 1994-5, during the East Asian crises of 1997, as well as in Great Depression-era events like the Austrian financial crises of 1931--arises out of large-scale foreign-currency borrowing by banks, companies, and governments in countries whose exchange rates then sharply depreciate.

Exchange rate depreciation is a standard reaction to a sudden fall in foreign demand for a country's goods and services exports (on the current account) or property (on the capital account). When demand for a private business's products falls, the business cuts its prices. When demand for a country's products falls, a natural reaction is for the country to cut its prices, and the most way to accomplish this is through exchange rate depreciation.

But if governments, banks, and non-financial corporations have borrowed abroad in hard currencies, depreciation writes up the home-currency value of their debts and impairs their balance sheets in the same fashion as conventional goods-and-services price index deflation.

We know that other countries certainly have been vulnerable to this form of financial market disruption. Is the U.S. vulnerable? Not today. U.S. gross external obligations of $7 trillion or so are overwhelmingly equity or dollar-denominated investments. But will they still be dollar-denominated come the end of the year 2000, when they will amount to perhaps $9 trillion, and when these gross obligations are part of a net investment position of more than -$2 trillion?...

Ten Economics Pieces Worth Reading: January 29, 2010

1) Menzie Chinn sends us to: Michael Rosenberg, Financial Conditions Watch (Bloomberg, Jan. 27, 2010):

Fed Funds Rate Outlook -- A Taylor Rule Perspective: With U.S. real GDP growth moving back into positive territory in the second half of 2009 following four consecutive quarters of negative growth (see Figure 1), the economic forecasting community appears to be increasingly optimistic about the U.S. economy's growth prospects for 2010-11.... According to Bloomberg's latest survey of 57 economists (as reported on {ECFC}), the U.S. economy is expected to grow by 2.7% in 2010 and 2.9% in 2011 (see Figure 2). These projections represent a significant rebound from the 2.5% decline expected for 2009.

Indeed, judging by expectations of the future course of U.S. short-term interest rates, the market appears to believe that the U.S. recovery will prove to be stronger than a typical post-crisis recovery. Expectations for higher short-term interest rates are reflected both in the Fed Funds futures market and in the consensus interest-rate projections of leading economists (as reported in Bloomberg's latest {BYFC} survey)... the futures market is pricing in Fed rate hikes that will take the Funds rate to around 0.75% by year-end 2010 and to around 1.00% by February 2011. The forecasting community believes the Fed will be even more aggressive as they expect the Fed to hike the Fed Funds rate to 1.75% by mid-2011.

While it is certainly the case that the Fed will eventually have to push its policy rate higher, there is reason to believe that the policy-rate path predicted in Figure 4 might be overly aggressive. Indeed, as we demonstrate below, the market's projection for Fed rate hikes is not consistent with the path forecasted by conventional Taylor Rule models. If we input the Federal Reserve's forecasts for core inflation and unemployment into a variety of Taylor Rule-type models, we actually end up with a zero or negative Fed Funds rate projected for all of 2010 and, in a number of cases, for 2011 as well.

2) Felix Salmon: Global financial regulatory reform falls apart:

There are literally more representatives of Bill Clinton here in Davos than there are of Barack Obama. If the Obama administration is serious about its newest ideas for regulatory reform, especially the Volcker Rule, it would have made a great deal of sense to send Paul Volcker — or at the very least someone like Austan Goolsbee — to Davos, to try to get the rest of the world excited about it. But they didn’t.

And even the president himself doesn’t seem to wedded to it... the relevant bit of his address last night... is all so vague as to be meaningless; the one thing that’s for sure is that House has not passed financial reform with a Volcker Rule embedded — mainly because the Volcker Rule didn’t exist when the House was putting its bill together. Yet it seems that Obama is reasonably happy with the House bill in its present form.

3) Tim Duy: Dissent:

The FOMC statement contained a mini-bombshell, the dissent of Kansas City Fed President Thomas Hoenig.  I am skeptical, however, that this dissent is a significant shift in the policy environment.  Instead, I view the statement as taking another baby step forward to a normalization of monetary policy now that the financial crisis has eased and that the economic environment has firmed.  Many policymakers will simply find themselves increasingly uncomfortable holding rates at rock bottom levels while sitting on a bloated balance sheet - regardless of the unemployment rate.  Short of a significant reversal of recent economic gains, I would be hard pressed to see the Fed back away from a policy stance that is growing tighter, albeit slowly tighter.

4) John Gruber: The iPad Big Picture:

Apple now owns and controls their own mobile CPUs. There aren’t many companies in the world that can say that. And from what I saw today, Apple doesn’t just own and control a mobile CPU, they own and control the hands-down best mobile CPU in the world. Software aside (which is a huge thing to put aside), it may well be that no other company could make a device today matching the price, size, and performance of the iPad. They’re not getting into the CPU business for kicks, they’re getting into it to kick ass. They’re Microsoft and Intel rolled into one when it comes to mobile computing. In the pre-taped video Apple showed, Bob Mansfield said of the iPad, “No one else could do it.” Only Apple. And so my takeaway from this — with the bragging about making their own CPUs and their annual revenue and their size compared to companies like Sony, Samsung, and Nokia — is that this is Apple’s way of asserting that they’re taking over the penthouse suite as the strongest and best company in the whole ones-and-zeroes racket.

5) GRAPH OF THE DAY: from the Economic Policy Institute:

6) BEST NON-ECONOMICS THING I HAVE READ TODAY: Michael Cohen: America the Ungovernable:

In 2008 Barack Obama and the Democrats were elected to fix the economy; and yet the only real measures at their disposal—increasing government spending and bailing out or nationalizing key industries—is precisely what is sparking voter discontent. Had Democrats not passed an $800 billion stimulus package, if Obama hadn't bailed out the auto industry or continued the TARP program, the country would likely be in far worse shape than it is today. Yet the president is getting no credit for doing the exact things he was asked to do last November.

On health care, polls indicate that Americans want Congress to extend access, cut costs, and tame the insurance industry. But they don't want their own benefits affected, or government's role in the health-care system to increase, or be mandated to buy insurance. In short, they want change, but they reject the most commonsense means of bringing that change about and generally refuse to sacrifice for the greater good of society as a whole.

Making the situation worse is that political news coverage, rather than explaining the gulf between voter expectations and political reality, often panders to the electorate's misguided notions. Partisans are allowed to spew talking points decrying government spending and rising deficits without being forced to explain how they would rein it in. Politicians call for bipartisan compromise without acknowledging their own role in exacerbating partisan tensions. Voters complain that Washington must do more to help the economy but in the same breath decry government's expanding role or misstate basic facts about their government and are given a virtual free pass by reporters who take "customer is always right" attitude toward the electorate.

7) SECOND BEST NON-ECONOMICS THING I HAVE READ TODAY: Ta-Nehisi Coates: Chris Rock On The Negro Dialect:

8) SECOND STUPIDEST THING I HAVE READ TODAY: Eric Hobsbawm: Age of Empire, p. 50:

The world merchant marine, whose growth roughly indicates the expansion of the global economy, had remained more-or-less static between 1860 and 1890. Its size fluctuated between 16 and 20M tons. Between 1890 and 1914 it almost doubled...

[But the fleet of 1860 is a sailing fleet. The fleet of 1890 is a steam fleet. What with the changability of the wind, a steamship can sail about three times as fast as a sailing ship. the 20M tons of 1890 had three times the cargo-carrying capacity of the 20M tons of 1860.]

