On The (Conservative) Distinction Between Commerce and Non-Commerce

Several scholars who agree with the result in the Obamacare decision have nonetheless criticized the Court's holding that Congress lacks the authority to coerce individuals into purchasing health insurance against their will.  (See this excellent explanation by Thom Lambert at Truth on the Market of why the Commerce Clause ruling is a holding.)  In particular, scholars claim that five justices (Chief Justice Roberts, and Justices Scalia, Kennedy, Thomas and Alito) erred when they held that the Commerce Clause does not empower Congress to coerce such purchases.

Two examples of this reasoning, from a debate on Scotusblog, will suffice.

According to Dean Erwin Chemerinsky:

"Chief Justice Roberts still expressed the view that it would not be permissible under the commerce power. "Five justices took the position that there is a distinction between Congress regulating activity as opposed to inactivity. It is unclear how often this will matter, but the flaw in the argument is that everyone is engaged in economic activity when it comes to health care. Individuals either are purchasing health insurance or they are self-insuring. Congress was regulating the latter to ensure that health care is more likely available for all."

According to Professor Charles Fried at Harvard Law School:

"The fact is that not since 1937 has the Court turned down the use of the Commerce Clause as a basis for Congressional intervention in a major national economic concern — which of course neither the Gun-Free School Zones Act nor the Violence Against Women Act were. Activity/inactivity is a new basis for limitation and has no anchor in our jurisprudence. That is why Roberts’s opinion was not conservative but radical. I have my doubts about the political and economic virtues of the ACA, but am appalled at this radically reactionary new doctrine."

Both of these scholars confuse the issue by asserting that the Court's opinion rests upon a distinction between "activity" and "inactivity."  This assertion is incorrect.  Instead, the Court's opinion rests upon a distinction between actual "commerce" and the absence of commerce, only the former of which Congress is empowered to regulate under the Commerce Clause.  This is a distinction that is, in fact, "firmly anchored in our jurisprudence" and, of course, the text of the Constitution.  In Gibbons v. Ogden, 22 U.S. 1 (1824) Chief Justice John Marshall explained that the Commerce power entails the power to "to prescribe the rule by which commerce is to be governed."   As Chief Justice Roberts explained, and as previously explained on this blog, this defintion presumes the existence of commerce to be regulated.  Absent such commerce, the Commerce Clause is no more a source of authority to compell commerce than it would be a source of power to regulate the rules of hopscotch.

It is thus no surprise that neither scholar cites a single example in which Congress has employed the Commerce Clause to require individuals to enter a commercial transaction.

It will not do, as Professor Chemerinsky claims, to recharacterize failing to purchase health insurance as "self-insurance."   Of course it is, as this blog has previously explained.  Still, an individual who self-insures may never engage the health care system at all.  Or, he or she may only engage the health care system sporadically, over the years.  The choice to purchase health care, if needed, out of one's own pocket is not "commerce."  If it were, then Congress could recharacterize an individual's decision to walk to work instead of purchasing a car as "self-transportation" and rely upon this characterization to compell individuals to purchase automobiles or other modes of transportation against their will.  (Presumably proponents of such "regulation" would point out that individuals without cars sometimes engage the transportation system by, saying, taking a taxi or a bus.)  But, as Chief Justice Roberts explained, embrace of this principle would grant Congress an unprecedented and vast power to direct individual behavior, thereby undermining the liberty-protecting virtues of the enumeration of Congressional powers.    Or, to paraphrase Professor Fried, Professor Chemerinsky is proposing a "radical[] reactionary new doctrine."


It is of course true that failure to engage in commerce is "inactivity."  But so is failure to engage in piracy, for instance.  Still, if Congress attempted to declare all individuals who declined to purchase health insurance guilty of piracy, the Court would, one hopes, unanimously invalidate such an enactment.  Such a decision would not rest upon a new or "radical" distinction between "inactivity" and "activity," even though failure to engage in piracy is a form of inactivity.  Instead, the decision would rest upon a tried and true distinction between "piracy" and "non-piracy," only the former of which is within Congress's power to punish as "piracy."  In the same way, the Court's invalidation of the Federal attempt to compell  the purchase of health insurance rests upon a tried and true distinction between "commerce" and "non-commerce."  

