Our courts and legislatures are bought and paid for — the laws they’ve made with respect to oil spills prove it.

In March, I emphasized — not for the first time — the insanity of considering corporate and other business entities as rational actors of the sort many economists consider people to be. The problem is that corporate decisions are made by individuals and are therefore driven to benefit those individuals, not the corporations (and their shareholders).”

One reason corporations focus on short-term profits is that the individuals making the decisions for a company will often take the cash made in the short term out of the company (by paying special dividends, for example) and then sell there stock, evading the long-term loss. Even if they hold onto their stock, they may have taken so much cash out of the company before the stock crashes in value that they’ve profited mightily from their holdings regardless of the company’s failures.

But still another reason is the idiocy of the regulation that is in place, regulation that instead of imposing responsibility on the companies for problems they cause limits that responsibility.

10 days ago David Leonhardt wrote about the  perversity of the federal limitations on corporate liability for oil spills and how they made BP’s oil spill, in retrospect, no great surprise:

In a little-noticed provision in a 1990 law passed after the Exxon Valdez spill, Congress capped a spiller’s liability over and above cleanup costs at $75 million for a rig spill. Even if the economic damages — to tourism, fishing and the like — stretch into the billions, the responsible party is on the hook for only $75 million. (In this instance, BP has agreed to waive the cap for claims it deems legitimate.) Michael Greenstone, an M.I.T. economist who runs the Hamilton Project in Washington, says the law fundamentally distorts a company’s decision making. Without the cap, executives would have to weigh the possible revenue from a well against the cost of drilling there and the risk of damage. With the cap, they can largely ignore the potential damage beyond cleanup costs. So they end up drilling wells even in places where the damage can be horrific, like close to a shoreline. To put it another way, human frailty helped BP’s executives underestimate the chance of a low-probability, high-cost event. Federal law helped them underestimate the costs.

We shouldn’t be surprised, then, at BP’s pathetic safety record and the retrospective inevitability of the Gulf spill:

Years before the Deepwater Horizon rig blew, BP was developing a reputation as an oil company that took safety risks to save money. An explosion at a Texas refinery killed 15 workers in 2005, and federal regulators and a panel led by James A. Baker III, the former secretary of state, said that cost cutting was partly to blame. The next year, a corroded pipeline in Alaska poured oil into Prudhoe Bay. None other than Joe Barton, a Republican congressman from Texas and a global-warming skeptic, upbraided BP managers for their “seeming indifference to safety and environmental issues.”

BP was only acting rationally!

Unsurprisingly, the Supreme Court has teamed with Congress in being an accessory to the corporate rape of the country. Even if compensatory damages are capped, conceivably courts can impose punitive damages in civil lawsuits to deter particularly egregious conduct. And, indeed, courts reacted precisely that way to the Exxon Valdez oil spill — that is, until the Supreme Court stepped in. In 1994, a jury imposed $5 billion in punitive damages on ExxonMobil for the Exxon Valdez  oil spill. 12 years later an appellate court reduced that amount to $2.5 billion, half the original amount.

2 years later, in a 5-3 vote (Sam Alito recused himself from the case because he owned Exxon stock), the Supreme Court reduced the amount to $507.5 million, about 10% of the jury’s award. The Court ruled that punitive damages (intended to punish bad behavior, not to compensate a plaintiff for his losses caused by that behavior) cannot be greater than compensatory damages (which compensate victims for their economic losses). As reported at the time, the reduced amount represented “about 12 hours of revenue for [Exxon], which reported record profits of $40.6 billion in February.” Justice Souter, writing for the Court, explained that “a penalty should be reasonably predictable in its severity, so that even Justice Holmes’s ‘bad man’ can look ahead with some ability to know what the stakes are in choosing one course of action or another. See The Path of the Law, 10 Harv. L. Rev. 457, 459 (1897). Exxon Shipping Co. v. Baker (U.S. 2008)(hyperlink added).

Of course, one might argue pretty cogently that neither the Exxon Valdez spill nor the BP Gulf spill were conceivable in the minds of the people who made the decisions that resulted in disasters and that it is precisely that failure to conceive of, much less consider, those consequences that is what the courts should retain the power to punish.

Who needs public services in case of disaster? Not the rich . . .

The market strikes again: worried about help in the event of disaster? Well, with a lot of money, you’ve got nothing to worry about – as Naomi Klein writes, if you’re worried about wild fires burning down your home, you can buy private fire fighters who will stand by and watch your neighbors’ home go up in flames, or you can even buy larger scale disaster relief:

[Pellston, Michigan] is about to become the headquarters for the first fully privatized national disaster response center. The plan is the brainchild of Sovereign Deed, a little-known start-up with links to the mercenary firm Triple Canopy. Like HelpJet ["guarantees its well-heeled members a seat on a chartered jet out of the hurricane zone"], Sovereign Deed works on a “country-club type membership fee,” according to the company’s vice president, retired Brig. Gen. Richard Mills. In exchange for a one-time fee of $50,000 followed by annual dues of $15,000, members receive “comprehensive catastrophe response services” should their city be hit by a manmade disaster that can “cause severe threats to public health and/or well-being” (read: a terrorist attack), a disease outbreak or a natural disaster. Basic membership includes access to medicine, water and food, while those who pay for “premium tiered services” will be eligible for VIP rescue missions.(Hyperlinks added.)

Learn that government regulation can be very effective in under 2 minutes.

Next time someone tells you government regulation doesn’t do any good, ask them to watch the video below and whether they’d rather be driving a car built before the government started regulating automobile safety.

Breaking through to the other side: the music and publishing industries are dying. Music and writing will live on in new ways, and we’re living through the revolution.