9) STUPIDEST THING I HAVE READ TODAY: Greg Mitchell tells us about David Brooks: David Brooks on Sarah Palin: A Profile in Cowardice:

It was amusing -- if appalling -- to watch David Brooks on the TV yesterday declare that Sarah Palin is a "joke" and only qualified to be a TV "talk show host." Last year, during the 2008 campaign, he believed exactly the same thing but refused to put it in print. It was a Profile in Cowardice and one of the biggest stains on Brooks' career in journalism and punditry.... Last year, in early October, the New York Times columnist admitted at a small Manhattan forum -- fortunately captured on video by then-HuffPoster Rachel Sklar -- that vice presidential candidate Sarah Palin was not qualified for higher office ("not even close") and, indeed, was a "cancer" on his party, the GOP. To that point, while offering some criticism of Palin as candidate, Brooks had not offered this frank appraisal to his millions of Times readers or in a national TV airing. Days passed and he never did. I kept a running count here of days he was missing in action. Election day came and went and no Brooks slam in print on this "unqualified" angle. And, of course, he never did say that selecting an incompetent was a fatal blemish on John McCain. In fact, Brooks wrote, "Palin is smart, politically skilled, courageous and likable. Her convention and debate performances were impressive. But no American politician plays the class-warfare card as constantly as Palin." Brooks also mocked what he called the "smug condescension that has so marked the reaction to the Palin nomination in the first place"...

10) HOISTED FROM THE ARCHIVES: Brad DeLong (August 2007)Weirdest First Week of Class Experience EVAR!!:

"The 210a students are waiting for you." "What?" "Economics 210a. The students. They are waiting for you. In Evans 608-7." "But 210a is in the spring!" "There are seventeen 210a students waiting for you in Evans 608-7 right now."

It turns out that when we in the Economics Department moved 210a from the fall to the spring semester, we never told the registrar. So students who relied on the schedule of classes rather than the Economics Department gossip vine thought 210a starts today. I am pushing as many of them as I can back to the spring, and I suppose I will wind up doing a reading course for the rest who cannot make the spring time...

UPDATE: We may well have told the registrar. The registrar thinks that I am teaching 210a in the fall, and that Barry Eichengreen is teaching 210a in the spring. We may have just confused the registrar.

Matthew Yglesias: Monetary Policy in an Emergency

Matthew Yglesias: Monetary Policy in an Emergency: I found this 1999 Paul Krugman article about Japan relevant to our contemporary situation:

If a zero short-term interest rate is not enough to generate an economic recovery, and if deficit spending has reached its limits, then there are only two serious remaining policy options. One is to extend open-market operations to those assets whose prices can still be driven up – most obviously, longer-term bonds and foreign currencies. The other is to try to bootstrap a recovery by convincing savers and investors that the future will bring not deflation but modest inflation, something that can best be accomplished by announcing an explicit inflation target, but could possibly be achieved through a less explicit policy of “quantitative easing” – essentially, producing attention-grabbing increases in the monetary base. In practice such policies are not alternatives but complements: unconventional monetary policy today should be used as the opening salvo of a campaign to convince the private sector that inflation rather than deflation will prevail tomorrow.

Such proposals are the natural implication of utterly orthodox monetary analysis, applied to Japan’s unusual plight. If you believe that an economy is in a liquidity trap, and that fiscal policy has reached its limits – both propositions about Japan that are hard to deny – it is hard to avoid the conclusion that in such circumstances to adhere to conventional notions of monetary prudence is to flirt with catastrophe, and that policies that would normally be regarded as irresponsible become not only reasonable but essential.

But although this conclusion is hard to avoid, influential Japanese are still trying. Say to them that the Bank of Japan should announce a minimum inflation target of at least 2 percent, or that there should be a clear commitment to increase the monetary base at an annual rate of at least 15 percent, and you get the feeling that you have proposed an immoral act. In public the BOJ’s leadership has adopted a posture that is best described as philosophical, full of skepticism about its ability to do much to turn the economy around. And since monetary policy in a liquidity trap must work mainly through its effect on expectations, such diffidence is not only an abdication of responsibility; it undermines the effectiveness of whatever monetary expansion actually takes place.

I hear a lot of people say that Krugman was better back in the nineties before he became “shrill” and/or “partisan.” I think this is a misunderstanding. I think that if you just turned this into an article about the United States of America that was full of the names of prominent American political, economic, and media figures it would just strike people as a shrill or extreme article. The fact that it’s a piece about a far-off land full of unknown “BOJ leadership” softens the blows, and the fact that the main point is that foreigners (rather than, say, politicians you may admire) are screwing up makes people non-defensive about the argument. But it’s impossible to write clear prose about American politics for an American audience without sounding shrill or hackish or something to some large segment of the population, we all know and care too much.

Paul Krugman: March of the Peacocks

March of the Peacocks: Last week, the Center for American Progress, a think tank with close ties to the Obama administration, published an acerbic essay about the difference between true deficit hawks and showy “deficit peacocks.” You can identify deficit peacocks, readers were told, by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending.

One week later, in the State of the Union address, President Obama proposed a temporary freeze in nondefense discretionary spending.

Wait, it gets worse. To justify the freeze, Mr. Obama used language that was almost identical to widely ridiculed remarks early last year by John Boehner, the House minority leader. Boehner then: “American families are tightening their belt, but they don’t see government tightening its belt.” Obama now: “Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”

What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems.

The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.

In the long run, however, even the U.S. government has to pay its way. And the long-run budget outlook was dire even before the recent surge in the deficit, mainly because of inexorably rising health care costs. Looking ahead, we’re going to have to find a way to run smaller, not larger, deficits.

How can this apparent conflict between short-run needs and long-run responsibilities be resolved? Intellectually, it’s not hard at all. We should combine actions that create jobs now with other actions that will reduce deficits later. And economic officials in the Obama administration understand that logic: for the past year they have been very clear that their vision involves combining fiscal stimulus to help the economy now with health care reform to help the budget later.

The sad truth, however, is that our political system doesn’t seem capable of doing what’s necessary.

On jobs, it’s now clear that the Obama stimulus wasn’t nearly big enough. No need now to resolve the question of whether the administration should or could have sought a bigger package early last year. Either way, the point is that the boost from the stimulus will start to fade out in around six months, yet we’re still facing years of mass unemployment. The latest projections from the Congressional Budget Office say that the average unemployment rate next year will be only slightly lower than the current, disastrous, 10 percent.

Yet there is little sentiment in Congress for any major new job-creation efforts.

Meanwhile, health care reform faces a troubled outlook. Congressional Democrats may yet manage to pass a bill; they’ll be committing political suicide if they don’t. But there’s no question that Republicans were very successful at demonizing the plan. And, crucially, what they demonized most effectively were the cost-control efforts: modest, totally reasonable measures to ensure that Medicare dollars are spent wisely became evil “death panels.”

So if health reform fails, you can forget about any serious effort to rein in rising Medicare costs. And even if it succeeds, many politicians will have learned a hard lesson: you don’t get any credit for doing the fiscally responsible thing. It’s better, for the sake of your career, to just pretend that you’re fiscally responsible — that is, to be a deficit peacock.

So we’re paralyzed in the face of mass unemployment and out-of-control health care costs. Don’t blame Mr. Obama. There’s only so much one man can do, even if he sits in the White House. Blame our political culture instead, a culture that rewards hypocrisy and irresponsibility rather than serious efforts to solve America’s problems. And blame the filibuster, under which 41 senators can make the country ungovernable, if they choose — and they have so chosen.

I’m sorry to say this, but the state of the union — not the speech, but the thing itself — isn’t looking very good.

Mark Schmitt: The Return of Childish Things

The Return of Childish Things: The main argument within the center-left coalition in American politics, for at least 20 years (coinciding with the life of this magazine), has been between Big and Small. It's not liberal versus moderate, or the people versus the powerful. Rather, it's between a progressivism of big gestures, emphatic programs, and ballsy claims to power, on the one hand, and on the other, small, tactical, non-scary transactional bargains that nudge the country, or some subset of us, in a better direction.

Somehow, most of the time, small wins. And last night, although the State of the Union Address was strong in many respects in tone and substance, Barack Obama signed a nonaggression pact with small.

