Bastiat's Bastions

I don’t know what you think about the abortion issue, nor do I think I have ever let you know my opinion. If it is all the same to you, I prefer it that way. It avoids people getting upset about each other’s beliefs. Pro-choice vs. Pro-life, when does life begin, murder vs. reproductive rights, these are all questions better left for a philosophy class, an anatomy class, or best of all, a medical ethics class. Try, just for a moment, to just be a positive economist, whose personal values do not enter into the discussion. In other words, leave your opinions on abortion at the door and let’s just think about cause and effect for now. You can think about right and wrong later on. Your current job, instead, is to see if there are ways of using your knowledge of how markets work and what sort of things throw a monkey wrench into the market for abortions that would make abortions truly rare. In other words, can a way be found to use our knowledge of markets to reduce abortions?

Before going any further, I want to tell you a little about a Japanese martial art called Aikido. This is a 20^th century martial art with ancient roots in jiu-jitsu. The idea of Aikido is to use the force of the attacker against him, expending only a small amount of energy to slightly re-direct the force of the opponent, and using the opponent’s force or energy against them. So, instead of going at an opponent head on, the way linemen might in football, the opponent’s momentum is utilized to one’s own advantage. There are times when, if we are interested in regulating certain behavior, it is better to harness the forces of the market instead of trying to stand in the way of market forces and face them head on.

As distasteful to some of you as it may be, there is a market for abortions that follows the same laws of supply and demand as other markets. Increased demand for abortions will drive up the price. Price controls also work in the same way in abortion markets as they do in more common markets.

First, suppose a state were to place a price floor on abortions of say $250,000. This would decrease the quantity of abortions demanded significantly, even if health insurance were to pay 80% of the bill, keeping all but the very rich from being able to afford abortions. I am sure such a law would get struck down because it would unnecessarily reduce the ability of poorer women to get abortions.

However, what if the price control used were, instead, a price ceiling? Suppose we start off with a price ceiling of say $200, while the equilibrium price was $500? A price of $200 would increase the quantity demanded for abortions (though probably not by that much). It is not by increasing the quantity demanded that this price ceiling would reduce the incidence of abortions, but rather by reducing the quantity supplied. Some could argue that this would increase the access of poor women to abortions, as it would now bring abortions into a more affordable range.

What if the price ceiling were instead more like $50? How long could an abortion clinic stay open financed with such funds?

Actually, it would be difficult for many politicians to argue against such a proposal, as many, such as Sen. Clinton, fought hard to impose price ceilings in health care, with exactly these arguments, to make health care accessible to the poor.

Actually, a state imposing a price control in a market of its choosing might be difficult for the Supreme Court to overrule. Time for a little legal history:

In 1877 the Supreme Court heard a case (Munn v. Illinois) which involved the owner, Munn, of a grain elevator on a river. The state of Illinois regulated the price that the grain elevator operator, a natural monopolist, could charge.   Munn claimed that it was his property, and if he could not charge what he liked, that the state was, in effect, taking some of his property without due process. The court ruled that when someone puts their property to a public purpose, the property ceases being only private property, and so, the state had a right to control such prices.   After Munn, states could regulate prices, but might have to show that the good or service being regulated was somehow affected by the “public interest.”

During the depression the state of New York imposed a price floor in the milk market to try to help out dairy farmers. A grocer named Nebbia decided it was his milk he was selling, and he would sell it for the price he wanted to sell it at, deliberately violating the New York law (Nebbia v. New York was argued in 1933 and decided in 1934). The court ruled that since the price controls were not “arbitrary, discriminatory, or demonstrably irrelevant” to the policy of the legislature to promote the general welfare, it did not violate the Constitution. In this case, prices were seen as not being sacred, and so, not insulated from government regulation. The public interest in price regulation, then, was obvious to the Supreme Court, since it was enacted by a body representing the public, the legislature, taking the view that laws enacted by majority rule represent the will and interests of the public.

So, state price controls of abortions would surely not be “arbitrary, discriminatory or irrelevant” and, being passed by elected representatives, would surely be the policy of that legislature to promote the general welfare. Such a price control would not be a ban on abortions, but would instead, render abortion an unprofitable enterprise.

A lesson to be learned here is this: things are not always as they seem, especially when it comes to price controls.

Another lesson is that you can do a better job of messing something up if you know how it is supposed to work than if you have no clue.

Morris Coats

This entry was posted on Thursday, November 9th, 2006 at 12:30 pm and is filed under General, Political Economy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.