The United States Supreme Court is out of control, meddling in matters it does not understand, and issuing dangerous politicized decisions that can disrupt the entire economy. Some of the court’s recent decisions are so extreme they might trigger political battles that will upend the Constitutional order and undermine the rule of law.
Disturbingly, that’s not the message of a puritanical conservative, but of a left-leaning progressive; Columbia University Law Professor Tim Wu. Wu thinks the Supreme Court is getting dangerously close to upsetting the balance of powers upon which our constitutional government is based.
Frighteningly, Wu makes a very good case for these arguments in his criticism of the Supremes’ ruling in a case called Ohio v. American Express. That case centered on what seems to be a minor business practice — the agreements American Express (NYSE: AXP) makes it merchants that accept its credit card sign.
The agreements contain “anti-steering clauses” or “gag orders” that make discussion of cheaper alternatives to Amex by merchants a breach of contract. Wu thinks that constitutes a violation of anti-trust laws. Supreme Court Justice Clarence Thomas and four of his colleagues disagreed.
Is the Supreme Court a Threat to Free Enterprise?
“In cases like Ohio v. American Express, the court is rejecting that tradition of compromise and taking us down a path that leads in dangerous directions,” Wu wrote in a New York Times op-ed. Wu fears that the Supremes are about to tear up the anti-trust laws which will lead to all-out political warfare behind business and government.
“As Justice Breyer points out in his dissent, America’s antitrust laws represent a historic compromise between pure laissez-faire capitalism and state control of the economy,” Wu pointed out.
The anti-trust laws were passed in the late 19th and early 20th centuries as a measure against socialism. The thinking behind them was that limits on the size of business, eliminated the need for government ownership of industry. The compromise worked, Eugene V. Debs and his Socialist Party of America are now a footnote in the history books.
Wu is frightened that the court is overstepping its power, and intervening in matters it does not understand. Strangely enough, he thinks the court might be interfering in free enterprise with Ohio v. American Express.
“To reach this strained conclusion, the court deployed some advanced economics; that it seemed not to fully understand, nor did it apply the economics in a manner consistent with the goals of the antitrust laws,” Wu wrote.
Will Ohio v. American Express stymie competition and discourage innovation?
Thomas’s decision may have a big impact on Silicon Valley because many tech companies operate two-sided markets, Axios noted. Tech giants as diverse as Amazon, Alphabet, Facebook, PayPal, eBay, Uber, Lyft, Alibaba, and Netflix operate two-sided markets similar to that created by Amex.
The operator of a two-sided market makes its money by charging fees to both consumers and suppliers of goods or services. An Amazon (NASDAQ: AMZN) merchant pays for the privilege of selling on Amazon’s platform, an Amazon customer pays to participate in the platform through a Prime Membership or a fee added to her purchase.
The fear is that Ohio v. American Express would enable companies like Amazon to prevent merchants from offering cheaper payment options. Amazon might require merchants to recommend that buyers use the Amazon Visa or Amazon Coin for example.
An obvious fear is that payment providers like PayPal (NASDAQ: PYPL) or Visa (NYSE: V) would actively discourage cheaper or better new payment technologies such as blockchain and cryptocurrency. Sidechain enabled blockchain platforms like the Raiden Network (RDN) would theoretically be as fast and as large as Visa’s network but operate at a much lower price.
Smartphones and proposed payment apps like Rubius’s Aryl wallet would allow instant connectivity to a superfast blockchain or sidechain platform creating disruptive competition for Visa or Amex. Critics like Wu fear that Ohio v. American Express would give payment companies and Big Tech a weapon to stifle innovations like blockchain.
Is the Supreme Court About to Blow up the Constitutional Order?
Wu’s most frightening argument is that the Supreme Court is making legislation by litigation with decisions based on a political philosophy that most Americans disagree with.
“The court offered a weak, highly abstract decision that masks the economic extremism of its ruling, which will further enrich Wall Street intermediaries at the expense of both merchants and consumers,” Wu wrote. In other words the Supremes took sides in a political battle.
Wu is far from alone, Nobel Prize winning economist Joseph E. Stiglitz was even more scathing in his attack on the Supremes at Project Syndicate on 29 June 2018. Stiglitz accused the court of being nothing but a puppet of big business and unfair.
“The Court’s rulings this term have all but confirmed the widely held view that it is no longer acting as a wise and impartial adjudicator of the inevitable disputes that arise in any society,” Stiglitz wrote.
Wu thinks the Supremes are making decisions based on neoliberal laissez-faire ideology rather than legal precedent, common law, or the Constitution. What Wu is charging is that the Supreme Court is assuming legislative powers that the Constitution reserves for Congress.
Stiglitz believes they have taken sides in a partisanship political debate, which is a dereliction of their constitutional role. Such charges open the door to dangerous political battles that can upset the political order.
Is Court Packing 2.0 Inevitable?
That will give critics of the court, the incentive to take extreme action against it.
An obvious example of such action would be for a future Democratic President and Congress to revive President Franklin Delano Roosevelt’s (D-New York) court-packing scheme of the late 1930s. Under court-packing FDR tried to add several liberal justices to the Supreme Court to overcome a conservative majority that was striking down much of his New Deal legislation.
The court-packing scheme touched off a brutal political battle that ended the New Deal and nearly destroyed FDR’s administration. Roosevelt’s administration and reputation were only saved by the outbreak of World War II, which allowed FDR to cover up his contempt for the Constitution with military action.
President Donald J. Trump (R-New York) is engaged in his own court-packing scheme, which involves filling the federal bench with conservative appointees. When they get back in power, Democrats are likely to respond with a court-packing scheme of their own. The obvious way to override Trump’s packing of the lower courts is to pack the Supreme Court.
Justice Anthony Kennedy’s retirement makes future Democratic court packing more likely because progressives are outraged by some recent Supreme Court decisions. There will be strong pressure to pack a Trump-appointed court if Democrats control the White House and Senate in 2021 or 2025.
Court Packing 2.0 would be a certainty if the Supremes tried to overturn or gravely weaken Roe v. Wade. That might put irresistible pressure to pack on Democrats because only 18% of Americans want abortion totally banned, Gallup calculated.
The Supreme Court is on Dangerous Ground
Since another World War is unlikely, the result of Court Packing 2.0 might be a political battle that destroys the independence of our judiciary. Such a battle might be inevitable if the Supremes keep messing around in economic matters they do not understand for dubious ideological reasons.
“To break from Congress’s historic compromise in aid of the credit card industry only throws fuel on the fire and represents judicial activism in its most unseemly form,” Wu concluded. Unless such judicial activism is curtailed our entire legal system and constitutional order might be in danger.
An unintended casualty of the battle that might trigger is our free enterprise system. Wu is right the Supreme Court is on dangerous ground here. Hopefully, the Supremes will pull back before they discredit the whole notion of judicial independence.
A different version of this commentary appeared at Market Mad House your early warning system for political and market insanity.