General Election Issue Number 4B: Conclusions

Not a great deal has changed after hearing the oral arguments and the questioning by the Justices. Keep in mind that whatever side is being argued before the Court is going to be “attacked” by the Justices – it’s not unlike defending a thesis, in that the Justices want litigators to defend the suppositions used in their reasoning – if the premise is flawed, arguments supporting it are moot. They probe for weaknesses. Also, orals are only a part of what goes into the decision process. Each side also has the support of various interest groups who are not represented before the Bar – these arguments are filed as Amicus Curiae (“friend of the Court”) briefs that argue single-issues. It’s the totality of argument that the Justices then take into deliberation, and discuss among themselves before they vote and retire to write their opinions.

The largest shift in my thinking is an increased probability that the entirety of the law may be struck down if the mandate is found to be unconstitutional. I believe it was Justice Alito that hit upon the key in this regard when he noted that to remove the mandate is to remove the engine of the law, and that would not result in retaining the bulk of congressional purview. In other words, removing the funding removes the function itself. In taking this view, the Court is admitting that don’t believe the double-counted $500 billion will ever be taken out of Medicare, leaving only the relatively small tax changes and the mandate as funding mechanisms for this massive program. They believe that a complete re-think of the problem by Congress would be better than leaving a crippled system on the books.

There is a middle ground that may eventually win-out – removing the mandate and the two programs that entirely depend on it: prohibiting the exclusion of pre-existing conditions (or charging market rates for their inclusion); and, the limitations on rate structures imposed under the law.

The rate question could be largely mitigated by allowing health insurance to be sold across state lines, as is done with other kinds of insurance. The single most powerful dynamic to exert downward pressure on price is competition. That’s a possible remedy that Congress could consider, but the issue wasn’t discussed before the Court. Government could also define and assume coverage for pre-existing conditions and catastrophic care – two areas that private insurers would have to charge actuarial rates for or go out of business if forced to include them.

Overall, I haven’t moved much on my views as to what I think will happen with this case. I still think the probable outcome will be the striking down of the mandate (and possibly the above-noted insurance-related provisions) and the leaving in-force the remainder of the law.

General Election Issue Number 4A: Review and Outlook

Monday’s oral arguments before the High Bench regarded something called “standing.” At issue is whether the case may be heard before there is an injured party to bring petition, and this has grounds, in this case, only if the penalty for not carrying health insurance is considered by the Court to be a tax rather than a penalty. The Anti Injunction Act of 1867 states that no one can enjoin the government from levying a tax until it actually collected. Of interest here is that both parties – the government and the States – want this case to go forward, and therefore neither petitioner nor respondent would argue for applying the Anti Injunction Act to non-compliance fee of the Affordable Care Act. The Court appointed a Washington DC lawyer, Robert A Long, to argue on behalf of lack of standing. The court makes such appointments every year or so, and the practice is controversial within legal academia.

Should the Court find that the fee is, de jure, a tax, that will end the argument – all other discussion (today and tomorrow) being rendered moot by the fact that the Court shouldn’t be hearing this case before the “tax” is actually imposed, sometime in 2015. This turn would produce voluminous dissenting opinions which would copiously refer to later arguments, but the ruling of the Court would pivot on the applicability of the Anti Injunction Act.

I place the odds of this happening at less than 5%. This, for two reasons. First, nowhere in the language of the Affordable Care Act is the fee referred to as a tax – always a “penalty.” Thus, legislative intent couldn’t be clearer: it is intended as a penalty, not a tax. This position was thoroughly argued by the authors themselves during the debate running up to the congressional vote on the bill. Second, legally, this is a minor issue before the Court. Much bigger issues beg to be decided, namely, do we still have a constitutionally limited federal government, or can government regulate any faction of our daily lives in the name of “what’s ‘good’ for us?” “Good,” like “God,” being in the eye of the beholder – in this case the legislative branch of federal government. I don’t think the Court wants to kick this can down the road.

Today the legality of the individual mandate is being argued – whether Congress can compel commerce in order to regulate it. The government’s position is that the uninsured do in fact affect commerce, in that they cause others to pay for unremitted treatments and medication they consume, mainly in emergency rooms. In that respect, the government’s case has merit. The States’ position is that Congress is free to regulate the actual commerce (those paying for unremitted goods and services), but is specifically prohibited by the Constitution from imposing its will on inactivity.

I think the odds are overwhelming that this is the issue that will drive the opinion of the Court, and that a 5-4 striking down of the mandate is ~55% likely (this, without hearing the oral arguments, but I don’t expect any surprises by either side).

