issue: Regulatory Reform

A Missed Opportunity on Lobbying

Posted on by The Progressive Policy Institute

The Obama administration is continuing its troubling zero-tolerance and zero-nuance policy for lobbyists. In so doing, it is both misunderstanding the problem of lobbying and missing an opportunity for a meaningful solution.

As the Washington Post reported last week, “Hundreds, if not thousands, of lobbyists are likely to be ejected from federal advisory panels as part of a little-noticed initiative by the Obama administration to curb K Street’s influence in Washington, according to White House officials and lobbying experts.”

Undoubtedly, these advisory panels (the Post estimates there are “nearly 1,000 panels with total membership exceeding 60,000 people”) are full of lobbyists representing narrow and well-funded special interests. This is indeed a problem.

But it is a tricky problem to solve because many of these lobbyists are actually incredibly knowledgeable about arcane policy areas. Getting rid of them means these panels lose valuable policy expertise. And if there are particular industries or companies who want to participate in these advisory panels, presumably they will still find ways to have representatives who are not technically “lobbyists” (meaning only that they have not registered as lobbyists).

Unfortunately, the Obama approach is a blunt instrument that treats all lobbyists as interchangeably nefarious. This is simply not the case. And worse, it misses the real problem, which is the problem of balance. I’ve estimated that for every one lobbyist representing a public interest group or a union, there are now 16 lobbyists representing a business or business association. It just isn’t a fair fight, and it’s no wonder that many people have real concerns about the role that lobbyists play.

Here’s a better idea: Instead of banning lobbyists from participating on advisory councils altogether, the Obama administration could take a good, hard look at these panels and ensure that they have balanced representation. The administration could press advisory boards to take steps to consider all sides of an issue before making recommendations, such as setting up processes for outreach to interests who might not have the resources to pay lobbyists to represent them on boards.

The best public policy will emerge when the greatest diversity of perspectives gets incorporated, and when the most knowledgeable people participate. This should be the goal of the administration. Focusing on whether or not members of these panels are “lobbyists” is just fixating on a label. It would be much better to look at who actually participates and what they contribute.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.

Yet More on the Filibuster and Polarization

Posted on by The Progressive Policy Institute

I was going to title this post, “Ed Kilgore, You are Dead to Me,” but then again, I like Ed a lot, and he’s far more knowledgeable about politics than I am, and I don’t disagree with much of what he’s said about the filibuster.

Just as Ed isn’t “hell-bent on eliminating the filibuster,” neither would I shed many tears if it were to go away. I, too, object to how routine filibuster threats have become. That said, I do think that its elimination would have the potential to hurt progressive aims. Saying that the Senate “has a built-in red-state bias” makes the point — get rid of the filibuster and that bias means that red-state priorities are more likely to benefit from its elimination.

What I’d like to do here is start the first of a couple of posts on political polarization to defend my position that the filibuster wouldn’t be such a problem if we could make the Congress more representative of the nation. I think this point is actually implicit (almost explicit!) in commentary from Mark Schmitt and Ezra Klein that notes how the routinization of the filibuster is a recent phenomenon that owes its timing to the completion of what Bill Galston and Elaine Kamarck have called “The Great Sorting-Out.” Over the past 40 years, liberal Republicans and conservative Democrats have gone the way of the dodo bird, making the parties more polarized along ideological lines.

LBJ could count on Medicare passing in 1965 because the existence of liberal and moderate Republicans made the successful deployment of the filibuster unlikely. On the GOP side, conservatives would have had to court a sizeable number of right-leaning Democrats to make a filibuster threat credible. The difficulty of doing so (particularly with a southern Democrat as intimidating as LBJ applying countervailing pressure) gave Republican moderates little incentive to go along with such a threat. On the Democratic side, the opportunity for a single senator to engage in grandstanding or deal-making in exchange for his vote was limited by the same dynamics — the ability to get moderate GOP votes would have allowed the leadership to ignore such threats. Unless the issue was one as momentous and controversial as civil rights, southern Democrats and conservative Republicans would not collaborate across the aisle.

Fast-forward to 1994, when there were far fewer conservative Democrats and far fewer moderate Republicans. In such an environment, the filibuster became an obvious strategy — because it could work. The filibuster was not a problem until the completion of The Great Sorting-Out. (And yes, Republicans have deployed filibuster threats far more often than Democrats have, largely because the Democrats are more dependent on their moderates than the Republicans are on theirs — a point to which I’ll return in the next post.)