As a result, the Court's failure to validate the coercive individual mandate was in no way "radical" or "reactionary," but instead quite conservative, in that it conserved the allocation of authority between the nation and individuals.

Will Progressives Follow the Chief's Lead and Embrace Citizens United?

A recent op-ed by Michael Kinsley of Bloomberg News argues that progressives should follow the example of Chief Justice John Roberts and embrace a constitutional result with which they disagree as a policy matter.  Kinsley surmises that the Chief Justice opposes Obamacare on policy grounds but notes that he nonetheless found the measure to be constitutional as an exercise of Congress's taxing power, albeit beyond the power of Congress under the Commerce and Necessary and Proper clauses.  (Go here for a brief explanation of the ruling.)

As Kinsley notes, speech costs money, and spending money on speech is distinguishable from campaign contributions, which candidates may or may not spend on speech.  Moreover, the law before the Court in Citizens United banned speech and not spending as such.  Hence, those who criticize Citizens United because the ruling equates "money" with "speech" are simply wrong.  (For a similar and more didactic argument, see this essay by Geoff Stone on the Huffington Post.)   Moreover, as Kinsley perceptively points out:

"As applied to an individual, such a law [a ban on political speech] would be obviously unconstitutional. Endorsement of a political candidate -- even if that candidate is yourself -- is about as central to the First Amendment as any category of speech can be."

Kinsley concedes that corporations are not natural persons, and that one could distinguish a ban on personal speech from a ban on corporate speech on this ground.  But, as he points out, this rationale for censorship would also empower Congress and the states to ban speech by newspapers and other media companies altogether, so long as such entities are organized as corporations, as they invariably are.  While the particular law at issue in Citizens United exempted media companies, such an exemption would be unnecessary if the now-fashionable progressive view that corporations are not entitled to protection under the First Amendment prevailed.  As a result, Kinsley calls on progressives to acknowledge that Citizens United is correct, even if they believe the decision has deleterious effects for democracy, in the same way that Chief Justice Roberts acknowledged the constitutionality of Obamacare.

Of course Chief Justice Roberts did not announce his policy views on Obamacare; hence, Kinsley's assertion about the Chief Justice's personal opinion on the matter is speculation.  Moreover, the joint dissent of Justices Scalia, Kennedy, Thomas and Alito made a powerful argument that the Obamacare penalty is not a bona fide exercise of the taxing power, with the result that their vote to invalidate the individual mandate is no less principled that Chief Justice Roberts' conclusion to the contrary. 

At the same time, Kinsley, who obviously disagrees with the result in Citizens United, has himself taken a principled stand.  Moreover, he is certainly correct that many "progressives" (including the President of the United States) strongly believe that Congress and the states should censor high value political speech by corporations, even corporations of very modest means that spend far less on speech than many individuals.  He's also correct that many of these same individuals (including again the President, who mischaracterized the decision in a State of the Union Address) continually decry the Citizens United decision, despite the fact that the Supreme Court has treated corporations as persons for more than 110 years and the Constitution forbids bans on high value speech.  At the same time, the case for corporate free speech rights is even stronger the Kinsley acknowledges.  For, as previously explained on this blog corporations are simply associations of individuals who voluntarily contribute their skills and capital to a joint enterprise.  (See here and here),   Thus, when the corporation speaks, it does so on behalf of the various participants in the corporate enterprise, thereby ensuring a more effective exercise of constituent members' free speech rights.  To be sure, some members of that enterprise may disagree with positions that a Board of Directors take on behalf of a corporation.  But that is true of any organization, whether the ACLU, Cato Institute, or Firefighters Union.  The possibility of disagreement within an organization does not empower the government to censor it.