Tomorrow, two arguments will be heard. One is on the severability issue and the other on the “necessary and proper” clause. Both are satellite to the Commerce Clause issue, but either could affect the overall ruling of the Court. It’s de rigueur that the language of a bill contain a “severability clause,” stating that if any article or aspect of the law is found to be illegal or otherwise unenforceable, the remainder of the law remains in full force and effect. The Patients Protection and Affordable Care Act, in all its 2,700-page glory, contains no such clause, technically meaning that if any aspect of the Act is found to be unconstitutional, the Act is unconstitutional. The government will ask the Court to leave any and all aspect of the Act in-place that are not found to be constitutionally wanting. I think the odds are ~65% or better that the Court will leave untouched the Act, only striking down those provisions found to be unconstitutional.

Article I, Section 8, Clause 18 of the Constitution states that “Congress shall have the power … To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the Government of the United States, or in any department or officer thereof.” This, the government argues, is relevant because without the individual mandate, the rest of the Act is unworkable – it represents fully half of the financing and is the only mechanism by which an insurer can be forced to ignore pre-existing conditions without actuarial increases in rates. All of this is true, but mooted if the mandate is illegal. It’s like the attorney-client privilege. It’s inviolate unless, of course, the underlying conversations and acts are, themselves, illegal. If the power(s) exercised by Congress is deemed unconstitutional, no acts in furtherance of that/those power(s) can be deemed “necessary and proper.” There is zero chance the Court will find the mandate to be unconstitutional, and then obviate that ruling by deeming the mandate necessary to the carrying out of the Act as a whole.

General Election Issue Number 4: Grapefruit for Everybody

 

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Give Congress the problem “2+2=?” and they will, after countless committee meetings, thousands of pages of testimony and much deliberation, present, and vigorously defend, the answer “grapefruit.” This is precisely what happened when Congress went about “solving” the $48 billion problem[1] of the uninsured – they responded with the trillion-dollar, 2,700-page monstrosity of a bill laughingly called the “Patient Protection and Affordable Care Act.”

The law does virtually everything the Democrats swore it wouldn’t. Now that CBO has had a chance to see that the economic assumptions given them by the Democrats was science fiction, they have re-scored the Act and it will cost ~$2.1 trillion over ten years[2] – over twice what was claimed by the authors. The law is written in such a way as to bankrupt the insurance industry (or have it wind up as a Fanny Mae-like government-sponsored enterprise) – in other words, it is nationalized healthcare. The law is written to mandate so much coverage that no small business will be able to afford it, and included penalties so light (for non-compliance) that no bigger business in its right mind would rather offer coverage to its employees than pay the penalty – you won’t be able to keep your doctor[3]. And so on, ad nauseum.

The hallucinatory logic continues. Jonathan Gruber, a health economist at MIT and ObamaCare supporter, notes that the law is misunderstood, and that “We’ve just got to get it in place, let Americans feel the benefits, then they’ll like it” – in other words, “we’ve got to[let it take affect] to see what’s in it.” Sound familiar? He’s putting out a comic book to explain the Act to the American people (I can’t make this stuff up).

But the biggest challenge to ObamaCare is commencing this week as the US Supreme Court is hearing oral arguments over a three-day stretch starting Monday. Most of the focus will be on the delusion that the Commerce Clause permits Congress to impel individuals to commit commerce so they can regulate it. But a sleeper issue is presented in an amicus curiae filed by the Institute for Justice concerning the abolition of contract law contained in the individual mandate. A contract cannot be enforceable if either party is coerced (read: mandated). The sanctity of contracts is a pillar of civilized society, and this administration is, once again, simply ignoring the principle in favor of ideology[4]. This case is the first opportunity to regain our footing and stop circling the European drain of collectivism, redistributionism and mediocrity.

This law is so poorly written that not even its authors have a clue as to the myriad consequences it will unleash in society. The $20 million it is costing the IRS to incorporate the Act into tax law, for example, was totally missed by those who stipulated those very provisions.

The upcoming hearing before the nine wise souls in Washington will have nothing to do with healthcare. The questions being asked there will be about whether or not Congress has unlimited power, or if the Tenth Amendment is still the law of the land.


[1] That was the unremitted cost of healthcare delivered in 2008, the last year of “normal” economic activity.

[2] And that’s with ten years of pay-in and only six years of pay-out.

