November 21, 2011

ObamaCare vs. The Commerce Clause

If Congress can regulate health care, it can regulate everything under the sun.

As everyone knows, the dispute over the individual mandate under the Patient Protection and Affordable Care Act (also known as ObamaCare) is due before the Supreme Court. The case will be argued this coming March, with a decision to be expected by June 2012—just in time to ignite political passions before the November presidential election. At this point, the bet has to be that the mandate will be affirmed, especially in light of the recent decision by Judge Laurence Silberman of the District of Columbia in Susan Seven-Sky v. Holder, which held that the individual mandate—whereby all persons must either purchase health-care insurance or pay a government penalty—falls within the power of Congress to regulate interstate commerce.

The political tea-leaves could not be clearer. Judge Silberman is a distinguished conservative jurist, whose views could easily be read to presage the votes of Justices Scalia and Kennedy. His decision represents a defection from the conservative to the liberal position on this issue, which puts the challengers on an uphill battle. In this essay, however, I do not want to speculate about the political issues. Instead I will address the merits of case.  The key point is that the debate over the individual mandate is a diversion from the central historical issue.  The real objection to the health-care mandate is that it puts Congress deeper in the business of regulating health care when it really should have, under our original constitutional design, only a marginal role. In making this broad claim, it is necessary to expose the deep cleavage between the Commerce Clause as it came down from the Constitutional Convention in 1787, and the faux Commerce Clause that emerged out of the New Deal.

 Epstein  
 Illustration by Barbara Kelley

Looked at from the vantage point of the original Constitution, ObamaCare should be dead on arrival. But the New Deal transformation of long-established Commerce Clause jurisprudence has introduced a set of unprincipled (but fine-grained) distinctions that turn the law into a mass of linguistic absurdities that should lead ordinary people to question the collective sanity of the legal profession. From the straightforward prose of the Commerce Clause, Judge Silberman concludes (accurately) that “[t]oday, the only recognized limitations are that (1) Congress may not regulate non-economic behavior based solely on an attenuated link to interstate commerce, and (2) Congress may not regulate intrastate economic behavior if its aggregate impact on interstate commerce is negligible.”

From this dubious premise (which has no mooring in either the text or history of the Commerce Clause), Judge Silberman’s closing salvo in Seven-Sky then waxes eloquently on “the imperative that Congress be free to forge national solutions to national problems, no matter how local—or seemingly passive—their individual origins.” In one well-crafted sentence, he has managed to encapsulate everything that is wrong with our modern Commerce Clause jurisprudence.

Start with the text: “Congress shall have the power . . . to regulate commerce with foreign nations, among the several states and with the Indian tribes.” On its face, this doesn’t read like an unlimited dictate that lets Congress impose national solutions to national problems. Rather, as James Madison wrote in Federalist No. 45, it confirms that powers delegated to the federal government are “few and defined,” while those left to the states “are numerous and indefinite.” In dealing with the text, Judge Silberman puts the issue like this: No Supreme Court case has ever held or implied that Congress' Commerce Clause authority is limited to “individuals who are presently engaging in an activity involving, or substantially affecting, interstate commerce.”

To defend this proposition, Judge Silberman looks to the text and hones in on the word “regulate,” which he correctly points out means “‘[t]o adjust by rule or method,’ as well as ‘[t]o direct.’” From this, though, he wrongly concludes that there is “no textual support” for the challenge to ObamaCare. But the Commerce Clause cannot be compressed into a single word. The clause has to be read in its entirety, which means that at least two other questions are key. First, what is the meaning of commerce? The implicit subtext of Judge Silberman’s analysis is that it embraces any and all productive activity, whether economic or non-economic. Indeed, he goes further to insist that there is nothing in the decided cases that extend the clause so far as to preclude Congress from taking the next step, which is to regulate various forms of economic inactivity as well.

The Supreme Court will likely affirm the constitutionality of the individual mandate.

In making this grand claim, Judge Silberman at no point cites the key 1824 decision of Chief Justice John Marshall in Gibbons v. Ogden on the proper scope of the Commerce Clause. At issue in Gibbons was whether Gibbons, the operator of two steamboats from New Jersey to New York, had to respect the exclusive franchise that had originally been given to Robert Fulton and Robert Livingstone (and assigned to Ogden) to operate steamboats in New York state waters.

Justice Marshall held that these voyages were within interstate commerce, meaning that the federal law trumped this form of state action. In so doing, however, he made clear the limits of the federal power. “State inspection laws, health laws, and laws for regulating the internal commerce of a State, and those which respect turnpike roads, ferries, &c. are not within the power granted to Congress.” New York’s monopoly, therefore, was not disturbed with respect to boats that started and ended their journeys in New York state water. Marshall could not have been clearer: “Comprehensive as the word ‘among’ is, it may very properly be restricted to that commerce which concerns more States than one.”

Note the use of the word “restricted.” There was no hint whatsoever in Gibbons that the federal government could regulate manufacture or other services provided on a local basis. Indeed, any decision to the contrary would have provoked a constitutional uproar because it would have allowed Congress to abolish slavery within the Southern States, which was inconceivable at the time.

