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Defending the Affordable Care Act: What the Justice Department can learn from the Legal Academy
A fair-minded law professor would admit that his colleagues in the legal academy were too quick to write off the push to overturn the Affordable Care Act. He would acknowledge, in light of two early victories, that the legal challenge has made unexpected headway, and that law professors misjudged the fortitude of the law's opponents and the appeal of their arguments. He would distance himself from those who predicted a monumental flop, who called the challenge "desperate" and "radical," a last-gasp effort to avenge a legislative defeat, and may even find comedy in the fact that some of his colleagues had gone so far as to urge courts to sanction challengers for "wasting judicial resources."
A candid law professor would put it less diplomatically: the legal academy was wrong, comically and irredeemably so. It was wrong about the issues, wrong about the judges, and wrong about the outcomes. Indeed, so wide is the gap between expectation and reality, between what the experts predicted and the challengers accomplished, that questions over poor forecasting have emerged as an independent thread in the public debate. Several scholars, feet lodged firmly in their mouths, have hastened to point out that the two trial judges who ruled for the challengers are right-leaning, the appointees of Republican presidents, and are still in the minority among federal judges to have ruled on the legal challenge.
But this explanation ends in a wash, because just as the judges appointed by conservatives have sided with the challengers (Judge Sutton on the Sixth Circuit is a notable exception), the judges appointed by liberals sided with the government, a troubling ideological split that has some commentators convinced they can predict the outcome of a suit knowing only the politics of the President who appointed the judge. There is, of course, no telling which judges, if any, caved to ideology, just as there is no telling whether it was the law professors themselves who let their political beliefs get the better of their forecasting.
There may be yet a better explanation. Suppose the misplaced optimism was based on the strength of the legal defense visualized by scholars inside the legal academy. Now suppose that this defense differs in meaningful ways from the one the Justice Department is presenting in the courts, and that the variance means the difference between a forceful defense and a passable one. Were that so, were there a disconnect between the legal academy and the government, with the government passing over arguments the academy finds compelling, some of the faulty guesswork would be understandable; law professors, after all, cannot be faulted for misjudging the strength of arguments the government never advanced.
There is indeed a rift between what the lawyers are saying in court and what the law professors are saying in the legal journals. The law professors take a more ambitious direction, pitching their defense on a vision of federal power that, while not exactly contrary to existing doctrine, recasts it in a way that may give an orthodox judge pause. They see the dispute in practical terms, a question of which actor, between Congress and the states, is best equipped to address the destructive forces at work in the market for health care. In their view, it must be one or the other: Congress can reach any economic
problem that the states can’t fix on their own. If the states acting separately can fix it, Congress can’t act; if they can’t, Congress can. And since they see the health care crisis as a national problem, one outside the competencies of the individual states, they think it uncontroversial that Congress can address it under its commerce power. That power, they assert, would be self-defeating if it meant leaving the federal government powerless to combat destructive economic forces over which the states have no control. Why, they ask, would the framers have designed a system in which certain economic problems admit of no constitutional solution?
The Justice Department has charted a more modest course. It does not advance grand assertions about the balance of powers; it makes no appeals to constitutional theory, no allusions to the vision of the framers. It has resolved to defend this particular enactment against these particular lawsuits using the most defensible arguments available. Toward this end, it is less concerned with crafting new legal rules than with finding support in old ones. It is content to concentrate on existing doctrine, to argue that the Affordable Care Act does not run afoul of the commerce power under the standards established by the Supreme Court.
To some extent this is natural, the difference in approach. The Justice Department employs practitioners, and practitioners know better than to overstate their position. They know not to press a new rule of law when an existing one will do. They know that academic topics like theory, history, and structure are of only remote interest to a judge deciding a constitutional dispute, and that they serve the court not by saying what the law should be but rather what it is, as reflected in previous judicial decisions. When charting a path to a desired outcome, practitioners seek out the most defensible terrain, and, when possible, avoid detours into the abstract.
But that is not to say that the most defensible position is always the most clarifying one. A rigid adherence to judicial precedent can come at the cost of clarity, especially where it is judicial precedent that has muddied the waters. With the challenges to the Affordable Care Act, much of the confusion stems from the word "activity," which appears in several recent Supreme Court decisions interpreting the commerce power, and which forms the basis for the challengers' contention that the individual mandate exceeds congressional authority. The challengers assert that the word is there to cabin congressional authority, to ensure that the commerce power reaches only individuals already in the stream of commerce. Although the Supreme Court has not had occasion to explain what “activity” means in this context, whether the term has a constitutional basis or is merely descriptive, federal trial courts have split on the issue, and the courts of appeal appear poised to do the same.
The government has a strong ally in the legal academy, if it would only avail itself. In a still-growing body of scholarship, law professors have thrown light on the case in a way the government has not allowed itself to. By concentrating on the purpose of the commerce authority and the principles that animate it, they have freed the case from the confines of judicial precedent and made room for a more lucid analysis, one that appeals not only to doctrine but also to common sense. There is something deeply clarifying in their outlook that is absent in the government briefs, something eye-opening in the picture they draw of the commerce power, something compelling in the way they come out and announce what the government will not so much as intimate—that the Constitution cannot plausibly operate the way the challengers assert it does.
The most valuable aspect of the academic perspective is historical. In building a case against the mandate, opponents have profited from the lessons of history. They have modeled their case on successful constitutional challenges of the past, incorporating the arguments and rhetorical devices that courts then found appealing. In keeping with the approach of earlier challenges, they have raised the specter of unlimited congressional authority, their briefs shot through with soaring rhetoric about an "unprecedented" use of federal power and a "breathtaking" expansion of congressional authority. A scholar with a strong grasp on the history of the commerce authority can help bring this rhetoric back down to earth by placing it in its proper historical context.
Andrew Koppelman, a law professor at Northwestern, argues that the challengers’ warnings lose their potency when viewed in light of their historical parallels. Koppelman writes about the challenge to the individual mandate with the knowing aspect of someone watching history repeat itself. When the Supreme Court invalidated the first federal child-labor law, Koppelman says, the “Court declared–in tones reminiscent of the [objection to the individual mandate]–that if it upheld the law, ‘all freedom of commerce will be at an end, and the power of the States over local matters may be eliminated, and, thus, our system of government be practically destroyed.’” Koppelman adds, wryly, “the decision was overruled in 1941. Our system of government was not destroyed. The real lesson of this episode is that the desire to rein in government power can create a slippery slope of its own.”
It is true, of course, that the mandatory insurance requirement is something of a novelty; Congress has never required Americans, on pain of penalty, to enter into a private transaction. But what is new about the mandate should not take away from what is stale about the arguments lodged in opposition to it. History offers a parallel for nearly every facet of this litigation, right down to the substance of challengers' arguments.
Whether to draw on the work of the legal academy is one of several questions the government faces as it considers how to sharpen its defense going forward. Voices of restraint inside the Justice Department will caution against changing course. They will argue that the case can be won on narrow grounds, and that advancing new theories of law will only distract the courts and damage the government's credibility. And if the government’s performance in the courts of appeal to date is any indication, these voices are prevailing.
But one cannot help but question whether this is an occasion for restraint. Setting to one side the magnitude of the legal challenge, a flurry of some two-dozen suits pitting the federal government against a consortium of powerful interests and 28—28!—state governments, the consequences for public policy alone are historic. There’s a trillion dollars on the line, to say nothing of the most ambitious domestic program since the Great Society. The outcome of the challenge will cap a century-old debate about the balance of power between Congress and the states and dictate what role the federal government will play in our lives for years to come. If ever there were an occasion for chutzpah, this is it.
The Commerce Clause provides a window into the history of commercial relations in the United States. Chart the rise of federal power over time and at or near each uptick,
standing like mile markers on the interstate, are judicial decisions evaluating the reach of Congress’s authority to regulate commerce. That most of these decisions coincide with major historical events is no coincidence; it is during trying times that governments test the limits of authority, and American history is replete with examples of Congress responding to economic crises with unprecedented interventions into the private sector. That’s the thing about the Commerce Clause: judicial decisions interpreting it don’t come around often, but when they do, they coincide with historical inflection points, periods of upheaval in our political culture in which our views toward government are in flux. That’s not true of other constitutional doctrines.