I've usually found myself on the side of big. When I worked on Bill Bradley's presidential campaign in 2000, our case -- and the principal progressive critique of the Clinton administration -- was that it had thought too small. After the disasters of 1993 and 1994, Clinton and Gore had scaled down to the "micro-initiatives" devised by Mark Penn, passing up opportunities to decisively change the country's direction. A year ago, this magazine joined in hosting a conference enjoining the new administration and Congress to "think big." Big ideas, not more liberal ideas, were the defining distinction. And it wasn't just about policy: Big was also a strategy about how to govern, by presenting a clear, uncompromised alternative vision compelling enough to animate a movement, intimidate opponents, and realign politics. Indeed, even the conflicts in the late days of the health-reform fight -- such as whether to oppose a bill without a public option -- were as much about setting a high standard for bargaining as they were conflicts of ideology.

Small had dominated Democratic politics through the 2004 election. (Recall, for example, John Kerry's health-care plan, which had a sort of ship-in-a-bottle brilliance, as if he'd asked the smartest policy minds to design the tiniest possible policy that might still improve the system.) Domestic policies were often created out of dozens of tax credits and the responses to Republican initiatives were defensive and partial.

A year ago, after a tremendous progressive and Democratic resurgence, and the rise of Obama, everything seemed aligned for thinking big to finally get its shot. The problems were colossal in scale, and the political opportunity was unprecedented -- a Democrat elected with a solid majority of the vote, control of both houses of Congress, and a mobilized political base. The Bush years proved that defiance of the natural inertia of politics could succeed, and Obama set the tone in his Inaugural: "The time has come to set aside childish things."

And yet, in his first real State of the Union, Obama had to look back on the year and say, "Let's try common sense." He presented a somewhat cluttered agenda of contradictory impulses (another dozen tax credits, plus a spending freeze, pay-as-you-go budgeting, and job creation), some great ideas (I believe it's the first time income-contingent student-loan repayment has made it to the big speech), and generalized soft encouragement on the really big ideas (health care and energy). There was strong language on Republican obstruction, the Bush legacy, Democratic timidity ("people expect us to solve some problems, not run for the hills"), the media and even the Supreme Court, but it was all language -- the idea that a big vision of change could roll over those forces of resistance was lost.

I tend to forgive Obama of responsibility for systemic or institutional failings -- as Hendrik Hertzberg wrote recently, "Sometimes excuses actually excuse." There is much in the system that makes it almost impossible to be Franklin Roosevelt. Congressional small-mindedness is reinforced by a public that can quickly get nervous and exhausted at the prospect of change -- especially if the word "health" is involved. But in many ways Obama was a flawed messenger for the "thinking big" approach. As Rick Perlstein argued in our recent dialogue, you need not only an ambitious agenda but a president willing to be confrontational and daring. To the extent Bush succeeded with a big agenda, which was less than half the time, it was by compromising as little as possible. A president who wants things that are just plain harder than tax cuts and wars can't play that way, and if forced to, will fail. So what Obama wound up with, especially on health reform, was a situation in which the smallness of Washington made a big project seem compromised, small, and illegitimate. If, as Karen Tumulty claims, everyone in Massachusetts seemed aware of the "Cornhusker Kickback" -- the Medicaid deal for Nebraska that bought Sen. Ben Nelson's support -- and as suggested by a Washington Post poll, based their growing opposition to health reform mainly on discomfort with that type of procedural bargaining -- then you have the irony that an ostensibly conservative Democrat created the conditions that made people feel a piece of legislation was too liberal. These are the contradictions of small politics, and they are not easy to overcome, except by embracing an agenda of gestures and symbolism that matches them, like a key to a lock. And so, if the Blue Dog Democrats need to hear something about reducing the deficit, give them something meaningless about reducing the deficit. They're not serious about it (many of them favor permanent repeal of the estate tax, a deficit disaster), but you can't make them set aside childish things.

In this it had the feel of Bill Clinton's State of the Union speeches, most of which I remember disliking -- they seemed like formless laundry lists glued together with strong words. But I have to admit that Clinton was the master of the form, and, as Paul Waldman notes, Clinton was the only recent president whose State of the Union addresses consistently boosted his popularity.

Remember too that the last productive period for progressive legislation was 1997-1998, when among other things, the State Children's Health Insurance Program was created. Our criticism of later Clintonism wasn't quite right: It is possible to create some big things out of smaller, salable pieces, and the art of Clinton's speeches was in taking that one moment when a good portion of the public is paying attention and using it to break down politics into manageable pieces. I suspect that many Americans who are anxious about health reform for a dozen reasons had never heard the basic components explained as clearly. If there is a chance to move health reform, it will be boosted by this reassertion of the case for it in modest, non-scary, incremental terms.

It's now been two years since Obama became the dominant figure on the American political landscape. In that time, I've charted and encouraged a kind of slow settling back to earth. Political passion and commitment are hard to sustain. The settling is now complete, and there's no returning to a "big ideas" agenda, not anytime soon. It will always be out there, untested, like that perfect Marxism that was never quite tried, or the conservatives' fantasy of the real small-government president that they never got. But incremental politics, in which we slowly construct serious change out of smaller pieces, some of them imperfect, can sometimes work and may be better suited to the times and to Obama's skills.

Justice John Marshall Harlan (1886): Santa Clara County vs. Southern Pacific Railroad

SANTA CLARA COUNTY v. SOUTHERN PAC. R. CO., 118 U.S. 394 (1886) 118 U.S. 394:

[118 U.S. 394, 396]   D. M. Delmas, A. L. Rhodes, for Santa Clara County.

[118 U.S. 394, 397]   E. C. Marshall, for plaintiffs in error.

Wm. M. Evarts, Geo. F. Edmunds, and S. W. Sanderson, for defendants in error.

After stating the facts in the foregoing language, Mr. Justice HARLAN delivered the opinion of the court.

These several actions were brought-the first one in the superior court of Santa Clara county, California, the others in the superior court of Fresno county, in the same state-for the recovery of certain county and state taxes claimed to be due from the Southern Pacific Railroad Company and the Central Pacific Railroad Company under assessments made by the state board of equalization upon their respective franchises, road-ways, road-beds, rails, and rolling stock. In the action by Santa Clara county the amount claimed is $13,366.53 for the fiscal year of 1882. For that sum, with 5 per cent. penalty, interest at the rate of 2 per cent. per month from December 27, 1882, cost of advertising, and 10 per cent. for attorney's fees, judgment is asked against the Souther Pacific [118 U.S. 394, 398]   Railroad Company. In the other action against the same company the amount claimed is $5,029.27 for the fiscal year of 1881, with 5 per cent. added for non-payment of taxes and costs of collection. In the action against the Central Pacific Railroad Company judgment is asked for $25,950.50 for the fiscal year of 1881, with like penalty and costs of collection. The answer in each case puts in issue all the material allegations of the complaint, and sets up various special defenses, to which reference will be made further on. With its answer the defendant, in each case, filed a petition, with a proper bond, for the removal of the action into the circuit court of the United States for the district, as one arising under the constitution and laws of the United States. The right of removal was recognized by the state court, and the action proceeded in the circuit court. Each case, the parties having filed a written stipulation waiving a jury, was tried by the court. There was a special finding of facts, upon which judgment was entered in each case for the defendant. The general question to be determined is whether the judgment can be sustained upon all or either of the grounds upon which the defendants rely.

The case as made by the pleadings and the special finding of facts is as follows:

By an act of congress approved July 27, 1866, the Atlantic & Pacific Railroad Company was created, with power to construct and maintain, by certain designated routes, a continuous railroad and telegraph line from Springfield, Missouri, to the Pacific. For the purpose-which is avowed by congress-of facilitating the construction of the line, and thereby securing the safe and speedy transportation of mails, troops, munitions of war, and public stores, a right of way over the public domain was given to the company, and a liberal grant of the public lands was made to it. The railroad so to be constructed, and every part of it, was declared to be a post route and military road, subject to the use of the United States for postal, military, naval, and all other government service, and to such regulations as congress might impose for restricting the charges for government transportation. By the [118 U.S. 394, 399]   eighteenth section of the act, the Southern Pacific Railroad Company,-a corporation previously organized under a general statute of California passed May 20, 1861, (St. Cal. 1861, p. 607,)-was authorized to connect with the Atlantic & Pacific Railroad at such point, near the boundary line of that state, as the former company deemed most suitable for a railroad to San Francisco, with 'uniform gauge and rate of freight or fare with said road;' and in consideration thereof, and 'to aid in its construction,' the act declared that it should have similar grants of land, 'subject to all the conditions and limitations' provided in said act of congress, 'and shall be required to construct its road on like regulations, as to time and manner, with the Atlantic & Pacific Railroad.' 14 St. p. 292, 1, 2, 3, 11, 18. In November, 1866, the Atlantic & Pacific Railroad Company and the Southern Pacific Railroad Company filed in the office of the secretary of the interior their respective acceptances of the act.

