Posted by | March 31, 2012 15:23 | Filed under: Top Stories

by Stuart Shapiro

In my previous post, I fretted about the possibility that the Supremes would throw out centuries of precedent and weaken the rule of law.  The other thing that bothered me this week was that they might do this based on a faulty understanding of economics.

“If people don’t buy cars, the price that those who do buy cars pay will have to be higher,” said Justice Antonin Scalia. On a basic level, this gets supply and demand backward. But as Brookings Institution economist Henry Aaron noted, even if you give Scalia the benefit of the doubt, he still betrayed ignorance of health-policy basics.

“This response was and is bad economics,” Aaron wrote. “It is true that every commodity is produced along what economists call a ‘cost curve’ — raising output may lower average or marginal unit costs by spreading overhead or achieving economies of scale, but it may also raise costs by forcing up the cost of inputs or incurring diseconomies of scale. None of this occasions concerns about fairness or free-loading or, to use the economist’s term, ‘externalities.’ But the cost shifting that occurs when uninsured patients fail to pay their bills does; it causes one group — the insured — to have to pay part of the cost of services others use.”

Now I think Justice Scalia is a pretty smart guy.  I’m guessing he understands this basic economics.  This means that he is trying to fool some of his colleagues who he thinks does not understand economics or he is setting up to use a fallacious argument for his opinion.  Either option is very disturbing.

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Copyright 2012 Liberaland
By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.