A newcomer to this debate may find it peculiar that in all the back and forth over the scope of the Commerce Clause in Article I, Section 8 (Congress shall have power “to regulate Commerce . . . among the several states. . .”), lawyers often gloss over the meaning of the constitutional text, including the term "commerce" itself. The prevailing definition of commerce is narrow, limited to the trade or exchange of commodities. The definition is a carry over from the turn of the 20th century, when commerce was considered distinct from the economic processes that led up to it, including agriculture, mining, and manufacturing, enormous industries, covering wide swaths of the economy, all outside the federal government’s reach. As the government discovered when it tried to break up the sugar trust, courts were able to cabin congressional power by interpreting the commerce authority to exclude wide swaths of the economy.
All of this changed after the Great Depression. Recognizing the need for deeper federal involvement in the economy, the Supreme Court ruled in 1941 that Congress’s authority extends beyond articles that move in interstate commerce to include "activities that substantially affect interstate commerce." This had the peculiar effect of expanding the scope of the commerce power to cover previously out-of-reach areas like agriculture and manufacturing, without abandoning the traditional definition of commerce as trade. As Jack Balkin, a law professor at Yale, explains, "The courts gave the federal government its current powers by stretching older constructions and multiplying legal fictions. The doctrine looks the way it does because courts began with a very narrow construction of “commerce” as trade plus navigation and gradually built an elaborate superstructure on top of it, expanding it beyond all recognition. It is like a vast mansion that was built with no particular rational plan around a modest bungalow."
The word “activity” would continue to turn up in the Court’s Commerce Clause decisions. One familiar rubric divides the universe of commercial regulation into three categories: the channels of interstate commerce, the instrumentalities of interstate commerce, and “activities” that substantially affect interstate commerce. The first two categories represent the heartland of the commerce authority, the obvious cases for federal action, and rarely prove controversial. It is in the third category, which covers laws and regulations governing conduct that “substantially affects” commerce, that most of the controversy plays out.
There are no hard-and-fast rules for applying the substantial-effects standard, and much is left to judicial discretion. Outcomes frequently turn on whether the subject matter is commercial enough to justify federal action. That was the case in United States v. Lopez, where the Supreme Court held that a federal ban on handguns in school zones was a stretch too far for the commerce authority. The law, the Court explained, targeted commercial activity only indirectly, and had too attenuated a link to interstate commerce. Likewise with United States v. Morrison, where the Court held that Congress
lacked authority to give victims of gender-motivated violence the right to sue in federal court. In both cases, Congress had tried to regulate conduct that was several logical leaps away from commercial activity.
Behind the early success of the health care challenge is a clever argumentative device. The challengers have drawn a line through the commerce power and proclaimed, on the apparent strength of precedent, that everything on the “activity” side is reachable and everything on the “inactivity” side off-limits. In their view, the whole case hinges on whether a decision to forego health insurance can be characterized as activity. They argue, of course, that it cannot, that a financial decision is an event quite apart from a transaction that may or may not follow it. We decide whether we want an item before we purchase it, and a decision not to buy is a decision not to act; one ought not be conflated with the other. They warn that a definition of “economic activity” that covers passive decisions would justify a breathtaking expansion of congressional authority, because such a broad definition could sweep up characteristically passive decisions, such as not selling your home or not joining a fitness club or not buying an American car.
The argument has enormous conceptual appeal. Logically, it is well-constructed and internally consistent, its conclusion flowing naturally from its premises. Rhetorically, it plays to our inner libertarian, the Ron Paul inside who wants government at a safe distance from the private sphere and harbors suspicion about expansion of federal authority. A law that penalizes inaction crosses a touchy conceptual threshold, because someone who has not purchased insurance has not, strictly speaking, done anything. Perhaps most appealing, though, is that drawing the line at inaction just seems sensible. It presents an elegant solution to an otherwise thorny problem, a common-sense restriction on congressional power that is easy to enforce and compatible with our views on liberty.
The argument also appears to find support in the case law. “When the states first filed their lawsuits, many dismissed these arguments as baseless,” writes Bradley Joondeph, a law professor at Santa-Clara University who blogs about the legal challenge, “But they are eminently plausible. The Supreme Court has no squarely addressed whether Congress can use its commerce power to regulate conduct that is not, at a minimum, economic in nature. If anything, language in the Court’s opinions, taken on its face, suggests that it cannot.”
Doubts over whether the action-inaction distinction would gain traction were dispelled early on, when the argument formed the basis for the first decision to strike down the mandate. Judge Henry Hudson concluded that congressional enactments under the Commerce Clause must target “some type of self-initiated action,” and that the individual mandate exceeds congressional authority because it “compel[s] an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market.” Judge Roger Vinson used similar reasoning in his opinion, the second to invalidate the mandate: “It would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause,” for “if Congress could compel an otherwise passive individual into a commercial transaction with a third party,” then “it is not hyperbolizing to suggest that Congress could do almost anything it wanted.” Judge Vinson raised the specter of a future mandate that "every adult purchase and consume wheat bread daily, rationalized on the grounds that
because everyone must participate in the market for food, non-consumers of wheat bread adversely affect prices in the wheat market."
Even judges who voted to uphold the mandate accepted action-inaction as a controlling standard and agreed that the success of the challenge rests on a finding that the individual mandate regulates activity. That’s why the real craft is in the argument’s packaging, the framework the challengers fashioned for evaluating the constitutional question. By focusing on the action-inaction distinction, the challengers can shift the discussion from Congress’s policy objectives to the means used to achieve them.
The government has been solicitous of the action-inaction distinction, especially in the trial courts, where Justice Department lawyers accepted the distinction as decisive, disputing only the proposition that self-insurance falls on the inaction side of the line. Since everyone will at some point require medical care, they argued, and since everyone must choose how to pay for that care, it follows that someone who self-insures is choosing one payment option over another. That choice, the government argues, is no less active than the choice to buy insurance, the two decision flip sides of the same coin. The briefs on appeal differ only slightly in emphasis, and the government has yet to attack the distinction at its premise—to challenge opponents to ground it in a constitutional principle, to show how it would work in practice.
The wisdom of this strategy is questionable. For starters, it makes little strategic sense, in a case about the proper balance of power between Congress and the states, for the Justice Department to embroil itself in an existential discussion about the meaning of action. A lawyer can tie himself in knots trying to identify an intelligent line between omission and commission, and several prominent government advocates, in wading into the action-inaction discussion, have done just that. No sooner had then-Acting Solicitor General Neal Katyal entertained the subject during his argument before the Eleventh Circuit than he realized that he had undertaken a draining and futile exercise.
The two sides can’t even agree on what they disagree about. The challengers, concentrating on the market for health insurance, say the courts must decide whether the status of being uninsured is an activity. The government, focusing on the market for health care, frames the matter with a wider lens, asserting that the conduct in question is the practice of seeking care without insurance. The challengers accuse the government of resorting to semantics. Any passive decision, they say, can be conceptually contorted to resemble something active. They give the example of the decision not to purchase a car, which one could characterize as an active decision to use alternative modes of transportation. They warn that the government reads the “act” out of activity and justifies an unending list of purchase mandates—a mandate to buy American-made cars, for example, or to join a health club.
But the conceptual gymnastics works both ways. A creative lawyer can construe traditionally active conduct as passive just as easily as he can construe traditionally passive conduct as active. The government gives the example of an industrial plant whose owners refuse to install mandatory pollution-control devices. Could the plant owner defend against an enforcement action by arguing that the government has no business regulating his thoughts? Could a similar defense be raised by someone who fails to register for jury duty?
A more serious problem with the government’s approach is that it gives credence to the fiction that the action-inaction distinction sets a limit on congressional power.
