The Ninth Circuit Court recently set forth a ruling on an interesting case involving arbitration clauses in contracts. A couple received two complimentary cell phones from AT&T as part of a bundled-service contract but were charged $30.22 in sales tax required by California law.  As part of their contract, the couple agreed to arbitration.  As part of the arbitration clause AT&T agrees to pay $7500 plus fees if an arbitration award exceeds the amount last offered by AT&T before the settlement.  The couple claimed they were misled and filed a class-action law suit, despite their having signed the contract agreeing to arbitration.

The ruling by the Ninth Circuit, in Laster v AT&T Mobility LLC, called the contract unconscionable and refused to enforce the clause requiring arbitration.  The Court felt that such a clause, by disallowing class action, would result in little enforcement of contracts.  Because the amount involved is small, the individual customer would probably not find it worth the opportunity cost of their time to go to arbitration, and thus AT&T could default on lots of small contracts for minimal amounts and not fear an arbitration settlement.

There are a number of reasons why this ruling should be overturned.  First, it flies in the face of the Federal Arbitration Act of 1925, which was passed to provide certainty to contracts that have arbitration clauses.  The Act requires federal courts to enforce arbitration agreements unless they violate standard contract law doctrine, such as fraud, duress, or are unconscionable.  For a contract to be unconscionable, in this particular case, it must be seen as a scheme of the party in a stronger bargaining position to cheat large numbers of consumers.  The standard arbitration contract doesn’t meet any of these standards.

The contract with AT&T is clear.

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The Republican Pledge to America released last nearly perfectly addresses the problems being created by the current leadership of our federal government. Its first sentence, making the point that Nobel Laureate economist Friedrich Hayek made fifty years ago in his The Constitution of Liberty, America is an idea, is something of major import that has been forgotten in this era of using government in an attempt to escape individual responsibility.

The reference to the Declaration of Independence contained in the rest of the Pledge should be obvious to us all, but unfortunately our education system is today more about garnering largesse for political unions than about educating our children on what ideas form the basis of our country.

The current jobs recession and the financial crisis that created it are the result of those in charge of an expanded federal government attempting to make the world in their own vision—in this particular case the vision that everyone has the right to own a home.

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The U.S. economy is on the mend and has been for some time. The reason is that, as Marx acknowledged in The Communist Manifesto, the capitalist system is an engine of powerful forces.

Market capitalism, true capitalism and not big government colluding with big business to engage in what Bastiat called “legalized plunder,” is the most efficient way of organizing resources. As a system it drives innovation, which is the source of our increased standard of living. In fact, this system is so powerful and efficient that our economy is doing well in terms of producing goods and services, not because of government intervention, but in spite of it. There is no question that the federal government has been engaged in activities that have suppressed and will continue to suppress economic growth and will leave millions of our person unemployed for lengthy periods. But the economy as a whole will be productive and our gross domestic product will continue to increase in the near future.

There is substantial empirical evidence that the economy is recovering. Fourth quarter real GDP grew at a 5.6% annual rate, the Federal Reserve Industrial Production Index was up in March for the 9th month in a row, the ISM manufacturing index was up in March to 59.6 and the employment index was at 55.1, the fourth straight month above 50, housing starts and existing home sales were up in March, the Conference Board’s Index of Leading Indicators increased 1.4% in March, and one can cite more data showing the upside of the business cycle is underway.

At issue is why is the economy recovering and is it likely to be a sustained recovery? We may also ask why unemployment remains stubbornly high while production is increasing. Normally, as the economy comes out of a recession productivity increases, part-time employment increases, and finally full-time employment increases. Why have we yet to see the last stage of this process?

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“The constitution was thus conceived as a protection of the people against all arbitrary action, on the part of the legislative as well as the other branches of government. A constitution which in such manner is to limit government must contain what in effect are substantive rules…It must lay down general principles which are to govern the acts of the appointed legislature.”

So wrote Friedrich Hayek in The Constitution of Liberty a half century ago. He went on to say that: “A group of men normally become a society not by giving themselves laws but by obeying the same rules of conduct. This means that the power of the majority is limited by those commonly held principles and that there is no legitimate power beyond them.”

It is sad that Congress celebrated the 50th anniversary of Hayek’s work by ignoring any pretense that its power is limited. It is clear the Obama administration and the Democrat majority in Congress does not feel that the temporary majority is to be bound by any general principle other than “do you have the votes.” The 2000+page health care bill goes so far beyond what this country was founded on that it is difficult to know where to begin.

The bill is meant to involve the federal government in every nook and cranny of American life. Employers are told by their government what benefits they must provide employees. If we accept the proposition that the majority may tell employers and employees what their benefit package is, then where is the limitation that restricts this to health care?

If the auto insurance companies have sufficient lobbying power, then we will be told that our benefit package must include auto insurance as well. And why not require employers to provide membership in health clubs, or country clubs? I personally would prefer season tickets to University of Michigan basketball games.

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The President’s National Commission on Fiscal Responsibility and Reform is what everyone really knows it is—a bipartisan group of former and current political elites that will listen to hours of testimony by a select group of witnesses in order to create a report that will justify a tax increase for which there does not exist political support. The fact that the commission is being created by Executive Order rather than by congressional action tells us what the expected conclusion of the commission will be.

We do not need another commission to know that decades of programs that tax those who work in order to provide benefits to those who are in political favor has led to the point where the promises made to millions of Americans cannot possibly be met. To quote from the Social Security and Medicare Board of Trustees 2009 Annual Report: “Projected long run program costs are not sustainable under current program parameters.” This is government-speak for: “the jig is up.” The Social Security cash flow will be negative by 2016, at which time the baby-boomers will start to retire and things go south ever faster.

To again quote from the report: “Medicare’s financial status is much worse…Medicare already runs cash flow deficits…For the third consecutive year, a ‘Medicare funding warning’ is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare’s outlays. A Presidential proposal will be needed in response to the latest warning.” We don’t need a bipartisan commission to tell us what the problem is. Social Security and Medicare have total unfunded liabilities in excess of $100 trillion. We need Presidential leadership that will address the spending problems that are the result of a government that has been shorn of the limitations of the 10th amendment.

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