Now, Ed is right that the power that party primaries give the least-moderate voters is not solely to blame for this (though let’s not discount the likelihood that the primary reforms between 1968 and 1972 accelerated the ideological sorting between the parties). But a solution to political polarization need not address its causes.

The key questions, it seems to me, are (1) whether one thinks that the parties are ideologically representative of their supporters or members and (2) whether one thinks that that is true on both sides. Kicking (2) to my next post, I’ll just say that Morris Fiorina’s research definitively shows that the obvious political polarization among elites, political junkies, and elected officials is not reflected among Americans as a whole. The reason that we have more political polarization — even between presidential candidates — is because the candidates on offer have been chosen by less-moderate primary voters and activists. Because relatively moderate voters still have to choose between two options, the growing polarization of party activists and primary voters translates into growing polarization among elected officials — even as the electorate has remained relatively moderate.

Whether you think the electorate is, in its heart of hearts, moderate is irrelevant in some sense, but what is fairly clear is that at least by the measures available, it has not become more polarized. And to circle back to my original contention that progressives should think twice before wanting to throw out the filibuster, political polarization makes the filibuster more important as a check against small majorities. The less moderate the two caucuses are, the more unrepresentative of popular preferences will be the legislation that can pass with narrow margins.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.

A Different Take on the Financial Transaction Tax

Posted on by The Progressive Policy Institute

Having just joined the Progressive Policy Institute from a stint on Wall Street, I’d like to offer a different perspective on the financial transactions tax (FTT).

Last week, Lee Drutman argued in favor of an FTT, saying that a transaction tax modeled after the one our British friends have would raise much-needed funds. Writing in light of the past year’s economic crisis, Drutman also said that an FTT would “throw a little sand in the gears of the giant financial speculation casino.” While both raising revenue and reining in Wall Street are goals worth pursuing, I would argue that the FTT is a second-best solution.

According to Dean Baker of the Center for Economic and Policy Research, a proponent of the FTT, a Yankee equivalent of John Bull’s 0.25% transaction tax wouldn’t raise $100 billion — it would raise less than a third of that. You need to crank up the tax — to double the proposed amount on stocks and higher on other products — to get close to a hoped-for $100 billion in revenue.

Also, it’s worth pointing out that a transaction tax didn’t spare the British from any of last year’s financial crisis — they had housing crises, government bailouts, and bank nationalizations comparable to what we saw on this side of the Atlantic.

A transaction tax is simply too blunt an instrument. Pouring sand in the gears is not a way to slow a machine down — it’s a way to try to bring the machine to a halt. Trying to second-guess trader activity by taxing stocks and other securities at differing levels to generate sufficient revenue will only drive broker dealers to encourage trading in high-margin products to make up for the dead-weight loss of the tax. This would drive traders away from liquid products to illiquid ones, increasing systemic risk. This increased focus on complex structured products drains liquidity from the system, as we saw last fall.

A better solution is one along the lines in Sen. Chris Dodd’s (D-CT) proposed financial reform bill. In addition to heightened capital and leverage requirements for systemically significant, “too big to fail” banks, higher capital requirements and stricter leverage controls could be imposed on trading in complex financial instruments. This would drive Wall Street firms looking to goose returns through leverage from trading the complex products that contributed to last year’s crisis to more liquid — less systemically threatening — products.

Investors that would want to speculate on complex derivatives could still do so, providing they did it with their own money. And banks that wanted to sell those products could still do so, provided they had adequate capital to backstop those activities. Letting these properly priced incentives work their magic would allow the market to behave in a responsible manner. Revenue could then be generated from that market activity by taxing gains made by speculators at a rate in line with income tax rates.

This would achieve the goals the FTT sets out to do — rein in derivatives risk and raise revenues — in a way that leaves market forces free to be a driver of renewed growth in our economy. But I suspect the supporters of the FTT will want to have their say, and I look forward to hearing it.

Progressives and the Filibuster-Round 2

Posted on by The Progressive Policy Institute

One of the functions of The Progressive Fix is to not only to provide an online outlet for “pragmatic progressives” but also to demonstrate that their antipathy to ideological litmus tests extends to their own ranks.

In that spirit, I will take issue with a post published here on Friday by Scott Winship, who is an esteemed friend and colleague, and my predecessor as managing editor over at The Democratic Strategist. Scott offered a defense of the Senate filibuster on traditional, anti-tyranny-of-the-majority grounds, and then suggested that the real problem in the Senate is partisan polarization, with the solution being reforms in primary laws to reduce the power of the “ideological extremes.”

