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The Economy, the Courts, and Bad Laws

12:00 AM, Jun 30, 2012 • By IRWIN M. STELZER
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If you want to get some sense of where the economy is heading, don’t ignore what the courts are doing. No need to repeat much of what you have heard—some of it may be true—about the Supreme Court’s decision to uphold the constitutionality of the Patient Protection and Affordable Care Act, a.k.a. Obamacare. That decision will have a major impact both on the economy and on the health care sector. Its macroeconomic impact will be similar to any massive tax increase, which is what the Court has said Obamacare is all about: It will reduce the competitiveness of those firms that operate in global markets, hurt small businesses, and transfer income from millions of Americans to insurers and to the government.

US Supreme Court Building

As for the health care sector, insurance companies think they will eventually get as many as 30 million more generally healthy customers who will have to maintain a “minimum essential” level of coverage or pay a penalty—oops, a tax—one that will rise steadily until it is punitive enough to force the currently uninsured to prefer coverage to paying the fine. This huge new market comes at a cost: Insurers’ profits are to be limited by regulators, and they can’t turn away people with pre-existing conditions, among other measures that will inevitably drive up the cost of insurance. 

Hospitals will see the bad debts imposed on them by uninsured patients drop. Manufacturers of medical devices will face a 2.3 percent tax on their gross sales, which will come to as much as 40 percent of the net profits of smaller “med tech” companies, an example of how tax policy is often crafted by a government-big business coalition to the disadvantage of smaller competitors. Small businesses will see their health care costs rise and two-thirds of affected small businesses are finding the system that is supposed to provide them with some tax-credit relief so confusing as to be unusable. Pharmaceutical companies cut a deal that protects them from some of the competition they face from generic drugs and the re-importation of drugs that can be bought and imported more cheaply from Canada and other countries, another example of crony capitalism; the administration bought Big Pharma’s support by allowing those companies to maintain higher drug prices than would otherwise prevail. And some trends will continue, among them hospital mergers, digitalization of records, and increases in health care costs that Obamacare does not address.

Nor is the important energy sector free from judicial impact. The use and prices of the various fuels are determined in markets importantly influenced by what judges think of the regulations pouring out of the Obama administration. Last week the District Court for the District of Columbia ruled that the Environmental Protection Agency was “unambiguously correct” to tighten rules limiting greenhouse gas emissions. Fred Upton, chairman of the House Energy and Commerce Committee, says the regulation that the court upheld “threatens to drive energy prices higher, destroy jobs and hamstring economic recovery.”

Coal-fired generation of electricity is at an all-time low as the industry mothballs dozens of coal plants. Many electric utilities are substituting natural gas for coal because it produces about half as much carbon dioxide as does coal, and a glut has driven prices so low that many in the oil industry say they are losing money on their natural gas operations. Barring reversal on appeal—not likely—the court has driven another nail into the coffin of the coal industry, a coffin the Obama administration has been eager to nail shut, and a few companies are trying to keep open at least a crack by investing in clean coal technology. So anyone who invests in the energy sector has to worry as much about the courts’ preferences as about consumers’ preferences.

And followers of the auto industry’s fortunes should know that the court’s decision favors fuel efficient and electric vehicles over greenhouse-gas emitting vehicles, seen as a plus for Ford’s line-up of new models. Given the much higher cost of electric vehicles, anything the courts can do to narrow the price gap between electric and gasoline vehicles is much appreciated by advocates of these alternatives to the increasingly efficient gasoline engines.

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