Category Archives: Law

Lone Star Discussion with Arthur Brooks

Arthur Brooks, President of the American Enterprise Institute, discusses America’s tradition of free enterprise, the moral justifications for a free society and today’s threats to liberty with the Texas Public Policy Foundation’s VP of Communications, Josh Trevino (recorded in Austin, TX on May 31). In this 63 minute video, Dr. Brooks provides an overview and synopsis of his new book entitled “The Road to Freedom”. For more information about Art Brooks and his book “The Road to Freedom”, see http://arthurbrooks.aei.org. For more information about the Texas Public Policy Foundation, see http://www.texaspolicy.com.

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On the "mandate" to purchase health insurance under the Affordable Care Act

An academic colleague of mine raised an interesting question the other day concerning the constitutionality of the so-called “mandate” to purchase health insurance under the Affordable Care Act (ACA, otherwise known as “Obamacare”).  Specifically, since the federal government has the power to compel U.S. citizens to pay into Social Security, why doesn’t it also have the power to compel U.S. citizens to purchase health insurance?  For what it’s worth, here’s my understanding of the answer to this question. 

The reason why the Social Security “mandate” is constitutional is because it is legally set up as a tax paid to government (i.e., the so-called Federal Insurance Contributions Act (FICA) tax), and under Article I, Section 8, Clause 1 of the Constitution (AKA the “Taxing and Spending Clause”), “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises”. Furthermore, Social Security does not involve any private sector intermediation; FICA taxes are formally entrusted to various “funds” that are administered by the Social Security Administration. As Dan Henninger points out in his recent WSJ article, an important problem with the Affordable Care Act “mandate” is that purchasing insurance is defined by that law as a “required contribution”” and not a tax per se. Furthermore, while ACA conveys a tremendous amount of discretion to the federal government (particularly the Secretary of the Department of Health and Human Services) in terms of the way that it regulates health insurance contracts and institutions, the contracts that are entered into under ACA are mostly with private sector institutions as opposed to public sector institutions. So it seems that the constitutional challenge created by Obamacare is whether the federal government has the power to coerce citizens into purchasing goods and services from private sector institutions. This is a right that state governments clearly have (e.g., most states have mandates requiring drivers to purchase auto insurance), but not the federal government. Ironically, a so-called “single payer” approach such as Canada and the UK have would not have any constitutional issues for the same reasons that Social Security is constitutional, since under single payer, taxes would be collected and entrusted to some type of federally administered trust fund. However, “single payer” is a political non-starter (at least at this point in time).

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On the “mandate” to purchase health insurance under the Affordable Care Act

An academic colleague of mine raised an interesting question the other day concerning the constitutionality of the so-called “mandate” to purchase health insurance under the Affordable Care Act (ACA, otherwise known as “Obamacare”).  Specifically, since the federal government has the power to compel U.S. citizens to pay into Social Security, why doesn’t it also have the power to compel U.S. citizens to purchase health insurance?  For what it’s worth, here’s my understanding of the answer to this question. 

The reason why the Social Security “mandate” is constitutional is because it is legally set up as a tax paid to government (i.e., the so-called Federal Insurance Contributions Act (FICA) tax), and under Article I, Section 8, Clause 1 of the Constitution (AKA the “Taxing and Spending Clause”), “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises”. Furthermore, Social Security does not involve any private sector intermediation; FICA taxes are formally entrusted to various “funds” that are administered by the Social Security Administration. As Dan Henninger points out in his recent WSJ article, an important problem with the Affordable Care Act “mandate” is that purchasing insurance is defined by that law as a “required contribution”” and not a tax per se. Furthermore, while ACA conveys a tremendous amount of discretion to the federal government (particularly the Secretary of the Department of Health and Human Services) in terms of the way that it regulates health insurance contracts and institutions, the contracts that are entered into under ACA are mostly with private sector institutions as opposed to public sector institutions. So it seems that the constitutional challenge created by Obamacare is whether the federal government has the power to coerce citizens into purchasing goods and services from private sector institutions. This is a right that state governments clearly have (e.g., most states have mandates requiring drivers to purchase auto insurance), but not the federal government. Ironically, a so-called “single payer” approach such as Canada and the UK have would not have any constitutional issues for the same reasons that Social Security is constitutional, since under single payer, taxes would be collected and entrusted to some type of federally administered trust fund. However, “single payer” is a political non-starter (at least at this point in time).

