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Justice Kennedy’s “Nuanced View”: A Bad Beginning And A Better Ending

The Constitution’s words enabling Congress to “regulate commerce…among the several states” gives the United States broad authority over economic matters — although non-economic regulation is far more suspect. Early in today’s argument, however, several of the justices appeared poised to impose an entirely novel limit on Congress’ authority — suggesting that laws which require, in Justice Kennedy’s words, an “affirmative duty to act to go into commerce” is somehow constitutionally suspect. So there were no shortages of pointed questions about the Affordable Care Act’s requirement that everyone either carry health insurance or pay slightly more income taxes.

There are two reasons why this requirement is necessary. The first is that, because the law prohibits insurers from denying coverage to patients with preexisting conditions, it must also ensure that healthy people enter the insurance market before they become sick. If patients can wait until they get sick to buy insurance, they will drain all the money out of an insurance plan that they have not previously paid into, leaving nothing left for the rest of the plan’s consumers. The second reason relates to a problem with our health system that long predates the Affordable Care Act. Because emergency rooms must provide at least some degree of care free of charge to people who cannot afford it, these costs wind up being transferred to persons with insurance — driving up annual premiums as much as $1,100 on the average patient.

Initially, the Court’s conservatives appeared highly credulous of the plaintiffs’ false claim that upholding the health reform would necessarily enable the federal government to do absolutely anything. Solicitor General Don Verrilli addressed this question by explaining that the health care market is unique in that it is the only market that everyone inevitably participates in — we all get sick at some point — and that, because of health care’s sudden and unexpected costs, people typically pay their health bills through insurance. Thus, he explained, because everyone is already caught up in the health care market, the Affordable Care Act does not impose any kind of “duty…to go into commerce” — it merely tells people who are already in the health care market to make sure they pay for their health costs through insurance.

While Verrilli was still at the podium, the Court’s conservatives did not seem to buy this claim. A ray of hope emerged at the end of the oral argument, however, when Justice Kennedy expressed a somewhat nuanced view:

[T]he government tells us that’s because the insurance market is unique. And in the next case, it’ll say the next market is unique. But I think it is true that if most questions in life are matters of degree, in the insurance and health care world, both markets — stipulate two markets — the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries. That’s my concern in the case.

There’s a lot going on in this statement. On the one hand, Kennedy is clearly skeptical that, if the Court says this market is unique, the government won’t simply argue that the next market is also unique in the next case. On the other hand, Kennedy also appears sympathetic to the second reason why the mandate is essential — that the problem of uninsurance leads to billions in health care costs being transferred to other health care consumers. A young person who forgoes health insurance is “uniquely proximately very close” to affecting the health care costs of others, and that may be enough to get Kennedy’s vote to uphold the law.

The big loser in all of this debate, however, is the Constitution itself. The Constitution says nothing about unique markets. Or about the need to impose artificial Congress authority to regulate the nation’s economy. It simply says that Congress can “regulate commerce.” The idea that a law which regulates 1/6 of the nation’s economy is not regulating commerce is, frankly, absurd. Nor was there ever any risk that a decision upholding health reform would lead to all things being permissible. There are many things that are not commercial — federal murder laws, assault laws, child neglect laws or sexual morality laws, for example. A law regulating our entire national health care market, however, is clearly and obviously constitutional.

Justice Kennedy may inevitably vote to uphold the law — he may even bring Chief Justice Roberts along with him — but, whatever the Court does this term, it appears increasingly likely that we live under the constitution of Anthony Kennedy, and that we no longer live under the Constitution of the United States.


By: Ian Millhiser, Think Progress, March 27, 2012

March 28, 2012 Posted by | Affordable Care Act, Constitution | , , , , , , , | Leave a comment

“Exotically Countercultural”: The Unhappy Triumph Of The Marketplace

This objection to Obamacare’s individual mandate, by Jonathan Adler at the libertarian Volokh Conspiracy website, grabbed my attention:

“Virtually everyone” may acquire health care—but “virtually everyone” is not “everyone.” Most people may purchase health care at some point in their lives, but some will not. Some people will refuse to purchase health care for religious reasons. Some will not purchase health care because they are lucky enough not to need such care before a sudden death. Still others may decide not to purchase health care because they have chosen to remove themselves from commerce—consider a survivalist or other person who decides to live in a shack, growing their own food, and not engaging in commerce with others.