Not even the echoes of Marshall’s careful limitations are heard in Judge Silberman’s statement of fundamental principles. Instead, Silberman presupposes that the limits to Congress’ Commerce Clause power revolve around the question of whether it is only limited to individuals who are “engaging in an activity involving, or substantially affecting, interstate commerce.” The word “activity” does not appear in the constitutional text, and is manifestly broader in meaning than the term “commerce.” The phrase “substantially affecting” interstate commerce is equally foreign to Chief Justice Marshall’s reading of the commerce power, for it clearly implies that important local activities somehow become national activities if they are of sufficient frequency or magnitude, which is a conscious obfuscation of the Marshall’s meaning.

At various points, Marshall does note that Congress has a “plenary” power. But read in context, that phrase does not mean that Congress can regulate everything under the sun. It only means that once an activity falls within the restricted definition of “commerce among the several states,” the states must yield to the national government. Judge Silberman lets the cat out of the bag when he notes that “the Framers, in using the term ‘commerce among the states,’ obviously intended to make a distinction between interstate and local commerce, but Supreme Court jurisprudence over the last century has largely eroded that distinction.”

It is one thing to point out this unmistakable trend. It is quite another to justify it. In fact, the history here cries out for an attack of the intellectual legitimacy of the modern cases that have consciously rejected the limitations in Gibbons, while invoking the name of Chief Justice Marshall in support of the very positions that he flatly repudiated. It is important to trace the remarkable transformation of the Commerce Clause.

Can individual inaction be regulated?

The first stop on this journey is the 1895 decision of E.C. Knight v. United States, which rightly read Gibbons to hold that manufacture preceded commerce and was not part of it. What was striking about that decision was that it treated the enforcement of the Sherman Antitrust Act against nationwide cartels as though it were a local matter—a decision that did not last long at all. But for these purposes, the key point is that before the New Deal no one ever understood that local manufacturing, agriculture, mining, or the provision of any kind of service from retail to health care was not subject to the exclusive regulation of the states.

The question of the extent of federal power came to a head in the 1903 case of Champion v. Ames, which held, but only by a five-to-four vote, that the federal government could prohibit the shipment of lottery tickets in interstate commerce, even when their production and use was legal in the states at both ends of the journey. In effect, federal officials used their monopoly power over interstate commerce to leverage their control over local activities. Champion is clearly wrong as a matter of principle because, left unchecked, it spells the end of federalism. All firms have to ship goods in interstate trade to survive, and the Congressional chokehold on interstate commerce would have allowed Congress to put the following hard choice to all merchants: either bend to the federal will or abandon the national market. One can only imagine what the reaction would have been if in 1840 Congress had passed a statute that forbade the shipment of cotton from slave plantations into either the national or the foreign market.

Champion was not just some isolated rogue decision. It also created the opening for Theodore Roosevelt’s Pure Food and Drug Act of 1906 to put some teeth into drug regulation without running afoul of the clear limitations of E.C. Knight. The 1906 Act made it “unlawful for any person to manufacture within any Territory or the District of Columbia any article of food or drug which is adulterated or misbranded.” It outlawed the “introduction” or “shipment” of misbranded foods and drugs into the states—but, conspicuously, it did not regulate the manufacture of drugs within the states. The reason was clear enough. Everyone realized that Champion did not overrule E.C. Knight.

The expansionist agenda of Congress came to a temporary halt, moreover, in Hammer v. Dagenhart (1918), where the Court refused to extend Champion. It barred Congress from prohibiting the shipment in interstate commerce of goods made in factories that did not conform to the federal minimum age standard for child labor. Once again, it was clear that Congress could not use its power over interstate commerce to control activities that were reserved to the states under the original constitutional scheme. Since, moreover, direct regulation was off-limits to the federal government, so too was taxation. In 1922, the Child Labor Tax cases held that Congress could not seek to pressure the states by taxing all goods made with child labor that were shipped in interstate commerce. The basic constitutional structure held firm.

Commerce does not apply to transactions that people never entered into.

The dominance of E.C. Knight is also evident in the text of the 18th and 21st Amendments, the former introducing prohibition in 1920 and the latter repealing it in 1933. The 18th Amendment thus prohibited the manufacture, sale, or transportation of intoxicating liquor, which thus covered the full gamut of activities at the federal and state level. But when the 21st Amendment repealed prohibition, it did not mention manufacture. Instead, section 2 reads as follows:

The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.

This amendment does not apply to all activities but only to the transportation or importation of intoxicating liquors, and only with respect to those states that chose to remain dry. The only way that this provision is intelligible is against the backdrop that the federal government could not by legislation either prohibit or authorize the manufacture or sale of intoxicating liquor, both of which remained exclusively local options. But once those options were exercised to keep a state dry, then Congress was duty-bound to prohibit transportation or importation, which were of course the only powers that it had under the Commerce Clause to begin with.