By an act of the legislature of California, passed April 4, 1870, to aid in giving effect to the act of congress relating to the Southern Pacific Railroad Company, it was declared that 'to enable the said company to more fully and completely comply with and perform the requirements, provisions, and conditions of the said act of congress, and all other acts of congress now in force, or which may hereafter be enacted, the state of California hereby consents to said act; and the said company, its successors and assigns, are hereby authorized to change the line of its railroad so as to reach the eastern boundary line of the state of California by such route as the company shall determine to be the most practicable, and to file new and amendatory articles of association; and the right, power, and privilege is hereby granted to, conferred upon, and vested in them to construct, maintain, and operate, by steam or other power, the said railroad and telegraph line mentioned in said acts of congress, hereby confirming to and vesting in the said company, its successors and assigns, all the rights, privileges, franchises, power, and authority conferred upon, [118 U.S. 394, 400]   granted to, or vested in said company by the said acts of congress, and any act of congress which may be hereafter enacted.'

Subsequently, by the act of March 3, 1871, congress incorporated the Texas Pacific Railroad Company, with power to construct and maintain a continuous railroad and telegraph line from Marshall, in the state of Texas, to a point at or near El Paso, thence through New Mexico and Arizona to San Diego, pursuing, as near as might be, the thirty-second parallel of latitude. To aid in its construction, congress gave it, also, the right of way over the public domain, and made to it a liberal grant of public lands. The nineteenth section provided 'that the Texas Pacific Railroad Company shall be, and it is hereby, declared to be a military and post road; and for the purpose of insuring the carrying of the mails, troops, munitions of war, supplies, and stores of the United States, no act of the company nor any law of any state or territory shall impede, delay, or prevent the said company from performing its obligations to the United States in that regard: provided, that said road shall be subject to the use of the United States for postal, military, and all other governmental services, at fair and reasonable rates of compensation, not to exceed the price paid by private parties for the same kind of service, and the government shall at all times have the preference in the use of the same for the purpose aforesaid.'

The twenty-third section of that act has special reference to the Southern Pacific Railroad Company, and is as follows:

'Sec. 23. That, for the purpose of connecting the Texas Pacific Railroad with the city of San Francisco, the Southern Pacific Railroad Company of California is hereby authorized (subject to the laws of California) to construct a line of railroad from a point at or near Tehacapa Pass, by way of Los Angeles, to the Texas Pacific Railroad, at or near the Colorado river, with the same rights, grants, and privileges, and subject to the same limitations, restrictions, and conditions, as were granted to said Southern Pacific Railroad Company of California by the act of July 27, 1866: provided, however, that this section shall in no way [118 U.S. 394, 401]   affect or impair the rights, present or prospective, of the Atlantic & Pacific Railroad Company, or any other company.' Under the authority of this legislation, federal and state, the Southern Pacific Railroad Company constructed a line of railroad from San Francisco, connecting with the Texas & Pacific Railroad (formerly the Texas Pacific Railroad) at Sierra Banca, in Texas: and, with other railroads, it is operated as one continuous line (except for that part of the route occupied by the Central Pacific Railroad) from Marshall, Texas, to San Francisco. It is stated in the record that the Southern Pacific Railroad Company of California, since the commencement of this action, has completed its road to the Colorado river, at or near the Needles, to connect with the Atlantic & Pacific Railroad, and that with the latter road it constitutes a continuous line from Springfield, Missouri, to the Pacific, except as to the connection, for a relatively short distance, over the road of the Central Pacific Railroad Company.

On the seventeenth of December, 1877, the said Southern Pacific Railroad Company, and other railroad corporations then existing under the laws of California, were legally consolidated, and a new corporation thereby formed under the name of the Southern Pacific Railroad Company, the present defendant in error, 59.30 miles of whose road is in Santa Clara county and 17.93 miles in Fresno county.

On the first of April, 1875, this company was indebted to divers persons in large sums of money advanced to construct and equip its road. To secure that indebtedness, it executed on that day a mortgage for $32, 520,000 on its road, franchises, rolling stock, and appurtenances, and on a large number of tracts of land, in different counties of California, aggregating over 11,000,000 acres. These lands were granted to the company by congress under the abovementioned acts, and are used for agricultural, grazing, and other purposes not connected with the business of the railroad. Of those patented, 3,138 acres are in Santa Clara county, and 18, 789 acres in Fresno county. When these proceedings were instituted, no part of its above mortgage debt had been paid, except the accruing in- [118 U.S. 394, 402]   terest and $1,632,000 of the principal, leaving outstanding against it $30, 898,000.

In the year 1852, California, by legislative enactment, granted a right of way through that state to the United States for the purpose of constructing a railroad from the Atlantic to the Pacific ocean; declaring that the interests of California, as well as the whole Union, 'require the immediate action of the government of the United States for the construction of a national thoroughfare, connecting the navigable waters of the Atlantic and Pacific oceans, for the purpose of the national safety, in the event of war, and to promote the highest commercial interests of the Republic.' St. Cal. 1852, p. 150. By an act passed July 1, 1862, congress incorporated the Union Pacific Railroad Company, with power to construct and maintain a continuous railroad and telegraph line to the western boundary of what was then Nevada territory, 'there to meet and connect with the line of the Central Pacific Railroad Company of California.' 12 St. 489, 1, 8. The declared object of extending government aid to these enterprises was to effect the construction of a railroad and telegraph line from the Missouri river to the Pacific, which, for all purposes of communication, travel, and transportation, so far as the public and the general government are concerned, should be operated 'as one connected, continuous line.' St. Cal. 1852, 6, 9, 10, 12, 17, 18.

In 1864 the state of California passed an act to aid in carrying out the provisions of this act of congress, the first section of which declared that 'to enable said company more fully and completely to comply with and perform the provisions and conditions of said act of congress, the said company, their successors and assigns, are hereby authorized and empowered, and the right, power, and privilege is hereby granted to, conferred upon, and vested in them, to construct, maintain, and operate the said railroad and telegraph line, not only in the state of California, but also in the said territories lying east of and between said state and the Missouri river, with such branches and extensions of said railroad and telegraph line, or either of them, as said company may deem necessary or proper, and also the right of way for said railroad and telegraph line over any lands belonging to [118 U.S. 394, 403]   this state, and on, over, and along any streets, roads, highways, rivers, streams, water, and water-courses, but the same to be so constructed as not to obstruct or destroy the passage or navigation of the same, and also the right to condemn and appropriate to the use of said company such private property, rights, privileges, and franchises as may be proper, necessary, or convenient for the purposes of said railroad and telegraph, the compensation therefor to be ascertained and paid under and by special proceedings, as prescribed in the act providing for the incorporation of railroad companies, approved May 20, 1861, and the act supplementary and amendatory thereof, said company to be subject to all the laws of this state concerning railroad and telegraph lines, except that messages and property of the United States, of this state, and of said company shall have priority of transportation and transmission over said line of railroad and telegraph, hereby confirming to and vesting in said company all the rights, privileges, franchises, power, and authority conferred upon, granted to, and vested in said company by said act of congress, hereby repealing all laws and parts of laws inconsistent or in conflict with the provisions of this act, or the rights and privileges herein granted.'

