Law and Economics 101 of COVID-19
Police Power vs. Limited Enumerated Federal Powers
Craig Roberts: There are big questions about what’s going on in the country in terms of access to resources. Some are wondering about the risk where the odds of an effective response to COVID-19 depends upon where you live in the nation.
Who sets the guidelines? Who carries them out? What is the balance of power when it comes to state’s rights versus the federal government, and who has the lion’s share of the responsibility here? We’ll get some insights now from syndicated talk show host, lawyer, and bestselling author Bob Zadek.
Bob is the host of The Bob Zadek Show, broadcast here locally in the San Francisco Bay Area, every Sunday morning at 8:00 AM on 860AM — the Answer. Bob is author of a number of bestselling books, his most recent is *Secret Sauce: The Founder’s Original Recipe for Limited American Democracy.*
Bob, it is always a delight and a privilege to have you join us.
Bob Zadek: Thank you for your hospitality in inviting me.
Craig Roberts: First, we’ve seen of a very public battle brewing between municipalities, state governments, governors and Washington DC over who is responsible for what.
Recently there have been comments made publicly by Jared Kushner, who’s been advising the coronavirus response team, stating that the federal stockpile of supplies was, and I’m quoting here, “Supposed to be our stockpile and not that of the states,” which makes me wonder how exactly from a constitutional and historical standpoint, are things under these sorts of dire circumstances supposed to work?
The states seem to suggest that the federal government has greater responsibility. The federal government seems to suggest is more about the states. If we overlay a bit of history on top of all this — take WWII — what kind of a mess we would have been in if we had decided, rather than all 48 States coming together under the leadership of Washington DC, we instead said, “You know what, we’ll let each of the 48 States individually decide how they want to repel the Japanese attack on Pearl Harbor.”
So with that as the setup, Bob, walk us through all of this.
Bob Zadek: It’s an astonishingly easy question, Craig, and your comparison between theCOVID-19 pandemic and WWII is that’s a perfect place to start because those two events are from a constitutional standpoint are profoundly different.
The Constitution answers your question with utter clarity. The Constitution assigns the duty of national defense, the control of the military, of the army, etc. to the federal government and to the executive branch — the President. That is one of an astonishingly small number of delegated powers that are delegated to A) the federal government, and B) the executive branch, the President.
The virus falls within the category of the general health and welfare of their citizens. Ever since the founding, up to and including April 7th, 2020, the power to protect the health and welfare of citizens is virtually the exclusive province of the states.
It is what is called in constitutional language, “the police power.” The police power not doesn’t mean the cops, it means the broad category of dealing with the health, welfare, and safety of the citizens.
The President, for example, has no power to quarantine. The governors and the states do have that power because it is not specifically denied them and because they are given the responsibility for the health and welfare. So as to who takes care of this, in general, the answer is crystal clear: for war, the feds. For police power, health, welfare, and safety, it is thesStates and as we say, “No contest.”
Craig Roberts: Now we hear a lot of griping about the fact that there’s sort of a patchwork. I alluded earlier to the fact that some states have more relaxed shelter in place regulations than others. It’s been suggested that the President ought to just wrap an arm around the whole thing and mandate from a federal level what the guidelines should be. He has steadfastly said, “No, that’s up to the states.”
Where the confusion may come in — in the minds of a lot of people — is in asking whether we differentiate between what the responsibilities are from a moral standpoint versus a constitutional standpoint?
In other words, are there times when, for the good of the nation as a whole, federal authority would be able to override that policing power? What if it is determined, and I don’t know who determines this, that the patchwork from state to state in response to something like this — a nationwide global wide pandemic — may be risky because not every state views it in the same fashion?
Bob Zadek: You said an important word that I want to just highlight. For our friends out there, you said “guideline.”
I am perfectly content to let Washington issue guidelines till the cows come home because guidelines are advisory. They are suggestions as compared with laws which are mandatory. It is in fact perfectly appropriate for the federal government to issue suggestions, guidelines to the governors, how to make decisions. Everybody welcomes all the help and suggestions they can get. However, once we go past guidelines to who has power, then it is the states you’re talking about.