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Obama Predicts Health Law Will Survive Supreme Court Case

professional.wsj.com

Quoting from this front page Wall Street Journal article which appeared this morning, “President Barack Obama predicted that the Supreme Court will uphold his signature health-care law, saying that overturning it would be a prime example of the judicial activism that conservatives have derided.”
 
Where to begin? Applying President Obama’s “legal” standard would be tantamount to abolishing the separation of powers doctrine embodied by the U.S. Constitution. As I recall from my high school civics class, a primary responsibility of the Supreme Court under the separation of powers doctrine is to determine whether a law is unconstitutional; when such a determination is made regarding ANY law passed by Congress, then the Supreme Court has the power and authority under the U.S. Constitution to strike that law down. Therefore, rendering judgment upon the constitutionality of the Patient Protection and Affordable Care Act (AKA “Obamacare”) by definition cannot possibly constitute judicial activism. Judicial activism occurs when judges act like a legislature rather than like a traditional court and create new law (as opposed to judging the constitutionality of existing law); Roe v. Wade (which legalized abortion in the United States back in 1973) is a prime example of judicial activism, but I digress.

As much as I would like for the Supreme Court to 1) strike down Obamacare and 2) replace Obamacare with my own preferred health care reform plan (see http://www.jimgarven.com/blog/2009/08/27/my-preferred-approach-for-reforming-health-care for the details), step (1) is okay according to the U.S. Constitution, but clearly step (2) is not – step (2) falls under the authority of Congress. The whole point of the separation of powers doctrine is to ensure that the legislative, executive, and judicial branches of the United States government are kept distinct in order to prevent abuse of power. While President Obama (as well as any other citizen of the United States) is certainly entitled to his opinion about the constitutionality of Obamacare, it is really bad form for him to throw the Supreme Court under the bus just because it might have a different opinion and is doing its constitutionally mandated job.

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The political economy of “All cribs now must pass tough new safety rules”

Last week, the Chicago Tribune published a story entitled “All cribs now must pass tough new safety rules” which describes in some detail new regulatory crib safety standards that have been promulgated by the Consumer Products Safety Commission (CPSC).  While crib deaths are obviously incredibly tragic, they are also very rare events.  Here, I call attention to some potentially deadly (and unsavory) “unintended” consequences associated with the proposed policy changes.  I’ll do this through the lens of George Stigler’s theory of regulatory capture.

The Wikipedia definition for regulatory capture is as follows: “…regulatory capture occurs when a… regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating.”  A good place to start in this particular case is by thinking carefully about the underlying interest group politics behind this new federal regulatory initiative. The above referenced Chicago Tribune article notes, among other things, that “federal regulators recommend that families that can afford to do so buy new cribs and destroy their old ones (italics added for emphasis).” Think of the market consequences if everyone followed the CPSC’s “advice” – all of a sudden, you would have a sharp reduction in the supply of used cribs; furthermore, without the presence of a viably competitive used crib market, this means that the primary demand for baby cribs will likely be met by manufacturers whose products comply with the new regulations. Given this adverse supply shock while holding demand constant can only mean one thing – higher prices for baby cribs.  The next obvious question is, who is likely to benefit financially from these new regulations?  Baby crib manufacturers who can produce new cribs which are fully compliant with the new regulations obviously stand to benefit, particularly if the effect of the regulations is to create entry barriers (in the form of regulatory fixed costs) to this industry (hat tip to my Baylor colleague Dave VanHoose for pointing this aspect of regulatory capture out to me).  I can’t help but wonder whether the Juvenile Products Manufacturers Association has been actively lobbying for these new regulations for these very reasons.

Another interest group which stands to benefit is the plaintiffs bar who can be expected, in the wake of this change in regulatory policy, to pursue quite aggressively products liability cases against companies whose baby cribs at the time of manufacture were not fully compliant with the new safety regulations.  That it is possible to successfully litigate cases under such circumstances came as somewhat of a surprise to me, until I read Peter Huber’s book entitled Liability a number of years ago and more recently, a Supreme Court decision which seems to have established a precedent that full compliance with federal safety regulations at time of manufacture does not necessarily grant manufacturers immunity from liability after the fact (e.g., see “Supreme Court allows lawsuits over seat belts”, Reuters, February 23, 2011). It will be interesting to see whether this new regulatory initiative emboldens the plaintiffs bar to also pursue formal certification of pending baby crib lawsuits as class actions (if they haven’t already done so!). Of course, the additional legal cost will quickly become reflected in the price of new baby cribs, which will in turn make lawsuits all the more profitable to pursue (since payments to attorneys in such cases are largely based upon contingency fees) and baby cribs less affordable.