[3] The recently released Health Care Reform Survey 2011-2012 of the Willis Group reports, “Survey respondents indicate that fewer than 30% of employers were able to maintain grandfathered status of their healthcare plans.” Seven out of ten employers that had provided healthcare plans to their employees have determined that they no longer can, and that’s just two years in.

[4] The first time was when it zeroed-out Chrysler bond-holders so the White House could give the company to the UAW.

Primary News Number 1: Newt Gingrich has become Ron Paul

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This past Tuesday, Republicans held primaries in two key Southern states, Alabama and Mississippi, both of which Newt Gingrich needed to stay relevant in the race to the nomination. He won neither. This presented him with a golden opportunity to “do the right thing.” If there is any consistency to Gingrich’s message, it’s that “we need to defeat Barack Obama in November, and that it’s preferable to do it with a conservative – and Romney’s no conservative.”

Well, the conservative Republicans have spoken, and the word that came out is “Santorum.”

If the only Southern state that Mr Gingrich can win is his home state, the nomination will elude him across the rest of the country … he has to know that. To continue to split the conservative vote against Romney is to nominate Romney, and he has to know that, too. Mr Gingrich has become the latest iteration of Ron Paul – staying in the race as an irritant – he really doesn’t like Governor Romney. Mr Gingrich holds a grudge (nothing wrong with that) and he lets it affect his professional judgment (there’s a lot wrong with that). He took Mr Romney’s $3 million worth of negative advertising in Florida personally, and hasn’t gotten over it yet. That’s not the persona I want in a president.

The big news from Tuesday is that Mitt Romney won – he got more delegates (the only scoreboard that counts) than Rick Santorum or Newt Gingrich, and now has more delegates than his closest two rivals combined (495 to 252 [Santorum] and 131 [Gingrich]). Throw in Ron Paul’s 48, and Mr Romney still beats them all combined.

Much of this angst the Republicans are feeling is the fault of the RNC, which decided, in a year known to be devoid of a Democratic contest, to design a primary season guaranteed to stretch out into an ugly food fight. Representative allocation of delegates assures that no one will win a quick race, releasing funds and efforts to the campaign against President Obama. If they held all contests as winner-take-all, it would be all over but the crying right now. Especially this year – Mitt Romney has been running for this nomination for seven years so he’s well vetted – the press won’t be able to find any new dirt.

I know this would disappoint a lot of states who have yet to hold their contests, but if you want to beat an incumbent president, you can’t start too early.

General Election Issue Number 3: Unemployment

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“Unemployment,” as we have always understood it, means the number of people out of work divided by the number of people in the workforce. That number is at 8.3%. This is the unemployment rate as historically referred to by journalists and politicians, and no president since FDR has been re-elected with this number above 7.2%. This is the number that wouldn’t exceed 8% if we just enacted President Obama’s trillion-dollar stimulus package in 2009, and it hasn’t been below 8% since shortly thereafter.

But this is an election year, so we need to be careful with what we hear, because few people are using the same language to talk about “unemployment.” The Republicans are making two arguments to counter White House spin about the “recovery,” and one is silly and one is legitimate.

First, the Republicans have tried to redefine “unemployment” by including those working part-time and those who consider themselves “underemployed.” Trouble is, both groups are, in fact, employed, and as such can’t be included in the unemployment rate. Add to that, these numbers have never been considered in calculating the unemployment rate, making this a classic example of apples-and-oranges.

Next the Republicans have pointed to the “participation rate,” the number of people working or looking for work divided by the working-age demographic. It has sunk since the recession, and plummeted since the “recovery.”

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Notice the steady reduction of participation since the official end of the recession. This is important because it speaks to the efficacy of the recovery. If things are improving so much, why are people abandoning the search for work? Things aren’t improving, only the “unemployment” metric is, and that is caused, in great part, by the reduction in the number of people looking for work. If forty thousand people are jobless out of a million available workers, that’s an unemployment rate of 4%. If the same forty thousand people are still out of work, but ten thousand of them stopped looking for work, that’s now an unemployment rate of 3%. No new jobs, but ten thousand fewer being counted as unemployed. This is what is responsible for most of the “improvement” in our current unemployment rate.

The recovery, weak as it appears to people outside the beltway, is actually weaker than it appears because so many Americans have given up on the economy. The President’s policies are scaring away more people than they are hiring; he’s just not instilling much confidence in his ability to save us from his recovery. He’s apparently still “leading from behind.”

Left to their own devices, recessions will naturally recover in ~18 months. We are in the third year of “recovery,” with no rebound in sight. Given that the 30-year housing bubble is somehow George W Bush’s fault, the recovery is wholly on President Obama’s watch. And systemically high and persistent unemployment is but one artifact of policies that simply aren’t working.