The term “patchwork” is generally used with a negative connotation. A patchwork is not a defect. It is a feature. A patchwork means states are free to adopt the measures that they deem appropriate for their constituency. What Andrew Cuomo decides to do in Queens, New York — a highly populated, intentionally populated community — is inappropriate for Wyoming, where people often are literally tens of miles apart from each other.
So, therefore, of course you can’t have one-size-fits-all. Governors and mayors know their communities and they know what works. If one governor tries something and they observe that another governor in a similar-type area, urban or rural or suburban, has tried a different approach that works better, then the first governor will simply copy the measure that is apparently working somewhere else.
You have 50 governors and thousands of mayors all learning from each other. If somebody makes a mistake, the mistake doesn’t affect 330 million people, but maybe a couple of million people in that particular state or town.
Therefore the adverse effects of the stakes are minimized.
When Washington makes a mistake — and man, have they made mistake… everything Washington has done has been an abject failure of policy — the economy is hit in the trillions. When a governor makes a mistake, the effects on the economy and other citizens is almost invisible.
So, Craig, patchwork yes, thank God for patchwork.
Federalism 101: How the Federal Government Circumvents Federalism
Craig Roberts: It was suggested some time ago that perhaps the country will reopen its stores on a certain given date, and people were wondering whether or not that was enforceable. Is there ever a time under this current context of talking about the issue of a national health emergency, such as what we’re facing right now, that the federal government has the authority to exercise more power over the states?
Correct me here if I’m wrong, Bob, but under under dual federalism, normally it has been held that the union and the states share power, but that the Federal Government has slightly more power than the individual states. Does that ever come into play in a scenario like this where a president could say “I deem at the federal level that the differing approaches between states are putting a great risk to the entirety of the union and therefore we’re going to supersede or override that”?
Is there ever a scenario when that could happen?
Bob Zadek: It happens a lot, Craig, but the answer requires a bit of an explanation in certain areas. The Federal Government is given the power to legislate and to regulate.
Let’s take interstate commerce: the Constitution says the feds have the power to regulate interstate commerce — commerce between the states, which means between citizens of one state and another state. That doesn’t mean the states don’t have any such power.
The constitutional rule is that if the federal government has the power to do something, the states can still exercise similar power.
However, once the federal government decides to exercise that power and to legislate into an area of interstate commerce, that is the supreme law of the land and that usurps the power of the states to do so.
Now interstate commerce has been interpreted quite broadly by the Supreme Court. So interstate commerce covers much more than just interstate commerce. Indeed, when the federal government enacts national gun legislation, it does so bt exercising the interstate commerce clause. Even though it seems to be regulating health and safety, is really acting under the commerce clause. So in areas of interstate commerce, which is very broad according to the Supreme Court, over time, then the feds can act in that area.
However, we are talking today in part about the COVID-19 virus — the virus is a matter of health, welfare and safety. There, the government has less power because it involves as I said earlier, the police power — an area reserved for states and local communities. We cannot have a federal quarantine because that’s health, welfare, and safety, and that’s the province of the states.
So sure, the feds have lots and lots and lots of power, unfortunately, compliments of Supreme Court case law — not the way the founders designed it, but it’s how the Constitution has been interpreted over the 230 years that we have been around.
The federal government exercises very broad power over speed limits, for example. They regulate the speed limit on a rural road in Wyoming. That’s not a national concern, Craig. You sitting in the Bay Area, don’t really care how fast people drive into Wyoming. You’re unaffected. But we had, if you remember during the Carter administration, a national speed limit of 55 miles an hour in order to, of all things, save gasoline. Now the states have no business legislating speed limits, purely local. What do they do? Drinking age, that’s a state issue. That’s a County issue. That’s a local issue, but the Feds, using indirect means — the power of the purse — they get to force me to follow a national standard. It shouldn’t be that way, but it is.
