Affordable Care Act Decision - My Opinion

The Supreme Court this morning published its final opinion on the matter of the Affordable Healthcare Act (ObamaCare) and the decision effectively finds the individual mandate is upheld, while the ability to withhold Medicare funds from States based on their unwillingness to accept the federal government's broadening of Medicare is unconstitutional.   So this is a win-lose for Obama by the numbers, but a win-win in terms of the most important thing (individual mandate) being upheld, and that the Court did not find the entire Act unconstitutional just because part of it was ruled so.

I spent some time today reading both the majority opinion (written by Chief Justice Roberts) and the dissent (from the usual conservative Justices).

Recall the individual mandate says basically you either buy healthcare or you pay a 'penalty'.   This will be enforced beginning in 2014.

The main argument with respect to the individual mandate from the majority opinion is that the Act is unconstitutional from the argument of commerce clause of the Constitution.    Basically, the argument is that a lack of behavior (failure to buy health insurance) or the potentiality of eventual behavior does not constitute 'commerce' and therefore may not be relegated to the federal government.


However, they find the individual mandate is, overall constitutional because the federal government had argued that the mandate is, in essence, a kind of tax, and therefore is within the feds purview.   In his argument, Chief Justice Roberts points out that the mandate, even though the President and Democrats in congress went to great length to not call it as such, is still a tax in practice as it is a revenue generating scheme that will be administered by the IRS should certain individuals choose not to buy health insurance.

The dissent argues that the majority is wrong in calling the mandate a tax, because Congress and the President clearly intended it to be a penalty, and in their view, never before has the court ruled something simultaneously both a "penalty" and a "tax."

“‘[A] tax is an enforced contribution to provide forthe support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.’”

But, the Act itself never makes not buying healthcare 'illegal' so it doesn't fit the dissenter's position well. From the majority:

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to doso is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.

  I would slightly modify the definition of 'penalty' (to give the dissenters the benefit of the doubt) to suggest that rather than 'punishment for an unlawful act' it is really just an attempt, in aggregate, to 'modify behavior in some manner.' But even given this, in my view, the dissent's position is weak.  Per the definition there is nothing to say that a tax cannot be both a revenue generator and a device used to change behavior.  From an economist's perspective, these kinds of 'taxes' abound:  taxes on cigarettes, taxes on CO2 emissions, etc.... are all money that is taken from the private sector, added to the public sector as 'revenue' and with the additional goal of changing behavior (using a stick to do so).   And this is an argument that the majority makes persuasively.  From the majority: 

None of this is to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new. Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods in order to foster the growth of domestic industry.

In any case, this case seems to point out the very sketchy legal line between what is a "tax" and what is a "penalty."  From the dissenters:

In a few cases, this Court has held that a “tax” imposed upon private conduct was so onerous as to be in effect a penalty. But we have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax. 

To me, it is interesting that Obama and the Democrats could have avoided this whole problem had they been straight with the American people and called this what it is: a tax.  And to most laymen, a tax is always a penalty.  It's a penalty for the aggregate private populace not voluntarily contributing to the public welfare.   In some economic circles, all taxes could be considered nothing but a kind of penalty (ie., their purpose is only as a penalty or something to modify behavior such as saving and spending decisions, not to raise revenue).  This can be true because the government need not tax to spend so long as it, in a broad way, has it's finger on the trigger of the printing press.   In this sense, the distinction between a 'penalty' and a 'tax' is somewhat nonsensical.

Patent Laws Are Destroying Competition

In economics textbooks, students are usually taught by assuming a particular good sold at market is identical in all respects to its competitors.  Of course in the real world, that is not the case - hence why there is no such thing as perfect competition.  Goods are sold in different ways, in different locations, under different brands, with different materials and qualities, etc. 


Patent law, which was created to protect intellectual property seems to have morphed over the decades as our society seems to have become more corporatist than capitalist to be less about protecting true intellectual property and more about stifling competition.  

Take this recent Apple lawsuit against Samsung for allegedly violating some IPad  patents.  Now I'll admit they look the same on the outside - they are both black and rectangular with a glass front.  Last I checked black was not a patentable color, nor was the shape of a rectangle nor was the fact that the front needs to be glass to see the screen.  Having seen both products, while they cursorily look similar, they have different OS's, different feels, different button locations, etc.  It's not as if Samsung took the exact IPad mold and stamped "Samsung" on it instead of "Apple."   


But this kind of litigation happens all the time, and happens more and more.   It stifles competition, erodes product-brand diversity in the market, and keeps prices higher than they otherwise should be for consumers - all to protect the corporate interest of a company like Apple which is flush with cash and simply does not need such protection.  


If we want to get back to being a society with an economic system based on competition rather than corporate power, we need to revise our archaic patent laws to defer towards competition, not protectionism.

Intersection of computer gaming and economics

fascinating read:
http://blogs.valvesoftware.com/economics/it-all-began-with-a-strange-email/

Federal Reserve: Powerless

Bernanke spoke to congress today and said more of the same thing he's been saying for years:  "we'll be ready to act...." my question is, "doing what exactly?"

