Thanks to Walter for the invitation. Thanks to Ted for keeping it interesting. And thanks to all those who left feedback to my posts.

Once again, my blog is A Stitch in Haste. The RSS feed is here. You can email me here.

Thanks again.

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Peace Corps Quotes of the Day
–Serving in the Peace Corps is an entirely selfish endeavor.

George Allen’s “My-Ca-Ca” Apology
–Allen is under the false impression that he is running for President in 2008.

“Afghan” — It’s Not Just Rugs and Dogs Anymore
–Hey U.S. Government, how that’s War on Drugs going?

NYC-TV = W-T-F-?
–Why does the City of New York own a commercial television station?

Shall We See a “Defense of Solar System Act”?
–Damn activist astronomers legislating from the telescope!

The Road to Bigotry is Paved With…
–Thomas Sowell gets pulled over for speeding down the Highway to Hell.

Terrorists, Wal-Mart, Whatever…
–Biden is under the false impression that he is running for President in 2008.

Town “Drug” Into Football “Deer Decoy” Scandal
–No wonder these kids think theft and reckless endangerment are no big deal.

Feel free to stop on by!

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What is often overlooked (but not by Walter) is that California has a monstrous law called the “Unruh Act” that specifically authorizes such a cause of action for what most people consider harmless, de minimis gender-based discrimination.

I’ve heard that there are California law firms that specialize in Unruh claims. I can remember back in high school watching Judge Wapner of “The People’s Court” arbitrate an Unruh claim over a “Ladies’ Night” at a California bar — the male plaintiff won.

So, we are dealing here not with a frivolous lawsuit, but with a frivolous law. Passed by frivolous politicians.

To whom, for some reason, judges are supposed to show great deference. Go figure.

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To summarize, although it is not a proper function of government to proscribe “bad” decision making, perhaps a few isolated, objectively defensible carve-outs can be allowed in which the government makes it just a little bit harder to make a bad decision. Perhaps. Stated differently, a paternalist exception that actually proves the libertarian rule should probably be embraced and not shunned.

But does this qualify as such an exception?

In a payday loan transaction, the lender makes a small advance (typically $100-$500) to its customer, agreeing to hold a personal check for the loan amount plus a fee until the customer’s next payday. … The borrower receives cash immediately. Fees charged can range from $15 to $30 on each $100 advanced, although the typical fee is at the lower end of that range.

The fee may seem modest when presented as a dollar amount, but when calculated as an annual percentage rate (APR), the cost is relatively high. A charge of $15 to borrow $100 for 14 days amounts to an APR of 391%. A survey by consumer advocates found APRs on 14-day payday loans ranging from 390% to 871%.

No fewer than five separate bills were introduced in this session of Congress to limit or even ban payday loans. No fewer than four federal financial regulatory agencies, including the Federal Reserve, have launched investigations of the practice. Not to mention the states.

There are many other examples of financial market proscriptions in the name of paternalism — usury, loan sharking, “refund anticipation loans,” and that perennial favorite of libertarians, “price gouging” — that all attempt to block voluntary transactions by competent adults.

It is a basic principle of economics* that more choices lead to higher potential utility for consumers. Stated differently, restricting freedom of choice and freedom of contract always makes people worse off.

So what right, exactly, does a politician, regulator or bureaucrat have to say that a payday loan, even one with a stratospheric interest rate, is “wrong” for a given borrower in a given circumstance, and therefore ban it?

Note that the common, if indelicate, response that “people are stupid” is not relevant. That observation serves as a justification (perhaps) for labeling requirements and “Truth in …” laws such as the Truth in Lending Act. More information, like more choices, can be a good thing, if the cost of presenting that information does not exceed the benefit it provides.

But that’s not the same as a ban. Even a fully informed consumer who is perfectly willing to pay an “outrageous” (i.e., a usurious) interest rate is barred from doing so. Why?

It also can’t be merely a manifestation of the general defense of “unconscionability” in contract law. “Unconscionabilty” is an “as applied” concept: unconscionable in what context? Umbrella proscriptions declare a contract invalid not “as applied,” but facially. So the argument becomes circular: Such loans are unconscionable because they’re, um, unconscionable? That’s a no-go as well.

