Steven Landsburg and the Casually Tossed-off Limiting Principle

This week’s Supreme Court Oral Arguments over, among other things, the constitutionality of the Individual Mandate to purchase health insurance did not go so well for the government and Solicitor General Verrelli. From the gun, General Verrelli was beset by conservative justices questioning him on the limiting principle of the mandate. In other words, if the government can mandate the purchase of health insurance then can’t they just as easily mandate the purchase of broccoli, cars, burial insurance, or any commodity at all. Unaccountably, the SG seemed somewhat unprepared for such interest:

Scalia: Wait. That’s — it’s both “Necessary and Proper.” What you just said addresses what’s necessary. Yes, has to be reasonably adapted. Necessary does not mean essential, just reasonably adapted. But in addition to being necessary, it has to be proper. And we’ve held in two cases that something that was reasonably adapted was not proper, because it violated the sovereignty of the States, which was implicit in the constitutional structure.

The argument here is that this also is — may be necessary, but it’s not proper, because it violates an equally evident principle in the Constitution, which is that the Federal Government is not supposed to be a a government that has all powers; that it’s supposed to be a government of limited powers. And that’s what all
this questioning has been about. What — what is left? If the government can do this, what — what else can it
not do?

Verrilli: This does not violate the norm of proper as this Court articulated it in Printz or in New York because it does not interfere with the States as sovereigns. This is a regulation that — this is a regulation -­

Scalia: No, that wasn’t my point. That is not the only constitutional principle that exists.

Verrilli: But it -­

Scalia: An equally evident constitutional principle is the principle that the Federal Government is a government of enumerated powers and that the vast majority of powers remain in the States and do not belong to the Federal Government.

This is the ultimate challenge for the government. They must be able to demonstrate a limiting principle or they will never get all four conservative justices they need. This Court is not going to give plenary police power for the federal government to enact any law.

Over at The Big Questions Steven Landsburg stumbles onto a perfect economic and legal argument for distinguishing the Individual Mandate from other potential mandates that Congress might constitutionally pass:

The Supreme Court has been a veritable festival of economic ignorance the past few days, but if I had to pick a prize specimen, I think it would be Paul Clement’s response to Justice Kennedy’s observation that the uninsured — given our unwillingness to turn them away from emergency rooms — impose a burden on the rest of us. Mr. Clement (the plaintiff’s attorney) tried to argue that the same is true in any market:

“When I’m sitting in my house deciding whether to buy a car, I am causing the labor market in Detroit to go south…”

thereby blurring the key distinction between a pecuniary and a non-pecuniary externality.

The point is that Mr. Clement’s decision not to buy a car (and therefore to drive down the price) is bad for Detroit auto workers only to the extent that it’s good for other car buyers. It is therefore in no sense a net burden on the rest of society. Contrast that with the clear burden imposed by the uninsured fellow who wants you to pick up his hospital tab.

Brilliant. As his commentors point out, Steve is wrong to criticize Clement since he arguing against the mandate’s constitutionality and it is not his job to point out economic flaws that will only hurt that case. However, he is right that this, at least to my ears this is a home run response to the question, “where is the limiting principle?” The distinction SL has pointed out seems to me to be exactly the kind of bright line distinction that the government has been failing to express. Yet I can’t find anyone else discussing this distinction, economist or otherwise, even though it seems to me to clearly separate health care from broccoli, cars, and gym memberships, though perhaps not caskets and burial insurance.

Read this crucial interaction between Kennedy and Verrelli and you’ll see the difference a more principled argument would have made:

Kennedy: Your question is whether or not there are any limits on the Commerce Clause. Can you identify for us some limits on the Commerce Clause?

Verrilli: Yes. The rationale purely under the Commerce Clause that we’re advocating here would not justify forced purchases of commodities for the purpose of stimulating demand….

Kennedy: But why not? If Congress says that the interstate commerce is affected, isn’t…that the end of the analysis?

Verrilli: No….The difference between those situations and this situation is that in those situations, Your Honor, Congress would be moving to create commerce. Here Congress is regulating existing commerce, economic activity that is already going on, people’s participation in the health care market, and is regulating to deal with existing effects of existing commerce.

General Verrelli is forced to adopt the opposition’s framing of the question, activity vs. inactivity, since the Court seems to have all but accepted it too. So, the question is whether those who refuse to purchase insurance are participating in the market such that they can be “regulated.” Verrelli says yes they are participants. Clement says: Well then that means everyone in the world is participating in every market by not making purchases. Good point, say the conservatives, that can’t be right that’s just unlimited power. Now, just insert Steve Landsburg’s distinction between pecuniary and non-pecuniary externalities and you’ve answered that challenge very well I think. If you were Verrelli you could literally have just read his last three sentences there and had a substantial challenge to the other side. Instead Verrelli just insisted that people who don’t buy insurance really are participants in such a “special” health care market.

As a general class of argument this one conforms to the kind mandate advocates have been relying on, namely the “health care is special.” There are in fact many ways in which health care is special: you don’t know when you’re going to need it, its very expensive, people spend the most on it right at the end of their lives, and as a society we largely refuse to refuse it to anyone. Some of those distinctions are not legally relevant and many just as easily apply to other commodities. Essentially the government is asking the Supreme Court to distinguish health care by listing its various aspects and qualities. Hopefully if they describe it closely enough this constitutional exception will only apply to this one market. But this is not the way we ought to make legal distinctions, carving out exceptions one at a time.

The pecuniary/non-pecuniary distinction, however, credibly makes the case that health care REALLY IS special because it creates “real” not merely pecuniary externalities. It diverts real resources (doctors, medicine, etc.) to sick, poor people who will never pay for those resources. This means less medical care for the rest of us. If I’m forced to buy broccoli all we’ll have is a pecuniary externality which (maybe) raises the price of broccoli. Which, as Steve points out, is equally good for producers of broccoli as it is bad for consumers of broccoli. Under complete markets pecuniary externalities offset each other. But real externalities like pollution misallocate real resources or incentivize destruction of real resources. That’s why it is proper to mandate the purchase of health insurance.

This is pure gold for mandate defenders, all they ever needed was a little something to hang their distinction on and this seems like alot more. But literally no one else is talking about this? Why? Am I missing something?

 

Edit: Commenters over at The Big Questions, especially Ken B, have provided some answers for me. First, it seems that the Supreme Court in Wickard v. Filburn already accepted arguments that blur the distinction between pecuniary and non-pecuniary externalities by accepting the government’s argument that home-growing wheat for one’s own consumption interferes with interstate commerce. Apparently this occurs because if Filburn had not used home-grown wheat he would have had to buy wheat on the open market. This is a textbook definition of a pecuniary externality. Filburn depresses the price of wheat by not buying enough of it. The Court accepted this argument and went on to get distracted by a local/non-local distinction that they ultimately decided didn’t matter. Filburn was forced to stop growing his own wheat. In the meantime, the Supreme Court essentially defined externality in the broadest possible way. Pecuniary externalities occur whenever we do (or don’t do) literally anything at all. Buy wheat or don’t buy wheat, either way you affect the interstate market for wheat. So, obviously the government could not go back and attempt to unscramble this particular egg (nor would they really want to, I suppose) and that is probably why we never heard such an argument.

 

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