My sister, Amy Friedman, is a brilliant writer who, like most artists I know who make their livings as artists, has managed to make her way by working her butt off doing a million different writerly things. She wrote a weekly column for the Kingston Weekly Standard, Canada’s oldest newspaper. In 1992 she began to write Tell Me a Story, which, on a weekly basis syndicated by Universal Press Syndicates, produces an “original story or a children’s classic accompanied by a captivating illustration that will launch the imagination.” She must now have written over a thousand of these stories. Two compilations of these stories have been published as books, Tell Me a Story and The Spectacular Gift. She personally produced 3 CD collections of these stories read by actors and backed by music composed specifically for each work. (You can buy them here, individually or as a 3 CD boxed set). Each one of the CDs has won numerous awards, and the most recent was the Winner of 2009 Parents Choice Gold Medal and 2009 NAPPA Gold Medal for story telling. John Wood of Kid Muzic wrote of the first CD: “The talent is first-rate from top to bottom. The stories literally jump off the CD and into the listener’s imagination – I love the choices on all levels! This is the real deal”

Amy has also written 2 works of non-fiction, Kick the Dog and Shoot the Cat and Nothing Sacred: A Conversation With Feminism. She continues to write and publish both fiction and nonfiction for newspapers, magazines and literary journals. She also performs her stories, often accompanied by musicians, in schools and at summer festivals. She is presently working on a novel, a collection of short stories and a television adaptation of Tell Me a Story. She’s a brilliant teacher of writing too.

In short, Amy is an artist, she works like hell at it, she produces brilliant work, and she has never, to put it mildly, been economically secure in the way, say, many of my law students expect to be.

So I took it very seriously when she sent me the following yesterday:

All the authors I know, every one of them, is freaking out. Celebrity books. No reviewers anywhere. Insane advances to celebrities leaving nothing left for others, no reviewers, too many reviewers, Kindle, celebrity books, the death of Editor and Publisher and Kirkus Reviews, all the authors I know are freaking out. If my memoir had gone to editors even three years ago, it would be sold by now. Everyone’s scared. Whaddya think? http://bit.ly/5O2CQI

I’m choosing not to freak out. I’m choosing to say, this too shall pass, and it will enliven the art world in some new way. (That’s my prayer, anyway)

In the article Amy linked to, Katharine Weber, a former National Book Critics Circle board of directors member, novelist and short story writer, details some of the changes wrought by the internet on book publishing and concludes, among other things, “That literary work will continue to lose value as it is seen even more as just another form of communication, rather than as a work of art with its own integrity.”

There are 2 important points I want to make here: (1) I do not write incessantly about copyright and the slippery notion of authorship as some ivory tower intellectual without strong connections to artists and art art of all sorts, and (2) I have a very personal stake in these questions. So this (with some slight edits) is what I wrote back to Amy yesterday:

Not freaking out is always the better choice. I can’t think of a situation in which freaking out adds value; in fact, I can’t think of a situation in which freaking out doesn’t considerably worsen the situation.

But the fact so many people are freaking out is, in my opinion, because we’re living through a frigging technological revolution. Come on, you remember your Marx. The stuff he was brilliant about: material and economic reality determine cultural reality. Cultural reality has an effect on material reality too. That’s why the experience of a cultural freakout is not a healthy thing. It leads to bad decisions. Had Jack Valenti and the entire film industry had their way, there would be no VHS machines, no CD and DVD burners, etc., etc. But it turned out that the VHS was the biggest financial boon the film industry had ever experienced.

The way we produce, copy, and disseminate information had entirely changed. Anyone sitting in a coffee shop can produce a document that looks as if it’s been typeset. (And I’m sure my students have no clue what typesetting is.) That document can be copied at virtually no cost, and disseminated world-wide at virtually no cost. So, guess what? The entire publishing industry as we’ve known it is a walking corpse. You can almost imagine the zombie image composed of parts of Sarah Palin, Oprah, Dan Brown, and Tiger Woods lumbering down Manhattan’s avenues.

What will result? I don’t know yet. But I strongly disagree with Katherine Weber’s statement that “literary work will continue to lose value as it is seen even more as just another form of communication, rather than as a work of art with its own integrity.” The idea that literary work is anything other than a vast cultural discussion is a relic of the Romantics.

And there will still be books bought. They’ll be read on electronic readers a lot and in codex form a lot – I’m pretty sure demand for the scroll and the inscribed tablet has vanished entirely. And there will be some illicit copying and distribution (that might not in the end result in a net loss to the author).

But sure, publishing houses and anyone who’s convinced her livelihood is dependent on publishing houses is freaking out. Let them. The recording industry once had a monopoly on producing and distributing recorded music. Now any kid can do it on his laptop. And musicians are still making money. The music industry will scream and scream that the internet is killing it, but that’s because the music industry’s ways of producing and distributing music over the past 100 years have as much relevance today as the horse and carriage industry’s ways of producing and distributing means of transportation had after the automobile became widely used.

As Mike Masnick at techdirt has written, a recent report by 2 British economists (pdf) demonstrates that “the UK music industry is actually growing. Let me repeat that: despite all of the whining and complaining about the state of the music industry, some of the music industry’s own economists are admitting that the market is growing. Not surprisingly, it found that retail product sales have declined, but the other parts of the industry have grown noticeably more than the decline in retail sales. This growth has come from a few sources. Live show attendance has increased more than retail sales have decreased. Consumers have actually spent more. On top of that, the business to business side of the industry (sponsorships, licensing, advertisements, etc.) has grown as well, opening up new and lucrative means of making money.”

Neither Masnick nor I would paint the present situation has some new technologically produced utopia — too much of the money in the music industry is going to touring artists from the ancient days of our youths, among other things. But the point he is making is that trying to pass laws and create digital locks and promote misleading propaganda is not going to recreate a model of producing and distributing recorded music that no longer makes any sense.

Something new is developing, there’s no stopping it, and the thrilling thing is that we are part of creating it.

If I had to bet, I suspect in the long run we’ll probably end up with fewer writers making too much money, and more making at least some.