Whether the subject of commercial regulation can be described as an “activity” does not bear on the purpose of the commerce power, which seeks to strike a balance between limited and effective government. As Neil Siegel, a professor of law at Duke, explained, "it does not speak to the basic question of why we have a federal government to begin with—it is unresponsive to the question of what the federal government can accomplish better than the states can accomplish by acting on their own."
Rather than entertaining the distinction, the government should be questioning what purpose it serves in a case about federalism. In reducing the constitutional case to a question of nomenclature, have the challengers made more of “activity” than the Supreme Court intended? Why should such a critical issue turn on a game of semantics, on an abstraction? The word may have legal import, but it may also be descriptive, lifted from a thesaurus for lack of a better noun. Along the same line, is there really a constitutional basis for distinguishing active conduct from passive conduct? Surely the challengers don’t mean to suggest that passive decisions can never have destructive economic consequences. What causes a debt crisis, for instance, if not the collective decision of lendors not to loan? If the framers empowered Congress to address economic problems in need of national solutions, problems outside the wherewithal of the states, what difference does it make whether the problems arose from active or inactive conduct?
"The debate over the constitutionality of mandatory health insurance is a placeholder for two different constitutional visions,” wrote Professor Koppelman. “Health care reform is only the latest manifestation of the New Deal vision of a society whose members are economically secure and protected from the otherwise brutal effects of market forces. Opponents of the mandate envision a radical revision of constitutional law that severely restricts Congress’s authority: if market forces step on you, you’re on your own."
The challengers have laid out their constitutional vision: The judge must choose between a government with limited power and one with unlimited power, and if the choice is limited power (and why wouldn’t it be?), the judge must explain how a reasonable limit could stop short of preventing Congress from compelling Americans to do business in the open market. The challengers have explained why the outcome they desire is in harmony not only with judicial precedent but also with the way they believe the Constitution to work in practice. They have offered a full package, the complete constitutional argument.
The government has yet to respond in kind, and whether out of an abundance of caution or a shortage of imagination, has settled on a more measured approach. It is true that all else being equal, the scoreboard favors the government, with three trial-court wins to the challengers’ two, and a (exceedingly narrow) victory in the Sixth Circuit. But let us not forget that this contest was handicapped, and that law professors predicted that the challengers would be routed in every court, without regard to the ideology of the presiding judge. That conservative judges would have misgivings about the mandate was to be expected. That their misgivings would be so deep, and so difficult to overcome, is more surprising. Either the legal academy missed the mark completely, or there is something about the Justice Department’s defense that is not registering with conservative judges.
The government has not inspired confidence with its performance in the courts of appeal. There were moments during oral arguments in the Sixth Circuit when Neal
Katyal seemed lost in his own thoughts. Katyal assured the panel that there would still be limits on congressional authority in a world where the mandate is constitutional, but when pressed for examples, he fell back on abstractions, saying that subjects worthy of federal action must be "quintessentially economic" and have "substantial" and "non- attenuated" connections to commerce. A week later, before an equally skeptical panel of the Eleventh Circuit, Katyal was still without a satisfying answer to the "where's the limit?" question, drawing again on language from the Supreme Courtslippery language that left the panel grasping for something more firm, some limiting principle on which to rest their decision.
It was almost as if Katyal had lost sight of his audience. The judges pressing for a limiting principle are the judges who will decide the fate of this challenge. They are the states-rights judges, the judges most acutely mindful that Congress has proposed to do something unprecedented, and that similar mandates in the future could erode individual freedom and encroach on the lawful authority of the states. These judges want the government to identify a coherent principle that separates the individual mandate from the procession of dystopian policies dreamed up by the challengers— either that or a concrete assurance that we are not headed down a path toward authoritarianism, that there will still be things Congress cannot do in a world where the individual mandate is constitutional. What they do not want, if recent experience is any evidence, is a recitation of the vague standards established by the Supreme Court. And yet that it was they have been treated to.
There is no telling whether an answer that drew on the work of the legal academy would have fared better. But neither is there any indication that the government has considered recalibrating its arguments in light of early setbacks in the trial courts. In fairness, lower courts are not in the business of indulging new spin on age-old constitutional doctrines, and the Justice Department already has several important victories under its belt, including one in the Sixth Circuit, the first court of appeals to rule on the challenge.
But the Sixth Circuit's decision was hardly an unqualified success. It was not, for one thing, unanimous, but rather disjointed, comprising three separate opinions—one that the law is constitutional in all of its applications, another that the law is constitutional in most of its applications, and a third that the law is unconstitutional. When three judges reach three different answers, the outcome turns on where the opinions overlap, and in the Sixth Circuit two judges agreed that most applications of the individual mandate are constitutional. The holding, then, is limited: the individual mandate is constitutional most of the time, but not necessarily all of the time. And in at least one respect, the decision is an indictment of the defense presented by the government. Judge Sutton, who supplied the court's middle ground, made hash of the notion that Commerce Clause contained an action-inaction distinction. Judge Sutton wrote what some observers are calling the issue’s most cogent analysis to date, and yet he reached his conclusion not because of the government’s briefs, which were, at best, agnostic on the action-inaction question, but in spite of them.
The Havemeyer family began refining sugar in Brooklyn in the 1850s, around the time brothers William and Frederick purchased a waterfront plot in Williamsburg. The
deep harbor and cheap labor that attracted the Havemeyers would soon draw competitors, and by 1860 the waterfront was swollen with refining operations, most of them turning handsome profits. If the economic climate was favorable for the region’s manufacturers, it was downright ideal for the sugar refineries, not least because the Civil War had wiped out competition in the Gulf States. New York City was producing most of the nation’s processed sugar, and the industry became the city’s most profitable by 1870, and would remain so until the end of World War I.
For all the competitors on the waterfront, there was little competition. Collusion was rampant, and by the late 1880s the backroom dealing had crystallized in the form of a legal trust covering most of the region’s refineries. Under the leadership of the Havemeyer family, trust members conspired to squeeze out competition by fixing prices and controlling labor costs. They were wildly successful, perhaps too successful: citing restraints on trade, the Supreme Court of New York declared the operation illegal in 1891, and the trust was forced to reincorporate in New Jersey under a new name, the American Sugar Refining Company, which we know today as Domino Foods.
The change in locale did little to slow American Sugar’s growth: As of February 1892, the company was producing some sixty percent of the nation’s refined sugar. Years of consolidation had wiped out competition, so when American Sugar reorganized in 1891, it retained a virtual monopoly; apart from a refinery in Massachusetts, which accounted for some two percent of the market, the company’s competition consisted of a group of refineries in Philadelphia.
By March of 1892, American Sugar had purchased majority stakes in each of the Philadelphia refineries, bringing its market share to 98 percent, a national monopoly unrivaled in scope. (At the height of its reign, Standard Oil controlled 90 percent of the market, US Steel only 70 percent). The transaction was consummated with an exchange of stock. Shareholders of the Philadelphia refineries swapped their shares for a stake in American Sugar, their assumption being that American Sugar stock would become exponentially more valuable the moment the deal was executed—a reasonable projection, for the value of a company in lawful control of the market for an internationally traded commodity is boundless.
On orders from President Grover Cleveland, the United States sued American Sugar under the Sherman Antitrust Act. The government alleged that American Sugar and its principle shareholder Henry Havemeyer, in league with the stockholders of its target companies, were conspiring to monopolize the sugar trade. According to the complaint, American Sugar, took a scorched-earth approach to corporate expansion, buying independent refining operations only to dismantle them. Competitors that were not swallowed were squeezed out by distribution contracts requiring brokers and dealers to handle American Sugar products exclusively. Henry Havenmeyer chaired the committee charged with carrying out these policies. He also created a fictitious trust to disguise the extent of his ownership interest in the new congolmerate.
American Sugar wielded its monopoly power to fix commodity prices—to drive them lower in the case of raw sugar, the company’s primary fixed cost, and higher in the case of refined sugar, the company’s primary output. Toward the same end, American Sugar conspired with industry stakeholders to drive the beet-sugar industry into the ground. American Sugar shipped marked-down products into territories where beet-sugar vendors did the most business. Although many tried, beet-sugar producers could not afford to compete at the lower price points, and one by one they acquiesced, agreeing to
remit a certain percentage of their earnings to American Sugar.
