“By defining the mandate as a tax, one that will not be uniformly applied, the Supreme Court ran afoul of the Constitution.”
How Free Speech Died on Campus
“A young activist describes how universities became the most authoritarian institutions in America.”
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.
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).
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://blog.garven.com/
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!
“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!)…
Here’s a list of articles that I have been reading lately:
“In The Wall Street Journal, Carnegie Mellon University economist Allan H. Meltzer says the Obama administration’s policies have introduced uncertainty about future taxes and regulations. This inhibits investment and job growth.”
“Making admissions of error easier.”
Cash for Clunkers: A Retrospective
“Top-down industrial policy carried out through the sheer force of incentives is welcomed by behavioralist Washington.”
The Unemployment Insurance Crisis
“As of this summer, unemployment insurance trust funds in 30 states were insolvent.”
“In The Wall Street Journal, Fred Barnes writes that the late Robert Byrd made the most of his time in the Senate.”
“Rupert Darwall writes in The Wall Street Journal that Keynesianism goes out of fashion in London.”
“In The Wall Street Journal, Randy Barnett writes that thanks to five Justices, the right to keep and bear arms is now protected from state interference. And thanks to Clarence Thomas, an important clause in the Constitution has risen from the grave.”
“The story of Alcoholics Anonymous teaches us about human nature and the kinds of social programs that do and don’t work.”
Congressional Budget Office – Distribution of Federal Taxes
“The federal tax system is progressive–that is, average tax rates generally rise with income. Households in the bottom fifth of the income distribution (with average income of $18,400, under a broad definition of income) paid 4.0 percent of their income in federal taxes. The middle quintile, with average income of $64,500, paid 14.3 percent of that income in taxes, and the highest quintile, with average income of $264,700, paid 25.1 percent.”
“In these hard economic times, when ordinary people are struggling to make ends meet, there is a nagging sense that universities are luxuries. In fact, universities may be the most consistently high-performing products of long-term capital investment.”
“The Wall Street Journal says that Senators should ask Supreme Court nominee Elena Kagan if Congress can compel Americans to do anything?”
“In The Wall Street Journal, Information Age columnist Gordon Crovitz says that the financial crisis and BP share a common attribute: regulatory failure.”
“In The Wall Street Journal, Fouad Ajami says that there is a mismatch between the general’s Afghan mission and the president’s summons to his countrymen.”
“The Wall Street Journal says that the Dodd-Frank financial reform bill doubles down on the same system that failed.”
“In The Wall Street Journal, Russell Roberts of George Mason University comments on the revival of interest in the Nobel Prize winning economist Friedrich Hayek.”
How Christianity Created Capitalism
“It was the church more than any other agency, writes historian Randall Collins, that put in place what Weber called the preconditions of capitalism: the rule of law and a bureaucracy for resolving disputes rationally; a specialized and mobile labor force; the institutional permanence that allows for transgenerational investment and sustained intellectual and physical efforts, together with the accumulation of long-term capital; and a zest for discovery, enterprise, wealth creation, and new undertakings.”
This article provides an interesting case study which clearly illustrates various dysfunctional aspects of trade protectionism in the real world; in particular, how tariffs shield US companies from having to compete and innovate in terms of the goods and services that they produce and the business models that they employ.
According to bloomberg.com, “Proposals in Congress to raise U.S. liability costs to $10 billion to drill for oil in the Gulf could leave just three companies — BP, Exxon Mobil Corp. and Royal Dutch Shell Plc — with the finances to self-insure”. As I recall, prior to the BP Deepwater Horizon explosion and spill, liability for offshore oil drilling was capped at $75 million. Thus, an unintended consequence of expanding liability by a factor of 133 times (from $75 million to $10 billion) would be to make it virtually impossible for the insurance market to insure offshore oil drilling liability, which in turn would ensure that only the very largest companies in the world will have the financial capacity needed in order to be able to continue to pursue deep water drilling as a business activity (because companies such as BP, Exxon Mobil Corp. and Royal Dutch Shell Plc have the resources to self-insure this liability risk!).