We the People vs. Them the Federal Goverment
Craig Roberts: Bob Zadek is with us tonight. There have been concerns over things like price gouging and whether or not that’s fair or simply a matter of the free marketplace doing what it does best.
Bob, before we turn a corner, I just want to have you perhaps put a sort of the cherry on top of the ice cream for us. I want to come back to my quoting of this notion that there is somehow the federal stockpile.
What does the federal government “do” with its federal stockpile of emergency supplies? I mean, is that not technically owned by the states?
Bob Zadek: Referring to Jared Kushner, who presently holds the record for the dumbest thing ever said by a public official, probably since the founding of the country. The dumbest thing, the most narrow minded, short-sided, mean spirited sentence ever said was when Jared Kushner, in describing the federal stockpile of ventilators and other medical necessities, complained because the states were insisting that the federal government loosen up items from the stockpile and give it to the states where it’s needed.
Kushner said in the most mean spirited way possible, “What are they talking about? This is ours.” The federal government’s, “Ours, not theirs.” As if the states are a different country. There is only one “ours” — that is America’s.
The website of the federal stockpile, until Jared Kushner or the President or somebody in the White House had it changed, said this is a stockpile to support the states or words to that effect.
So Kushner had no idea what he was talking about. It was mean-spirited, and as a matter of law, dead wrong. Of Course, it may have been owned in the title sense by the federal government. Every penny the federal government had, has, or will have, has come from only one place: Americans. It’s our money collectively. There is no such concept as property belonging to the federal government to the exclusion of any particular citizen.
So of course you’re correct and highlighting that the question is a good one. Jared Kushner had no clue what he was talking about. He either was ignorant or mean spirited. Pick whatever description you want. Those are the only two choices that are possible.
Craig Roberts: I always get a kick out of it when they make comments like, “Well the federal government is going to be providing emergency money or stimulus money to the citizens,” as if somehow the federal government has a stockpile of its own money, its own cash sitting back there somewhere. The only cash they have is our cash. And that’s a point that perhaps they need to sometimes be reminded about.
In Defense of Price Gouging: Price Theory 101
Craig Roberts: Hey Bob, speaking of money, I want to turn a corner to another topic — this comes up every now and then. We’ve seen it in relationship to what’s been happening with, for example, this made-up shortage of toilet paper in the country. I say “made up” because it’s just that people are hoarding it — it is not as if they’re going to the bathroom more since COVID-19, such that suddenly there is this shortage of trees or availability of toilet paper. It’s just been a matter largely of hoarding.
But we have seen cases where grocers, or other vendors looking at certain goods and services have decided to spike the prices. In doing so they have come under the ire of local authorities saying, “Hey, if you do that piling on. We’re not going to allow it, and so expect to be penalized for all of this.”
What about this notion of “price gouging?” I have to wonder if, on a broader scale, there is any real difference between increasing prices and managing the stock as it would be during times of scarcity, war, and things of this sort?
Bob Zadek: You used three operative words, all of which I dare say have a generally negative connotation, which they should not have. The three words or concepts that I’m referring to are “hoard,” “gouging,” and “spiking” the price.
Now, Craig, nobody on earth can affect a price in any way. When I sell something, I am not establishing what it is worth. I am only saying what I am willing to sell it for. If I am selling something for $100 I am telling the world I would rather have $100 than the item. That’s my personal choice. If nobody else is willing to give me $100 that’s because they’d rather have the item than $100.
There’s no such thing as “a price which nobody is willing to pay.” A price can only be set by two parties — the buyer and the seller. When you look at one half of the transaction — the seller — the seller is not setting a price. He’s only expressing his intention, his state of mind, i.e., what he is willing to swap the item for in terms of dollars.
Now price gouging — which has a negative connotation and about 30 something states have criminalized price gouging — is nothing more than charging exactly what somebody else is willing to pay.
If you have a bottle of water and you are charging $50, nobody will pay that. Therefore you’re not price gouging. You are just misjudging the market and expressing the hope that somebody will give you $50. But you’re not setting the price, because nobody is going to pay it. The price is only set at the moment of sale. That’s when the price is set.