But there’s been literature for what, at least 3000 years? The fall of the structure which produced and sold it in the 20th Century capitalist West won’t mean there won’t be great literature. There may be more. I really think so.

I bought and started re-reading Lewis Hyde’s Trickster Makes this World yesterday. The Trickster is the character who operates between realms, at doorways, through openings that others don’t cross either because they don’t see them or they’re afraid of what’s on the other side. (The intro to Hyde’s book is available as a pdf here — provided by Hyde himself.) And the trickster is the artist. If there’s ever been a doorway to a new reality in the world of literature, we’re facing it head on. Let’s break on through to the other side!

Steven Levitt and Freakonomics can go to hell!

On Veterans Day I expressed my disgust and contempt for Steven Levitt (he of Freakonomics fame) because his devotion to intellectual abstraction divorced from any connection to reality is, well, disgusting and contemptuous. The specific reason for my post on that day was Levitt’s proposition that a military draft, in his words, “puts the ‘wrong’ people in the military.”  Bob Herbert today expands on the point:

The idea that fewer than 1 percent of Americans are being called on to fight in Afghanistan and Iraq and that we’re sending them into combat again and again and again — for three tours, four tours, five tours, six tours — is obscene. All decent people should object. . . .

The reason it is so easy for the U.S. to declare wars, and to continue fighting year after year after year, is because so few Americans feel the actual pain of those wars. We’ve been fighting in Iraq and Afghanistan longer than we fought in World Wars I and II combined. If voters had to choose right now between instituting a draft or exiting Afghanistan and Iraq, the troops would be out of those two countries in a heartbeat.

I don’t think our current way of waging war, which is pretty easy-breezy for most citizens, is what the architects of America had in mind. Here’s George Washington’s view, for example: “It must be laid down as a primary position and the basis of our system, that every citizen who enjoys the protection of a free government owes not only a proportion of his property, but even his personal service to the defense of it.”

The Framers embraced government provided services.

It never occurred to me that it would have to be repeated, much less come as a shock, that our country was founded on the assumption that the government would be the source of services needed by all. But Mark Brown, holder of the Newton D. Baker/Baker and Hostetler Chair at Capital University School of Law, fills us in on precisely this history, explaining that the Founding Fathers “believed that ‘essential’ services should be provided by government to the public at large for little or no remuneration. The costs of these services would be shared by the whole.” I’m not sure I agree with Brown’s characterization of this approach to governance as “socialism,” but I suppose he’s only deferring to the debased and a-historical way that term is being thrown around these days.

Why are you working harder for less? Scientific Management, management consulting, and leveraged buyouts – a century of being conned.

I described leveraged buyouts the other day — in connection with the demise of the maker of the Simmons Beauty Rest Mattress — as a symptom of why we don’t trust Wall Street. You might wonder why, if I’m right, we allow people again and again to “buy” companies by borrowing enormous sums of money — in essence, we allow the buyers to suck money out of successful companies for their own benefit in the same way we allowed home owners in a rising housing market to suck money out of their homes by means of home equity loans.

It’s perfectly clear why we allowed homeowners to do that — all involved figured the market would continue to rise at least until they could make their money and get out. But why do we let this keep happening on a much larger scale on Wall Street?

I hadn’t considered the question specifically at the moment I wrote that post about Simmons. It was enough for me that throughout the 25 years of my career both practicing (in connection with, among many things, leveraged buyouts) and teaching I’ve seen the phenomenon again and again. But this week I came across Jill Lepore’s article “Not So Fast” in the New Yorker, an article which asks the question, “Scientific management started as a way to work. How did it become a way of life?” Lepore’s article is about the rise in the early 20th Century of “Scientific Management,” the foundation of modern “Management Consulting.” Scientific Management was created by Fredrick Winslow Taylor, who, as Lepore writes, sold himself as someone able to make businesses more efficient:

Speedy Taylor, as he was called, had invented a new way to make money. He would get himself hired by some business; spend a while watching people work, stopwatch and slide rule in hand; write a report telling them how to do their work faster; and then submit an astronomical bill for his services. He is the “Father of Scientific Management” (it says so on his tombstone), and, by any rational calculation, the grandfather of management consulting.

The problem, as Lepore notes, is that Taylor was a fraud, and Taylorism’s grandchild, management consulting, is as well.

What does all this have to do with leveraged buyouts? Plenty. The entire rationale of the leveraged buyout is that the buyers can take a company with a lot of unrealized value and realize it. How? By making the company more “efficient.” The debt taken on to buy the company (and to reward the “buyers” with profits along the way) will, the argument goes, easily be paid off given the as yet unrealized efficiencies. Thus, we’ve had decades of “downsizing” (massive layoffs), “consolidations” (elimination of competing businesses), and arguments that advances in productivity brought about by our new technologies would redound to the benefit of all (when the only benefit would redound to whoever could pull the money out quickest).

We’ve been had.

At least we have one consolation — none of us have been alone in being conned. The focus of Lepore’s work is Louis Brandeis, someone I’ve always thought was a very bright guy and who against all evidence remained convinced his entire life that Scientific Management would benefit the working person:

Neither unions nor businesses have lived up to Brandeis’s optimism. “If the fruits of Scientific Management are directed into the proper channels,” he wrote, “the workingman will get not only a fair share, but a very large share, of the industrial profits arising from improved industry.” Lately, that share has been going to shareholders and C.E.O.s. Home and work, separated since the first stirrings of the Industrial Revolution, have been growing back together again: BlackBerry on the nightstand, toaster in the photocopy room. Efficiency was meant to lead to a shorter workday, but, in the final two decades of the twentieth century, the average American added a hundred and sixty-four hours of work in the course of a year; that’s a whole extra month’s time, but not, typically, a month’s worth of either happiness minutes or civic participation. Eating dinner standing up while nursing a baby, making a phone call to the office, and supervising a third grader’s homework is not, I don’t think, the hope of democracy.

