Is Obama Care Illegal?

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The attorney generals in several states (including Florida where I live) are mounting a constitutional attack on Obama Care. The focus of that attack is the claim that the Commerce Clause in the Constitution cannot be stretched to mandate that individuals be required to purchase health insurance.

Article 1, Section 8, of the U.S. Constitution reads that "the Congress shall have power…to regulate commerce…among the several states") and appears to provide broad regulatory powers to the federal government. Yet many Republicans, libertarians, and Tea Party advocates hold that the Founders intended a "free enterprise" system here with only a very limited role for government regulation.

In actual fact governmental regulation of business — including health and safety regulation — has always existed in the U.S. Even during the Colonial period, hundreds of laws regulating "commerce" hampered strict free trade. That trend accelerated in the late 19th Century (Interstate Commerce Commission and the Sherman Antitrust Act) and expanded immensely during World War 1.

Some wartime economic regulation was abandoned in the 1920’s but regulation grew exponentially during the New Deal and World War 2. Today, many hundreds of industries face many thousands of rules and regulations propagated by many dozens of governmental agencies concerning just about anything. (The amount of cheese that goes into a "cheese pizza" is regulated.) The massive Obama Care legislation (2,400 pages) that is being court challenged is only the latest example in a long regulatory trend line.

Historically, the bulk of the court challenges have failed and government regulation is almost always sustained. No one put the principle that the government can regulate almost anything better than the Supreme Court in Nebbia v. New York (1934).

Leo Nebbia was a grocer who sold two quarts of milk for 18 cents and threw in a loaf of bread for free. But the New York state Milk Control Board argued (correctly) that the transaction violated their price controls on milk (minimum price for milk: 9 cents) and was, therefore, a crime. Nebbia appealed but the New York Court of Appeals agreed and so did Justice Roberts writing for the Supreme Court:

"…a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose. The courts are without authority…to override it."

Importantly, the term "reasonably" in the above does not mean that regulation must, in fact, actually be reasonable or have any real rational basis. All it has come to mean is that a legislature thinks or intends that the regulation will promote the public interest (whatever than might mean), regardless of any economic theory or facts to the contrary. Thus, almost anything can become constitutional when neither rational theory nor substantive facts are legally determining.

The best (worst) example that not much has changed is the Supreme Court’s recent "reasoning" in Gonzales v. Raich (2005). Here the defendants had grown marijuana for their own consumption but the Court affirmed (6—3) that their activity "affected" interstate commerce (consistent with Wickard v. Filburn [1942]) and could be prohibited under the federal Controlled Substances Act. If you don’t like the regulation, the Court suggested, get the votes and change the law.

Although most constitutional challenges fail, there are a few instances where the courts have struck down (state) government regulation. Most of these occurred prior to the New Deal era when the courts took seriously the admonition (Article 1, Section 10) that "no state shall {impair} the obligation of contracts…" This principle allowed the courts to void some state laws that attempted to fix maximum hours of work or set minimum wages.

At the federal level, a traditionally conservative Supreme Court in 1935 struck down both the National Industrial Recovery Act (NRA) and the Agricultural Adjustment Act (AAA), dealing a major blow to Roosevelt’s original New Deal program.

The NRA had authorized government/business cartels throughout the economy; that clearly exceeded the Congressional authority. And the AAA was illegal because (and only because) the Congress placed a tax on food processors for the benefit of farmers. (The government Farm Program was re-legislated without the offending processor tax and became perfectly constitutional.)

And recently in U.S. v. Lopez (1995), the Court accepted a slightly narrow reading of the commerce clause when it stuck down a regulation which forbade gun possession in close proximity to schools. These cases, however, are clearly the exception to the general rule that almost all regulation is "legal."

To find the mandates in Obama Care illegal and, indeed, to roll back the bulk of economic regulation on business, would require a radical rethinking of the intent and meaning of the Commerce Clause.

Such a rethinking should start by noting that the original intent of the commerce clause was likely an attempt to prevent the individual states from placing taxes and duties on interstate commerce, which had been their habit prior to the Constitution.

Moreover, the expression "to regulate" can mean "to make regular" and was an attempt by the Founders to normalize trade between consumers and businesses in different states, surely NOT an attempt to have Congress "command and control" the economy. Yet few sitting jurists (Supreme Court Justice Clarence Thomas may be the exception) appear willing to rethink and challenge precedent in this important area of the law.

Finally, the Congress and the courts would have to come to grips with a massive amount of empirical evidence that demonstrates that most economic regulation (including health-care regulation) is costly and counter-productive and actually harms consumers.

Is Obama Care constitutional or is it, instead, an egregious overreach of federal power, an economic boondoggle, and a violation of individual rights? Let’s see if the Supreme Court is ready to think and rule outside the box.

Dom Armentano [send him mail] is Professor Emeritus at the University of Hartford (CT) and the author of Antitrust and Monopoly (Independent Institute, 1998) and Antitrust: The Case for Repeal (Mises Institute, 1999). He has published articles, op/eds and reviews in The New York Times, Wall Street Journal, London Financial Times, Financial Post, Hartford Courant, National Review, Antitrust Bulletin and many other journals.

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