Indeed, Kinsley might also have noted that, if the Constitution did not treat corporations as persons, states and the national government could simply confiscate corporate property without providing compensation or impose regulatory penalties without providing due process, a regulatory approach the Supreme Court rejected over a century ago in decisions premised upon the finding that corporations are persons within the meaning of the 14th Amendment.  See Chicago, Burlington & Quincy Railroad Co. v. City of Chicago, 166 U.S. 226 (1897) (14th Amendment forbids taking of corporate property without just compensation); Chicago, Milwaukee & St. Paul Railway Company v. Minnesota, 134 U.S. 418 (1890) (14th Amendment requires states to afford due process protections to corporations).  The result would be a kleptocracy, a state of affairs that progressives would themselves decry.

Only 80,000 Jobs in June/Reagan-Obama Jobs Gap Widens

A few minutes ago the Labor Department released another disappointing jobs report.   The economy added only 80,000 jobs in June.  This is the third month in a row that the economy has added fewer than 100,000 jobs.  Indeed, the latest figures show that the economy added 68,000 jobs in April and 77,000 jobs in May, for a total of 225,000 in the entire second quarter of 2012.     By contrast, in July, 1984, during the Reagan recovery, the economy added 379,000 jobs after adding  308,000 in May, 1984 and 363,000 in April, 1984, for a total of 1,050,000 in the second quater of that year.   (Go to this website and insert the appropriate month and year to locate this data).

Moreover, as previously explained on this blog, the gap between the 1984 numbers and the 2012 numbers actually understates the difference between the Reagan Recovery and the Obama Recovery when it comes to job creation. After all, in 1984, the American workforce was significantly smaller than it is now.  In particular, the civilian workforce in June, 1984 was 113,817,000, while the June, 2012 figure is 155,163,000. Thus, even if the economy had added 379,000 jobs in June, 2012 as it did in June 1984, such an increase would reflect a significantly smaller rate of employment growth than the June 1984 increase. A true "apples to apples" comparison of the 2012 and 1984 figures therefore requires one to adjust the 1984 figures upward, to determine how many jobs the economy would have to add today to achieve the same rate of job growth achieved during the Reagan recovery. We can obtain the relevant conversion factor by dividing the June, 2012 labor force by the June, 1984 labor force; the result is 1.3623.

If we apply this conversion factor to the June, 1984 employment increase, we obtain 516,312. Thus, the true jobs gap between the Reagan and Obama recoveries for June, 1984 is 436,312.    Moreover, applying the same methodology reveals that the jobs gap between the second quarter of 2012 and the second quarter of 1984 is 1,205,415 jobs for these quarters alone, a stunning gap that is just one example of the underperformance of the Obama recovery.

Obamacare and Federalism Both Survive

The Supreme Court has narrowly upheld most of the Affordable Care Act, including the so-called "individual mandate." 

At the same time, the Court has rejected the Obama Administration's claim that Congress had the power to impose the mandate under the Commerce Clause or the Necessary and Proper Clause.  According to five Justices (Chief Justice Roberts, and Justices Scalia, Kennedy, Thomas and Alito), the Commerce Clause does not empower Congress to force individuals, under penalty of law, to engage in commerce.  As Chief Justice Roberts put it:

"The power to regulate commerce presupposes the existence of commercial activity to be regulated." 

Moreover, the Chief Justice also rejected the unprecedented argument, made by the Obama Administration and adopted by Justice Ginsburg in dissent, that the power to regulate includes the power to "direct" an individual to engage in commerce in the first place.  If accepted, this argument would have empowered the National Government to  As the Chief Justice explained, and as previously explained on this blog, the power to "regulate" consists solely of the power to "prescribe the rule by which commerce is to be governed."  

The individual mandate, the Chief Justice said, did not constitute a regulation of pre-existing commerce and therefore exceeded Congress's commerce clause power:.  As the Chief Justice explained:

"The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Every day individuals do not do an infinite number of things. In some cases they decide not to do something; in others they simply fail to do it. Allowing Congress to justify federal regulation bypointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and—under the Government’s theory—empower Congress to make those decisions for him."