You’ll also find worthwhile on this topic the New York Times video series entitled “Flipped: How Private Equity Dealmakers Can Win While Their Companies Lose“

All the cash has been sucked from Simmons’ mattresses.

Is it any wonder we don’t trust Wall Street?

I saw it back in the 80’s up close and personal, when the debt was called “junk,” but the practice goes on and on and on. When credit markets are good, investors (called “private equity firms” or “merchant bankers” or “leveraged buy out firms” or the like among their peers and minions) will sell a company’s bonds to finance their purchase of the company, take fees for issuing those bonds, issue more bonds later on to take cash out of the company for themselves (and fees for the new issuance), and then, when the debt becomes to burdensome for the company, the purchasers of the bonds are left high and dry — that is, broke or, at best, with equity in a new, reorganized, and crippled company worth a fraction of what they paid for their bonds.

The latest victim? Simmons Bedding Company, the maker of the Simmons Beauty Rest Mattress. As the New York Times reports:

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

Few people read them, but some online agreements are enforceable, and some aren’t; it’s a mess.

Just 3 days ago I wrote about two conflicting decisions concerning the enforceability of online contract provisions that do not require consumers to affirmatively click an “I agree” button. Well, today techdirt points me to a new court decision invalidating such a provision: according to MediaPost, the court “ruled that Internet retailer Overstock can’t enforce the manadatory arbitration agreement set out in its online terms and conditions because there is no evidence that consumers read the policy.” According to the decision, the plaintiff  ”lacked notice of the terms and conditions because the website did not prompt her to review the terms and conditions and because the link to the terms and conditions was not prominently displayed.”

As I wrote the other day, under all the court decisions I am aware of online sellers can ensure that their contracts are not invalidated on these grounds merely by requiring the affirmative act of clicking on an “I agree” button. As I read all of these decisions, online agreements that require the consumer to click “I agree” are enforceable despite the fact that consumers generally do not read the agreements.

To rule otherwise would overturn ages of decisions imposing on the consumer a “duty to read” that binds them to agreements they express agreement to even if they don’t understand what they are agreeing to. It would also leave open to dispute any online transaction that the consumer decided he or she didn’t like, a result that would mire our economy and courts in a mess to deep to contemplate.

There is a solution, however, and it’s one that hit a high gear 50 years ago only to peter out in the wake of our more recent passion for unregulated free markets — consumer protection laws that dictate what terms can and cannot be imposed on consumers. As the situation now stands, we are left with a patchwork effort to find traditional contract rules to come up with fair results (such as invalidating mandatory arbitration clauses that deprive consumers of any meaningful remedies for wrongdoing by online sellers).

In the meantime, I can only repeat what I wrote the other day:

Online sellers: if you want to be maximize the likelihood your agreements are enforceable, do what most online sites do — require your customers to click on a button that expresses their agreement before the transaction is complete.

Online buyers: be careful. Don’t believe that you’re getting what you think you’re getting. You’re only getting what the fine print says you’re getting. But if you do get screwed, remember too that even when you sign something it might be so unfair it is unenforceable.

Consumer Protection: an old idea that’s new again.

It is remarkable how much times have changed, and how quickly. Since the election of Ronald Reagan the legal common wisdom has been that allowing individuals to enter into whatever agreements they wish, no matter how risky, leads us to the best of all possible worlds. Most usury laws became irrelevant. If you wanted to borrow at a ridiculously high interest rate, who was the government to say you couldn’t? I’ve been told that my opposition to that common wisdom was a belief that people are stupid. I suppose that’s one way to put it, but I certainly don’t except myeslf from the group I am judging. Saying I think people are stupid is just a way of saying I’m arrogant, paternalistic, and think I know what’s better for others than they do themselves. But give people the opportunity to take irrational risks, and they will. Give enough people enough opportunities to take irrational risks, and you put the entire society at risk. So now we’re speaking again (as we began to back in the Sixties)  in terms of consumer protection — laws limiting what terms consumers can be bound to and requring that whatever terms are agreed to are agreed to openly and plainly. Such regulation supplements the common law of contracts, which is founded on the idea of freedom of contract — precisely that individuals are free to make whatever stupid deals they wish. You want to sign up for a credit card with a 29% APR? Who am I to stop you. But there’s nothing wrong with limiting freedom of contract to some extent — it likely strengthens another core principal of contract law: that we should enforce contracts because they are agreements people consciously and intentionally enter into.

From the New York Times:

The federal consumer protection system failed the country, disastrously, in the years leading up to the mortgage crisis. One big cause was the sharing of responsibility for compliance with laws and regulations among several agencies that communicate poorly with each other and tend to put the bankers’ interests first and consumer protection second — if they pay attention to it all.

The Obama administration was right on the mark last week when it recognized this problem and proposed a solution: consolidating the far-flung responsibilities into a strong, new agency that focuses directly on consumer protection. The plan, modeled on a bill already introduced in the Senate by Richard Durbin, Democrat of Illinois, deserves broad support in Congress.

Do you know you’ve agreed that Amazon can decide you’ve agreed to something other than what you agreed to?

I teach contract law. One of the most interesting issues in contract law is the extent to which it is based on conscious agreement. Theoretically, two free individuals are at liberty to agree to govern their relationship with respect to any given matter (the sale of a car, the division of assets in a divorce, the employment by one of another, the limitations on the use of materials posted by one on a web site governed by another) in any way they agree.

One problem with this theory is that so few of our contractual relationships are based on anything resembling conscious agreement. When is the last time you read a rental car agreement? The agreement governing use of your credit card? (Well, we might all be doing that more these days.) The terms of service governing your Facebook account?