In 1870 the Central Pacific Railroad Company of California and the Western Pacific Railroad Company formed themselves into one corporation under the name of the Central Pacific Railroad Company, the defendant in one of these actions, 61.06 miles of whose road is in Fresno county. The company complied with the several acts of congress, and there is in operation a continuous line of railway from the Missouri river to the Pacific ocean, the Central Pacific Railroad Company owning and operating the portion thereof between Ogden, in the territory of Utah, and San Francisco.

When the present action was instituted against this company the United States had and now have a lien, created by the acts of congress of 1862 and 1864, for $30,000,000, with a large amount of interest, upon its road, rolling stock, fixtures, and franchises; and there were also outstanding bonds for a like amount issued by the company prior to January 1, 1875, and secured by a mortgage upon the same property.

Such were the relations which these two companies held to [118 U.S. 394, 404]   the United States and to the state when the assessments in question were made for purposes of taxation.

It is necessary now to refer to those provisions of the constitution and laws of the state which, it is claimed, sustain these assessments. The constitution of California, adopted in 1879, exempts from taxation growing crops, property used exclusively for public schools, and such as may belong to the United States, or to that state, or to any of her county or municipal corporations, and declares that the legislature 'may provide, except in the case of credits secured by mortgage or trust deed, for a reduction from credits of debts due to bona fide residents' of the state. It is provided in the first section of article 13 that, with these exceptions, 'all property in the state, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law. The word 'property,' as used in this article and section, is hereby declared to include moneys, credits, bonds, stocks, dues, franchises, and all other matters and things, real, personal, and mixed, capable of private ownership.'

The fourth section of the same article provides: 'A mortgage, deed of trust, contract, or other obligation by which a debt is secured, shall, for the purposes of assessment and taxation, be deemed and treated as an interest in the property affected thereby. Except as to railroad and other quasi public corporations, in case of debts so secured, the value of the property affected by such mortgage, deed of trust, contract, or obligation, less the value of such security, shall be assessed and taxed to the owner of the property, and the value of such security shall be assessed and taxed to the owner thereof, in the county, city, or district in which the property affected thereby is situate. The taxes so levied shall be a lien upon the property and security, and may be paid by either party to such security. If paid by the owner of the security, the tax so levied upon the property affected thereby shall become a part of the debt so secured; if the owner of the property shall pay the tax so levied on such security, it shall constitute a payment thereon, and to the extent of such payment, a full discharge thereof: provided, that if any such security or indebtedness shall be [118 U.S. 394, 405]   paid by any such debtor or debtors, after assessment and before the tax levy, the amount of such levy may likewise be retained by such debtor or debtors, and shall be computed according to the tax levy of the preceding year.'

The ninth section makes provision for the election of a state board of equalization, 'whose duty it shall be to equalize the valuation of the taxable property of the several counties in the state for the purpose of taxation.' The boards of supervisors of the several counties constitute boards of equalization for their respective counties, and they equalize the valuation of the taxable property therein for purposes of taxation; assessments, whether by the state or county boards, to 'conform to the true value in money of the property' contained in the assessment roll. Id . 9.

The tenth section declares: 'All property, except as hereinafter in this section provided, shall be assessed in the county, city, city and county, town, township, or district in which it is situated, in the manner prescribed by law. The franchise, roadway, road-bed, rails, and rolling stock of all railroads operated in more than one county in this state shall be assessed by the state board of equalization at their actual value, and the same shall be apportioned to the counties, cities and counties, cities, towns, townships, and districts in which such railroads are located, in proportion to the number of miles of railway laid in such counties, cities and counties, cities, towns, townships, and districts.'

The assessments in question, it is contended, were made in conformity with these constitutional provisions, and with what is known as section 3664 of the Political Code of California. That section made it the duty of the state board of equalization, on or before the first Monday in May in each year, to 'assess the franchise, roadway, road-bed, rails, and rolling, stock of railroads operated in more than one county,'-to which class belonged the defendants. It required every corporation of that class, by certain officers, or by such officer as the state board should designate, to furnish the board with a sworn statement showing, among other things, in detail, for the year ending March 1st, the whole number of miles of railway owned, operated, or leased by it in the state, the value thereof [118 U.S. 394, 406]   per mile, and all of its property of every kind located in the state; the number and value of its engines, passenger, mail, express, baggage, freight, and other cars, or property used in operating and repairing its railway in the state, and on railways which are parts of lines extending beyond the limits of the state. It is also directed that 'the said property shall be assessed at its actual value;' that the 'assessment shall be made upon the entire railway within the state, and shall include the right of way, road-bed, track, bridges, culverts, and rolling stock;' and that 'the depots, station grounds, shops, buildings, and gravel beds shall be assessed by the assessors of the county where situated, as other property.' It further declares:

'On or before the fifteenth day of May in each year, said board shall transmit to the county assessor of each county through which any railway, operated in more than one county, may run, a statement showing the length of the main track or tracks of such railway within the county, together with a description of the whole of said tracks within the county, including the right of way by metes and bounds, or other description sufficient for identification, and the assessed value per mile of the same, as fixed by a pro rata distribution per mile of the assessed value of the whole franchise, roadway, road-bed, rails, and rolling stock of such railway within this state. Said statement shall be entered on the assessment roll of the county. At the first meeting of the board of supervisors, after such statement is received by the county assessor, they shall make, and cause to be entered in the proper record book, an order stating and declaring the length of the main track, and the assessed value of such railway lying in each city, town, township, school-district, or lesser taxing district in their county through which such railway runs, as fixed by the state board of equalization, which shall constitute the taxable value of said property for taxable purposes in such city, town, township, school, road, or other district.' These companies, within due time, filed with the state board the detailed statement required by that section.

At the trials below no record of assessment against the respective defendants, as made by the state board, was given in evidence, and there was introduced no written evidence of the a [118 U.S. 394, 407]   ssessment, except an official communication from the state board to each of the assessors of Santa Clara and Fresno counties, called, in the special findings, the assessment roll for the particular county. The roll for Fresno county, in 1881, relating to the Southern Pacific Railroad Company, is as follows:

Original - Assessment Book of the Property of Fresno County for the Year 1881. Assessed to all Known Owners or Claimants, and when Unknown to Unknown Owners or Claimants. []

Value of Total the franchise, value Total roadway, of all value DESCRIPTION OF PROPERTY roadbeds, property after rails, and after equalization Total rolling-stock deductions. by the tax. Taxpayer's Real estate other than city and town of railroads (Changes State Name lots. Subdivision of sectioons or as apportioned by the Board metes and bounds. City and town lots. to the county county of Improvements. Personal property. by the State boards of equalization. Board of equalization Equalization. to be noted in red ink.) []

Southern SIR: The state board Pacific of equalization on the second day $295,845 $602,869 $602,869 $10,246.78 Railroad of May, 1881, assessed, for the year Company. 1881, the Southern Pacific Railroad Company for its franchise, roadway, road-bed, rails, and rollingstock, in the state of California, in the aggregate sum of $11,739,915. The entire line of main track of said railroad of said company in the said state is 711.51 miles. The length of the main track of said railway in Fresno county is 17.93 miles. The description of the whole of the main track of the railway of the said Southern Pacific Railroad Company, and the right of way for the same, in the county of Fresno, is as follows: Beginning at the town of Huron, and running easterly in the direction of Goshen, in Tulare county, to the east line of Fresno county. The assessed value per mile of said railway, as fixed by a pro rata distribution per mile of the assessed value of the whole franchise, roadway, road-bed, rails, and rolling stock as such railway of the said company within this state is $16,500. The apportionment of the assessment of the said franchise, roadway, road-beds, rails, and rolling stock, by this board, for and to Fresno county, is $295,845. WARREN DUTTON, CHAIRMAN, M. M. DREW, D. M. KENFIELD, T. D. HEISKELL, State Board of Equalization, E. W. MASLIN, Clerk. [] [118 U.S. 394, 408]   There were similar rolls in reference to the Central Pacific Railroad in the same county, for the same year, and the Southern Pacific in Santa Clara county for 1882. For each of those years the board of supervisors of the respective counties made an apportionment of the taxes among the legal subdivisions of such counties.