If you you have ever sold anything on, no pun intended, Craigslist, you’ll be price gouging. Why? Because you tried to get as much as you could. That is every transaction on the planet. You have a seller who was trying to get as much as they can. If the seller is trying to get too much, no sale takes place.
So price gouging is an absurd concept which merely describes selling something for what it is worth at that time and place. A bottle of water is worth more in the desert than its worth in the ballpark.
Craig Roberts: So the circumstances surrounding the scarcity are really immaterial. This notion that typical supply and demand — if something goes up, suddenly there’s a spike in popularity and there’s a particular widget out there that maybe gets a lot of advertising during Christmas and every kid on the block wants it and the parents run down to the local toy store and find out, gee, there aren’t as many available — the local merchants are going to most naturally increase the price because there is greater demand and there’s scarcity.
That’s the whole reason why gold goes for more money than copper does. Am I right?
Bob Zadek: Exactly. Now, Craig, would you say we have a scarcity of diamonds on this planet? Anybody who wants a diamond can have one if they’re willing to pay the price. There’s never a scarcity there. There’s simply a case where some people can afford something that other people cannot, but there is no scarcity. There’s no scarcity of automobiles. Anybody who wants one can have one if you can pay.
There’s no scarcity of water in California — there’s a scarcity of free water, not a scarcity of water. We have as much water in California today as we had when the earth was formed. It just costs a different price. So the whole concept, these economic concepts are exploited by those who would regulate our behavior.
Price gouging is nothing other than charging what something is worth. Government, who wants to be heroes to their voters, say, “We will lower the price by statute,” but they’re not lowering what something is worth. They are just prohibiting people from finding its market price, thereby creating the scarcity.
Craig, if you were going to sell water during Hurricane Sandy, and New York City was desperate for bottled water, it’s very dangerous to bring the water there. If you could make a lot of money, you would gamble on danger and damage to yourself — you would bring the water. Why? Because you can make some money doing it, but if you’re not allowed to charge more than 5 cents more than the water is otherwise going to be sold for, people will say, “I’m not going to bother. I’m not gonna take a chance on bringing water where it’s needed because there’s not enough in it for me.” So price gouging is necessary.
Now you also mentioned hoarding. If toilet paper went up in price and there was less of it, nobody would hoard because it would be too expensive. Why would you buy $5 rolls of paper to put on your shelf? Therefore, regulating price creates the incentive for hoarding.
Also. when you regulate the price and you prohibit the market from reaching its market price at that time and place. You reward the people who got there first rather than the people who needed it the most, since those who need it the most would pay the most for it. So you allocate a commodity based upon who got there first in line rather than who wanted it the most and to whom this the most valuable. It’s such a distortion.
Craig Roberts: And ironically, everything that we do under normal circumstances is based exactly on that supply and demand. If I go to buy a house and there are five bidders, and I really want the house more than everyone else, I will make certain that I am the highest bidder to increase the likelihood that the owner will say, “You’re the winner. I’m going to sell the house to you.” So it’s based on the exact same principle that quite frankly we deal with in day to day life without batting an eye.
Bob Zadek: The insanely misguided laws that prohibit “price gouging” are enacted by legislators who have not the most basic rudimentary concept of supply and demand and basic economics. We are legislated and governed by people who have no concept of these basic issues and that’s why we ended up with shortages.
The US is a land of almost unlimited supply of goods and services. The shortages we experience are artificial and almost always government created. We can spend the rest of your two-hour show listing all of the shortages which are created — not by failures in manufacturing — but by government creating the shortage.
Price gouging is but one example of how a shortage, whether it’s toilet paper or water during Hurricane Sandy or whatever the shortage, is created by the government in a land of plenty.
Craig Roberts: Ironically, we learned that lesson perhaps the hardest during the so-called oil shortage of the 1970s. These and other contemporary topics are dealt with every Sunday morning, eight o’clock on the Bob Zadek Show. We invite you to tune in, check it out, more information and resources available at BobZadek.com.
