The Constitutionality of the Affordable Care Act

I am not an expert on Constitution law, so my opinion is of limited value but as you might have guessed, I will give an opinion anyway.  Yesterday’s decision on the Affordable Care Act is of course now constitutional law but it is not the decision I would have preferred.  The Constitution was written to limit governmental powers and the decision expands it by permitting the government to fine individuals through taxation for not buying health care.  As Richard Epstein, a professor of law at New York University, writes in “A Confused Opinion”

Chief Justice Roberts has ignored this fundamental principle: If direct regulation is beyond the scope of the Commerce Clause (as he held), then taxation as an indirect route to the same regulation should be off limits as well (as he failed to hold). This is a baby that should not be split. His attempt to do so undermines his ruling, the court and the Constitution.

The Court has been swift to protect political rights but slow to protect economic rights.  The two are intertwined and both deserve protection. 

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Hoover and the Great Depression

A student recently asked me about Herbert Hoover’s role in the Great Depression. To answer that question, I quote Robert Higgs from Crisis and Leviathan to describe his actions and to correct a common myth.

WHAT DID HOOVER DO? The traditional answer, of course, is nothing. If the man in the street remembers anything about Herbert Hoover it is that his middle name was Laissez-Faire and he did nothing while the American economy went to rack and ruin. As usual the knowledge of the man in the street leaves something to be desired. The popular remembrance of Hoover’s quiescence in the face of the depression is a myth. The Great Engineer may have had his faults, but fiddling while the economy burned was not one of them. “Do nothing” was never his motto; his middle name was actually Clark…

President Hoover rejected completely the liquidationist school of thought. He believed that the federal government could and should take actions to cushion and reverse the economic decline. As time passed and the government’s policies failed to arrest the contraction, the Hoover administration intervened more actively. Because later the New Deal went so much further, Hoover’s antidepression policies are customarily pilloried as at best “far too little, much too late”. Yet no previous administration had done nearly so much to remedy an economic bust. (In the presidential campaign of 1932, candidate Roosevelt criticized Hoover for failing to balance the budget).

Hoover‘s first action after the stock market crashed was to make reassuring speeches, a practice he continued throughout his unhappy term in office. This struck him as seemly-after all, if the President himself were to play the role of Chicken Little, what would the public do? It also comported with his theory of recovery. He believed that recovery hinged on a revival of private investment spending, which required an adequately optimistic state of “business confidence”. By maintaining a personally sanguine outlook, at least in his public pronouncements, Hoover hoped to encourage investors to pour their money into new factories and equipment. Although, he has been ridiculed ever since for his reassuring displays, they could hardly have done much harm.

Hoover next resorted to a series of meetings in November 1929 with the leaders of selected businesses, labor unions, and farm organizations. Ostensibly the parleys produced only choruses to sing in harmony with the President’s melody of optimism. (Apparently accomplishing nothing of substance, they inspired J.K. Galbraith to invent the amusing and insightful concept of the “no-business meeting”.)

But it is possible-one cannot know for sure-that the meetings did have an important effect, ironically a harmful effect. From the employers attending his conferences the President extracted a promise not to cut wages any faster than the cost of living declined. He believed that real wage cuts, besides being unfair and productive of strife, would reduce consumer purchasing power and thereby exacerbate the recession. Whether because of fidelity to the Presidents or for other reasons, many employers did not reduce money wages much until well into 1931. Meanwhile deflation proceeded apace. Workers who continued to receive the same money wage were getting an increasingly higher real wage. Given the extreme decline of the demand for labor, which happened to be greater in the sectors most refraining from wage cuts, a higher real wage implied a magnified reduction in the quantity of labor that employers would find it worthwhile to hire-that is, the increased real wage caused a great deal of unemployment. Unfortunately, as Lester Chandler has observed, the President “seems to have paid little attention to wage rates as a determinant of costs of production.”

Hoover backed various measures to stimulate federal spending and extensions of the government’s credit, including increased appropriations for public works and the Federal Land Banks, creation of the Agricultural Credit Banks and the Home Loan Banks, liberalization of the Federal Reserve Banks’ lending authority by the Glass-Steagall Act of 1932, and passage of Emergency Relief and Construction Act of 1932, which allowed the federal government to give (officially, to lend) the state governments funds to use for relief of the unemployed. Hoover also used his discretionary authority to reduce immigration-he supposed that an immigrant would either become a public charge or displace someone else from a job. To quiet the unsettling international disputes over reparations and war debts, he secured a moratorium on intergovernmental payments. None of this suggests a dogmatic adherence to laissez-faire…

The administration’s most important antidepression action, the creation of the Reconstruction Finance Corporation, clearly benefited from the emergency rationale and the wartime analogy. The RFC Act, which became law on January 22, 1932, was officially entitled, “An Act to provide emergency financing facilities for financial institutions, to aid in financing agriculture, commerce, and industry, and for other purposes.

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