To be clear, my disagreement with Scott on this issue is only partial. I am not hell-bent on eliminating the filibuster as a possibility under the Senate rules (though not opposed to that step in principle, either). But what I object to categorically is the routinization of filibuster threats in recent years, to the point where the Senate has come perilously close to creating an entirely new, non-constitutionally-sanctioned 60-vote requirement for the enactment of all significant legislation (other than provisions taken up under specified exceptions to the usual rules, like the Congressional Budget Act).

Since the Senate already has a built-in red-state bias, a supermajority requirement would basically represent a death sentence for progressive initiatives in the near future.  Yes, I know some Democrats (though not me) celebrated the filibuster when the shoe was on the other foot a few years back, but on the other hand, nobody was excoriating Republicans for demanding that their own senators vote for cloture, were they?

All Filibuster, All the Time

And that’s the crux of the matter today — not the possibility of filibusters, but the elimination of any disincentive to engage in a filibuster on every single piece of legislation. Some senators are acting as though the right to vote one’s conscience or interests on a bill is identical to the right to obstruct it by denying it a floor vote, meaning that the normal practice of party discipline on procedural matters somehow does not extend to the most important procedural matter: votes to end a filibuster — i.e., cloture votes. So even if Democrats have (as they do right now) an improbable and (probably) unsustainable 60 Senate votes, that’s not enough unless they also have 60 votes for a specific bill. That particular shoe has not been on the other foot in living memory, but even if it had been, I certainly think Republicans should have been free to sanction their members for combining with the opposition to bring the Senate, and the country, to a standstill.

If Joe Lieberman or Ben Nelson considers it a matter of deep principle to vote against cloture to block final passage of health care reform (probably for the next decade or so, given the precedents on this topic), that’s well and good, but they should have to pay a price — such as losing a rung on the seniority ladder.

Scott, as noted above, argues that the current situation in the Senate is the product of “polarization,” which he seems to blame equally on both parties, and offers the remedy of electoral reforms to reduce that polarization. By this I assume he means some form of open primary. Scott is a very smart man who knows, I am sure, that “polarization” hasn’t simply been produced by closed primaries. Much of it has resulted from a gradual process of ideological sorting-out between the two major parties that is entirely healthy and natural, as compared to the longstanding dependence on ethnic, religious, and regional factors for party identification that may have made “bipartisanship” technically easier but didn’t really offer most voters (e.g., southerners choosing between Democratic and Republican conservatives and northeasterners choosing between Democratic and Republican liberals) more choice than they have today. If you look at the Senate right now, it’s hard to identify more than a few senators whose behavior would change if they were exposed, say, to primary voting by registered independents (many hard-core southern conservative Republicans are from states with no party registration at all).

Dealing with the Party of No

More to the point, the unity of Senate Republicans right now flows less from the fear of primary opponents from the hard right than it does from a corporate decision by the GOP as an institution that it must destroy the Obama administration by any means necessary. A contributing factor to this decision is the strange but overwhelmingly maintained belief of Republicans that the only way to distance themselves from the hyper-partisan Bush administration’s disastrous record is by claiming it was too liberal! When it comes to big-ticket issues like health care reform and climate change, Republicans have clearly shifted to the right during the last few years, even as Democrats have consistently sought middle ground (e.g., market-based carbon cap-and-trade and a “premium support” approach to universal health care).

So in my opinion, the immediate solution to the polarization of the Senate isn’t an impossible effort to reach accommodation with more than a very few Republicans, or letting a few “centrists” write every bill. Instead, there ought to be a reasonable insistence that Democrats reject the supermajority requirement and support the party on cloture votes as a matter of course. We can then maintain our big-tent party by letting heterodox Democrats stray on final passage of key legislation as they wish. And we can also invite Republicans to go to the country with a stirring, populist campaign slogan of “throw the cloturers out.”

Growing Pains: Scaling Up the Nation’s Best Charter Schools

Posted on by The Progressive Policy Institute

The last decade has seen a tremendous boom in charter schools. Charter management organizations (CMOs) have played an increasingly important role in state and national efforts to bring reform to the toughest educational environments. But as a new report from Education Sector points out, CMOs have expanded more slowly and required more resources than supporters had hoped. Ed Sector proposes a series of recommendations to policy makers for CMOs to realize their full potential, including: lifting artificial caps on the number of charter schools that can operate; prioritizing funding for states with level fiscal playing fields for charter schools; standardizing data collection requirements across charter schools; and requiring states to have accountability systems for charter school authorizers.