The Chief Justice also explained that adoption of the government's theory would justify a variety of intrusive and unprecedented regulation.  For instance, and as previously explained on this blog, individuals' failure to adopt a balanced diet can impose significant costs on the health care system.  Indeed, the Chief Justice asserted that poor dietary choices impose greater costs on the health care system than the costs imposed by uninsured Americans.  Thus, the government's theory of the Commerce Clause (and, I should note, the theory endorsed by numerous pundits and legal scholars), would grant the national government breathtaking new powers:

"Under the Government’s theory, Congress could address the diet problem by ordering everyone to buy vegetables. . . . Accepting the Government’s theory would give Congress the . . . license to regulate what we do not do, fundamentally changing the relation between the citizen and the Federal Government."

Justices Scalia, Alito, Kennedy and Thomas issued their own opinion, agreeing with Chief Justice Roberts that the mandate exceeded Congress power under the Commerce Clause and Necessary and Proper Clause.  Like Chief Justice Roberts, these Justices explained that, if accepted, the government's theory would grant Congress unprecedented authority to compel individuals to engage in commerce against their will, under penalty of criminal sanctions.  Responding to Justice Ginsburg's dissenting attempt to distinguish a mandate to purchase broccoli from a mandate to purchase health insurance, these four members of the majority on the Commerce Clause question said:

"Of course one day the failure of some of the public to purchase American cars may endanger the existence of domestic automobile manufacturers; or the failure of some to eat broccoli may be found to deprive them of a newly discovered cancer fighting chemical which only that food contains, producing health care costs that are a burden on the rest of us—in which case, under the theory of Justice Ginsburg's dissent, moving against those inactivities will also come within the Federal Government’s unenumerated problemsolving powers."

At the same time, Chief Justice Roberts joined Justices Ginsburg, Breyer, Kagan and Sotomayor in holding that the penalty imposed on those who choose not to purchase health insurance is a "tax" and thus not a civil penalty imposed for failure to comply with a coercive regulatory edict to purchase health insurance.   In so doing, the Chief Justice explained that the penalty is small enough that individuals can choose not to purchase health insurance, self-insure and simply pay the tax instead.  In the same way, individuals who choose to self-finance and purchase their homes outright must pay higher taxes than those who choose to borrow money to make such purchases and thereby deduct interest payments from their income.
As a result, Obamacare survives, but so too does Federalism.    Under today's ruling Congress could not, for instance, impose fines or civil penalties on individuals who refuse to purchase health insurance.  Nor, of course, could Congress impose jail sentences on such individuals.  Thus, while Congress may encourage individuals to purchase health insurance instead of choosing to self-insure, in the same way that Congress may encourage individuals to borrow money to purchase a home, they may not compel such a purchase or compel such borrowing under penalty of law.  President Obama's effort, aided by numerous scholars and commentators, to radically alter the balance of authority between individuals and the National Government has failed, for now.

Are Public Universities Like UVA Charging Monopoly Prices?

Actual Monopolist.  See United States v. Standard Oil, 221 U.S. 1 (1911).

Not a Monopolist

Earlier this week Peter Morici, an economist at the University of Maryland, opined that public universities like the University of Virginia are exercising monopoly power to drive up prices, thereby depriving numerous students of access to a high quality education.   As he puts it:

"High-quality universities have become too expensive and increasingly inaccessible because their presidents and other top leaders have failed to recognize and address the challenges and opportunities posed to their institutions by new technologies. . . . Too many well qualified applicants [for admission] are turned away, because the US population has grown much more rapidly that the residential model of higher education can accommodate. Monopoly power permits these institutions to unnecessarily run up costs, charge unconscionable tuition and afford faculty cosseted lives, whose teaching and research is becoming increasingly less relevant and responsive to our society’s needs."

Morici goes on to argue that schools should make better use of new technology to reduce the cost of providing a college education.

As a result, he said, the Board of Visitors at the University of Virginia got it right when it demanded that Teresa Sullivan, pictured above, resign.

While Morici's argument is directed to the situation at UVA, it has implications for many other public institutions of higher education as well.  Moreover, Morici's claim that UVA and similar public institutions are exercising monopoly power and gouging their citizens or, for that matter, out-of-state students, does not withstand cursory analysis.  On the contrary, every indication is that the University of Virginia, like some other Virginia universities, is providing a high quality education at a reasonable price (or lower).