Consider Adler’s latter example: It strikes me that the vast majority of Americans would find the idea of “not engaging in commerce with others” to be exotically countercultural at best, possibly antisocial or even deviant. Such a reaction is symptomatic of the fact that the marketplace has long enjoyed pride of place in Americans’ moral psychology. “The chief business of the American people is business,” as President Calvin Coolidge famously said.

This ethos has made proper small-l liberals of us, hasn’t it? Americans have been taught by the libertarian right and the Clintonian middle to believe that a commercial relationship between nations—trade—is the only way to achieve lasting international harmony. At least before the great stock market crash of 2008, CEOs were like cult heroes in the popular imagination. From the pluckiness of Horatio Alger’s heroes to the theology of Joel Osteen, success in the marketplace has been seen as an outward confirmation of inward virtue and divine blessedness.

So it’s with some sense of schadenfreude that I see conservatives of the classical liberal variety chafing at the requirement to buy health insurance, calling it an attempt by Congress to “create commerce.” I’m fully aware of the contractarian basis for this objection: that a forced purchase is not a legitimate commercial exchange.

But the paleocon in me responds this way: This is the antitraditional bed you’ve made for us. Now lie in it.


By: Scott Galupo, U. S. News and World Report, March 27, 2012

March 28, 2012 Posted by | Affordable Care Act, Health Reform | , , , , , , , | Leave a comment

“The Power To Regulate Commerce”: Constitution, Court’s Precedent On Affordable Care Act’s Side

In the words of Judge Laurence Silberman, a leading conservative who received the Presidential Medal of Freedom from President George W. Bush, the lawsuits challenging the Affordable Care Act have no basis “in either the text of the Constitution or Supreme Court precedent.” And Silberman is right. The Constitution gives the United States power to “regulate commerce … among the several states,” and there is simply no question that a law which regulates one sixth of the nation’s economy regulates the nation’s commerce.

This not a particularly new idea. As Chief Justice John Marshall put it nearly two centuries ago, there is “no sort of trade” that the words “regulate Commerce” do not apply to, and these words give the United States “full power over the thing to be regulated.” The Affordable Care Act regulates trade in healthcare services, and thus America has the full power to regulate this important market.

In challenging the Affordable Care Act, the law’s opponents seek an unprecedented expansion of judicial power that would eradicate all limits on what the nine unelected judges on the Supreme Court can do. Because their entire legal argument has no basis in the Constitution itself, it eliminates any bounds on what judges can do to impose their will on the American people. If judges are free to ignore the Constitution just this once, they can do it whenever they want, and there will no longer be any limits whatsoever on judicial discretion.

In other words, if judges have the power to strike down the individual mandate, there is nothing preventing the Supreme Court from forcing you to eat broccoli.


By: Ian Millhiser, U. S. News and World Report, March 26, 2012

March 27, 2012 Posted by | Affordable Care Act, Constitution | , , , , , , , | Leave a comment

Corporate Dysmorphia: Why “Business Needs Certainty” Is Destructive

If you read the business and even the political press, you’ve doubtless encountered the claim that the economy is a mess because the threat to reregulate in the wake of a global-economy-wrecking financial crisis is creating “uncertainty.” That is touted as the reason why corporations are sitting on their hands and not doing much in the way of hiring and investing.

This is propaganda that needs to be laughed out of the room.

I approach this issue as as a business practitioner. I have spent decades advising major financial institutions, private equity and hedge funds, and very wealthy individuals (Forbes 400 level) on enterprises they own. I’ve run a profit center in a major financial firm and have have also operated a consulting business for over 20 years. So I’ve had extensive exposure to the dysfunction I am about to describe.

Commerce is all about making decisions and committing resources with the hope of earning profit when the managers cannot know the future. “Uncertainty” is used casually by the media, but when trying to confront the vagaries of what might happen, analysts distinguish risk from “uncertainty”, which for them has a very specific meaning. “Risk” is what Donald Rumsfeld characterized as a known unknown. You can still estimate the range of likely outcomes and make a good stab at estimating probabilities within that range. For instance, if you open an ice cream store in a resort area, you can make a very good estimate of what the fixed costs and the margins on sales will be. It is much harder to predict how much ice cream you will actually sell. That is turn depends largely on foot traffic which in turn is largely a function of the weather (and you can look at past weather patterns to get a rough idea) and how many people visit that town (which is likely a function of the economy and how that particular resort area does in a weak economy).