The Best Hour You’ll Ever Spend on Insurance

Posted on by The Progressive Policy Institute

 

 

The radio show This American Life is a staple in every progressive’s listening schedule, and I’m no different. While occasionally there’s a show that I end up fast-forwarding through, more often than not it’s better to just pop some popcorn and listen.

This past week’s episode was the second of a two-part series the show put together on the insurance industry — apropos as Congress and the administration look at the chronic problems of health insurance in this country. The first part was informative, but not riveting. This second part, however, taught me that:

  • Insurance companies have a billing code for injuries from spacecraft
  • 20-25% of all doctor’s bills are spent on taking care of billing issues with insurance companies
  • Co-pay coupons for pills make them more expensive
  • There’s pet health insurance and hedgehog cancer
  • And the solution to our insurance woes could lie in…Maryland

One of the drivers of insurance cost growth is the fact that rates for procedures are negotiated between insurers and hospitals. That cost can see some big variance depending on who has the upper hand. A procedure can be 10 times more expensive in an area where a hospital is dominant than in another area where the insurance carrier is dominant. That’s where Maryland’s approach comes in: the state has a Maryland Insurance Administration that sets statewide rates for procedures.

But the bottom line of the episode is summed up in the anecdote of how — by ruling that companies can take a tax deduction for providing healthcare — an unknown bureaucrat in the 1950s IRS gave us the health care system we have today. No matter the outcome of negotiations on the Hill as they overhaul the industry, it’s these incentives that will drive how our health care industry will work.

The Right Way to Curb Executive Pay

Posted on by The Progressive Policy Institute

Yesterday, word was leaked that after telling Bank of America head honcho Ken Lewis to expect a goose-egg in salary for 2009, the Obama administration pay czar Ken Feinberg was going to give pay cuts to chief executives at four other financial firms, including Citigroup and AIG, and the automakers GM and Chrysler. While no one to the left of Steve Forbes can really defend multimillion dollar payouts to executives for driving companies and the economy into the ground (and don’t be fooled — despite getting $0 in salary, Lewis will take home $53 million in “other compensation” this year), this plan isn’t the way to rein in payouts. It might feel good in the short term, but it doesn’t solve anything and could cause problems in the future.

First, cutting pay for financial executives in 2009 is a bit like slamming the barn door after the horse has bolted. These problems were festering for many years, and most of the chief executives who are running these companies weren’t in charge when errors were made — the beleaguered Lewis excepted, and he’s stepping down at the end of the year. So they’re getting blamed for their predecessors’ decisions.

It also doesn’t affect the main culprits who got us into this mess. The notorious Joe Cassano from AIG FP in London — who almost single-handedly drove the insurer into the ground — is untouched by the decision.

And, despite what the administration might hope, the rest of Wall Street is not going to rein in salary practices either in sympathy with their comrades or fear of rebuke. The companies affected are the ones that still have significant stakes owned by the government. Those that have returned their TARP money — Goldman and JP Morgan — are unaffected.

Given the incentive to work for a company with pay limited by the government or one where pay isn’t limited, people will jump ship for the latter. This has the potential to make the already weak companies — Bank of America and Citi, for example — even weaker. Which means that we might have a bigger problem on our hands if either of the two largest banks in the country drift with no one at the wheel (Lewis’ decision to resign without a replacement means we might see this at Bank of America anyway).

Finally, there is the concern that this will be the only chance we have to move on keeping salaries in the financial industry in line with a level that benefits the country, not bankers. When taking a hard look at pay in the future, bankers can use this as political cover, claiming that the administration has already “dealt with the issue.”

A better solution to the pay issue is to look not at short-term, feel-good measures, but to implement longer-term solutions. Line up incentives for bankers with those of shareholders and the American people. Eliminate “guaranteed” bonuses. Replace cash payouts and options with restricted stock grants, vesting over time, keeping executives interested in the long-term health of companies.

Rep. Barney Frank (MA) has pushed the Corporate and Financial Institution Compensation Fairness Act of 2009 through the House with a “Say on Pay” measure, giving shareholders a non-binding say on management salaries at the annual meeting, an idea that has merit. But its non-binding nature and the fact that most shareholder votes are made by institutional investors (more often than not either current or former I-bank employees) as proxies for their clients limit the measure’s effectiveness. A more effective part of the same bill also requires bonuses to be in line with risk-taking.