The vast majority of us never read the terms of service governing our use of commercial web sites. Yet there is little question we are bound to them and that we entrust them with our creative work and our information we want to keep private. More surprisingly, perhaps, when we agree to these terms of service we almost always agree that the service provider can change the terms unilaterally. In other words, we are agreeing that our relationship with the web site will be whatever the web site decides that relationship will be.

As Plagiarism Today explains:

[I]t is standard practice for many sites to silently change their terms of service as the terms itself allow them to do. Users are often unaware of potentially worrisome changes until after a problem has arisen, when it is often too late to do anything about them.

But now the Electronic Frontier Foundation has created “‘TOSBack‘”: a ‘terms of service’” tracker for Facebook, Google, eBay, and other major websites”:

At www.TOSBack.org, you can see a real-time feed of changes and updates to more than three dozen polices from the Internet’s most popular online services. Clicking on an update brings you to a side-by-side before-and-after comparison, highlighting what has been removed from the policy and what has been added. . . .

“Some changes to terms of service are good for consumers, and some are bad,” said EFF Senior Staff Attorney Fred von Lohmann. “But Internet users are increasingly trusting websites with everything from their photos to their ‘friends lists’ to their calendar — and sometimes even their medical information. TOSBack will help consumers flag changes in the websites they use every day and trust with their personal information.”

Prohibition doesn’t work!

Back from Amsterdam (in Chicago, waiting for a flight to Cleveland), and wondering along with Bob Herbert when we’re going to give up our “war on drugs.” It never did seem to make a lot of sense to me to deal with what it seems isprimarily a medical problem as one to be solved through the criminal justice system. I thought we’d learned better from our experience with Prohibition. As Herbert writes, “The stakes are huge, the uncertainties great, and there’s a genuine risk that liberalizing drug laws might lead to an increase in use and in addiction. But the evidence suggests that such a risk is small.” And, after all, what we’ve been doing through most of my life has been a colossal failure:

This year marks the 40th anniversary of President Richard Nixon’s start of the war on drugs, and it now appears that drugs have won.

“We’ve spent a trillion dollars prosecuting the war on drugs,” Norm Stamper, a former police chief of Seattle, told me. “What do we have to show for it? Drugs are more readily available, at lower prices and higher levels of potency. It’s a dismal failure.”

What real biking culture looks like.

As I wrote yesterday, the fact bicycling is the best and most popular way for Amsterdamers to get around their own city is one of the greatest pleasures I take in living here, even for the brief times I’ve been able to each of the last 3 years. It shouldn’t be surprising, therefore, that Amsterdam is leading the world in pursuing green urban planning. But for green Americans, the reality may not be exactly what they would conceive. Not only, as I wrote yesterday, do you ride a cheap, single-speed, fat tired, rusty and old bike and buy and use locks heavier than your backpack and more expensive than the bike itself, but you don’t wear a helmet, you carry people — often in the plural, and often of very tender ages — on whatever protrusion they fit on. And they, of course, don’t wear helmets either. You ride at any hour of the day or night, and you don’t hesitate to speak on your cell phone while you’re riding.

It’s the honest truth from one who is here. And if you don’t believe me, you can check out “82 pictures of bicycles taken during 73 minutes on 9/12/06 in Amsterdam, Netherlands.”

Bicycling is, by the way, the most energy efficient means of transportation, more efficient even than walking.

The Greening of Amsterdam

One of the joys of living in Amsterdam is the opportunity to bike everywhere and at any time. The city is built for and entirely operates around the predominance of bicycles as a means of transportation. It’s not U.S. bicycling, with expensive bikes and helmets. You ride one-speed junker bikes that no one wants to steal, but the city is small and flat, so you don’t care much.  But Amsterdam wants only to become greener and more energy efficient:

The City of Amsterdam has selected Accenture to help implement its ‘Amsterdam Smart City’ program and create the European Union’s first ‘intelligent city.’ The purpose of the Amsterdam Smart City program is to take a comprehensive and coordinated approach to developing and implementing sustainable and economically viable projects that help the city reduce its carbon footprint and meet the European Union’s 2020 emissions and energy reduction targets.

And Amsterdam, apparently, is on the cutting edge of energy efficiency in urban planning. According to Business Week, “unlike cities that could take decades to upgrade their infrastructure, Amsterdam aims to complete its first-round investments by 2012. That makes it one of the first and most ambitious adopters of the smart city concept, attracting attention from policymakers worldwide hoping to glean lessons from the green experiment.” Just last week, on Utrechtsraat, a major shopping avenue in the center of the Dutch capital not far from where I am living, electric trucks have begun to pick up the trash, and the electronic displays on the local bus and tram stops are powered by small solar panels. “Elsewhere, 500 households will pilot an energy-saving system from IBM and Cisco aimed at cutting electricity costs. An additional 728 homes will have access to financing from Dutch banks ING and to buy everything from energy-saving light bulbs to ultra-efficient roof insulation.”

A poliitician would be an excellent replacement for Souter.

Gordon Silverstein has a terrific column explaining why President Obama should appoint a politician to the Supreme Court vacancy created by Justice Souter’s retirement. I think he’s spot on in understanding why, as Obama explained, it’s important that the future Justice “understands that justice ‘is also about how our laws affect the daily realities of people’s lives.’” Silverstein explains that many of the Court’s cases involve the Constitution’s impact on political and legislative functions, that none of the current justices has any legislative experience, and that it would make sense to have someone on the Court who really understands what the real-world consequences of its decisions:

Someone with the appropriate legal experience who also has faced voters and listened to constituents, someone who has rounded up votes to pass legislation and has actually implemented policy, would bring to the bench an intimate knowledge and understanding of the American political system, its institutions, and how they actually work, on the ground, in the 21st century. 