1.  Schools like UVA seem to be doing something right.  As previously reported on this blog, the school received over 28,000 applications for admission to the undergraduate program, with an entering class of about 3,500, last year, a record.  Thousands of these applications came from out-of-state and around the world, despite the fact that UVA's out-ot-state tuition is over $38,000 per year.  Each of these applications is voluntary; no one compells anyone to apply to or attend UVA.  UVA is not the only public university experiencing record applications.  For instance, for the seventh year in a row, William and Mary received a record number of applications --- 13,600 applications for an entering undergraduate class of just under 1500.

2.   To be sure, the mere fact that consumers are purchasing a product voluntarily does not thereby exclude the possibility that they are purchasing from a monopolist.  There is, however, no indication that UVA is exercising monopoly power, unlike John D. Rockefeller, founder of the Standard Oil Company, pictured above.  As the Supreme Court explained in Standard Oil v. United States, 221 U.S. 1 (1911), the hallmark of monopoly and the exercise of monopoly power is output reduction and pricing above the cost of production.  However, in the past four decades, UVA has quadrupled its output, from just over 5,000 students in 1960 to over 20,000 students in 2010.  Recently, the school announced that it is increasing its enrollment further, adding 1,500 students over the next five years.   Moreover, the school's "sticker price" is $12,224 in tuition and fees per Virginia resident., far less than the actual cost of educating a UVA student.    (The state of Virginia provides a subsidy of over $8,000 per in-state student at UVA, and UVA's endowment and annual giving provide further support as well, thereby allowing UVA to charge prices that are below cost.)   A firm  that is increasing output and charging consumers less than its costs of production is not exercising monopoly power.

3.  Indeed, the "sticker price" at UVA overstates the actual cost of attendance for many students.  For instance, under the school's "Access UVA" program, students from families earning $75,000 or less pay a price of zero to attend UVA, that is, receive a UVA education (including room and board) for free.  Morici does not mention Access UVA and similar programs in place at other public universities when he claims that high tuition is depriving students access to college.

4.  Of course, out-of-state students pay much higher tuition and fees than in-state students, as noted above.  But here again, it is difficult to attribute this higher price to market power.   Like other nationally-prominent universities, UVA participates in a highly competitive market for out of state students.  An out-of-state student who can gain admittance to UVA can likely gain admittance to many other top quality schools, such as Notre Dame, Boston College, Emory, Georgetown, William and Mary, Cornell or the University of Pennsylvania, just to name a few.  An institution with so many competitors is hardly a "monopolist." 

5.   If UVA really is exercising monopoly power, then that exercise creates a market opportunity for other institutions, including for-profit online universities.  Such institutions could enter the market and attract customers who might otherwise attend UVA by charging lower tuition for a high quality product.  Indeed, such institutions, such as the University of Phoenix, already exist.  If more reliance on online education is the answer, then applications to UVA, William and Mary and other Virginia schools will begin to fall, as students forsake these schools for the likes of the University of Phoenix.  So far, the opposite seems to be occuring, thereby further contradicting Morici's argument.

The Ouster of President Teresa Sullivan and the Distance Learning Fetish

Apparently Believed That Students and Professors Should Occupy the Same Classroom

Not So Sure

On Sunday Charlottesville was rocked by news that UVA's Board of Visitors had removed recently- appointed President Teresa Sullivan (pictured above) long before the expiration of her contract.  UVa's Rector, Helen Dragas (also pictured above), issued a statement to the University's Deans and Vice Presidents explaining the Board's decision.  Among other things, the statement included the following sentence:

"We also believe that higher education is on the brink of a transformation now that online delivery has been legitimized by some of the elite institutions."

Some, including Carter Eskew of the Washington Post, are claiming that the Board's decision to oust President Sullivan "has deeper implications for universities and colleges across the country."  In particular, Eskew notes that "information is almost universally accessible" and that schools like MIT are now offering courses online "for free."  He also opines that:

"[U]niversities are facing the same revolution that transformed the music and newspaper businesses— indeed, all the content businesses, of which they are a part." 