Even better is the fact that incentives will be disclosed. A little known secret on Wall Street is that traders can make more than the CEOs, and the trader’s payouts are normally undisclosed. If such incentive structures were spelled out to investors, they might not be so sanguine in signing off.

Unreconciled: The Dangers of the Growing Demand for Using Reconciliation To Enact Health Reform

Posted on by The Progressive Policy Institute

The long-running campaign to make inclusion of a “public option” a progressive litmus test for Democrats on health care reform has entered a new and potentially dangerous phase: growing demands that congressional Democrats use the budget “reconciliation” procedure to avoid a Senate filibuster and lower the effective threshold for enactment of a bill to 50 votes.

As Brian Buetler explains at TalkingPointsMemo, two major new grassroots initiatives–one sponsored by Democracy for America (and headed up by Howard Dean) and another by a new group called CREDO Action–are asserting that reconciliation can easily be used for health reform. The clear implication is that any failure to go this route is proof of Democratic irresolution if not betrayal.

The temptation to insist on the reconciliation route is certainly understandable. Aside from making enactment of a bill by the Senate much easier, reconciliation, if successfully pursued, might make Republicans irrelevant to the process, while vastly reducing the influence of those Democrats who are obdurately opposed to the public option. It could also narrow the gap between House and Senate bills, which currently makes approval in either House of the ultimate conference committee report a difficult challenge.

But unfortunately, use of reconciliation isn’t the no-brainer it’s sometimes made out to be.

There are two major risks to the use of reconciliation which have nothing to do with fear of Republican shrieks about “cramming through a bill” or with fading hopes of bipartisanship.

The first involves an arcane budget provision called “the Byrd Rule,” which creates a point of order in the Senate against material in reconciliation bills that is not germane to budgeting. If the Senate parliamentarian (to whom the chair invariably defers on such matters) rules in favor of such a point of order–and Republicans will raise them constantly–it requires 60 votes to override such a ruling, which eliminates the entire advantage of taking this route to begin with. Nobody seems entirely confident that, say, creation of health care exchanges would be judged as germane.

The second problem is that it’s almost impossible to enact permanent changes in law via reconciliation; provisions can only operate within limited-time “windows.” This problem is best illustrated by the consequences of the GOP decision to enact the big Bush administration tax cuts via reconciliation. The “limited window” requirements of the Budget Act explains why there is still a federal estate tax, even though Congress voted in 2001 to phase it out; and why the remainder of the Bush tax cuts haven’t been made permanent. Creating an elaborate new system for health care on a temporary basis could be more than a little hazardous.

There’s a deeper problem, too, which is reflected in the evolution of the “Byrd Rule,” named after the famously imperious appropriator, the senior senator from West Virginia: non-Budget Committee senators in both parties naturally resist the routinization of reconciliation as a way to bypass the authorizing and appropriating committees. This isn’t a matter of party or ideology, but of institutional prerogatives that are zealously defended even by senators who might favor the kind of health reform legislation that reconciliation would be designed to enact.

It’s entirely possible that the potential payoff of using reconciliation is worth all the risks, particularly if hard-core Republican opposition to health reform makes it the only viable option, and/or if Democratic opponents of a public option refuse to vote for cloture to allow an up-or-down vote. But the key point right now is this: this decision isn’t easy, and the White House and congressional leaders may decide against reconciliation for reasons that should not expose them to angry charges of timidity or subservience to the health care industry.

UPDATE: The indispensible Jonathan Cohn has a post up at The New Republic on reconciliation and health care that makes a similar warning about its perils.

Building a Clean Economy on an Old Tobacco Plant

Posted on by The Progressive Policy Institute

It’s hard to imagine many new uses for a shuttered tobacco factory. Thirty-foot tall cranes designed for moving bales, a paper factory, heavy equipment including backhoes, fork-lifts and tractors, and old cement floors stained by tobacco juice made sense for tobacco. But the odds that this plant, situated on 140 acres of land and given up by tobacco company Brown and Williamson in 2006 after its merger with R.J. Reynolds, would find a second life seemed pretty low.

Welcome to the world of sustainability and green entrepreneurs. An enormous tobacco factory in Chester, Virginia, about 20 minutes southeast of Richmond, has become the unlikely but inspiring location for an interdisciplinary group of green companies to work together and create a sustainable—and profitable—economy.

The Sustainability Park was launched in 2006 by Brenda Robinson, a Richmond-area biomass entrepreneur. She founded the Sustainability Park to create a community of businesses sharing a common vision of sustainability and renewable energy advancement.