Many of the government’s allegations were borne out by a congressional investigation that followed on the heels of the merger. The investigation was slow going, stalled for weeks by company chairman John E. Searles, who pushed off his appearance while his directors “searched” for business records, only to discover that the materials pertaining to the trust’s consolidation had mysteriously disappeared. Ultimately, the investigation confirmed what had long been suspected: the price of refined sugar had been climbing as the industry was consolidating, even though the price of raw sugar had dropped during the same period.
By the time the case reached the Supreme Court, the magnitude of the monopoly had been brought into sharp relief. The Court took it for granted that American Sugar had vanquished competitors and erected an insurmountable barrier to entering the sugar trade. The Court acknowledged that farmers, merchants, and small businesses had been pushed out of the market by anti-competitive pricing, and that the price of refined sugar had been steadily climbing, and that American Sugar, not the free market, had ultimate say over when and at what price Americans enjoyed processed sugar. But even while mindful of the far-reaching consequences of the monopoly, the Court ruled that Congress lacked authority under its commerce power to stop it. This was, indisputably, a monopoly, just not the type of monopoly the government could target under the antitrust laws.
As the justices saw it, American Sugar was a manufacturer—a cartoonishly large one, but a manufacturer all the same—and, as such, fell outside the reach of Congress's commerce power. Under then-existing doctrine, manufacturing was considered as separate from commerce, the former falling under the exclusive dominion of the states. American Sugar had monopolized the production of refined sugar, not the trade of refined sugar, and to the extent the manufacturing monopoly had restrained commerce, it had done so only "incidentally." It mattered not that American Sugar, having produced the product, could also control its disposition, nor that the agents of commerce, the brokers and distributors who sold the sugar, had been forced to sell at a price fixed by a single supplier. Whatever the economic consequences of a manufacturing monopoly, the court explained, they were of no concern to the federal government, because "commerce succeeds to manufacture, and is not a part of it."
In retrospect it seems absurd that the Court would draw a legal distinction between manufacturing and commerce. Today we take it for granted that the production of an article is every bit as commercial as its sale. Manufacturing and trade are separate stages in a singular and fluid commercial process, and in today’s integrated economy, to meaningfully regulate one stage requires having control over the other.
These principles were far from obvious at the turn of the century, when America was still an agrarian economy and most commercial regulations were imposed at the state level. The dichotomy between production and trade seemed natural then, and would come to encapsulate the Supreme Court’s approach to the Commerce Clause. Under this view, an article of manufacture was distinct from an article of trade and remained so until it crossed state lines. It mattered not that the manufacturer had every intention of selling the article in interstate commerce, or that the manufacture of an article in State X has a very real effect on the price of a similar article manufactured in State Y, even if the first article never crossed state lines.
Behind the distinction was a concern that industries traditionally regulated by states and localities would fall prey to federal encroachment. “If it be held that the term includes the regulation of all such manufactures as are intended to be the subject of commercial transactions in the future,” wrote Justice Lucius Lamar (whose full name, Lucius Quintus Cincinnatus Lamar, II, bears mention, if only because it recalls an era when it was socially acceptable to name your children after ancient Roman dictators), “it is impossible to deny that it would also include all productive industries that contemplate the same thing. The result would be that Congress would be invested, to the exclusion of the States, with the power to regulate not only manufactures, but also agriculture, horticulture, stock raising, domestic fisheries, mining—in short, every branch of human industry.”
Justice Lamar wrote that in 1888, around the time that the plates beneath our system of government began to shift. Americans had taken in the less glamorous aspects of unfettered capitalismthe bloated trusts, the labor abuses, the widening disparities in wealth. The free markets were tearing at the social fabric, while a country of rural island communities was becoming more integrated, with railroads and advances in communication facilitating interstate trade. The rise of large corporations created physical and emotional distance between buyer and supplier, employer and employee. Small businesses grew frustrated trying to compete against mass producers, and the public began to warm to the idea of a more powerful federal government.
In 1897 Congress enacted the Interstate Commerce Act in order to reign in an increasingly unwieldy railroad industry. The Sherman Antitrust Act followed, and suddenly the federal government had authority to stick its nose into the internal affairs of firms suspected of anticompetitive behavior. The era of national power had begun in earnest, and would only accelerate in the wake of the Great Depression, when the federal government would nearly double in size and undertake unprecedented interventions in the economy.
Whatever the merit of these interventions from a policy standpoint, they ran contrary to the Supreme Court’s decisions interpreting the commerce power, which were still very much legacies of an earlier era. Faced with a burgeoning administrative state, the Supreme Court pushed back, drawing on antiquated doctrines to set limitations on congressional power. Professor Balkin wrote this about the era: “Nineteenth century courts sought to preserve a distinction between national and local power by making distinctions between national and local subjects of regulation, and they created a series of doctrinal structures to accomplish this goal.” The distinction between production and trade, the notion that commerce is what happens after an article is mined, manufactured, or plucked from the ground, is perhaps the most pernicious fiction that arose during that period. But it was not the only one.
Other mechanical formulas would crop up in the case law. In a damning blow to the New Deal agenda, the Supreme Court gutted the National Industrial Recovery Act, striking down hour and wage restrictions on interstate poultry firms on the theory that labor contracts at issue had only "indirect" effects on interstate commerce. Congress, the Court explained, can regulate only subjects that affect commerce “directly.” The distinction between indirect and direct "is essential to the maintenance of our constitutional system," for otherwise "there would be virtually no limit to the federal power and for all practical purposes we should have a completely centralized
government." For those keeping track, it was the direct-indirect distinction that, together with the production-trade distinction, scuttled the Bituminous Coal Act.
In a preposterous example of the triumph of formalism over common sense, the Supreme Court recognized distinctions between goods at various stages in the stream of commerce. Under this doctrine, articles that have arrived at their final destination, or that have yet to enter the stream of commerce, were treated differently from those that are in the course of trade. A baker buying refined sugar from out-of-state for use in his store stood on different legal footing than a distributor buying in-state for resale out of state, because the baker, unlike the distributor, was buying sugar that had left the stream of commerce.
In a recent essay in the Yale Law Journal, Professor Andrew Koppelman mounts the most full-throated defense of the individual mandate to date, a bellowing critique of the legal challenge in which he disparages the lawsuits as “silly” and “radical” and offers, in two terse sentences, what he describes as the “obvious” case for the constitutionality of the individual mandate: “Congress has the authority to solve problems that states cannot separately solve. It can choose any reasonable means to do that.” Koppelman’s vision of the commerce authority is keeping with the academic majority, and many of the law professors who have weighed in on the individual mandate have, in one way or another, gotten behind it. Language in a joint amicus brief from professors of constitutional law is revealing: “Having learned firsthand the disastrous consequences of denying the national government authority to address issues of common interest, the founding generation drafted a Constitution that empowers Congress to legislate for the general interests of the Nation, where the individual states are incompetent to act, and where individual state legislation might disrupt national harmony.”
The theory, referred to here as the economic theory of the commerce power, is also known in academic circles as “collective action federalism,” because its proponents see the Commerce Clause as a response to the collective-action failures that constrained the federal government under the Articles of Confederation, when states, in spite of the best interest of the union, waged commercial warfare against one another, throwing the economy into gridlock. Advocates of the theory argue that the framers left no gap between the respective powers of the states and the federal government; a destructive economic force incurable by the states is necessarily within the province of Congress. It has to be, lest we resign ourselves to a reality in which certain economic crises are outside the reach of the state and federal governments. Professor Siegel put it this way: "If Congress is not attempting to solve a collective action problem involving multiple states, then Congress may not invoke its commerce power."