Perhaps it’s an externality argument — A 390% APR on a payday loan might not offend the borrower, but it offends us, and we therefore are entitled to block it, not to help the borrower, but to help ourselves. “Will of the majority” and such.

That way madness lies. It is the ultimate slippery slope. If we can ban, for our selfish goals, an offensive interest rate imposed on others, then what other “offensive” strictly private activities might we start banning?**

So I ask again: What precisely is the justification for a government to ban voluntary, fully informed, fully private loans — or other private contracts, or other private activities generally?

—

(*Which is why, apparently, some economists try to argue the exact opposite. Go figure.)

(**Some of you might be able to guess where I could go with this line of reasoning — see Lawrence v. Texas. Fans of Overlawyered might also think “foie gras.”)

—

POST SCRIPT: Not long after I finished this post, an interesting item popped into my news aggregator. I’ll excerpt it here without comment –

Need cash to pay your next bill? Send us a text message, we’ll send you the money in just a few minutes.
…
Lending cash to young people through SMS messages at rates banks can only dream of is becoming increasingly popular in Nordic countries, according to a survey conducted by Finland’s financial watchdog. … In Finland and 12 other EU countries these lenders are out of reach of financial regulators because they do not collect funds from the public, the watchdog said.

Those who accept a loan offer get the money transferred to their bank account just a few minutes after sending an SMS with their national identification number. For a two-week loan of 100 euros the payback is 120 euros, equivalent to an annual lending rate of about 1,000 percent, which would be illegal in some European countries.

Discuss.

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The bill is mostly sound and fury, signifying nothing. The Pension Benefit Guaranty Corporation will be “saved,” even though we were repeatedly assured until now that there was in fact nothing to “save” it from. Private employers will be required, over time, to go from 90% funding to 100% funding of their pension plans — which is nothing more than hollow accounting gimmickry. And the real volcanoes under the city — public employee pensions — are not addressed at all. Neither of course is the Social Security crisis.

But one afterthought of the bill is worth looking at:

Employers can encourage their workers to save by automatically enrolling them 401(k) retirement accounts.

This proposal has been bouncing around for years. A good primer on the subject is available from the Congressional Research Service.

The phenomenon of 401(k) under-participation has been cited, repeatedly, as an example of “irrational behavior,” especially when the employer matches employee contributions. “Who would turn down free money?” Yet people do, in surprisingly large numbers.

And it is a small step indeed (for a politician, at least) from observing “irrational behavior” to calling for paternalism to correct it — i.e., passing laws compelling people to be “rational.”

Libertarians, and I’m guessing many Overlawyered readers, love to get indignant over paternalism. Motorcycle helmet laws and seatbelt requirements come to mind, as do the War on Tobacco and the War on Obesity. Why exactly should the government care if a motorcyclist chooses to undertake the “irrational” risk of not donning a helmet? What right does the government have to compel you to watch your weight?

Typically the non-libertarian response is that the helmetless motorcyclist has no “right” to risk, “unnecessarily,” the consumption of healthcare resources (i.e., an emergency room) should he be injured in a way that would not occur had he been wearing a helmet. This argument gains traction under a system of publicly financed healthcare.

To which the libertarian response is typically, “Well, we shouldn’t have publicly financed healthcare!” But that’s another blogpost.

Let’s circle back to 401(k) enrollment. Under the new PPA, employers will now be authorized to automatically enroll new employees in a 401(k) plan — but with an opt-out provision. In other words, whereas before an employee had to take action to get into the 401(k) plan, now she must take action to get out of it.

Clearly such a plan is a paternalistic undertaking. Who cares if an employee is too stupid, or too myopic, to enroll in a 401(k) plan? That’s her problem, right?

On the other hand, a provision such as this is probably so minor, so unobtrusive, that it’s hard for even the most dedicated libertarian to oppose it. Even if a particular employee accrues no benefit from the policy (i.e., she doesn’t want to be enrolled), the cost (i.e., the time and effort to opt out) is arguably so minuscule as to deserve an exemption from any libertarian indignation.