Interest rates are already at record lows and there is growing skepticism that, particularly in economic environments like we are in today, that lower interest rates really do much stimulating.  There certainly are winners and losers though.  From a macro perspective it seems that interest rate policies are a wash.

So there's nothing the Fed can do, and there is nothing congress can do because of our broken politics.   So, let's all cross our fingers that Europe stops digging the ditch of economic destruction any further....

Becker on Grexit

" Nevertheless, I believe Greece in the long run would be better off through having the additional flexibility from controlling its own currency."

Duh.

It's shocking to me that all the analysts are dreading Grexit like it's a bad thing.  It's not a bad thing relative to alternatives.  Staying with the Euro and at the mercy of Germany and the European Bank is a much less tenable long-term solution that just draws the painful process out, puts the Greeks through an incredible pinch, and shows Europe's dysfunction.

Monetary System: A Great Explanation

Let's All Talk Past Each Other

Cullen Roche: 

The govt CAN set the price of anything it wants. It can also put us all in jail, murder everyone, give everyone a job, tax us all 100%, etc etc. But none of this means they SHOULD. MMT takes the monopolist argument to this extreme claiming that the govt SHOULD hire everyone just because it can – based on the idea that this is just what monopolists do – they set prices, etc. It’s just wrong because the idea of the money monopolist is wrong. And instead of building a persuasive moral argument here they build a faulty economic argument based on a misleading perception of the way the monetary system works. Wray says it’s all just based on an understanding of modern money. Except the MMT idea of the way the money system works is wrong! Which is why they make these faulty conclusions like the JG. Personally, I think they’d have more luck selling the JG as a moral policy because the economic argument is very weak in my opinion. (http://monetaryrealism.com/)

L. Randall Wray:

Here’s the rub. Bank money is privately created when a bank buys an asset—which could be your mortgage IOU backed by your home, or a firm’s IOU backed by commercial real estate, or a local government’s IOU backed by prospective tax revenues. But it can also buy one of those complex sliced and diced and securitized toxic waste assets that created all the trouble since 2007. A clever and ethically challenged banker will buy completely fictitious “assets” and pay himself huge bonuses for nonexistent profits while making uncollectible “loans” to all of his deadbeat relatives.   

The bank money he creates while running the bank into the ground is as good as the government money the Treasury creates serving the public interest. And that crooked banker will happily pay outrageous prices for assets, or lend to his family, friends, and fellow frauds so that they can pay outrageous prices, fueling asset price inflation. This generates nice virtuous cycles in the form of bubbles that attract more money until the inevitable bust. I won’t go into output price inflation except to note that asset price bubbles can fuel spending on consumption and investment goods, spilling-over into commodities prices, so on some conditions there can be a link between asset and output price inflations. 

...

Since government is the only source of the currency required to pay taxes, and since at least some people do have to pay taxes, government has pricing power—that is, can set the conditions according to which it will supply the currency.  

Just as a water monopolist does not let the market determine an equilibrium price for water, the money monopolist should not let the market determine the conditions on which money is supplied. Rather, the best way to operate a money monopoly is to set the “price” and let the “quantity” float—just like the water monopolist does.  

My favorite example is Minsky’s universal employer of last resort (ELR) program in which the federal government offers to pay a basic wage and benefit package (say $12 per hour plus usual benefits), and then hires all who are ready and willing to work for that compensation (Wray 1998). The “price” (labor compensation) is fixed, and the “quantity” (number employed) floats in a countercyclical manner. With ELR, we achieve full employment (as normally defined) with greater stability of wages, and as government spending on the program moves countercyclically, we also get greater stability of income (and thus of consumption and production).   ("Keynes after 75 Years...")

Cullen obviously completely misinterprets(and misunderstands) Wray.  Yes, the federal government is the monopoly issuer of our currency, but that doesn't mean they have 100% control over what happens with that currency (anymore than a monopolist of water has control over how their water is consumed or used at the end of the day).  Further, I would presume the MMT folk would agree that the private demand for credit can have a feedback (circuit / horizontal) effect on the issuance of more and more currency.

The other annoying thing about Cullen's analysis is he seems to think he's (and Steve Waldman) come up with a fresh new paradigm he calls "diaganolism."  I don't know if he's aware, but the concept of an upward sloping credit money curve goes back to the 80s and 90s and the horizontalist v. structuralist debates which Wray is perfectly aware of.   Wray: "There are structural and horizontal aspects of the money supply process."

Wray equates MMT understanding of money monopoly with Minsky's jobs guarantee (employer or last resort) idea.   Though, to my knowledge, he never ties the two together. IE, how is the government the monopoly issuer (demander) of labor jobs?  I don't get that.  I don't see the relationship.  It's made up.  It's not at all the same.  That neither suggests JG is a good idea or a bad idea (I've expressed skepticism but that's just me) but it also doesn't at all mean: "because government is the monopoly issuer of the dollar therefore they should become an employer or last resort."  I don't see this connection.  Feel free to enlighten me but it's almost like he's taking a positive statement about how money operates to conclude a normative statement about how labor should operate.