I agree too with Silverstein that most law professors would not identify these as the Court’s needs. But there is too much abstraction on the Court these days — too much concern with doctrinal purity and not enough with the practical consequences of that doctrine. Take campaign finance for example. Many opponents of campaign finance regulation ground their stance in the belief that the right to free speech forbids restrictions on the right to give money to political campaigns. They equate money and speech. But if  the ways unregulated spending affects political speech is  in fact to restrict the access of multiple viewpoints (by, fo example, crowding out of what in essence is a limited range of communication the interests of less well funded voices), then the equation of money with speech makes no sense — if  it limits the voices heard, unregulated campaign finance limits free speech. A politician will certainly have a better sense of the reality of the situation than any sitting member of the Court.

Like most legal questions, we cannot definitely answer this question without considering its practical effects. I hope, therefore, that Obama strays from the style we’ve seen for too long: appellate judges and lawyers with strong academic support. A politician would be a great alternative.

Wind of Change: Obama implementing offshore wind projects

From Remix America, President Barack Obama announces the first U.S. program to authorize offshore projects to generate electricity from wind and ocean currents:

Wind of Change: Forget the jet pack! I want a wind turbine in my backyard instead.

“Small wind” is a concept with which I was unfamiliar until beginning to do reading in connection with the the “Wind of Change” series Geniocity’s bloggers are now engaged upon. Small wind refers to turbines individual turbines, typically producing fewer than 100 KW, that — as described by the Ontario Ministry of Agriculture, Foord, and Rural Affairs – are installed “at homes, farms and small businesses either as a source of backup electricity, or to offset use of utility power and reduce electricity bills.” The New York Times one year ago reported that wind turbines, remarkably, “are becoming more common in heavily populated residential areas as homeowners are attracted to ease of use, financial incentives and low environmental effects.” Because new technology allows homeowners who generate more electricity than they use to sell the excess back into “the grid,” the systems use the electricity from utilities as backup power, removing the need for large and expensive battery-based backup systems. The ability to switch between turbine and utility-generated power is also effortless. For all of these reasons, there has been an explosion in these home systems over the past four years. The American Wind Energy Association publishes several small wind “success stories.” I am amazed to learn too that small wind was invented by and is still dominated by the U.S.:

America pioneered this renewable technology in the 1920s when farmers not connected to the power grid attached generators to what used to be simple water-pumping windmills. Unlike utility-scale large wind turbines or solar photovoltaic panels, small wind turbines are the one renewable energy technology that the US still dominates.

Perhaps the biggest problem facing more widespread use of “plug-and-play” home turbines, however, is local opposition. As Joe Schwartz, editor of Home Power magazine, explained to the New York Times (and as my post on Friday pointed out), few people who haven’t lived next door to a wind turbine want to:

“Turbines work in rural areas with strong wind,” Mr. Schwartz said. “But in urban and suburban areas, neighbors are never happy to see a 60- to 120-foot tower going up across the street.”

Thus, local zoning laws pose one of the biggest legal barriers to real growth in home-based small wind. These local laws could be prevented by legal action at either the state or the federal level. State laws “pre-empt” local laws. That is, if a municipality’s laws conflict with the laws of the municipality’s state, the state’s laws control. And federal laws pre-empt state law, so that, if state law conflicts with federal law, federal law controls.

It is almost inevitable that if our states and the federal government do not step in to this area, local zoning laws will prevent huge growth in small wind. Until a majority of homeowners want their own wind turbines or, at least, most homeowners have had experience living near small wind turbines, most homeowners will not want home turbines in their own neighborhoods. Local zoning laws are enacted by people concerned purely with their own neighborhoods — city council members are legislating only for, literally, their own neighborhood. Larger legislative bodies, on the other hand, naturally have larger visions, and are much more likely to balance state and national policies and interests into any judgment over whether to even allow home-based small wind. It seems necessary, therefore, that if one is interested in a future that includes home-based small wind, that states or the federal government act to prevent local governments from using their zoning laws to stop home-based small wind.

Wind of Change: new problems require new laws and new political alignments.

One consistent theme in this blog is that law is not a fixed set of rules applied to new situations as those new situations come up. Rather, as new situations arise, the law changes. This relationship between change and the law is frustrating to a lot of people. Politicians decry the activism of judges who don’t merely “apply the law as it is written.” And my students feel sometimes as if I’m trying to trick them. Most come to law school thinking that what will be really hard is that they’ll have to spend so much time learning so many rules. I tell them over and over again that it is indeed hard to spend so much time reading law. But that’s the easy part. The hard part is when you realize how open-ended and fluid the rules are and begin to understand that the really, really hard part is developing the creatvity and expressive powers necessary to effectively deal with law in an infinitely complex and ever-changing world.

So, for example, I have tried again and again to make clear that there is nothing in our copyright laws that is a necessary and immutable part of treating creators fairly. Rather, what is fair changes as the underlying material reality of creation changes. Our copyright laws our the product of a particular time, including the technologies of creation, the means of disseminating created products, and the intellectual fashions of that time. Since we have experienced and continue to experience a revolution in information technology, our copyright laws are bound to change. So an artist who claims he has “control over any use” of her images is not only wrong; she is also fighting a fight she may not be able to win without the sacrifice of the benefits of our new technologies — benefits we never had before and that we’d really prefer not to sacrifice for the sake of her exclusive control.

So we should not be surprised that changing energy technologies are beginning to realign our entrenched expectations. Ted Kennedy, of course, has long been known as the liberals’ most effective liberal, not least because, in the words of the Nation, he has “been his remarkable capacity to form warm, genuine friendships–more than mere working alliances–with GOP senators.”

But two years ago, when Kennedy worked in the Senate to block Cape Wind, a windmill farm in Nantucket Sound, environmental groups “launched an aggressive advertising and lobbying campaign to persuade Democrats to abandon Kennedy” and called Kennedy’s maneuver a “backroom deal.” The premise of the attacks, of course, was that Kennedy’s maneuver was motivated by the location of the legendary Kennedy compound on Hyannis Port, just 8 miles from the Cape Wind project. Kennedy counter-attacked, arguing that his position was the environmentally sound one. He also asserted that the wind farm would “hurt tourism, one of the area’s key industries.”

