Courtesy of Benzinga.
We’re approaching the point where the rubber meets the road regarding Obamacare.
I. Political Implications
Columnist and commentator George Will recently discussed some of the political and legal implications of the Affordable Care Act (Obamacare). Will: “Hitherto, most attention has been given to whether Congress, under its constitutional power to regulate interstate commerce, may coerce individuals into engaging in commerce by buying health insurance. Now, the Institute for Justice … has focused on this fact: The individual mandate is incompatible with centuries of contract law. This is so because a compulsory contract is an oxymoron.” Will suggested that in light of American common law, contracts “must not be coerced” and therefore, if the Supreme Court upholds the law, Congress will be without limits regarding coercing Americans to engage in contractual relations.
Whereas even the Supreme Court justices discussed in oral argument concerns regarding limits on Congress’ ability to coerce citizens to engage in contracts, Justice Kennedy eloquently said that Obamacare “changes the relationship of the federal government to the individual in a very fundamental way.” That being said, we have to come back to the Constitution; the Constitution is the foundation for the rule of law in America. And it’s important to recognize that we’re talking about the US Constitution. Per Justice Ruth Bader Ginsburg’s previous comments on not using the US Constitution as a model in Egypt, one has to wonder about the legitimacy and the credibility of both the Constitution and the court system going forward. We don’t live in the United Kingdom where the constitution is not a single written document; in the US, we have a written constitution that lays out the structure and abilities of government. Even if the justices were to cite the constitutions of “Vandemark” and “Toularoux” as persuasive authority to demonstrate that the world is embracing universal healthcare and so should America, the US Constitution remains the ultimate rule of law in the nation.
If Obamacare is deemed constitutional, there will probably be substantive concerns going forward regarding interpretation of the US Constitution and the proper limits of government. One might even go so far as to suggest that if Obamacare is deemed constitutional, at that point, the US Constitution has become a moot document; I can just picture some conservative commentator ranting right now, “It’s over! That’s the end of the game, folks! The government can now force you to enter into contracts against your own business judgment; according to our Supreme Court, we no longer have a functional constitution!” Per the implications of Mark Levin’s commentary, in the event that Obamacare is upheld, at that point, one has to wonder how the decision will not only affect Americans’ perceptions of the Supreme Court, but also the reliability of the Constitution itself. On April 2, 2012, Levin noted that he would “brutally criticize” the Supreme Court if Obamacare with the individual mandate is held as being constitutional.
And to be fair, if we get to the point of acknowledging that Congress can force American citizens to purchase products and services, one has to wonder regarding the value of the words of the Constitution in terms of defining the rule of the law. That being the case, the US Constitution is the rule of law. But if the Constitution can be interpreted as allowing for the government to force citizens to purchase a good or service, what are the limits? Are there any limits at that point? Is that “the end of the game”? In light of Justice Antonin Scalia’s remark, can the government make people buy broccoli?
Reuters reported Monday on how “President Barack Obama took an opening shot at conservative justices on the Supreme Court on Monday, warning that a rejection of his sweeping healthcare law would be an act of ‘judicial activism’ that Republicans say they abhor.” Yahoo! News Canada called the president’s remarks “a highly combative salvo”. Pres. Obama’s comments seemed to suggest that the “unelected” Supreme Court justices would be compromising the will of the “democratically elected Congress” if they ruled that Obamacare is unconstitutional. In this way, Obama’s statements could be interpreted as a warning to the Court.
The Supreme Court’s position appears to be difficult. While the Supreme Court has the president on one side, there remain many citizens opposed to the individual mandate. Either way, the Court would be left to compromise something. The backdrop of a politically-polarized American populace in a weak economy only complicates the situation. It’s as if one way or another, a significant portion of the country is going to be unhappy. This may lead to more societal bitterness and increased political polarization — not the best environment for rebuilding the economy.
II. Socio-Economic Implications
I believe that Pres. Obama is to be commended for intending to make health care affordable and accessible for all Americans. In a perfect world, all Americans should have the ability to go see a physician whenever necessary despite their income. That being said, in economic terms, problems with Obamacare reflect recurring issues with respect to government intervention in the marketplace. When the government supports the widget industry or takes efforts to encourage everyone to have widgets, the price of widgets increases (sometimes to the point of creating a financial bubble) and this eventually leads to artificial scarcity. This phenomenon happened with the housing market and higher education; heck, take a look at Social Security. The current situation portends that the same will occur with the healthcare industry if Obamacare becomes the law of the land.
