![theatlantic:
What Can a Nobel Prize-Winning Economist Teach Us About Obamacare?
Ronald Coase won the Nobel Prize in Economics for showing that social costs are symmetrical. In The Problem of Social Cost, Coase invoked the example of a farmer whose crops are trampled by the neighboring rancher’s cattle. Before Coase, it would have been common to view the rancher as the culprit responsible for imposing costs on the blameless farmer. Coase pointed out that no matter which way the legal rights were allocated, one was imposing costs on the other. If the law forces the rancher to keep his cattle fenced in, the farming imposes fence-building costs on the rancher. If the law gives the rancher the right to let his cattle roam free, then the farmer bears the social cost.
Coase’s work was instrumental in establishing a new field of scholarship — the economic analysis of the law, which has been highly influential in many legal areas. In light of this, it is surprising how little role the core Coasian insight had in the Supreme Court’s recent oral argument about the Obamacare mandate. Much of the discussion seemed to take for granted that this mandate encroaches on individual liberty, depriving individuals of the “freedom” not to purchase health insurance.
But as Coase’s analysis makes clear, framing the issue in terms of individual liberty is deeply misleading. When the uninsured get sick and go to the emergency room for care they cannot afford, someone has to pay the costs. If the law gives the uninsured the right not to buy health insurance, then the costs for their emergency care are imposed on the insured, whose payments must cover the hospital’s costs. If the law instead requires the uninsured to buy health insurance, they become personally responsible for the cost of the care they receive.
In other words, the issue is not whether to have a mandate, but rather on whom the mandate should be imposed.
Read more. [Image: mrfoto/Shutterstock]](http://24.media.tumblr.com/tumblr_m4hmbdmCiO1qcokc4o1_500.jpg)
What Can a Nobel Prize-Winning Economist Teach Us About Obamacare?
Ronald Coase won the Nobel Prize in Economics for showing that social costs are symmetrical. In The Problem of Social Cost, Coase invoked the example of a farmer whose crops are trampled by the neighboring rancher’s cattle. Before Coase, it would have been common to view the rancher as the culprit responsible for imposing costs on the blameless farmer. Coase pointed out that no matter which way the legal rights were allocated, one was imposing costs on the other. If the law forces the rancher to keep his cattle fenced in, the farming imposes fence-building costs on the rancher. If the law gives the rancher the right to let his cattle roam free, then the farmer bears the social cost.
Coase’s work was instrumental in establishing a new field of scholarship — the economic analysis of the law, which has been highly influential in many legal areas. In light of this, it is surprising how little role the core Coasian insight had in the Supreme Court’s recent oral argument about the Obamacare mandate. Much of the discussion seemed to take for granted that this mandate encroaches on individual liberty, depriving individuals of the “freedom” not to purchase health insurance.
But as Coase’s analysis makes clear, framing the issue in terms of individual liberty is deeply misleading. When the uninsured get sick and go to the emergency room for care they cannot afford, someone has to pay the costs. If the law gives the uninsured the right not to buy health insurance, then the costs for their emergency care are imposed on the insured, whose payments must cover the hospital’s costs. If the law instead requires the uninsured to buy health insurance, they become personally responsible for the cost of the care they receive.
In other words, the issue is not whether to have a mandate, but rather on whom the mandate should be imposed.
Read more. [Image: mrfoto/Shutterstock]