Putting aside the merits of Kennedy’s position, it seems plain that developing wind power will create rifts between environmentalists. On the one hand, of course, wind farms are “clean,” generating no waste as a direct result of energy production. On the other hand, wind turbines of sufficient size and sufficient number to make a real impact on energy production cannot help but have effects that not everyone will accept willingly.

I would not necessarily have guessed, however, that wind farms would already and directly be coming into conflict with laws established specifically to protect the environment. But that conflict is quite real in connection with migratory birds, as detailed by John Arnold McKinsey, a lawyer in Sacramento and former nuclear power plant operator on submarines in the U.S. Navy, in “Regulating Avian Impacts under the Migratory Bird Treaty Act and Other Laws: the Wind Industry Collides with One of its Own, the Environmental Protection Movement,” 28 Energy L.J. 71 (2007) (pdf).

As McKinsey explains, his article “explores the complexity, and perhaps irony, of the avian impacts facing the wind industry.” The impact, current and potential, of wind turbines on birds (and bats) is not only “an awkward issue for the environmental protectors that promoted wind energy, but is also subject to a number of “federal laws . . . [that] have created a growing issue with no resolution in sight.” Thus, McKinsey believes, “[h]ow well the wind industry deals with avian impacts may determine the ability of the industry to continue its amazing success.”

Unfortunately, while there is a growing recognition that fatal collisions between birds and wind turbines seem inevitable, according to McKinsey, it is not “well understood how many birds or bats collide with wind turbines” and it is “[e]ven less understood how many birds or bats will collide with a future wind project that exists only on paper.” And until recently no one has even considered avian impacts in determining where to place wind farms. I’m no expert on wind farms, but I am a litigator trained to see risks where no one else does, and it never occurred to me in thinking about a wind farm in Lake Erie just off the Cleveland’s coast that such a facility might, as now seems plain, have a big effect on birds.

Thus, of course, we not only will have laws and political alignments we never expected, we will also have new jobs we never expected. It is only in the course of my professional career that the representation of waste management companies has become a major area of legal specialization. Now we have the beginnings of an “avian impact assessment industry,” as McKinsey explains:

Companies exist that are nearly exclusively studying avian impacts for wind projects. Businesses have started up solely to provide radar survey services for wind projects. Evaluating avian impact risk has become an accepted practice in developing wind energy projects. Such efforts can be very expensive, depending in part on what level of effort is required. In general, avian impact risk evaluation is people-intensive. The various activities all involve individuals watching, catching, and/or counting birds or inspecting the ground for clues as to what birds or bats might utilize the project location. Night time surveys are also costly. Radar surveys alone, must factor in the cost of radar equipment as well as the operator or operators.

And now the impact on birds, even if it is not yet accurately measurable, is beginning to have an effect on the design and placement of wind turbines. Some think “newer and larger wind turbines, with their slower more visible motions, might reduce collisions.” Studies suggest “using radar to steer off birds or placing lights at selected locations to avoid impacts.” But we’re still working largely in the dark. It’s been thought that the use of echo-location by bats would allow them to avoid impacts, but “[b]ats continue to puzzle researchers. Some projects have a very large bat kill whereas others have minimal bat kill.”

There are many federal laws on the books that could affect the wind industry precisely because of bird kills. The most important of them, according to McKinsey, is the Migratory Bird Treaty Act (MBTA), which was originally enacted in 1918 and provides that “it shall be unlawful at any time, by any means or in any manner, to pursue, hunt, take, capture, kill . . . any migratory bird . . . .” The MBTA protects more than 800 species of birds. Intent to kill a bird is not required to violate the act, which imposes criminal penalties. Unknowing violations of the MBTA can receive fines up to $15,000 per violation and prison terms up to six months. Knowing violations are felonies and receive fines of $250,000 to $500,000 per violation and up to two years in prison.

Interestingly, though, McKinsey highlights the conflicts that can arise not only with respect to what the law is but with also with respect to how the law is enforced. He suggests that the MBTA’s potential impact is managed largely by “being ignored,” the approach the U.S. Fish and Wildlife Service adopted as official policy in 2003 in a policy memorandum euphemistically describing its approach as “selective enforcement.”

But the federal agencies that administer our regulatory system largely abandoned their jobs under the Bush administration. I have been unable to determine whether the Obama administration has reversed this policy in connection with enforcement of the MBTA, though it quite plainly has been called upon to do so. Already we’ve seen a shift away from “selective enforcement” of our laws governing workplace safety. But simply returning to strict enforcement of the MBTA might create conflicts no one considered before.

What seems plain, however, is that former allies in the environmental movement will be opposing one another on wind power projects. Altamount Pass, east of San Francisco, was developed as a wind farm in the early 1980’s. At the time, locating wind turbines was a function almost exclusively of wind availability. That can no longer be the case:

Altamont Pass, it turned out, while an excellent wind resource area, was also a challenging location to avoid avian impacts. Worse, this area of rolling hills was a primary hunting ground for large birds of prey, raptors. The end result was numerous dead raptors. Actual numbers have never been agreed upon by the various sides in the Altamont Pass confrontations, but a significant number of study efforts have taken place. Estimates often claim that more than 1000 eagles, hawks, and owls are killed each year.

Why do we enforce contract promises?

Over the course of my professional career, Law and Economics has grown from one school of thought among many to one so dominant that many of its postulates have virtually become unquestioned premises from which legal reasoning begins. The Law and Economics school of thought is wide-ranging, but might fairly be described the way Wikipedia puts it: Law and Economics is an “approach to legal theory that applies methods of economics to law. It includes the use of economic concepts to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules will be promulgated.”