At the same time, Eskew notes that Google is no substitute for "the complex social and intellectual transactions that take place in college" and concludes without offering much a prediction, as follows: 

"This will take a while to all shake out, but in the meantime prepare for more shake-ups."

If Eskew is correct, then UVA's bipartisan Board is the latest to join the bipartisan chorus calling on colleges and universities to jettison traditional courses involving live instruction in favor of distance learning, all in the name of increasing academic productivity and increasing access to higher education.  (See this joint Op-ed by Jeb Bush and Jim Hunt).

This blogger, an educator for 17 years, believes that the case for more distance learning at  UVA, one of Virginia's two "Public Ivies," is weak at best.

To be sure, reliance on more digitally-driven "distance learning" could reduce the cost of providing a college education at UVA or anywhere else.  Instead of attending class and interacting with professors inside and outside the classroom, students in Virginia, Oregon or China could watch videos of professors delivering lectures.   Students with questions about the material could contact their professors by e-mail instead of asking such question during class or after class.  In this way, a school could spread the cost of a particular class, say, Introduction to Psychology, among numerous students and thus reduce the cost per student of offering that class.

However, "cost" is only part of the equation determining an institution's productivity and thus value to students and the rest of society.  One also has to examine the quality of the output produced.  Right now, the market seems to be telling us that UVA is providing its students with tremendous value at a reasonable price, thereby indicating that the current model is not broken.

UVA participates in a highly competitive market for potential students.  These potential students have access to a variety of sources of information about the price of various colleges and the type of education they offer.  If other schools offered the same value for a lower price, or a better product that justified a higher price, potential students would flock to those schools, to the detriment of UVA.  For instance, if students believed that MIT's free, not-for-credit online courses provided more value (net of cost) than the traditional courses provided by UVA, they would presumably take such courses from home, perhaps in their parents' basement, instead of applying to and attending traditional universities like UVA.  Or, students could take online courses at degree-granting universities such as the University of Phoenix.

There is, however, no indication that UVA is overpriced for the value it provides or that potential UVA students are forsaking UVA for other institutions with greater "online" content.  On the contrary, in-state tuition at UVA, ranked 25th in the United States by U.S. News and World Report, will be $12,006 in 2012-2013.  (Of course, students will also have to pay room and board, a cost they would have to incur whether or not they chose to attend college.)  Moreover, many attending UVA will pay far less than this sticker price because of generous financial aid.   Indeed, students from families earning $75,000 or less will pay nothing at all for tuition, fees and room and board, that is, will attend UVA for free.  Schools with similar rankings in US News and World report charge far more:  Wake Forest (tied for 25th), Tufts (29th), and Boston College (31st) all charge between $41,000 and $43,000 per year.  (Of course these schools also provide financial some, with the result that some students pay less than the sticker price.)

Indeed, this year, UVA received over 28,000 applications from around the nation and the world to enroll in its 2012 entering class of fewer than 3,500, an 18 percent increase in applications over the previous year.    As a result, the school enrolled what it calls its strongest entering class ever.  Thousands of Virginians are clamoring to attend UVA, and most are happy to pay the full in-state price to do so.  Thousands more Americans from other states apply each year as well, despite an out-of-state price tag about three times that paid by Virginians.   International students are jumping on the bandwagon as well; applications to UVA by such students rose by 23 percent this most recent year.  

The higher education market does not seem to be punishing schools, like the University of Virginia, that embrace the traditional model of delivering academic content.  On the contrary, marketplace consumers, including an increasing number of international consumers, appear to be embracing the product that UVA currently provides, at a price for most students that is well below that charged by many peer schools.  The choices made by international students seem particularly noteworthy.  As William Bennett explained in a recent essay on CNN.com, more and more Chinese students are "flocking to American universities," travelling over 10,000 miles and enduring separation from friends and family to obtain an American college education they could receive via "distance learning" provided by the elite institutions mentioned by Rector Dragas.      If in fact digital delivery of academic content would improve the overall value that UVA provides, then someone forgot to tell American (and Chinese) consumers.