It is stated in the findings that the delinquent lists for those years, so far as they related to the taxes in question, were duly made up in form corresponding with the original assessment roll; that, in pursuance of section 3738 of the Political Code of California, the board of supervisors of the respective counties duly passed an order, entered on the minutes, dispensing with the duplicate assessment roll for that year; that the comptroller of the state transmitted a letter to the tax collector of the county, in pursuance of the provisions of section 3899 of that Code, directing him to offer the property for sale but once, and, if there were no bona fide purchasers, to withdraw it from sale; that the tax collector, in obedience to the provisions of that section, transmitted to the comptroller, with his indorsement thereon of the action had in the premises, a certified copy of the entry upon the delinquent list relating to the tax in question in these several actions; that such indorsement shows that the tax collector had offered the property for sale, and had withdrawn it because there was no purchaser for the same; and that the comptroller, in pursuance of the provisions of the same section, transmitted to the tax collector of the county a letter directing him to bring suit.

In each case there were also the following findings: 'The state board of equalization, in assessing said value of said property to and against defendant, assessed the full cash value of said railroad, roadway, road- bed, rails, rolling stock, and franchises, without deducting therefrom the value of the mortgage, or any part thereof, given and existing thereon as aforesaid, to secure the indebtedness of said company to the holders of said bonds, notwithstanding they had full knowledge of the existence of the said mortgage; and in making said assessment the said state board of equalization did not consider or treat said mortgage as an interest in said property, but as- [118 U.S. 394, 409]   sessed the whole value thereof to the defendant, in the same menner as if there had been no mortgage thereon. The state board of equalization, in making the supposed assessment of said roadway of defendant, did knowingly and designedly include in the valuation of said roadway the value of fences erected upon the line between said roadway and the land of coterminous proprietors. Said fences were valued at $300 per mile.'

The special grounds of defense by each of the defendants were: (1) That its road is a part of a continuous postal and military route, constructed and maintained under the authority of the United States, by means in part obtained from the general government; that the company having, with the consent of the state, become subject to the requirements, conditions, and provisions of the acts of congress, it thereby ceased to be merely a state corporation, and became one of the agencies or instrumentalities employed by the general government to execute its constitutional powers; and that the franchise to operate a postal and military route, for the transportation of troops, munitions of war, public stores, and the mails, being derived from the United States, cannot, without their consent, be subjected to state taxation. (2) That the provisions of the constitution and laws of California, in respect to the assessment for taxation of the property of railway corporations operating railroads in more than one county, are in violation of the fourteenth amendment of the constitution, in so far as they require the assessment of their property at its full money value, without making deduction, as in the case of railroads operated in one county, and of other corporations, and of natural persons, for the value of the mortgages covering the property assessed; thus imposing upon the defendant unequal burdens, and to that extent denying to it the equal protection of the laws. (3) That what is known as section 3664 of the Political Code of California, under the authority of which, in part, the assessment was made, was not constitutionally enacted by the legislature, and had not the force of law. ( 4) That no void assessment appears in fact to have been made by the state board. (5) That no interest is recoverable in this action until after judgment. (6) [118 U.S. 394, 410]   That the assessment upon which the action is based is void, because it included property which the state board of equalization had no jurisdiction, under any circumstances, to assess; and that, as such illegal part was so blended with the balance that it cannot be separated, the entire assessment must be treated as a nullity.

The record contains elaborate opinions stating the grounds upon which judgments were ordered for the defendants. Mr. Justice FIELD overruled the first of the special defenses above named, but sustained the second. The circuit judge, in addition, held that section 3664 of the Political Code had not been passed in the mode required by the state constitution, and consequently was no part of the law of California. These opinions are reported as the Santa Clara Railroad Tax Case, in 9 SAWY. 165, 210; S. C. 18 Fed. Rep. 385.

The propositions embodied in the conclusions reached in the circuit court were discussed with marked ability by counsel who appeared in this court for the respective parties. Their importance cannot well be over- estimated; for they not only involve a construction of the recent amendments to the national constitution in their application to the constitution and the legislation of a state, but upon their determination, if it were necessary to consider them, would depend the system of taxation devised by that state for raising revenue, from certain corporations, for the support of her government. These questions belong to a class which this court should not decide unless their determination is essential to the disposal of the case in which they arise. Whether the present cases require a decision of them depends upon the soundness of another proposition, upon which the court below, in view of its conclusions upon other issues, did not deem it necessary to pass. We allude to the claim of the defendant, in each case, that the entire assessment is a nullity, upon the ground that the state board of equalization included therein property which it was without jurisdiction to assess for taxation. The argument in behalf of the defendant is that the state board knowingly and designedly included in its assessment of 'the franchise, roadway, road-bed, rails, and rolling-stock' of [118 U.S. 394, 411]   each company, the value of the fences erected upon the line between its roadway and the land of coterminous proprietors; that the fences did not constitute a part of such roadway, and therefore could only be assessed for taxation by the proper officer of the several counties in which they were situated; and that an entire assessment which includes property not assessable by the state board against the party assessed, is void, and therefore insufficient to support an action; at least, when-and such is claimed to be the case here-it does not appear with reasonable certainty, from the face of the assessment or otherwise, what part of the aggregate valuation represents the property so illegally included therein.

If these positions are tenable, there will be no occasion to consider the grave questions of constitutional law upon which the case was determined below; for, in that event, the judgment can be affirmed upon the ground that the assessment cannot properly be the basis of a judgment against the defendant.

That the state board purposely included in its assessment and valuation the fences erected on the line between the railroads and the lands of adjacent proprietors, at the rate of $300 per mile, is undoubtedly true; for it is so stated in the special finding of facts, and that finding must be taken here to be indisputable. It is equally true that that tribunal has no general power of assessment, but only jurisdiction to assess 'the franchise, roadway, road-bed, rails, and rolling stock' of railroad corporations operating roads in more than one county, and that all other property of such corporations, subject to taxation, is assessable only 'in the county, city, city and county, town, township, or district in which it is situated, in the manner prescribed by law.' Such is the declaration of the state constitution. People v. Sacramento Co., 59 Cal. 324; article 13, 10. It must also be conceded that 'fences' erected on the line between these railroads and the lands of adjoining proprietors were improperly included by the state board in its assessments, unless they constituted a part of the 'roadway.' Some light is thrown upon this question by that clause of section 3664 of the Political Code of California-which, in the view [118 U.S. 394, 412]   we take of these cases, may be regarded as having been legally enacted- providing that 'the depots, station grounds, shops, buildings, and gravel beds' shall be assessed in the county where situated as other property. From this it seems that there is much of the property daily used in the business of a railroad operated in more than one county that is not assessable by the state board, but only by the proper authorities of the municipality where it is situated; so that, even if it appeared that the fences assessed by the state board were the property of the railroad companies, and not of the adjoining proprietors, they could not be included in an assessment by that board unless they were part of the roadway itself; for, as shown, the jurisdiction of that board is restricted to the assessment of the 'franchise, roadway, road-bed, rails, and rolling stock.' We come back, then, to the vital inquiry, whether the fences could be assessed under the head of roadway. We are of opinion that they cannot be regarded as part of the roadway for purposes of taxation.

The constitution of California provides that 'land, and improvements thereon, shall be separately assessed,' (article 13, 2;) and, although that instrument does not define what are improvements upon land, the Political Code of the state expressly declares that the term 'improvements' includes 'all buildings, structures, fixtures, fences, and improvements erected upon or affixed to the land.' Section 3617. It would seem from these provisions that fences erected upon the roadway, even if owned by the railroad company, must be separately assessed as 'improvements,' in the mode required in the case of depots, station grounds, shops, and buildings owned by the company; namely, by local officers in the county where they are situated. The same considerations of public interest or convenience upon which rest existing regulations for the assessments of depots, station grounds, shops, and buildings of a railroad company operated in more than one county would apply equally to the assessment and valuation for taxation of fences erected upon the line of railway of the same company.