On the other other hand (it’s the economist in me!), a proposal to mandate 401(k) enrollment without an opt-out provision would of course be an impermissible infringement on personal autonomy. The government has no legitimate basis to force people to save for their retirement. (Of course, when the government forces workers to pay for other people’s retirements, then it’s called “Social Security” and is considered perfectly hunky-dory. Go figure.)

To summarize, although it is not a proper function of government to proscribe “bad” decision making, perhaps a few isolated, objectively defensible carve-outs can be allowed in which the government makes it just a little bit harder to make a “bad” decision. Perhaps. Stated differently, a paternalistic exception that actually proves the libertarian rule should probably be embraced and not shunned.

(In Part Two I will examine another fashionable “financial paternalism” trend — banning so-called “payday loans” and similar schemes.)

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While the decision contains a wealth of flowery language reminiscent of, say, a post by a libertarian blawger, it is rather weak on actual analysis. On the other hand, what little analysis it contains is spot-on accurate.

Here’s a summary of the decision’s findings:

–The state secrets privilege is not applicable to the extent that the litigation requires no new discovery. In other words, the government cannot deny that “everybody already knows” about the NSA program, but it can refuse to disclose any further information beyond what is in the public domain. To the extent that the plaintiffs can proceed solely on that basis, they are permitted to do so. The challenge to the government’s data mining operations was, however, quashed under the state secrets doctrine. (Translation: Without the “traitorous” reporting by the media, the NSA program — which the judge has found unconstitutional — would have been allowed to continue. Go figure.)

–The plaintiffs have standing to sue, mainly because their ability as journalists and scholars to communicate with foreigners has been hindered.

–The program violates the Fourth Amendment. This is by far the weakest part of decision and boils down to the judge saying “just because.” Nominally the argument is: To the extent that the warrant requirement can be circumvented for special circumstances, the FISA framework is more than adequate to do so and must therefore be adhered to.

–The program violates the First Amendment. Also a very weak analysis. Basically a “chilling effect” argument premised on the nature of the “speech” being monitored. Not at all persuasive.

–Separation of Powers / AUMF / Article II. Here Judge Taylor is reading strictly from the civil liberties script, and fortunately so. She correctly applies the Youngstown framework (i.e., FISA controls and the President’s power to circumvent it is “at its lowest ebb”), the Authorization of the Use of Military Force did not repeal or amend FISA by implication (because courts have always tried to avoid such constructions), and the Commander-in-Chief power cannot be plenary, even in time of war, since such a view offends the plain text of Article I and the Bill of Rights.

It’s always good to have to wind at your back going into the appellate process, but we should expect much (but hopefully not all) of the decision to be reversed.

The case is ACLU v. Alexander, No. 06-CV-10204 (E.D. Michigan, August 17, 2006) (PDF – 44 pages). More thoughts from Glenn Greenwald.

My (lengthy) chain of posts on the NSA warrantless wiretapping program can be found here.

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The relatively new Restatement (Third) of Torts: Product Liability proposes some modifications of the common law duty to warn after a sale (as opposed to a duty to warn — i.e., on the packaging — before a sale).

Of course, a manufacturer remains strictly liable for any damages proximately caused by a manufacturing defect before a post-sale warning or recall is announced. Under the Restatement (Third), Section 11, there is still never a “duty to recall,” unless imposed by the government.

Previously, the determination of whether there was a “duty to warn after the sale” was no different than any other test for duty: Did the benefits of a post-sale warning outweigh the costs?

On the benefits side: How many defective products were sold? How many are likely still in use? What is the probability and nature of the danger resulting from the defect?

As for the costs of warning: How geographically diverse are the customers? How easy or difficult would it be to communicate the warning — would a press release be sufficient? Is the product likely to have been resold? And, almost uniquely relevant to Dell, does the manufacturer have a customer database?

I think most would agree that under this old balancing test, it is unsurprising that Dell choose to warn about the defect, and indeed to take the added step of initiating a recall.