There is a Newtonian quality to the theory: Congress’s power under the Commerce Clause remain valid until it runs up against an outer limit; it stays in motion until a separate constitutional doctrine gets in the way. Such collisions occur naturally in a constitutional system where the powers vested in the federal government are often at odds with the safeguards enshrined in the Bill of Rights. But where Congress addresses a problem only it can solve, and when it does so without intruding on the province of the states or the rights of the American people, it acts lawfully. Advocates of the economic theory believe our federalist system was designed like fine cabinetry, the
edges of state and federal authority adjoining at the same plane, their outer limits resting flush against one another other.
The economic theory abandons the prevailing understanding of commerce as trade. "Commerce" becomes a synecdoche, a term that appears to denote something specific but actually refers to something general. In the same way that we use the trademarked "Coke" to refer to the entire universe of cola, commerce, traditionally identified with the trade of commodities, is understood to refer to "intercourse" or "economic behavior" or "economy." The theory likewise assigns broad meaning to the other operative phrase in the Commerce Clause, “among the several states.” Commerce is among several states when the individual states cannot reasonably be expected to address the problem separately. This occurs where interaction crosses state borders, where it has effects that spillover from one state to another, or where it creates a collective-action problem that prevents interstate cooperation.
Advocates of the economic theory spend a great deal of time talking about history. They argue that the Commerce Clause must be understood in light of the failed experiments in government that gave rise to the Constitutional Convention. For these scholars, the Holy Grail is a resolution, proposed at the Philadelphia Convention by Virginia delegate Edmund Randolph, providing that Congress would “enjoy the Legislative Rights vested in Congress by the Confederation & moreover to legislate in all cases to which the separate States are incompetent, or in which the harmony of the United States may be interrupted by the exercise of individual Legislation.” The resolution, commonly known as the Virginia plan, was approved by the convention, and a slightly modified version was submitted to the Committee of Detail, the body charged with hammering out the final text. The Virginia Plan, of course, did not make the final text. Instead, the committee took a more succinct approach, enumerating the powers of Congress in list form. Proponents of the economic theory argue that the structural principles articulated in the Virginia plan were implicitly incorporated in that list. Other scholars argue that the absence of the language in the Viriginia plan conspicuous.
Professor Jack Balkin, an expert on the commerce power, sides with the first camp. He argues that federalist delegates would have objected if the principles embodied by the Virginia plan were gutted by the committee charged with crossing the Ts and dotting the Is. Yet there did not appear to be any strong objections to the final version, and so Balkin and other scholars contend that Article I, Section 8 was understood to embody the structural principles in the Virginia plan.
But the case for the economic theory is not lost without documentary proof. Scholars believe that an equally persuasive case can be drawn from the structure of the Constitution itself. This was the strong conviction of Robert L. Stern, a former Acting Solicitor General, who, in 1934, not two years out of law school, authored a seminal article on the commerce clause that would lay the foundation for the modern economic theory.
Having come of age during the Great Depression, Stern had a keen appreciation for government as a force of good. He maintained that Congress has always enjoyed broad powers under the commerce clause, but said it was not until the Great Depression, when “people began to suffer as the result of unrestrained freedom of enterprise,” that Congress had the popular support to exercise them. The destructive forces ravaging agriculture and industry had no respect for state borders, and not since Reconstruction had federal action been so crucial to the survival of the nation.
When President Roosevelt took office in the spring of 1933, the banks were closed, the farming industry had lost half its value, and a quarter of the country was unemployed. The New Deal would prove to be everything for which it was lamented by critics and celebrated by advocates—a new philosophy on governance, an unprecedented intervention into the market, the rock upon which the modern administrative state was built—but it was, principally, a recovery effort, a set of policies designed to drag the country out of the deepest financial hole it had ever seen. And it was this aspect of the New Deal, in Stern's view, that lent the program constitutional legitimacy, and Stern wrote critically of the Supreme Court's decisions striking down New Deal laws.
A less capable scholar might have challenged the decisions on their own terms, but Stern wasted no ink disputing points of law. What he wanted to know was how this could be. Whatever the value of these programs, whatever the costs, how could it be that Congress lacked the authority to enact them—that the framers envisioned a system where an economic crisis could elude government at every level? Stern questioned any conception of the commerce power that would limit congressional authority to regulate in areas where the states are separately incompetent. By then it had become apparent that the states were incapable of rescuing America’s failing industries; to say that Congress too was incapable, Stern argued, was to resign ourselves to sailing a ship without a rudder.
“An interpretation of the commerce clause which would permit any such weakness to exist in the power of the nation to protect itself against commercial disaster would do violence both to the fundamental concepts which guided those men who prepared the Constitution and to the principles which the Supreme Court has professed since the days of John Marshall. For the commerce clause, above all others, was, and has been universally regarded as, the great unifying clause of the Constitution, as the section of that document in which the authors indicated their desire to give the national government as much control over commercial transactions as was then or would in the future be essential to the protection of the commercial interests of the union.”
That the government would omit mention of a theory with such deep support in the legal academy is curious; that it would do so even after seeing the failings in its own approach is remarkable. Whatever the Justice Department is afraid of, it can’t be as bad as watching its lawyers struggle under the weight of their own arguments. Perhaps the Justice Department is concerned that pushing a new theory of law will undermine its credibility. But while most of the scholarship addressing the economic theory comes from law professors, the theory is not purely a creature of the academy. The theory informs several leading cases on the commerce power, including Gibbons v. Ogden, a seminal Commerce Clause case in which Chief Justice Marshall observed that “[t]he genius and character of the whole government seem to be, that its action is to be applied to all external concerns of the nation, and to those internal concerns which affect the states generally; but not to those which are completely within a particular state, which do not affect other states, and with which it is not necessary to interfere, for the purpose of executing some of the general powers of the government.” Gibbons and similar precedents underscore the point that the economic theory of federalism is not new, but rather as old as the Constitution itself.
Equally misplaced is the fear that the economic theory will be poorly received by conservative judges. The theory, when stripped to its bare essentials, is ideologically
neutral. It was not contrived to justify expansions in federal power, and does not favor federal authority at the expense of the states. It is a means to an end, a framework for striking a balance that has eluded the courts for decades.
The path to the heart of the judicial conservative goes through United States v. Lopez, the landmark state-rights ruling in which the Supreme Court struck down a federal ban on guns in school zones. Lopez snapped a six-decade streak of judicial deference to Congress and laid the groundwork for a more restrictive approach to the commerce authority. Since Lopez remains a touchstone for conservative judges and justices, any theory of the commerce authority not in harmony with the decisions is doomed. The primary concern expressed in Lopez, that Congress will use the commerce authority to support regulations in areas traditionally reserved for the states, continues to animate the Court’s Commerce Clause decisions.
The economic theory of federalism accounts for those concerns. As with Lopez, the theory strikes a balance between state and federal power based not on arbitrary distinctions but on the respective competencies of the two sovereigns. And as with Lopez, the theory preserves for the states a substantial sphere of authorityany area of policy, practically speaking, that they can govern on their own. In a sense, the economic theory asks the same question the Court asked in Lopez—is this really a problem Congress needs to address?—while proscribing a new way to approach the answer. There is little doubt that the Court would have reached the same result in Lopez had it decided the case under the economic theory, asking whether the states, acting independently, can address the possession of guns in school zones. "Far from rejecting [the economic theory],” wrote a group of law professors, in a brief to the Eleventh Circuit, “recent Supreme Court decisions emphasizing the limits of Congress's commerce powers embrace it."
I asked a hospital administrator what distinguishes the market for health care from other consumer markets. His reply was laconic: “Our market is broken.” I asked him to elaborate, and he explained that the market for health care has certain built-in features that set it apart from other markets, features that in traditional markets would be considered deficiencies.
For starters, in a traditional market, consumers know what they need, when they will need it, and how they will get it. Consumers of health care, however, know only that they will require care at some point in the future; they know not what kind of care, when it will be needed, and in many cases, how it will be paid for. The market is predictably unpredictable: consumers have to join because medical problems are inescapable, yet they have no sense as to when they will join, or to what extent they will participate.
