Current Commentary

Building dams with spoons instead of shovels

With unemployment much higher than we'd like it to be and with many out of work, it is easy to forget a commonsense measure of the value of a job: the best way to value a job is to value its OUTPUT. Measure, consider, and value what good or service is produced from that job. In times like these it's easy to get into the mindset that any job created is good for the economy and for society, but that is not the case. 

We can all agree that in a society where everyone was employed digging holes and filling those same holes (as Keynes advocated in times like these) we would not be very well off. Who would grow food? Who would make clothes? Who would build houses? No one. They would all be employed digging and re-filling holes. Our housing and clothes would quickly deteriorate; we'd run out of food, and we'd be in a situation that all of us would agree was pretty bad. Certainly assigning 100% of labor to dig and refill would be grossly suboptimal to employing 33% of labor in food, 33% in clothes, and 33% in housing. Therefore, it's clear that the value of the output of a job is of much greater concern than simply "creating a job," for if the output does not make society better off, then that job is unsustainable. The digger/refiller lives in a home, wears clothes, and eats food that lessen the amount of said scarce resources available for those who are productive. In short, unproductive jobs are a drain on society, and as society we would be better off paying them welfare-style support payments to sit at home rather than to dig/refill because supporting their futility drains additional resources. (We must build them shovels; they probably need more food; their clothes wear out faster). 

An American businessman was touring China. His tour guide showed him an earthen dam being built by 100 Chinese laborers using hand shovels. The American asked, "Why don't you just use 1 man and a bulldozer to get this dam built in a day?" The Chinese tour guide responded, "If we did that, then we'd have 99 men out of work." To which the American replied, "Oh, I thought you were making a dam. If your goal is to make jobs, why don't you take their shovels away and replace them with spoons."

Tuesday, March 23, 2010

4 arguments against the constitutionality of individual mandates

• Inactivity is not interstate commerce.
• The purpose of a tax must be to raise revenue.
• One cannot purchase insurance across state lines; therefore, even buying insurance is not interstate commerce.
• It upsets the balance of power as it is a huge power grab by the executive branch.

The recent health insurance reform bill must pass two tests in order to be deemed constitutional:

1. The penalty fines for failure to comply with the individual mandate must be deemed to be for a legitimate revenue raising purpose.
2. Not buying health insurance would need to be deemed to be interstate commerce.

If it fails either of those two tests, the new law is unconstitutional.  

Supporters of a requirement to buy a service from a private, for-profit corporation have repeatedly said that there is no case in the past 70 years "that would support an individual’s right not to buy health care if the government wants to mandate it,” quoting Erwin Chemerinsky, dean of U. of California, Irvine, School of Law. However, beyond the 70-year mark is a completely different story.

Between 1935 and 1937, the US Supreme Court found 6 out of 8 of the main components of the New Deal to be unconstitutional.  Two in particular -- the National Recovery Act with widespread price controls, and the Agricultural Adjustment Act with penalties for farming too much -- are good (albeit not perfect) precedents to what will be argued in the coming months.  The AAA case in particular said that a tax had to be for the purposes of raising revenue; the AAA failed this test because it fined farmers for growing too much and paid farmers who grew less.  

Inactivity is not commerce:  Two Supreme Court decisions, Wickard v. Filburn and Gonzales v.  Raich, both ruled that even growing something for personal consumption (in one case wheat, in the other weed) made you a market participant and constituted interstate commerce.  Both, however, had activity; i.e., growing something. Gonzales (2005) was a split decision (5 in the majority, 1 concurring, and 3 dissenting), and this was on the individual's right to grow WEED free from the reaches of the Commerce Clause. Unless you want to define simply LIVING as commerce, this would be a huge overreach of the Commerce Clause. There is no case law attempting to discern whether the Commerce Clause applies to inactivity because the Federal Government has never tried to regulate inactivity.  There is no perfect legal precedent because requiring individuals to buy a service from a private, for-profit corporation is so unprecedented.

Additional arguments against the mandate's constitutionality:

» Boycotting health insurance is protected under the 1st Amendment. In 1966 down in Mississippi, the NAACP organized a boycott against white merchants in order to induce compliance with laws guaranteeding equal treatment under the law regardless of race. The businesses successfully sued the NAACP for lost revenue. The NAACP appealed to the Mississippi Supreme Court and lost. Then they appealed to the US Supreme Court and won. In N.A.A.C.P. v. Clairborne Hardware Company, 458 U.S. 886 (1982), the U.S. Supreme Court held that the First Amendment protects nonviolent boycott activity. The individual mandate prohibits boycotting a specific industry and therefore restricts free speech if indeed boycotting is free speech.  It is akin to passing a law that you may not write disparaging comments about the insurance industry.  Would that violate the First Amendment?  If so, then this mandate also violates the First Amendment.

» Separation/balance of powers:  This is a huge power grab by the executive branch.The IRS is part of the Treasury Department which along with the Department of Health and Human Services is part of the Executive Branch.  The IRS will enforce the new penalty fines and the Secretary of HHS will deem what is "acceptable minimum insurance."

Monday, March 8, 2010

Health insurance reform:
The law of supply and demand means higher prices

1. All forms of health insurance reform being seriously considered amount to a gun to the head buy it or else mandate.
2.  Understanding point 1, does anyone think this is a good idea?
3.  Understanding point 1 and understanding the law of supply and demand, does anyone else realize that this will absolutely, positively, 100% guaranteed lead to an increase in the cost of health insurance?

Requiring individuals to purchase health insurance under penalty of a hefty fine will shift the demand curve upwards and thus both the equilibrium price and quantity of health insurance upwards.  You can debate over how much of an increase, and you can debate over who will pay for the increase, and you can even float the idea of price controls that would force the market to operate at a shortage below equilibrium price, but you cannot debate the law of supply and demand -- as true and real as the law of gravity -- that such a mandate will increase the equilibrium price and quantity of health insurance.