One of the most influential premises of Law and Economics is that contractual promises are enforced purely because of their capacity to maximize the society-wide allocation of resources. Thus, it is said that the contractual promise has no moral value over and above its economic value. This view both explains why typically someone suing for breach of contract can recover only the financial equivalent of the benefit they would have received had the contract been performed. There is no additional quantum of damages added to provide an incentive not to breach.

Thus, it is said, a contractual promise is in fact a promise either to fulfill the promise or to pay the damages that result from breach. This view, it is argued, has long been the view of the common law, as exemplified by Oliver Wendell Holmes’ late 19th Century statement that “the duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it, and nothing else.” Thus, the thinking goes, if someone who has made a contractual promise can make out better by breaking the promise, paying damages for breach, and entering a different deal, that result is not merely tolerable — it is to be desired. Such a breach of promise is known as an “efficient breach” because it theoretically results in an increase in overall resources: the party injured by the breach is supposed to get everything he was supposed to get under the contract, the breaching party is getting something better, and the new party with whom the breaching party contracts is getting a deal he would not otherwise have gotten.

The Law and Economics view is by no means the only one current in the theorizing about the basis for enforcing contractual promises (and the interpretation Law and Economics devotees put on Holmes’ statement is disputed). As a contracts professor and litigator, though, my experience is that the idea that the contract promise has no moral value over and above its economic value is a very, very influential one.

It is a view, too, that is of a piece with the rise to virtual unquestioned dogma that unregulated free markets always result in the highest social good. One problem, though, is that unregulated free markets entrench the power of the wealthiest. So people bound by promises (the “promisor”) can force the person to whom they are bound (the “promisee”) to change the terms of the promises if the promisor has greater financial ability to force the promisee into a legal resolution that is unacceptable to the promisee.

The disparity in economic power the theory of efficient breach does not account for is on display in the power corporations hold to renegotiate employment contracts.  Since an employee can only recover for breach whatever damages are available to him through law, the threat of being limited to that remedy can be a powerful one. Thus, as the New York Times pointed out last week,

Contracts everywhere are under assault.

The depth of the recession and the use of taxpayer dollars to bail out companies have made it politically acceptable for overseers to tinker with employment agreements.

But, as David Skeel, a law professor from the University of Pennsylvania quoted in the article points out,

We run roughshod over some contracts and not over others. . . . Right now, employment contracts seem to be the type of contract that is viewed as eminently rewritable.

So we have Larry Summers, President Obama’s Chief Economic Adviser, arguing in connection with the bonuses paid to AIG employees that the contractual promises are too sacred under the law to undo: “”We are a country of law. . . There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.” On the other hand, the UAW’s agreement to give up rights under its contract with the auto companies was required by the government as a condition of the federal monies the automakers received.

So, are contractual promises “sacred” in some way, or are they only worth whatever the parties to them can extract given their relative financial strength and political influence? I don’t think I know.

Taking care of people and keeping standards high

In reviewing Philip K. Howard’s Life Without Lawyers: Liberating Americans from Too Much Law, Anthony Lewis points out that those, like Howard, who bemoan U.S. tort law, particularly in the seemingly random way it sometimes rewards people for damages caused by corporations or doctors, ignore a specific part of the socio-political realities of our country: we don’t have the safety nets other countries provide. So when a patient sues a doctor after an unsuccessful medical outcome, a jury naturally enough is going to sympathize and lean toward the injured person regardless of the doctor’s competence — to give the patient money is to give him something with which he may be able to pay for the medical needs created by the bad medical outcome.  In addition, juries are smart enough to know the award comes from insurance, not from the doctor herself. In countries which have universal health care, there’s no need to worry that the patient will be cared for.  In ours, there is.  The same thing goes for anyone arguably injured by a corporation’s product.  Better that injured person has the money to pay for the care he’ll need than not, even if that cost is spread among all the corporation’s customers (through higher prices):

Nor does Howard dig deep enough to explain the excesses of American tort law and the eagerness to seek vast damages for civil injuries. He blames the overreaching of Earl Warren’s Supreme Court in its sympathy for the little man, and the mood of antipathy to large institutions starting in the 1960s. He does not explore deeper social causes.

his country is notoriously lacking in safety nets that are taken for granted in other advanced societies. Medical care is guaranteed by the state, by one method or another, in Canada and all European countries; in the United States upward of 40 million people have no medical insurance. Around 46 percent of employed Americans get not even one day of paid sick leave-which is guaranteed by law in 145 other countries. Lawsuits are often a substitute for safety nets.

There is a historical example that makes the point: workers’ compensation. Employees injured on the job used to have to bring tort actions against their employer; that required proof of negligence, and complicated doctrines were developed by some courts to deny the claims of plaintiffs. Early in the twentieth century a movement led by Louis D. Brandeis-then a reformist private lawyer in Boston, later a Supreme Court justice-sought a system that would compensate the injured without regard to negligence, and in return would bar lawsuits. By 1949 every state had a workers’ compensation law. It is a perfect example of a safety net that assures limited compensation without the gamble of litigation.

Do doctor’s really want to reduce malpractice problems in a way that will satisfy everyone? Then create a patients’ compensation law that provides relief to patients injured by adverse medical outcomes regardless of fault.  Doing so effectively, however, will require there to remain some incentive to provide another wonderful product of our torty system: medical care in this country is provided at a higher standard than anywhere else.  Funny how Howard doesn’t mention that positive result of tort law.  How do we do motivate employers to maintain safe work places despite the fact workers’ compensation schemes have substantially relieved them of the burden of tort liability for failures to maintain safe work places?  Two ways: (1) employers finance workers’ compensation schemes, and (2) the Occupational Safety and Health Administration regulates and enforces workplace safety.

Of course, people like Howard have also argued for years that the financial system should be freed from the “burdens” posed both by tort law and state regulation.  We can see where those very successful arguments have gotten us.