The Supreme Court has been a veritable festival of economic ignorance the past few days, but if I had to pick a prize specimen, I think it would be Paul Clement’s response to Justice Kennedy’s observation that the uninsured — given our unwillingness to turn them away from emergency rooms — impose a burden on the rest of us. Mr. Clement (the plaintiff’s attorney) tried to argue that the same is true in any market:
When I’m sitting in my house deciding whether to buy a car, I am causing the labor market in Detroit to go south…
thereby blurring the key distinction between a pecuniary and a non-pecuniary externality.
The point is that Mr. Clement’s decision not to buy a car (and therefore to drive down the price) is bad for Detroit auto workers only to the extent that it’s good for other car buyers. It is therefore in no sense a net burden on the rest of society. Contrast that with the clear burden imposed by the uninsured fellow who wants you to pick up his hospital tab.
Pecuniary externalities (such as result from the decision to buy or not buy a car) are sometimes glossed over in lower level economics courses (I wouldn’t be surprised if many of my good undergraduate students have never heard of them), but I’d have liked to believe that we could expect a bit more sophistication from the lead attorney arguing a central point in a case of major national importance.