From this perspective, in the short-term we should expect healthcare stocks to head higher. Money Morning’s Don Miller recently discussed how despite questions regarding Obamacare, “investors will want to keep buying healthcare stocks.” Miller: “Uncertainty surrounding the law is already rattling stocks.” In terms of particular major players that “probably would come out ahead”, Miller mentioned Pfizer Inc. (NYSE: PFE) and Eli Lilly & Co. (NYSE: LLY). In terms of heavy hitters that could benefit investors in the coming years “no matter how the Supreme Court weighs in”, Miller mentioned UnitedHealth Group Inc. (NYSE: UNH), WellPoint Inc. (NYSE: WLP), and Aetna (NYSE: AET).
For the sake of comparison, Todd Shriber listed Intuitive Surgical (NASDAQ: ISRG), Humana (NYSE: HUM), and iShares Nasdaq Biotechnology ETF(NASDAQ: IBB) as being potential winners of Obamacare. But even in light of possible stocks that may rise in the wake of Obamacare’s being ruled as constitutional, for the long term, I cannot help but think of the housing market and student loans.
In homage to the insights of Austrian School economist Henry Hazlitt, when the government intervenes in the marketplace to endorse or effectively mandate a product or service, usually the price of the product or service increases. Further, the quality of the product or service may decline. Often, this process entails the use of credit leading to a financial bubble — and once the bubble bursts (e.g., the housing bubble or the higher education bubble), there is scarcity of the product or service.
On Tuesday, Steve Moore had a piece in the Wall Street Journal discussing the “dire fiscal consequences” of Obamacare. An editorial in the Investor’s Business Daily suggested that Obamacare “is bending the cost curve upward” — effectively piling on debt that Washington cannot afford. From the article: “There is much more ailing Obamacare than its invasive individual mandate. It is a financial wreck that will require more tax dollars and private spending than any program in history. It has the potential to inflict severe long-term damage to the US economy.” And even in giving Obamacare the benefit of the doubt, the specter of a self-fulfilling prophecy regarding the law’s fiscal impracticalities here is quite precarious. Who goes into a business venture with a group of partners (such as a restaurant or a comic book store) with about half of the partners thinking that the business is not going to work? Like an ominous echo of Hazlitt, the editorial said, “More government intervention … ensures higher costs and declining outcomes.”
This sort of analysis is not rocket science. And where are the economists? Where are our Nobel-Prize-winning economists? Yes, if Obamacare becomes law, some stocks will rise. That being the case, this is somewhat akin to how housing prices rose or how college tuition rates have risen. Let’s say Congress passed a law mandating that everyone buys pineapples because pineapples are healthy and good for you. Sure, pineapple stocks and the value of real estate that pertains to pineapple cultivation would rise for a time, but the price of pineapples would also rise perhaps even to the point where consumers would not be able to afford to buy pineapples in order to comply with the law. As it becomes clear that not everyone can afford to purchase pineapples thereby potentially clogging up the courts, Congress could then attempt to put price controls on pineapples, but then that would probably cause problems of its own in terms of pineapple surpluses and shortages.
When the government intervenes in the marketplace, prices become distorted, services become lackluster. Hazlitt: “If we try to run the economy for the benefit of a single group or class, we shall injure or destroy all groups, including the members of the very class for whose benefit we have been trying to run it. We must run the economy for everybody.”
To be fair, I think adequate healthcare should be accessible for all Americans. Even so, there’s a right way of doing things and there’s a wrong way of doing things. It doesn’t matter if the product is higher education, houses, radios, TVs, broccoli, or peaches, if the government mandates that every citizen engages in a contract to procure such goods, the price of the good will probably rise — the process leaves the system in a lesser position than it was at the beginning. Once the process has run its course, people cannot afford the broccoli, broccoli stores close, broccoli becomes scarcer, etc. — the standard of living declines. At the end of the day, even if the Supreme Court upholds Obamacare with the individual mandate as being constitutional, the marketplace will probably have the last say on the issue.