In the meantime, parents who can’t afford the sharply higher prices (due to higher direct and indirect regulatory and liability costs) for baby cribs will either violate regulatory policy outright by buying cribs off eBay and from garage sales; other parents will simply improvise their own sleeping solutions for their babies, which will likely be far more hazardous for babies than the cribs that the CPSC is currently in the process of outlawing. What a mess!

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The political economy of "All cribs now must pass tough new safety rules"

Last week, the Chicago Tribune published a story entitled “All cribs now must pass tough new safety rules” which describes in some detail new regulatory crib safety standards that have been promulgated by the Consumer Products Safety Commission (CPSC).  While crib deaths are obviously incredibly tragic, they are also very rare events.  Here, I call attention to some potentially deadly (and unsavory) “unintended” consequences associated with the proposed policy changes.  I’ll do this through the lens of George Stigler’s theory of regulatory capture.

The Wikipedia definition for regulatory capture is as follows: “…regulatory capture occurs when a… regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating.”  A good place to start in this particular case is by thinking carefully about the underlying interest group politics behind this new federal regulatory initiative. The above referenced Chicago Tribune article notes, among other things, that “federal regulators recommend that families that can afford to do so buy new cribs and destroy their old ones (italics added for emphasis).” Think of the market consequences if everyone followed the CPSC’s “advice” – all of a sudden, you would have a sharp reduction in the supply of used cribs; furthermore, without the presence of a viably competitive used crib market, this means that the primary demand for baby cribs will likely be met by manufacturers whose products comply with the new regulations. Given this adverse supply shock while holding demand constant can only mean one thing – higher prices for baby cribs.  The next obvious question is, who is likely to benefit financially from these new regulations?  Baby crib manufacturers who can produce new cribs which are fully compliant with the new regulations obviously stand to benefit, particularly if the effect of the regulations is to create entry barriers (in the form of regulatory fixed costs) to this industry (hat tip to my Baylor colleague Dave VanHoose for pointing this aspect of regulatory capture out to me).  I can’t help but wonder whether the Juvenile Products Manufacturers Association has been actively lobbying for these new regulations for these very reasons.

Another interest group which stands to benefit is the plaintiffs bar who can be expected, in the wake of this change in regulatory policy, to pursue quite aggressively products liability cases against companies whose baby cribs at the time of manufacture were not fully compliant with the new safety regulations.  That it is possible to successfully litigate cases under such circumstances came as somewhat of a surprise to me, until I read Peter Huber’s book entitled Liability a number of years ago and more recently, a Supreme Court decision which seems to have established a precedent that full compliance with federal safety regulations at time of manufacture does not necessarily grant manufacturers immunity from liability after the fact (e.g., see “Supreme Court allows lawsuits over seat belts”, Reuters, February 23, 2011). It will be interesting to see whether this new regulatory initiative emboldens the plaintiffs bar to also pursue formal certification of pending baby crib lawsuits as class actions (if they haven’t already done so!). Of course, the additional legal cost will quickly become reflected in the price of new baby cribs, which will in turn make lawsuits all the more profitable to pursue (since payments to attorneys in such cases are largely based upon contingency fees) and baby cribs less affordable.

In the meantime, parents who can’t afford the sharply higher prices (due to higher direct and indirect regulatory and liability costs) for baby cribs will either violate regulatory policy outright by buying cribs off eBay and from garage sales; other parents will simply improvise their own sleeping solutions for their babies, which will likely be far more hazardous for babies than the cribs that the CPSC is currently in the process of outlawing. What a mess!

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Dissection of today’s biggest Constitutional issues by Richard Epstein (NYU Law School) and John Yoo (UC-Berkeley Law School)

“This week’s (“Uncommon Knowledge”) video features two of the nation’s leading Constitutional scholars: Richard Epstein, professor of law at New York University, and John Yoo, professor at the University of California at Berkeley law school. Together, they use their expertise to dissect today’s biggest Constitutional issues, from Obamacare to California’s Proposition 8. Listen as they discuss the importance of the Supreme Court in deciding these and other political issues.” (Hat tip to Ken Coffel!)…




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