Uncertainty, by contrast, is unknown unknowns. It is the sort of risk you can’t estimate in advance. So businesses also have to be good at adapting when Shit Happens. Sometimes that Shit Happening can be favorable, but they still need to be able to exploit opportunities (like an exceptionally hot summer producing off the charts demand for ice cream) or disaster (like the Fukushima meltdown disrupting global supply chains). That implies having some slack or extra resources at your disposal, or being able to get ready access to them at not too catastrophic a cost.

So why aren’t businesses investing or hiring? “Uncertainty” as far as regulations are concerned is not a major driver. Surveys show that the “uncertainty” bandied about in the press really translates into “the economy stinks, I’m not in a business that benefits from a bad economy, and I’m not going to take a chance when I have no idea when things might turn around.”

The “certainty” they are looking for is concrete evidence that prevailing conditions have really turned. But with so many people unemployed, growth flagging in advanced economies, China and other emerging economies putting on the brake as their inflation rates become too high, and a very real risk of another financial crisis kicking off in the Eurozone, there isn’t any reason to hope for things to magically get better on their own any time soon. In fact, if you look at the discussion above, we actually have a very high degree of certainty, just of the wrong sort, namely that growth will low to negative for easily the next two years, and quite possibly for a Japan-style extended period.

So why this finger pointing at intrusive regulations, particularly since they are mysteriously absent? For instance, Dodd Frank is being water down in the process of detailed rulemaking, and the famed Obamacare actually enriches Big Pharma and the health insurers.

The problem with the “blame the government” canard is that it does not stand up to scrutiny. The pattern businesses are trying to blame on the authorities, that they aren’t hiring and investing due to intrusive interference, was in fact deeply entrenched before the crisis and was rampant during the corporate friendly Bush era. I wrote about it back in 2005 for the Conference Board’s magazine.

In simple form, this pattern resulted from the toxic combination of short-termism among investors and an irrational focus on unaudited corporate quarterly earnings announcements and stock-price-related executive pay, which became a fixture in the early 1990s. I called the pattern “corporate dysmorphia”, since like body builders preparing for contests, major corporations go to unnatural extremes to make themselves look good for their quarterly announcements.

An extract from the article:

Corporations deeply and sincerely embrace practices that, like the use of steroids, pump up their performance at the expense of their well-being…

Despite the cliché “employees are our most important asset,” many companies are doing everything in their power to live without them, and to pay the ones they have minimally. This practice may sound like prudent business, but in fact it is a reversal of the insight by Henry Ford that built the middle class and set the foundation for America’s prosperity in the twentieth century: that by paying workers well, companies created a virtuous circle, since better-paid staff would consume more goods, enabling companies to hire yet more worker/consumers.

Instead, the Wal-Mart logic increasingly prevails: Pay workers as little as they will accept, skimp on benefits, and wring as much production out of them as possible (sometimes illegally, such as having them clock out and work unpaid hours). The argument is that this pattern is good for the laboring classes, since Wal-Mart can sell goods at lower prices, providing savings to lower-income consumers like, for instance, its employees. The logic is specious: Wal-Mart’s workers spend most of their income on goods and services they can’t buy at Wal-Mart, such as housing, health care, transportation, and gas, so whatever gains they recoup from Wal-Mart’s low prices are more than offset by the rock-bottom pay.

Defenders may argue that in a global economy, Americans must accept competitive (read: lower) wages. But critics such as William Greider and Thomas Frank argue that America has become hostage to a free-trade ideology, while its trading partners have chosen to operate under systems of managed trade. There’s little question that other advanced economies do a better job of both protecting their labor markets and producing a better balance of trade—in most cases, a surplus.

The dangers of the U.S. approach are systemic. Real wages have been stagnant since the mid-1970s, but consumer spending keeps climbing. As of June, household savings were .02 percent of income (note the placement of the decimal point), and Americans are carrying historically high levels of debt. According to the Federal Reserve, consumer debt service is 13 percent of income. The Economist noted, “Household savings have dwindled to negligible levels as Americans have run down assets and taken on debt to keep the spending binge going.” As with their employers, consumers are keeping up the appearance of wealth while their personal financial health decays.