In San Francisco & N. P. R. Co. v. State Board of Equalization, 60 Cal. 12, 34, which was applica- [118 U.S. 394, 413]   tion, on certiorari, to annul certain orders of the state board assessing the property of a railroad corporation, one of the questions was as to the meaning of the words 'road-bed' and 'roadway.' The court there said: "The road-bed is the foundation on which the superstructure of a railroad rests.' Webster. The roadway is the right of way, which has been held to be the property liable to taxation. Appeal of North Beach & M. R. Co., 32 Cal. 499. The rails in place constitute the superstructure resting upon the road-bed.' This definition was approved in San Francisco v. Central Pac. P. Co., 63 Cal. 467, 469. In the latter case the question was whether certain steamers owned by the railroad company, upon which were laid railroad tracks, and with which its passenger and freight cars were transported from the eastern shore of the bay of San Francisco to its western shore, where the railway again commenced, were to be assessed by the city and county of San Francisco, or by the state board of equalization. The contention of the company was that they constituted a part of its road-bed or roadway, and must therefore be assessed by the state board; but the supreme court of the state held otherwise. After observing that all the property of the company, other than its franchise, roadway, road-bed, rails, and rolling stock, was required by the constitution to be assessed by the local assessors, the court said: 'They are certainly not the franchise of the defendant corporation. They may constitute an element to be taken into computation to arrive at the value of the franchise of the corporation, but they are not such franchise. It is equally as clear that they are not rails or rolling stock. ... Are they, then, embraced within the words 'roadway' or 'road-bed,' in the ordinary and popular acceptation of such words as applied to railroads? These two words, as applied to common roads, ordinarily mean the same thing, but as applied to railroads their meaning is not the same. The 'road-bed' referred to in section 10, in our judgment, is the bed or foundation on which the superstructure of the railroad rests. Such is the definition given by both Worcester and Webster, and we think it correct. The 'roadway' has a more extended signification as applied to railroads. In addition to the part denominated [118 U.S. 394, 414]   road-bed, the roadway includes whatever space of ground the company is allowed by law in which to construct its road-bed and lay its track. Such space is defined in subdivision 4 of the seventeenth section and the twentieth section of the act 'to provide for the incorporation of railroad companies,' etc., approved May 20, 1861. St. 1861, p. 607; San Francisco & N. P. R. Co. v. State Board, 60 Cal. 12.'

The argument in support of the proposition, that these steamers- constituting, as they did, a necessary link in the line of the company's railway, and upon which rails were actually laid for the running of cars- were a part either of the road-bed or roadway of the railroad, is much more cogent than the argument that the fences erected upon the line between a roadway and the lands of adjoining proprietors are a part of the roadway itself. It seems to the court that the fences in question are not, within the meaning of the local law, a part of the roadway for purposes of taxation, but are 'improvements' assessable by the local authorities of the proper county, and therefore were improperly included by the state board in its valuation of the property of the defendants.

The next inquiry that naturally arises is whether the different kinds of property assessed by the state board are distinct and separable upon the face of the assessment, so that the company, being thereby informed of the amount of taxes levied upon each, could be held to have been in default in not tendering such sum, if any, as was legally due. Upon the transcript before us, this question must be answered in the negative. No record of assessment, as made by the state board, was introduced at the trial, and presumably no such record existed. Nor is there any documentary evidence of such assessment, except the official communication of the state board to the local assessors, called, in the findings, the assessment roll of the county. That roll shows only the aggregate valuation of the company's franchise, roadway, road-bed, rails, and rolling stock in the state; the length of the company's main track in the state; its length in the county; the assessed value per mile of the railway, as fixed by the pro rata distribution per mile of the assessed value of its whole franchise, roadway, road-bed, rails, [118 U.S. 394, 415]   and rolling stock in the state; and the apportionment of the property so assessed to the county.

It appears, as already stated, from the evidence, that the fences were included in the valuation of the defendants' property; but under what head, whether of franchise, roadway, or road-bed, does not appear. Nor can it be ascertained, with reasonable certainty, either from the assessment roll or from other evidence, what was the aggregate valuation of the fences, or what part of such valuation was apportioned to the respective counties through which the railroad was operated. If the presumption is that the state board included in its valuation only such property as it had jurisdiction under the state constitution to assess, namely, such as could be rightfully classified under the heads of franchise, roadway, road- bed, rails, or rolling stock, that presumption was overthrown by proof that it did, in fact, include, under some one or more of these heads, the fences in question. It was then incumbent upon the plaintiff, by satisfactory evidence, to separate that which was illegal from that which was legal,-assuming, for the purposes of this case only, that the assessment was in all other respects legal,-and thus impose upon the defendant the duty of tendering, or enable the court to render judgment for, such amount, if any, as was justly due. But no such evidence was introduced. The finding that the fences were valued at $300 per mile is too vague and indefinite as a basis for estimating the aggregate valuation of the fences included in the assessment, or the amount thereof apportioned to the respective counties. Were the fences the property of adjacent proprietors? Were they assessed at that rate for every mile of the railroad within the state? Were they erected on the line of the railroad in every county through which it was operated, or only in some of them? Wherever erected, were they assessed for each side of the railway, or only for one side? These questions, so important in determining the extent to which the assessment included a valuation of the fences erected upon the line between the railroad and coterminous proprietors, find no solution in the record presented to this court.

If it be suggested that, under the circumstances, the court [118 U.S. 394, 416]   might have assumed that the state board included the fences in their assessment at the rate of $300 per mile for every mile of the railroad within the state, counting one or both sides of the roadway, and, having thus eliminated from the assessment the aggregate so found, given judgment for such sum, if any, as, upon that basis, would have been due upon the valuation of the franchise, road-bed, roadway, rails, and rolling stock of the defendant, the answer is that the plaintiff did not offer to take such a judgment; and the court could not have rendered one of that character without concluding the plaintiff hereafter, and upon a proper assessment, from claiming against the defendant taxes for the years in question upon such of its property as constituted its franchise, roadway, road-bed, rails, and rolling stock. The case, as presented to the court below, was therefore one in which the plaintiff sought judgment for an entire tax arising upon an assessment of different kinds of property as a unit; such assessment including property not legally assessable by the state board, and the part of the tax assessed against the latter property not being separable from the other part. Upon such an issue, the law, we think, is for the defendant. An assessment of that kind is invalid, and will not support an action for the recovery of the entire tax so levied. Cooley, Tax'n, 295, 296, and authorities there cited; Libby v. Burnham, 15 Mass. 147; State v. City of Plainfield, 38 N. J. Law, 94; Gamble v. Witty, 55 Miss. 35; Stone v. Bean, 15 Gray, 45; Mosher v. Robie, 2 Fairf. 137; Johnson v. Colburn, 36 Vt. 695; Wells v. Burbank, 17 N. H. 412.

It results that the court below might have given judgment in each case for the defendant upon the ground that the assessment, which was the foundation of the action, included property of material value which the state board was without jurisdiction to assess, and the tax levied upon which cannot, from the record, be separated from that imposed upon other property embraced in the same assessment. As the judgment can be sustained upon this ground, it is not necessary to consider any other questions raised by the pleadings and the facts found by the court. [118 U.S. 394, 417]   It follows that there is no occasion to determine under what circumstances the plaintiffs would be entitled to judgment against a delinquent tax- payer for penalties, interest, or attorney's fees; for, if the plaintiffs are not entitled to judgment for the taxes arising out of the assessments in question, no liability for penalties, interest, or attorney's fees could result from a refusal or failure to pay such taxes. Judgment affirmed.

Footnotes [ Footnote 1 ] S.C. 18 Fed. Rep. 385.[ Santa Clara County v. Southern Pac. R. Co. 118 U.S. 394 (1886) ]

Twitter / daveweigel: Lucky for Republicans, Dem ...

a href="http://twitter.com/daveweigel/status/8194283747">Twitter / daveweigel: Lucky for Republicans, Dem ...: Lucky for Republicans, Democrats are set to spend the last year of their large majority explaining why they can't pass their own bills.