Finally, as late 1935, the Court in Schechter Poultry v. U.S. struck down key provisions of key federal codes of fair competition on the ground that sick chickens were no longer in interstate commerce when they were off-loaded from interstate railroads onto local trucks.

Then the dam broke. In 1937, in National Labor Relations Board v. Jones & Laughlin Steel, a closely divided Supreme Court magically expanded the scope of the commerce power to allow the National Labor Relations Act to regulate unionization in manufacturing plants. Four years later, U.S. v. Darby struck down Hammer’s limitations on the power of Congress to extend its control to manufacturing within the states. And, finally, in Wickard v. Filburn (1942), the Supreme Court held that parties engaged in commerce among the several states when they fed their own wheat to their own cows because these activities in combination had a “substantial effect” on interstate commerce—even though they were not part of it.

For decades the received wisdom was that under Wickard, the Commerce Clause gave Congress a carte blanche. That consensus was rudely shattered in 1995 when in United States v. Lopez, Chief Justice Rehnquist, writing for a narrow five-to-four majority, struck down the Federal Gun-Free School Zones Act that forbade carrying a gun within 1,000 feet of a school.

The opinions in Lopez v. U.S. are a mess. Chief Justice Rehnquist uneasily embraced both Madison and Wickard simultaneously, without explaining how Wickards “substantial effect” test fit into the original scheme of enumerated powers. Justice Anthony Kennedy relied on a dubious form of linguistic skepticism, insisting that “semantic or formalistic categories” can’t define commerce—without noting that they did that quite well before the New Deal.

Judge Silberman dutifully treated Wickard as the lodestar against which ObamaCare should be decided, only to note the case gives no particular guidance on the question of whether individual inaction can be regulated. He rightly concedes that no act of Congress has ever attempted to regulate this form of pure inaction, but then notes that by the same token, no judicial decision has said that these forms of inaction could not be regulated. In his position as a lower court judge, he is entitled to kick the case upstairs, because his is the unhappy task of making sense of an elaborate line of Supreme Court cases that have never really grappled with the issue.

The debate over the individual mandate is a diversion.

With the exception of Justice Clarence Thomas, the current Supreme Court is, after Lopez, dead set against overturning Wickard. But the justices don’t have to overturn Wickard to strike down the individual mandate. What they must do is acknowledge what Judge Silberman has denied—Wickard’s indefensible pedigreeand then refuse to budge one inch further.  With Wickard’s pedigree discredited, it is far easier to accept the sensible claim that commerce does not apply to transactions that people never entered into.

The action/inaction distinction would be beside the point if the New Deal Court had not gone off the deep end in the first place. Manifestly, if Gibbons were still law, ObamaCare wouldn’t stand a chance before the Court. But if the justices recognize publicly that Wickard is a constitutional aberration, then knocking out the individual mandate should be a piece of cake, for the one point that is absolutely incorrect in Judge Silberman’s opinion is that national problems require national solution. The situation on the ground is quite the opposite. The National Labor Relations Act, for instance, did not solve any national problem when it introduced a regime of mandatory collective bargaining into all employment relations throughout the United States. Nor did the Agricultural Adjustment Act of 1938, which was sustained in Wickard, solve any national problem when it authorized the Department of Agriculture to initiate a system of nationwide cartels for the allocation of various crops. To be sure, it solved the problem of how labor and agricultural interests could monopolize large segments of the economy. But such “solutions” have become the bane of the public at large. And such will be the case with ObamaCare should it be sustained on this point.

Today’s economic situation is indeed grim, and is likely to remain so for some time. The last thing that this nation needs is a national solution to a problem that is better solved in a piecemeal way by the states, whose ability to dole out goodies is limited by the competition that they face from other states. The United States Supreme Court should confess error and acknowledge that its past decisions are bad both as a matter of constitutional history and constitutional theory.

The Court should do its best to not compound the error by extending an imperial version of the commerce power into new areas where it has yet to go, and which, as Judge Silberman acknowledges, are conceptually distinguishable from every legislative initiative that the federal government has taken to date. By refusing to extend an indefensible line of cases, it could do much to prevent the massive disruption of the health-care system that will follow, as the night follows the day, with the implementation of the convoluted provisions of ObamaCare. National problems require not authoritarian national solutions, but a healthy dose of interstate competition that the Commerce Clause was intended to facilitate.


Richard A. Epstein, Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, Laurence A. Tisch Professor of Law at New York University, and senior lecturer at the University of Chicago, researches and writes on a broad range of constitutional, economic, historical, and philosophical subjects. He has taught administrative law, antitrust law, communications law, constitutional law, corporate law, criminal law, employment discrimination law, environmental law, food and drug law, health law, labor law, Roman law, real estate development and finance, and individual and corporate taxation. His publications cover an equally broad range of topics. His most recent book, published in 2013, is The Classical Liberal Constitution: The Uncertain Quest for Limited Government (2013). He is a past editor of the Journal of Legal Studies (1981–91) and the Journal of Law and Economics (1991–2001).


Letters to the editor may be sent to definingideas@stanford.edu. Editors reserve the right to reject or publish (and edit) letters.