The market for health care is also loaded with externalities, which is not the case in well-functioning markets, where the costs of a transaction do not spillover. When I buy a muffin from a local bakery, the bakery turns a small profit, and I leave with breakfast (but with less money for lunch). The effects of the transaction are internalized; I’ve taken on the full cost of the muffin, and my enjoyment of it does not detract from that of the
next customer. It is true that I have, in theory, sent a price signal, a message to bakeries that I was willing to buy the muffin at the listed price, but practically speaking the deal occurred in a vacuum, which is how economists say most consumer markets should operate.
Seldom are health care transactions so neatly contained. Since most Americans finance their care by purchasing insurance, the cost of care cannot be viewed apart from the cost of insurance. And the cost of insurance depends on the makeup of the insurance pool—whether on balance it is large or small, old or young, healthy or sick. Insurance companies want balanced pools in which healthy policyholders subsidize the cost of caring for the sick. Adverse selection describes what happens when they fail to achieve that balance. The phenomenon is naturally occurring in a market where consumers can opt out, and since the risk of incurring a major medical expense is low for the young and healthy, many low-risk consumers forego coverage, effectively betting that they will not incur a major expense in the near future and resolving to pay small costs out of pocket. When I first studied the subject, I thought "adverse selection" a deceptively mild description for such a pernicious phenomenon. But when I read on, I learned that adverse selection tells only part of the story, and that there is a more befitting term"death spiral"that describes what happens in to an insurance market when, as a result of adverse selection, prices are rapidly escalating because only the sick are participating, and only the sick are participating because prices are rapidly escalating.
From a distance the health care market appears competitive, even favorable for buyers. But the deals that attract consumers have been drawn up for the rare buyer with a clean bill of health. Sick people face a more expensive path to coverage, when the path is open at all. A recent survey estimated that nearly 12.6 million non-elderly adults (more than 36 percent of those who sought insurance in the individual market) were priced out of the market by a preexisting condition. I had assumed incorrectly that most people who forego coverage do so because they can’t afford it. But according to the Justice Department, “only 20 percent of Americans who lack other coverage options purchase a policy in the individual market. The remaining 80 percent are uninsured.”
That practice, however, has spillover effects. One is adverse selection: young and healthy people take the "wait and see" approach, leaving a disproportionate amount of high-risk policy holders in the insurance pool. This makes insurance more expensive, because insurance companies raise premiums to offset the escalating costs of claims. Worse yet, many people who choose to proceed without coverage cannot afford the cost of a major medical expense. A 2007 study estimated that 62 percent of all personal bankruptcies are caused in part by medical expenses. There are safeguards in place to ensure that people who cannot afford coverage can still receive life-saving treatment. Federal law prohibits hospitals from conditioning emergency treatment on a patient’s ability to pay. It is a moral stance, one taken in common with all other industrialized democracies, that indigence ought not be lethal, that no one should be left to die on the sidewalk on account of his financial circumstances.
It is also a tremendously costly stance. The emergency-treatment laws may just be the most distinguishing feature of the market for health care. In what other market are suppliers required to provide a significant portion of their goods and services for free? In what other market has federal law so dramatically altered the way buyers interact with sellers? Due in no small part to these laws, most of the health services provided for uninsured Americans go uncompensated. The gap between the value of the services
provided to the uninsured and the amount paid for those services was $43 billion in 2008. Congress found that the cost shifting, which goes from provider to insurer, and then on to policy holders, increases family premiums by $1000 per year. One myth ripe for debunking is that the poor are primarily responsible for shifting health care costs. In fact, uninsured persons whose incomes exceed the federal poverty level by 300 percent still pay for less than half of the care they receive. Many uninsured Americans hale from the middle class, and the majority are either employed or members of a family in which somebody is employed.
The market failures perpetuate themselves. The tragic reality is that the uninsured are more likely than the insured to get sick, and when they do, less likely than the insured to recover. The Department of Health and Human Services found that 20 percent of the roughly 120 million emergency-room visits in 2006 were made by uninsured patients. One study blames a lack of coverage for the death, annually, of 18,000 Americans between the ages of 18 and 64, a dismal figure whose explanation is found in an even more dismal one: nearly half of uninsured adults suffering from a chronic condition forego needed treatment because they can’t afford it; uninsured adults with chronic conditions are almost four times more likely than insured adults to seek emergency care.
The private sector absorbs most of the costs, but not all of them. In a less direct but no less substantial way, some costs land on the government, by way of Medicare, when the uninsured and underinsured wait out there late 50s and early 60s, putting off treatment and major procedures, until they are old enough to qualify for an entitlement program. These individuals, old enough to develop costly medical conditions but not enough to qualify for Medicare, spend years getting sicker, running out the clock until their eligibility kicks in. In a brief filed in support of the mandate, the AARP offers the story of Valerie D. from Portsmouth, Va., who at 63 suffers from hip pain but cannot find an insurer willing to cover the costs of an MRI. Valerie settled for a bare-bones insurance plan and reached an understanding with her doctor that they would control the hip pain with medication until her 65th birthday, when the cost of the MRI, and potentially surgery, will fall on the government.
Victoria's circumstances seem trivial next to those of Chris L., 64, a two-time heart- attack patient with three stents in his chest and no hope of paying his medical bills. Without knowing any details about Chris’s medical history, we can get a good idea of what caused the second heart attack by comparing the traditional treatment course of a heart-attack patient who can afford care with that of a patient who cannot. For starters, the insured patient enjoys a longer hospital stay, along with all the benefits that flow from prolonged monitoring and testing. The uninsured patient, according to my friend, the hospital administrator, would be sent on his way not long after being stabilized, following some limited testing and lab work. Depending on how extensive the testing, the patient may be given some idea of the damage done to his heart, but he probably will not have the benefit of more advanced scans that localize the damage and help doctors make more accurate diagnoses. He also would likely lose out on cardiac rehabilitation programs, which experts believe to be the most important aspect of the recovery process.
Although the market for health care is national in scope, a great deal of the day-to-
day regulation takes place at the state level, where state insurance commissions control various aspects of the insurance business, including licensing, finances, claim processing, and coverage requirements. Because these laws change from one state to the next, the market for health insurance may look dramatically different depending on where one is standing.
Under the economic theory of the commerce power, the constitutionality of the individual mandate hinges on the necessity of congressional action. There would be little sense in addressing the theory if it were not clear that health insurance regulation requires a national solution. One scholar I spoke with, who declined attribution, expressed skepticism that reform begins and ends with the federal government. “If given federal authority,” he said, “states might have the competence to do this themselves, as Massachusetts has done.”
Massachusetts, as I would come to learn, plays an interesting role in this discussion, with both sides mining the state’s reform efforts to support their cause. Massachusetts is the only state to have enacted a reform package that rivals the Affordable Care Act in scope, and by many accounts, it worked: Massachusetts enacted its version of the ACA in 2006, and now boasts one of the most cost-effective health care systems in the United States, with more than 95 percent of its residents insuredan increase from 86 percent before enactmentmore adults seeking preventive care, and cost shifting having dropped by 40 percent between 2006 and 2009.
Opponents have seized on the results in Massachusetts to argue that comprehensive reform can begin at the state level. But experts are doubtful that other states could replicate the Massachusetts plan. According to one study, “The number of uninsured persons was relatively low when the policy was adopted. Many of the uninsured were eligible for Medicaid. The percentage of the population carrying employer-sponsored coverage, along with per capita income, was unusually high, creating a larger tax pool. The level of insurance was already quite good, and so the transition was not an enormous lurch." It is perhaps telling that Massachusetts weighed in on the legality of the ACA on the side of the government, arguing in an amicus brief that states cannot effectively control the cost and delivery of health care by themselves.