Jason Paur: NASA’s Puffin Is Way Cooler Than a Jetpack. Yes, it's real. Or semi-real...

NASA’s Puffin Is Way Cooler Than a Jetpack: The engineers at NASA have combined every one of our geeky transportation dreams into a single little vehicle called the Puffin. It takes off like a helicopter and flies like a plane. It can cruise at 140 mph and, with a boost mode, hit about twice that. Oh — and it’s electric.

If that sounds too good to be true, it is — for the moment. But give it time. NASA unveiled the concept today at the American Helicopter Society meeting in San Francisco.

The tilt-rotor Puffin has a flight system similar to the V-22 Osprey, but instead of carrying a bunch of Marines and their gear, the Puffin carries one person in the prone position. The rotors are nearly 7.5 feet in diameter and the aircraft has a wingspan just over 13 feet. Thanks to carbon composite construction, the Puffin weighs in at less than 400 pounds including the lithium phosphate batteries.

The Puffin is designed to stand on its tail, which serves as the landing gear (check out the video). Once the Puffin transitions to horizontal flight, the pilot can cruise at more than 140 miles per hour. Hit the boost mode and this bird will do nearly 300 mph. The projected range is 50 miles on a charge. Yeah, that’s not much, but using electricity means the Puffin’s powerplant won’t be limited by air density. NASA says it should be able to climb under full power to around 30,000 feet before the battery pack would be depleted enough to require coming back down.

So why call it the Puffin?

“If you’ve ever seen a puffin on the ground, it looks very awkward, with wings too small to fly, and that’s exactly what our vehicle looks like,” Mark Moore, an aerospace engineer at NASA Langley Research Center, told Scientific American. “But it’s also apparently called the most environmentally friendly bird because it hides its poop, and we’re environmentally friendly because we have essentially no emissions. Also, puffins tend to live in solitude, only ever coming together on land to mate, and ours is a one-person vehicle.”

No word on when the Puffin will make its first manned flight, though NASA plans to finish a one-third size demonstrator by March and see how well it transitions from cruising to hovering. But it’s safe to say that if this bird flies — and that’s a very big if — we’ll no longer be dreaming of having our own jetpack.

Ed Luce: Fighting spirit returns to the White House

FT.com / Global insight - Fighting spirit returns to the White House: At the end of last week, Barack Obama recaptured some of the fight that so animated his general election campaign when he slipped out of Washington to meet voters in Ohio.

The speech, in which he promised to renew the battle against the lobby groups that he admitted had made an “ugly” spectacle of his healthcare reform bill and were opposing much of his Wall Street re-regulation package, offered us a reminder of the man who inspired volunteers in their millions in the build-up to his election.

Perhaps it was no coincidence, therefore, that on the same day Mr Obama appointed David Plouffe, his election manager, to act as his adviser on the forthcoming 2010 election battle and to help fix a White House message machine that has clearly lost the plot. Mr Plouffe, who was the only campaign operative Mr Obama singled out for praise in his soaring victory speech in Chicago, had originally been tipped as a White House chief of staff.

That job went instead to Rahm Emanuel, the leading Democratic pugilist in the House of Representatives, who oversaw the Democratic victory in the 2006 mid-term elections that helped prepare the ground for the across-the-board victory in 2008.

All that seems like a very long time ago. As the voters of Massachusetts reminded Mr Obama last week, nobody is making assumptions any longer about a fresh alignment in US politics.

White House officials were careful over the weekend to present Mr Plouffe, who will work as an outside adviser to the White House, as an addition to the team, rather than a replacement for anyone in particular. Yet the timing of Mr Plouffe’s return also underlines how far Mr Obama has strayed from the narrative of change that struck such a chord with Americans on the campaign trail.

One measure of how badly Mr Obama’s team lapsed was its failure to see the Massachusetts train wreck until it was too late to do anything about it. Another, directly related, element was the decision to shunt Mr Obama’s vast wagon-load of campaign supporters into a forgotten siding called Organising for America.

Instead of using his database of 13m grassroots supporters to pressure recalcitrant Democrats to enact healthcare, they were left out to pasture. Some, according to post-poll surveys, even voted for the Republican Scott Brown in Massachusetts last week.

In short, Mr Obama was swept into office promising to change the way business was done in Washington and ended up epitomising – or, at least, appearing to epitomise – how Washington normally goes about its business. Voters, being smarter than Beltway insiders, rapidly sensed they had been misled. It will be part of Mr Plouffe’s brief to help persuade them otherwise.

“Let’s remember how we won in 2008 and deliver on our promise,” Mr Plouffe wrote in the Washington Post.

Delivering on that promise is far more difficult now that it would have been 12 months ago had Mr Obama started out with a more sceptical posture towards his Democratic colleagues on Capitol Hill.

It may also be too late to salvage healthcare reform from last week’s train wreck. But it is not too late to wrest a respectable result at the mid-term elections in November – one that would minimise Democratic losses and give Mr Obama renewed momentum to achieve difficult reforms before he seeks re-election in 2012.

The president should launch Obama 2.0 on Wednesday night in his State of the Union Address to Congress in which he should also promise to take on special interests and actually mean it – particularly within his own party.

Mr Plouffe built a movement that was independent of the Democratic party. This week, Mr Obama should belatedly bring it back into action.

Simon Johnson: Is The “Volcker Rule” More Than A Marketing Slogan?

Is The “Volcker Rule” More Than A Marketing Slogan? « The Baseline Scenario: At the broadest level, Thursday’s announcement from the White House was encouraging – for the first time, the president endorsed potential new constraints on the scale and scope of our largest banks, and said he was ready for “a fight”.  After a long tough argument, Paul Volcker appeared to have finally persuaded President Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis.

But how deep does this conversion go?  On the “deep” side is the signal implicit in the fact that Volcker stood behind the president while Tim Geithner was further from the podium than any Treasury Secretary in living memory.  Where you stand at major White House announcements is never an accident.

Increasingly, however, there are very real indications that the conversion is either superficial (on the economic side of the White House) or entirely a marketing ploy (on the political side).  Here are the five top reasons to worry.

1. Secretary Geithner’s spin on the Volcker Rule, Thursday night on the Lehrer NewsHour, is in direct contradiction to what the president said.  At first, it seemed that Geithner was just off-message.  Now it is more likely that he is (still) the message.

2. The White House background briefing on Thursday morning gave listeners the strong impression that these new proposals would freeze the size of our largest banks “as is”.  Again, this is strongly at odds with what the president said and seemed – at the time – to indicate insufficient preparation and message drift.  But who is really drifting now, the aides or the president?

3. At the heart of the substance of the “Volcker Rule,” if the idea is literally to freeze the banks at or close to their current size, this makes no sense at all.  Why would anyone regard twenty years of reckless expansion, a massive global crisis, and the most generous bailout in recorded history as the recipe for creating “right” sized banks?   There is absolutely no evidence, for example, that the increase in bank scale since the mid-1990s has brought anything other than huge social costs – in terms of direct financial rescues, the fiscal stimulus needed to prevent another Great Depression, and millions of lost jobs.  On reflection, perhaps the president really still doesn’t get this.

4. Since Thursday, the White House has gone all out for the reconfirmation of Ben Bernanke, whereas gently backing away from him – or at least not being so enthusiastic – would have sent a clearer signal that the president is truly prepared to be tough on big banks and their supporters.  Unless Bernanke unexpectedly changes his stripes, his reappointment at this time gives up a major hostage to fortune – and to those Democrats and Republicans opposing serious financial reform.

5. As the White House begins to campaign for the November midterms, how will they answer the question: What exactly did they “change” relative to what any other potential administration would have done in the face of a financial crisis?  How will they counter anyone who claims, citing Rahm Emanuel, that: ”The crisis is over, and we wasted it.”  No answer is yet in sight.

The Geithner strategy of being overly nice to the mega-banks was not good economics and has proven impossible to sell politically – the popular hostility to his approach is just common sense prevailing over technical mumbo jumbo.

But selling incoherent mush with a mixed message and cross-eyed messengers could be even worse.