Friday, June 29, 2012

The Obamacare Ruling: A Brilliant and Brutal Victory for Limited Government Advocates

Reading the title of this post, both proponents of Obamacare who are thrilled with the decision and critics who are disgusted and terrified by it will probably think I'm insane, and that's exactly the point. In legislative terms, Obamacare endured the Constitutional challenge so it may be reasonable for proponents to celebrate and opponents to be unhappy. But legislative victories are short-term and irrelevant compared to the long-term implications of many Supreme Court rulings, and what I plan to do today is to embark on an historic and political journey to explain why, despite being vehemently opposed to this clusterfuck of a legislation, the ruling makes me ecstatic. Fasten your seatbelts....

A BRIEF LESSON ON US FEDERALISM

As I've discussed in many past posts, both praise and criticism of the US Federal economic system for its capitalist or socialist nature are largely misplaced, because the system fits neither of those terms. A service is "socialized" when it is tax-funded and government managed and operated, and the Federal government truly only has one service that fits that definition - Social Security. A free market, which is how I define "capitalism", refers to economic domains with no financial intervention from the government and very few, if any, regulations. Hence, most economic domains in the US don't fit that paradigm either. I contend that what we have is not an "in between" but a "something different altogether"; but for objective purposes, most Federal public services in the US operate in the form of a tax-funded voucher issued to recipients to purchase services from a private provider, and in fewer cases a voucher issued to States to operate their own services or contract them out to private providers. Medicare, Medicaid, Food Stamps, Housing Subsidies, State-run Public Education, Student Loans.... you get the point. In most cases, the voucher is a subsidy; it is means-tested and recipients have to demonstrate a financial need for it, and the subsidies cover some but not the entire cost of the service in most cases.

To put it simply, this system is structurally flawed and invariably erodes over time. The government does not have the capacity to develop means-tests that would adequately reflect economic need, much less to implement these in a way that minimize gaming the system. The "need" is replaced by a very reasonable want to receive subsidies - who wouldn't want to be able to afford more on the same income? - and the private providers of the subsidized services are just as eager to offer them in exchange for the real money that voucher amounts to. However, subsidies don't promote the production of anything, only the distribution of existing resources to more people. Every tax dollar that is used to fund these subsidies was taken from someone else who earned it producing something, and the government did not produce anything to acquire it but invariably used resources to extract it. That means the government, not free-market forces, is now deciding where to direct that dollar minus the cost of its extraction, and any economist (even the most fervent proponents of this system) will tell you that there is no way in Hell the government does this more efficiently than the free market. All ideological arguments about taking others' money and gaming the system by either producers or consumers being completely irrelevant to our scientific discussion, the natural laws of economics and human behavior hence indicate that, over time, this system produces shortages by stifling resource mobilization and simultaneously increasing demand via availability.

The government has many ways of addressing these shortages, but every one of them only amounts to compounding the shortages over time. These include printing money, raising taxes, expanding the subsidies to other related domains, subsidizing loans to stimulate consumption, price controls, an infinite "chase the horizon" act of updating the means-tests, and also frequently regulations on what products and services are eligible for the subsidies - although this has more to do with protecting specific producers from competition. At the end of the day, or more accurately the decade, the result is always the same - a broader and more intense shortage produced by the expansion of inefficiency that stifles supply but increases demand.

CONFLICTS OVER THIS SYSTEM, PAST AND PRESENT

The majority of subsidies at the Federal level originate between the days of the New Deal and the 1970s, and make no mistake about it - this approach was as fundamentally flawed then as it is now. However, the government's primary strategies of addressing the system's continued erosion in those days were tax hikes and hard monetary policy (literally "printing" money). Since the 1970s, however, Americans' appetite for these strategies soured - leading to the election of politicians adamantly opposed to them such as Ronald Reagan. Our appetite did not sour because we got "greedy" or "inhumane", but because the structurally flawed system was failing despite these strategies being employed to their fullest. However, these supposed economic conservatives were NOT opposed to the system's structure, only to the strategies in use to preserve it - and they mobilized the popular discontent to eradicate those strategies and switch to more covert ones (many of them simultaneously friendlier to the provider class than the consumer class, known as "corporatism"). These strategies include various types of regulation - including law enforcement attempts aimed at consumer exclusion such as the War on Drugs and border closures; and soft monetary policy such as lowering interest rates (loan subsidies) and bond buying (quantitative easing). It is important to note that these strategies are insufficient for funding expansions of the subsidy-based welfare state, they can only achieve the preservation of existing programs from their natural inflationary erosion - a major reason the US has not introduced significant new amounts of welfare state programs since the 1970s.