But even if other states could overcome these demographic barriers, it is unlikely that they would have the incentive to try. With the exception of Massachusetts, every state that has enacted comprehensive reform has stopped short of a purchase mandate, focusing instead on prohibiting insurers from basing coverage decisions on preexisting medical conditions. But states that place restrictions on medical underwriting without helping expand coverage pools set insurers up to fail. In the late 1990s and early 2000s, nearly a dozen states enacted laws that sought to prohibit or strongly discourage insurers from writing coverage based on the expected medical costs of applicants. The message to the insurance industry was clear: if you want to sell insurance in our state, you'll play by our rules, even if that requires taking on untenable risk. But in a national market one state's regulatory measures are only as effective as those of its neighbor, and at some point, a measure will become so costly for an insurer that leaving the market makes more sense than complying. And that's what happened.
Premiums took flight in states that tried to regulate preexisting conditions without adopting minimum-coverage requirements. The history is recounted in a joint brief filed by a consortium of non-profit organizations. "Kentucky, Maine, New Hampshire, New Jersey, New York, Vermont, and Washington enacted legislation that requires insurers
to guarantee issue to all consumers in the individual market, but do not have a minimum coverage provision." All of these laws, the brief explains, "have had detrimental effects on the insurance markets in those states, and raised costs for consumers."
The most devastating consequences were felt in Kentucky, where by the mid 1990s all but two carriers had fled the individual market. Maine experienced a similar evacuation, and the companies that stayed stopped writing new policies and raised premiums on old ones. According to one report, by 2001 the market for individual HMO coverage was in a “death spiral.” The state still has not recovered: Maine’s Insurance Commissioner reports that as of 2010, most companies had fled the state, with only two carriers actively selling policies in the individual market. The results were the same in New Hampshire, where the number of carriers selling in the individual market dropped from 12 to 2 after the state enacted community-rating reforms. The New Hampshire Insurance Department observed a trend characteristic of an "antiselection spiral." Washington, too, caught blowback from insurance reform; prices skyrocketed after the state enacted a guaranteed-issue program, and the state experienced a drop off in coverage.
Cooperation is doomed in this atmosphere. Too many states have been burned for it to be asserted seriously that insurance commissioners could work together to address cost shifting. Under the current patchwork of regulations, insurance companies aim to sell policies in states where restrictions are lightest. The result is a race to the bottom, the epitome of a collective-action failure; insurers pour into states with the most permissive regulations, leaving individuals in more regulated markets with limited suppliers and escalating premiums.
The market forces governing the coal industry made the Great Depression a particularly brutal period for the coal miner. Labor expenses accounted for roughly 60 percent of the costs of production. The remaining costs were largely fixed, so that wage cuts presented the easiest way for mining companies to save money. The miners themselves were in no position to object. They worked under extraordinary imbalances in bargaining power; they lived in company towns, in houses owned by the mines, and were paid in company “scrip,” a substitute currency redeemable only at the company’s store, where prices had a cruel way of riving commensurately with the miners’ wages. And although they were paid by the weight of the coal they produced, they were restricted in the time they could spend mining, with significant parts of their day devoted to “dead work,” fixing roofs or patrolling fences, for no compensation. And along with everyday occupational hazards, including explosions, collapsing walls, and suffocation, they labored under the lingering threat of eviction.
Miners organized labor strikes, often with disastrous results. Mine operators were notorious for using violence to break up strikes, and many had private militias on retainer. In 1913, four women and eleven children, the sons, daughters, and wives of striking miners, suffocated when their tent was set ablaze by a militia hired by a Colorado mining company. The incident, known today as the Ludlow Massacre, prompted a string of vicious reprisals, and for ten days Colorado devolved into a war zone, the strikers, many armed by the United Mine Workers, launching guerilla attacks on the mining industry, caravanning from mine to mine, killing guards and burning
property. Around the same time, violence erupted in West Virginia when private guards hired by mine operators attacked a camp of striking miners, touching off a "mine war" that raged for nearly a year. Strike-related violence during this period claimed hundreds of lives and millions in damages, but it also left the industry in turmoil and put upward pressure on energy prices.
The United Mine Workers fought desperately to unionize on a national scale, and while the organization was able to bring collective bargaining to parts of the northeast, its efforts were blocked in southern mining states where unions had less political strength. Resistance in the South nullified success in the north, as non-unionized mines continued pull down national wages, fueling further turmoil. By the time the Great Depression set in, the annual salary of the average miner had fallen to as low as $500.
Congress responded with the Bituminous Coal Act, comprehensive legislation designed to bring stability to the industry by imposing price controls and higher labor standards. The bill, which sets a minimum wage for mines and guarantees the right to collectively bargain, functioned as a tax on any mine that failed to submit to its substantive requirements.
The Act was supposed to be a respite for an industry that had been cannibalizing itself under intense pressure to cut costs. But not every mine operator wanted a rest. George Carter, for his part, was eager to keep competing, having just cashed in on one of the more fateful windfalls in the industry’s history. The Carter family had sold their majority stake in the Carter Coal Co. to a larger competitor. The buyer pumped millions into the company, but ran out of cash before it could pay down the full purchase price. The buyer defaulted on the remainder of the contract and went into receivership, and despite having already cashed out their stake, the Carter family negotiated with creditors to reacquire control of the company for a fraction of what they had been paid for it. The windfall placed Carter Coal in an unparalleled position to compete in a down market. At a moment when the industry was reeling, Carter Coal was flush with cash. A company so favorably situated has little patience for government programs that would have the effect of leveling the playing field.
Carter Coal’s challenge to the Bituminous Coal Act would become one of the landmark cases of the era. Although the case presented a narrow set of legal issues, it was received by the public as something bigger, as if the entire coal industry was on trial. The trial lasted three weeks, giving both sides ample time present competing narratives. President James Walter Carter, George Carter’s son, was the chief witness for the challengers, and, as such, the face of the industry’s opposition to the Act. Carter was the last guy one would expect to be running a mining company. Professor Stern, who followed the case closely, described him as “suave and urbane, the very antithesis of the normal conception of a coal mine operator.” Carter spoke fluently about the dynamics of the industry, taking every opportunity to paint the picture of an industry that has thrived in spite of federal regulation, not because of it.
The trial had flashes of cinematic drama. During the cross-examination of Philip Murray, then-Vice President of the United Mine Workers and a witness for the government, Carter’s counsel pressed Murray to identify one instance where the industry cheated a miner out of due compensation. Here is how professor Stern recounted Murrary’s response: “After some hesitation, Mr. Murray, in a low voice, told of a sixteen-year-old boy who in 1903 had been deprived of 40 per cent of the weight of his coal, of how he protested and was discharged, and how his father and entire family
were immediately thrown out of their company-owned house into the street. ‘The name of the family evicted from their home without notice was Murray. The head of the family’s name was William. His son was Phillip. I am the individual that was involved.” The trial court sided with Carter Coal, if only reluctantly. Acknowledging that the mines paid wages set by interstate competition and inexorably connected to the market price of coal, the court explained that it was required, “as a matter of law,” to rule that labor relations in the coal industry were outside Congress’s commerce authority. The
case was appealed to the Supreme Court.
As with the challenge to the sugar trust a decade earlier, the Supreme Court said the dispute hinged on the distinction between production and commerce. Coal mining, Justice Sutherland explained, falls on the production side of the line, placing it squarely within the domain of the states. The government had challenged the logic behind the distinction, with no success. It had argued that production is inexorably bound up with trade, its extraction the first bend in a long and winding stream of commerce; that the price of coal is determined in large part by the wages paid to the miners who extract it; that deteriorating labor relations disrupts not only the production of coal but also its subsequent trade. Justice Sutherland, writing for the majority, dismissed these consequences as “indirect” and “remote” from production. The Commerce Clause, he explained, covers only “direct” consequences, by which he meant “that the activity or condition invoked or blamed shall operate proximately – not mediately, remotely, or collaterally – to produce the effect. It connotes the absence of an efficient intervening agency or condition.” A labor strike, he explained, is illustrative of an indirect effect, because the immediate result of a strike is to halt production, and it is that disruption, rather than the strike, that directly affects commerce.