Under the new Restatement (Third) test (Section 10), meanwhile, the analysis is a bit more manufacturer-friendly. In order to find a duty to warn after sale, each of four separate conditions must be met:

1. There must be a substantial risk of harm (i.e., even if the cost to warn would be low).
2. There must be easily identifiable users, who are unlikely to be aware of the harm.
3. There must be an easy way to communicate the warning.
4. The risk of harm must significantly outweigh the cost of warning.

So the cost-benefit analysis must not only tilt toward a post-sale warning, but it almost has to be a slam-dunk: very high risk and very low cost.

On the other hand, as customer databases become more common, email marketing lists become ubiquitous and news is spread not just by manufacturers and media but also by cyberspace (such as this post), the cost to warn approaches zero and the duty test essentially reduces to “Is the risk high enough to warrant a post-sale warning?” Which is arguably less manufacturer friendly than the old paradigm. So even though the Restatement nominally reduces liability for manufacturers, in practice it may actually increase it.

The more things change…

Meanwhile, I haven’t found any evidence yet of class actions against Dell being formed or potential plaintiffs being solicited. But it’s probably just a matter of time.

—

Speaking of battery litigation, you may also have heard or are part of the other infamous “battery scandal” — the massive iPod battery class action. I am/was a member of the class and blogged about it here.

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“Cutting-edge research by top scientists from the United States and Israel could…”

a) discover a cure for cancer.
b) locate Noah’s Ark.
c) reduce our reliance on foreign oil.
d) prove the existence of an Intelligent Designer.
e) find a way to end world hunger.

Oh, and if you need a reason to care, is $20 million of taxpayer money annually reason enough?

My previous post on the folly of trying to “legislate discovery” here.

Via Coyote Blog.

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A man with an incurable brain condition has lost his final legal appeal to insist that doctors give him food and drink in the final stages of his life.

Leslie Burke, from Lancaster, feels he will be denied sustenance when his illness makes him unable to speak.

The European Court of Human Rights said it did not believe there was a real threat that his food would be stopped. The European judges refused to reverse a UK ruling that allows doctors to decide a patient’s treatment.

Mr Burke, 46, has Friedreich’s ataxia. It causes a lack of co-ordination, but does not affect mental faculties.

This is certainly not the forum to reopen the Terri Schiavo affair — my posts are the subject can be found at this chain. And I have remained on the sidelines regarding the teenaged cancer victim who was almost forced to undergo debilitating and painful chemotherapy against his will.

I’ll simply note that I consider it axiomatic that food and water are, um, food and water and not “medical care” in the strict sense. And that knowingly permitting a patient under your care for Friedreich’s ataxia to die against his wishes — not of Friedreich’s ataxia, but of dehydration — is homicide.

Discuss.

(Via Medpundit.)

—

Perhaps the European courts are correct and Mr. Burke’s litigation was simply not ripe, as we say in the U.S. And perhaps a properly drafted “living will” would preempt any issues or concerns.

On the other hand, a legally recognized spouse would certainly also address those concerns. Generally speaking, when there is any uncertainty, a spouse has the final say about medical decisions when the patient cannot communicate. No living will necessary. Advisable, but not strictly necessary.

Just one of the more than 1,000 ways in which gays suffer in the name of “defending traditional marriage.”

It’s absolutely barbaric.

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A bad experience at Starbucks turned into big bucks — 301,000 of them — for a Manhattan lawyer who got a painful hotfoot when a steaming cup of coffee toppled onto her at the java palace.

“I jumped back and looked down,” Alice Griffin, 42, testified. “My foot was steaming, and the puddle was steaming.”

The jury’s April verdict was upheld yesterday by [New York] Supreme Court Justice Emily Jane Goodman — even though the jurist said she was “inclined to agree” the $301,000 that Griffin won at trial “was excessive.”

Gee, absolute deference by a judge. Go figure. I guess remittitur (let alone JNOV) would be “judicial activism.”

In any event, I’m far too humble to blog about hot coffee lawsuits at this site.

Maybe Ted will make a cameo today… [Editor's note: And he did.]

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