“The Park is still creating jobs and did throughout the economic downturn,” said Robinson, the Park’s founder. “We are continuing to expand with new manufacturing facilities and equipment.”

The Sustainability Park currently has thirteen tenants, whose services include biomass production; industrial composting for landscapers and gardeners; recycling of massive amounts of debris that would otherwise go to landfills; and even a baseball training facility for Richmond-area youth that uses all-recycled equipment. Tenants in the Park also provide the important new business of LEED¬—Leadership in Environmental Energy and Design—Certification. This important program, created and monitored by the U.S. Green Building Council, provides strict standards for certifying construction as sustainable according to a variety of criteria, including the percentage of post-consumer material used and the impact on the local environment.

The Park and other projects like it across the country, belie the notion that green or sustainable projects are somehow antithetical to the free market or to capitalism; on the contrary. The Park itself is a for-profit company and the tenants are all for-profits. There is a raging market for the services the tenants provide. One company, Ace Recycling, sorts large quantities of construction debris, recovering tons of metal, biomass and other materials, for later post-consumer use, whether as wood pellets or as road surfacing—and at prices often lower than landfills.

Robinson explained that small businesses, like those at the Sustainability Park, are currently constrained by the lack of growth capital and government programs are not structured to aid these types of projects.

“We have been resourceful without government assistance,” said Robinson, “but infusion of government shovel-ready funding would have created many more sustainable jobs and additional tax revenue while helping the environment, promoting creative entrepreneurship and clean energy solutions.”

These businesses do need help from government, whether with improved access to stimulus funds; reducing the red tape often required at the federal or state level to apply for and receive grants; and increased investment in research and development. Recently, the Park considered applying for a federal grant to help increase efficiency of their own energy use, which could have saved $250,000 a year. They stopped the application process when they discovered that the regulations in place—including the requirement to purchase a $30,000 energy audit and a limit of 25% on the company’s savings—would have dramatically reduced their economic impact.

Yet, the profitability and early success of the Park’s tenants reveals the tremendous promise of clean technology as a business model and investment for society. Robinson noted the co-location of such varied “green” businesses has triggered tremendous cooperation, brainstorming, and even business deals within the Park. A recycler, for instance, sold material to another tenant to build a road.

The innovation and entrepreneurial spirit at the Park shows that America can indeed grow its way out of the current economy and into a new clean economy, where we will begin leading the world again. Our policymakers need to open the door and where helpful, provide incentives and ease regulatory burdens. The new generation of green entrepreneurs will do the rest.

For evidence, just see the facts. Less than three years later, $20 million has been invested in the Park, which has created 80 local jobs—including rescuing many employees who lost their jobs when the tobacco factory closed.

The Class Action Fairness Act: Curbing Unfairness and Restoring Faith in our Judicial System

Posted on by The Progressive Policy Institute

A rapidly growing number of class actions that are being filed in some of our state courts appear to be doing more harm than good. Under the current regime, most participants in those cases—not just the defendants—tend to be losers. The states whose courts have honorably decided not to play class action games are, contrary to fundamental federalism principles, being forced to transfer authority over their citizens’ claims and the interpretation of their own laws to other states whose courts seem to have an insatiable appetite for such lawsuits. Consumers are paying a big price as well. Even though they are supposed to be the beneficiaries of these lawsuits, there is mounting evidence that much (if not most or all) of whatever monetary recoveries are obtained in state court class actions often go to the counsel
who brought the actions, not the persons on whose behalf they supposedly were filed. And consumers are ultimately paying the bill for those recoveries in the form of a “litigation tax” that must be added to the prices they pay everyday for products and services. As The Washington Post recently editorialized, “no component of the legal system is more prone to abuse” than class actions.

The Framers of the U.S. Constitution actually foresaw—and tried to prevent—the types of problems that are raised by these class actions when they gave federal courts “diversity jurisdiction” over cases that involve interstate commerce. Unfortunately, the federal statutes exercising that constitutional authority were drafted before the evolution of the modern class action lawsuit and have been interpreted to exclude most interstate class actions from federal court. The upshot is that even multimillion dollar cases, brought on behalf of tens of thousands of class members living in all 50 states, with outcomes that set national policy, are heard in state (not federal) courts. Some members of the bar have seized on this opportunity, searching out and finding state court venues where the judges will readily certify cases for very lucrative treatment as either class actions or their kin, mass joinder actions.

Download “2003.03-Dellinger_The-Class-Action-Fairness-Act_Curbing-Unfairness-and-Restoring-Faith-in-Our-Judicial-System”