The strain in the majority’s reasoning was laid bear in a biting dissent from Justice Cardozo, who knew the Court was not on sturdy ground, and seemed to anticipate how the decision would be received by history. "But a great principle of constitutional law is not susceptible of comprehensive statement in an adjective." "At all events, "direct" and "indirect," even if accepted as sufficient, must not be read too narrowly. A survey of the cases shows that the words have been interpreted with suppleness of adaptation and flexibility of meaning. The power is as broad as the need that evokes it." "Within rulings the most orthodox, the prices for intrastate sales of coal have so inescapable a relation to those for interstate sales that a system of regulation for transactions of the one class is necessary to give adequate protection to the system of regulation adopted for the other"
Justice Cardozo went further, explaining the issue in economic terms: “Prices in interstate transactions may not be regulated by the states. They must therefore be subject to the power of the nation unless they are to be withdrawn altogether from governmental supervision. If such a vacuum were permitted, many a public evil incidental to interstate transactions would be left without a remedy.”
Almost a century ago, America went from being a country that tolerated child labor to one that deplored it. There was no great epiphany behind the change in sentiment, no collective “Aha!” moment, just years of steady pressure from reformers, and, according to most thumbnail histories of the era, the fateful catalyst of the 1900 census, which reported that some two million American children were engaged in “gainful
occupations.” That amounted to roughly one child in six, a staggering figure that seemed to stir the national conscience from its slumber. Growth in industry had brought children out of the agriculture sector and into mining, manufacturing, and textiles. Americans had grown accustomed to seeing children pulled from schools to work on farms, but they had no patience for children toiling away in industry, where the conditions were hazardous and the terms of employment controlled not by the family but large corporations.
Opponents of child labor had spent decades pushing reforms at the state level, with limited success. For every state that cracked down on the practice there was another that permitted it. The result was a regulatory patchwork in which the market forces supporting the practice continued to thrive. Corporations operating in more permissive states enjoyed lower fixed costs, and, in turn, a competitive advantage. As the Supreme Court would come to acknowledge, “the shipment of child-made goods outside of one State directly induces similar employment of children in competing States.”
It was clear, in short, that a national solution was necessary, and around the time reformers began turning their attention to Congress, a photographer named Lewis Hine resigned his teaching position to work full-time for the National Child Labor Committee. Hine spent the next decade traveling the country and taking pictures of children at work in industry—snipping, canning, assembling. Hine was not going for shock value; the children he pictured were neither maimed nor emaciated, but rather defeated, and it is only when his photos are viewed cumulatively, child after expressionless child, that the potency of his work is brought into relief. His portfolio, which contains some 5,000 images, would become the centerpiece of the Committee’s reform effort. It has since been hailed as one of the most important works of photojournalism in American history.
The Keating-Owen Act was the culmination of nearly two decades of advocacy. Enacted in 1916, the law prohibited the interstate sale of articles produced with child labor. Specifically, it barred the interstate shipment of goods produced in factories or mines in which children under 14 were employed, or adolescents between 14 and 16 worked more than eight-hour days.
Although the law’s most vocal opponents were corporate, the face of the opposition was human, a working-class man named Dagenhart whose two sons stood to lose their jobs if the Keating-Owen Act was upheld. Dagenhart’s lawyers persuaded a federal court to enjoin the enforcement of the law, and the government appealed.
The Supreme Court upheld the injunction, concluding that the Keating-Owen Act exceeded congressional authority under the Commerce Clause. Underlying the decision was the distinction between manufacturing and trade, the same distinction that had proven decisive in several recent cases, including the government’s attempt to break up the American Sugar monopoly. But the government felt it had a stronger case this time around. Whereas American Sugar had challenged Congress’s ability to prevent consolidation in the manufacturing industry, Keating-Owen targeted the interstate sale of articles produced by immoral means, an objective that seemed to satisfy both the production-trade and direct-indirect doctrines. Indeed, not long before, the Court had ruled that Congress could prohibit the interstate trafficking of lottery tickets.
But the justices were more interested in what had motivated the Keating-Owen Act. In their view, while the effect of the law was to bar the interstate sale of child-made commodities, the aim of the law was regulating the manufacturing process. Congress’s
intent, then, determined the validity of its enactments, and the justices viewed Keating- Owen as a well-disguised regulation of production.
The Commerce Clause gives effect to the framers' vision of a federal government with limited but effective powers; it endeavors to strike a balance between efficacy and restraint. Beginning in the late 1800s, the Supreme Court lost sight of that balance. Lured by the convenience of hard-and-fast labels, the Court began speaking of the commerce authority in categorical terms. Congress could regulate trade but not production, direct effects but not indirect effects, goods in the stream of commerce but not those that just left. These constraints were ill-conceived, demonstrating the folly in trying to understand a pliable doctrine in terms of sharp lines and formulaic labels.
The actual balance of power between the state and federal governments is more elegant, their spheres of authority folding neatly into one another, like one of those lawn chairs that finds its form only after pressure is applied to the proper crease. The framers’ mistake was not identifying the crease, leaving it to judges to feel their way, to craft rules without the guidance of principles. At the dawn of the 20th Century, when the federal government was struggling to keep pace with a rapidly expanding economy, the Supreme Court was the guy trying to find the right crease in the lawn chair, the guy that pokes and prods and hacks until he has no choice but to heave himself onto the chair, which, by virtue of sheer force, forms itself into something resembling a shape.
The Court’s clumsy swipes at the commerce authority were not without cost. Justice Souter has described this period as a "near-tragedy" in the Court’s jurisprudence, because Congress found its hands tied in the face of an economy spiraling out of control. Placed beyond Congress’s reach were core economic activities like mining, manufacturing, agriculture, and union membership. Entire industries were left to operate in regulatory vacuums. A sugar conglomerate with a stranglehold on the national market; a mining industry at war with itself and on the brink of collapse; a textile industry in which fortunes are made on the backs of children—all of these subjects were outside the reach of Congress.
A similar pathology is at work in the push to overturn the individual mandate in the courts. The states, together with interested stakeholders in the business community, argue that Congress is overreaching, and that upholding the law would represent a dangerous and unconstitutional expansion of federal authority. At the heart of the challenge is an appeal to limits for limits’ sake, to crisply drawn constraints on federal power. Just as Congress could regulate the sugar trade but not the conglomerate monopolizing it; could regulate the sale of coal but not the wages paid to those mining it; could regulate trafficking in lottery tickets but not articles produced with child labor; Congress, the challengers assert, can regulate individuals who finance the costs of health care through insurance, but not individuals who self-insure by paying for costs as they arise, out of pocket. Why? Because commerce presupposes "activity," and the second group of individuals aren't doing anything active.
By adopting this distinction, the judges are falling into the very rhetorical trap that ensnared their predecessors in the early 20th Century. They view the law through binary categories, accepting easily defined, watertight restraints on congressional authority without considering how they bear on the reason Congress was vested with the
authority in the first instance.
Judge Hudson said, "Every application of Commerce Clause power found to be constitutionally sound by the Supreme Court involved some form of action, transaction, or deed placed in motion by an individual or legal entity." Implicit in this theory is the notion that Congress is constrained today by what it has not done in the past, that what is unprecedented must also be unconstitutional. For someone without a strong grasp on the purpose of the Commerce Clause and the history surrounding it, the challenge to the individual mandate has the trappings of something groundbreaking. But for someone who has seen this movie before, who appreciates the folly in placing arbitrary restraints on the commerce authority, the challenge is a bit of a yawn. It is novel in only a superficial sense, and only to someone who lacks the benefit of historical context, in the same way the fourth Pirates of the Caribbean would seem novel to a viewer who missed the first three.
In substance, the challenge is no different from the one that blocked the government’s antitrust suit against American Sugar, or the one that precluded Congress from setting labor standards in the coal industry. The qualities that made those challenges attractive—the readily identifiable limits, the appeal to individual liberty—this challenge shares. The difference now is that we understand all of this. We know what made those challenges appealing, why, in spite of their extraordinary flaws, they were adopted—and why the results were disastrous when they were. We know, too, that this challenge is cut from the same cloth, that it plays on the same themes and uses the same argumentative devices. We have, in short, the luxury of hindsight. The Justice Department just has to make use of it.