The Government Made Me Buy a Catalytic Converter and Pay the Wages of Food Inspectors!

04/03/2012 03:41 pm ET | Updated Jun 03, 2012
  • Mike Lawson Professor, Boston University’s School of Management

Listening to the news reports about the Supreme Court's oral arguments was fascinating, but still seems to get bogged down unnecessarily.

The Constitution is meant to protect and to serve the people. The primary questions that should guide the court's action are: 1) Is what the government is trying to accomplish important; 2) is it unprecedented, expanding the role of government without protecting citizens -- the 'bright line' issue; and 3) is the proposed action reasonable compared to alternatives?

There is little controversy on the first question. The use of healthcare services is unavoidable, only the timing is unknown. Uninsured citizens, when they use healthcare services and won't or can't pay reimbursed costs, incur real costs that are passed along to those who are insured in the form of higher premiums.

The Court spent a significant amount of time on the second of these questions -- the 'bright line' that could differentiate health care from other goods/services. There certainly is a bright line and it's based on three tenets. They are, that the use of the good or service: 1) is unavoidable, 2) is one in which there are market imperfections causing individuals to incur costs not based on their actions, and 3) collective expenditures on theses goods/service are significant. These tenets hold for health service but also hold for transportation and food. And in each of these sectors, the government has attempted to redress market imperfections with mandates.

For simplicity, let's use the automobile rather than the entire transportation sector -- still significant and virtually unavoidable. What is the market imperfection? There are two major ones. First, the use of the car can cause damage to someone else, forcing that person to incur costs -- healthcare or repairs to property. Governments, state governments in this case, have stepped in to regulate this market. You must be licensed to operate a vehicle and you must pay for the license. Further you must have insurance in 49 of the 50 states and the District of Colombia. (New Hampshire is the lone exception.) The federal mandate is also straightforward: I must buy a catalytic converter in order to own or operate a car -- it's mandated, just not explicit. The market imperfection is also clear. Absent the mandate, cars without converters pollute the environment more, inflicting costs on everyone, whether or not they own or operate a car. Without this mandate, it is reasonable to assume that there would be cars with catalytic converters and people would buy them; and, there would be cars without catalytic converters and people would buy them too. To be sure, the mandate is different than in the healthcare sector, but, nevertheless, a mandate exists.

No one would argue that food doesn't meet tenets 1 and 2 -- significant and unavoidable. The mandate here involves the issue of food safety (i.e., protecting the citizen), not whether the government can make you buy broccoli. As an individual consumer of food, it is very difficult for me to assess the safety of the food I consume. Certainly I can take steps to prevent many problems through washing and using good food preparation and storage practices for fresh foods. But for processed foods -- who knows what lies within? Thus, most food safety actions are outside of my control. And, if I consume contaminated food, there are many potential consequences, including death. So, the government steps in through the Food and Drug Administration to regulation the production and distribution of food. It's not done at the state level because food is essentially a global product. There are certainly many costs associated with ensuring food safety, food inspectors being just one. However, the consumer pays the costs of food inspectors and all other costs associated with ensuring food safety. This too is a mandated expenditure in the form of higher food costs.

So the question before the courts is, given that healthcare services meets all three tenets, is the use of mandated insurance to ameliorate the market imperfection reasonable, not whether or not this is a precedent? Further, are there other ways to redress the imperfection? There are other methods that could be used: nationalized health services and the denial of health services to uninsured citizens. The first is a much more comprehensive and invasive use of government power and the second is antithetical to our concept of social responsibility. The proposed mandate is, in fact, reasonable.

In each instance transportation, food, and health -- the federal government forces me to spend money in order to use a product/service to redress a market imperfection. As the result of these mandates, I get safer food, a cleaner environment and more affordable healthcare.