Part of the problem is that companies have not recycled the fruits of their growth back to their workers as they did in the past. In all previous postwar economic recoveries, the lion’s share of the increase in national income went to labor compensation (meaning increases in hiring, wages, and benefits) rather than corporate profits, according to the National Bureau of Economic Analysis. In the current upturn, not only is the proportion going to workers far lower than ever before—it is the first time that the share of GDP growth going to corporate coffers has exceeded the labor share.

And businesses weren’t using their high profits to invest either:

Companies typically invest in times like these, when profits are high and interest rates low. Yet a recent JP Morgan report notes that, since 2002, American companies have incurred an average net financial surplus of 1.7 percent of GDP, which contrasts with an average deficit of 1.2 percent of GDP for the preceding forty years. While firms in aggregate have occasionally run a surplus, “. . . the recent level of saving by corporates is unprecedented. . . .It is important to stress that the present situation is in some sense unnatural. A more normal situation would be for the global corporate sector—in both the G6 and emerging economies—to be borrowing, and for households in the G6 economies to be saving more, ahead of the deterioration in demographics.”

The problem is that the “certainty” language reveals what the real game is, which is certainty in top executive pay at the expense of the health of the enterprise, and ultimately, the economy as a whole. Cutting costs is as easy way to produce profits, since the certainty of a good return on your “investment” is high. By contrast, doing what capitalists of legend are supposed to do, find ways to serve customer better by producing better or novel products, is much harder and involves taking real chances and dealing with very real odds of disappointing results. Even though we like to celebrate Apple, all too many companies have shunned that path of finding other easier ways to burnish their bottom lines. and it has become even more extreme. Companies have managed to achieve record profits in a verging-on-recession setting.

Indeed, the bigger problem they face is that they have played their cost-focused business paradigm out. You can’t grow an economy on cost cutting unless you have offsetting factors in play, such as an export led growth strategy, or an ever rising fiscal deficit, or a falling household saving rate that has not yet reached zero, or some basis for an investment spending boom. But if you go down the list, and check off each item for the US, you will see they have exhausted the possibilities. The only one that could in theory operate is having consumers go back on a borrowing spree. But with unemployment as high as it is and many families desperately trying to recover from losses in the biggest item on their personal balance sheet, their home, that seems highly unlikely. Game over for the cost cutting strategy.

And contrary to their assertions, just as they’ve managed to pursue self-limiting, risk avoidant corporate strategies on a large scale, so too have they sought to use government and regulation to shield themselves from risk.

Businesses have had at least 25 to 30 years near complete certainty — certainty that they will pay lower and lower taxes, that they’ will face less and less regulation, that they can outsource to their hearts’ content (which when it does produce savings, comes at a loss of control, increased business system rigidity, and loss of critical know how). They have also been certain that unions will be weak to powerless, that states and municipalities will give them huge subsidies to relocate, that boards of directors will put top executives on the up escalator for more and more compensation because director pay benefits from this cozy collusion, that the financial markets will always look to short term earnings no matter how dodgy the accounting, that the accounting firms will provide plenty of cover, that the SEC will never investigate anything more serious than insider trading (Enron being the exception that proved the rule).

So this haranguing about certainty simply reveals how warped big commerce has become in the US. Top management of supposedly capitalist enterprises want a high degree of certainty in their own profits and pay. Rather than earn their returns the old fashioned way, by serving customers well, by innovating, by expanding into new markets, their ‘certainty’ amounts to being paid handsomely for doing things that carry no risk. But since risk and uncertainty are inherent to the human condition, what they instead have engaged in is a massive scheme of risk transfer, of increasing rewards to themselves to the long term detriment of their enterprises and ultimately society as a whole.


By: Yves Smith, Salon, August 14, 2011

August 15, 2011 Posted by | Big Business, Big Pharma, Businesses, Class Warfare, Congress, Conservatives, Consumers, Corporations, Economic Recovery, Economy, Financial Institutions, Financial Reform, GOP, Government, Health Reform, Ideologues, Ideology, Income Gap, Jobs, Labor, Lawmakers, Media, Middle Class, Minimum Wage, Politics, Press, Public, Pundits, Regulations, Republicans, Right Wing, Unemployed, Unemployment, Wall Street, Walmart, Wealthy | , , , , , , , , , , , , , | Leave a comment


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