04 April 2012

Economics and Constitutional Law


Let’s start with the already famous exchange in which Justice Antonin Scalia compared the purchase of health insurance to the purchase of broccoli, with the implication that if the government can compel you to do the former, it can also compel you to do the latter. That comparison horrified health care experts all across America because health insurance is nothing like broccoli.
Why? When people choose not to buy broccoli, they don’t make broccoli unavailable to those who want it. But when people don’t buy health insurance until they get sick — which is what happens in the absence of a mandate — the resulting worsening of the risk pool makes insurance more expensive, and often unaffordable, for those who remain. As a result, unregulated health insurance basically doesn’t work, and never has.
There are at least two ways to address this reality — which is, by the way, very much an issue involving interstate commerce, and hence a valid federal concern. One is to tax everyone — healthy and sick alike — and use the money raised to provide health coverage. That’s what Medicare and Medicaid do. The other is to require that everyone buy insurance, while aiding those for whom this is a financial hardship.

Now, there is no doubt that non-participation in a market has an impact on that market, regardless of whether we’re talking vegetables or health care.  Krugman’s conclusion is essentially correct given it’s implicit assumptions and general framework of analysis.  However, there are two essential problems with his arguments.

The first problem is that what is generally referred to by most as “health insurance” would be more accurately described as a combination of medical insurance and prepaid health care.  Insurance, by definition, does not cover unavoidable risks.  For example, homeowner’s insurance does not cover self-caused damage, like arson committed by the homeowner, because such behavior has no risk, in the sense that everyone who intentionally burns their house own does so intentionally, and therefore the odds of someone intentionally burning their house down are either one hundred percent or zero percent (i.e. they either will do it or won’t do it, and in either case the outcome is due to intentional behavior and not random chance).

In a like manner, there are certain medical procedures that are perfectly predictable, like having a cold or needing a physical.  These things are routine, and thus predictable.  As such, the risk profile for everyone regarding these things is essentially one hundred percent, which is why insurance coverage for these sort of things is so expensive:  “insurance” providers know they’re going to pay for these things, so they simply charge them in advance.

Real medical insurance would only insure for things that are both individually unpredictable and personally undesirable (like a broken leg, e.g.). Thus, Krugman is not talking about real insurance, but rather prepaid health care.  He is wrong to say that everyone should be forced to buy health insurance, but he is correct to say that everyone should be forced to buy prepaid health care, for the reasons he listed above.

The second problem is that Krugman conflates economic laws with constitutional laws.  While it is true, as noted before, that even non-interaction with a market still impacts a market, this simple (and true) observation is irrelevant to the issue at hand.

The question the Supreme Court needs to answer is not whether an individual’s decision to refrain from buying health insurance will at some point impact interstate commerce (it undoubtedly will, seeing as how all aspects of the economy are interrelated).  Rather, the question the Supreme Court needs to answer is:  what does the constitution mean when it says “interstate commerce”?

The latter question is indeed the more relevant one, particularly in light of the nature of constitutional law.  What is the purview of the federal government in light of its authority to regulate interstate commerce?  Laws are, in a sense, quite arbitrary in their scope and application, so the answer to the question doesn’t have to make sense to an economist.  It need only have an objective and unchanging definition.  As such, it behooves Krugman, as well as all nine justices, to spend some time trying to figure out what the authors and ratifiers of the constitution meant when the constitution was written and adopted.  It may be interstate commerce refers to direct trade among the states.  It may be that interstate commerce refers to any and all economic activity.  It may even be the case that interstate commerce refers to economic non-activity or inactivity.

However, it is the original legal definition of the term that matters when considering the application of the law in this case; the rambling opinion of a doddering Keynesian does not.  Therefore, Krugman’s argument is wholly irrelevant to the question at hand because the Supreme Court is not trying to write an economics paper but rather interpret the constitution.  The two are not the same, and Krugman’s conflation simply reveals that he is quite clearly outside his realm of expertise, and so he should simply move on to other subjects where his ignorance is not as readily apparent.

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