Interestingly, most of the judicial battles fought by FDR in the New Deal Era were specifically over the latter type of strategy; because said strategies rely on a broader interpretation of the Federal government's powers in regulation and law enforcement as defined in the Constitution, whereas taxation power is relatively cut and dry. In the last 40 years though, that judicial battle has seen a moratorium, with the Federal government expanding its regulatory and enforcement powers becoming almost a given and rarely being challenged judicially. The last several years, however, have seen a rise in vehement opposition to Federal power expansion - largely fueled by the excesses of the Patriot Act and the economic catastrophy brought on by runaway bubble-blowing subsidization, the latter also revealing how much more producer-friendly than consumer-friendly Federal power is. Ron Paulian anti-Federalism that advocates shuttering the Federal Reserve and 2/3 of the Federal bureaucracy and repealing most Federal vice and morality laws may not seem like a mainstream movement quite yet - but it was limited to a few libertarian kooks running 3rd party candidates 10 years ago, and now everyone has heard of us and either tries to placate or villanize us, a testament to our growing influence. This sentiment is ardently in favor of reviving that New Deal Era debate over Federal power, and would have loved to see Obamacare struck down fully and unconditionally not just because it was awfully flawed legislation, but because a firm ruling against it would have opened the door to a flurry of judicial challenges to failing subsidy programs that have been accepted as givens for 60+ years.

OK, SO? THE RULING DIDN'T GO THAT WAY. YOUR POINT?

As I have pointed out in previous posts, there is no health care "crisis" - only a disastrous shortage created by nearly a century of compounded divorced-from-reality subsidies and regulations that were doomed to fail by virtue of the same structural flaws I've been discussing here. Recall from earlier that the system naturally erodes over time and needs periodic expansion to preserve its structure. Also recall that Obama's own proposal in 2009 was for his reform to include a large socialized component administered by the government and funded through tax hikes; but despite Democratic Party supermajorities in both Houses of Congress - THAT never got off the ground. Americans' lack of appetite for tax hikes is as solid as ever and they do not provide an avenue for preserving the system; so when Obama's attempt to raise taxes went nowhere - he reluctantly switched to his own party's preferred method of preservation through further expansion of Federal power. Specifically, the legislation asserted the power to coerce (NOT tax) Americans into investing resources into the system, and to coerce States in terms of what their socialized services must offer without providing them a dime in compensation. The Supreme Court (with Roberts in the lead) adamantly denied Obama those power expansions by ruling the mandate could not be justified under the Commerce or Necessary and Proper Clauses and that it could not coerce the States; just as in the SB 1070 ruling they denied the State of AZ several power expansions aimed at chasing the same structural problems by means of law enfrocement excess. The legislation is now forced to rely on the already exhausted existing strategies- price controls, regulations on denial of coverage, tax-funding with insufficient revenue, inadequate means-tests, soft monetary policy gimmicks. This is all the same shit that has caused the health care shortage, and a slight re-shuffle of it without those power expansions that access new resources, it is far more likely to make it worse very quickly than to reverse it.

But this ruling goes far beyond ensuring the slow death of Obamacare. What Roberts wrote in his opinion is that the Federal government is welcome to try to preserve the existing economic structure, but it has to do so either by use of its existing powers under the clauses mentioned, or by use of taxation which is not questioned as a Federal power. To put it simply, Roberts said "the days of trying to preserve this system through NEW regulatory gimmicks are over, call extraction what it is - a tax". Remembering that Americans have no appetite for new taxes and that existing regulatory gimmicks have been exhausted in their effectiveness; this ruling marks the containment of further expansion of Federal power. Further, seeing as we are approaching the so-called "fiscal cliff" which isn't much more than a representation of the same structural failure and shortage in every other subsidized domain - the New Deal legacy of Federal power is headed off that cliff at light speed. Roberts just eliminated any possibility for Congress to use power expansion gimmicks to preserve any of those failing and bankrupt programs, and they are failing and bankrupt because its current power is insufficient. Congress can raise taxes to preserve them (good luck!), or it can embark on some long-overdue structural reform and try making a system that works.

Watching a parade of judicial challenges to the government's existing powers shut down these programs one by one as a result of an across-the-board striking down of Obamacare would have been very satisfying to me; but I much appreciate Justice Roberts' caution about that scenario. The country may or may not be ready for those sweeping structural changes politically, and if they originate in the judicial branch they may bring an electoral backlash that ultimately culminates in the continued march of Federal expansion. Roberts has given Congress no choice but to acknowledge the structural flaws of legislation that they - NOT the Supreme Court - enacted, and to be pressured  by voters to start fixing it. Roberts has not only poisoned this disastrous legislation, but quite likely undermined the structural integrity of the entire corrupt temple of Federalism along with it - all to the deafening cheers of said temple's patrons. Now THAT is brilliant politics.