General Election Issue Number 2: the Green Energy Fiasco

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As we saw in “General Election Issue Number 1,” this administration is, as a matter of policy, aiming to make classical energy production – the hydrocarbon economy – so costly that the unproven “Green Economy” looks feasible. The truth of the matter is that we will, indeed, move beyond oil, gas and coal for the bulk of our energy use, but only after those alternative modes have matured to the point of scalability (being able to be supplied in enough quantity to replace hydrocarbons) and economy (being affordable to widespread customers). None of this will happen faster by artificially making hydrocarbons more expensive and subsidizing poorly developed alternatives.

Liberals, almost universally, want “alternative” or “renewable” to replace “hydrocarbon”, yet when a scaled-up project comes along, like the solar farm planned for the Mohave Desert, other branches of liberals (the tree-huggers) rise up and say we can’t “despoil” the Mohave with a solar farm – and they win the day in liberal legislatures. The frustration was obvious when Governor Schwartsenegger lamented, “If you can’t put a solar farm in the Mohave, where the hell can you put it?!”

T Boone Pickens, probably the most knowledgeable person in America on the real-world energy sector, poured over a billion of his own money into wind farms in Texas. Last year, he threw up his hands and said, “Nobody can make money doing this.” The problems are government – the regulatory morass, resistance to hooking up to the grid, the overt weakness of the existing grid – and the technology itself – wind turbines are maintenance-intensive, generate NIMBY responses locally, kill Eagles at an alarming rate, and are periodically idle (insufficient wind).

The only technology that is off-the-shelf ready to help replace hydrocarbons – nuclear – is also opposed by the liberal tree-hugger wing.

The alternative-fuels crowd is completely ignoring the Achilles heel of transferring more net energy use over to electricity (however it is produced) – the fragile, antiquated grid. Our current electrical grid is tasked at almost maximum capacity just carrying today’s routine load, and it is enormously vulnerable to both component failure and disruption by hackers. To load it up recharging our 250 million cars would bring it down. If those fighting for “Green Energy” are actually serious about it, this is the cause they would be championing before the Congress – fix the grid! That’s going to take longer and is ill-suited for the utilities to do it piecemeal. This is actually a great situation for government intervention.

The transportation sector, second biggest user of energy after wall plugs, is being distorted by government toward technologies that are just not ready, while natural gas – of which we have a glut – is being ignored. Of all the targets of anti-hydrocarbon proponents, transportation needs a bridge technology to get us from affordable hydrocarbons to affordable something else, and that bridge is off-the-shelf ready with natural gas – minimal alteration to existing equipment, minimal modification to delivery points (gas stations), minimal public resistance to change. Where is the administration on this? Our president is now extolling the virtues of making fuel out of algae. Algae?! Really?! And we can’t drill because it would take too long to get additional energy into the market? Talk about demagoguery and hypocrisy.

The administration has made an ideological decision without regard to the practical implications or the economic inappropriateness of the timing – they’ve reached a conclusion in spite of the available evidence, and that’s the definition of religious belief. Changing to electric cars for the sake of the environment is meaningless until we generate electricity by something other than natural gas and coal. There needs to be a vastly more complete charging infrastructure in place before even a good electric car is desirable to American drivers – a twenty- thirty- or forty-minute recharge every 100 or so miles will never sell here. General Motors lent a Volt to a reporter for a test drive, and he couldn’t get from his home in New Jersey to the Manhattan side of the Lincoln Tunnel before it switched over to gasoline engine because the battery was depleted. The technology just isn’t ready for prime time yet.

The outlawing of incandescent light bulbs in favor of compact fluorescent lamps is short-sighted. We are mandating the replacement of a proven, affordable source of artificial lighting with an expensive, toxic alternative that produces a less desirable quality of illumination, and one that wasn’t winning in the marketplace, which is why they had to be mandated. The Chinese are now the world’s largest producers of incandescent light bulbs, and they have become the new Cuban cigars, being smuggled in from wherever they can be acquired.

The president has said, more than once, that if he had his way, he would regulate coal power generation into bankruptcy, with no alternative on the horizon. His energy secretary has said the department would like to rig the retail price of gasoline up to European levels, with no alternative on the horizon. In the midst of an anemic recovery sporting 14 million still unemployed, this administration has thrown billions down the “Green” toilet backing energy companies that are lining up for bankruptcy protection.

As with so many other aspects of running a country, this administration is in over its head on the energy front.