From Austan Goolsbee

Of all the public reactions to last Thursday’s surprise ruling from the Supreme Court on the Affordable Care Act, one of the most interesting came from the markets: Nothing happened.

Here is more, “The Supreme Court Rules, Markets Yawn.”



Anyways, the markets have probably priced in a decent possibility that the unpopular bill will be repealed before too much damage is done.

The bill is unpopular but the previsions, end of lifetime caps, kids on parents insurance, etc. are hugely popular.

and by "the provisions" you mean" the benefits and not the costs"

Which an economist could never predict.

How do 10% cuts to Medicare and large state income tax increases poll on their own, anyway?

People like tuna fish. People like ice-cream. I can't understand why tuna fish flavored ice-cream doesn't sell better.

Did you read your own link, TD? Some health stocks went up, hospitals particularly, others went down, insurance companies particularly. Otherwise there was a brief crash as those who are hysterical about ACA and thought it would be overturned freaked out, but prettty quickly most market participants realized this was hysterical nonsense and bought all those undervalued stocks. That the market zoomed upwards the next day was indeed mostly driven by European news, but ACA is potentially much bigger for the US economy than Europe (certainly if one believes all the hysterians), and the ruling simply did not offset that temporary good news.

Indeed, the main source of uncertainty remains what the US health system will be. The ruling reduced some uncertainty in that it is now more likely that it will be some variation on ACA. If the ruling had overtuned ACA, then we would really be facing uncertainty as no clear alternative has been put forward.

And as for avoiding "too much damage," Romneycare in MA is doing just fine and is very popular there. It is not damaging the economy at all, and maybe a lot of the smarter market participants have figured it out. ACA simply is not that threatening to the economy, and most realize it. The SCOTUS ruling is arguably incoherent, but the ongoing hysterical whines by all these people who previously loved the individual mandate prior to Obama supporting it when it was a nice GOP proposal out of the Heritage Foundation is jus preposterous.

Indeed, I repeat a challenge I have thrown out here before, but do so even more strongly now. Please, anybody, point out another instance of a political party so completely changing its views about a political issue in such a short time as the sudden shift from support of the individual mandate to sudden opposition once Obama tried to appeal to Republicans by supporting their proposal since 1941. The last time I can think of that we have seen such a massive shift of support was by the US Communist Party in 1941 when Germany invaded the USSR, which overturned the earlier massive shift in the opposite direction when the Molotov-von Ribbentrop Pact was signed.

Actually, I would say the conduct of many US Communists in 1939 was more honorable than the pathetic spectacle of US GOP in this more recent case, when not a single Republican in the Congress supported the ACA, despite the long and deep support for such a plan by the vast majority of the party. At least in 1939 there were quite a few prominent Communists who quit the CPUSA in disgust at the sudden switch of party views. I do not remember anything remotely comparable by this enormous mass of un-self-conscious hypocrites in the US GOP.

Again, I challenge anybody here to come up with a comparable switch by any party since 1941 on any issue by any party. TD, you got one?

The problem is that none of that is a "yawn."

despite the long and deep support for such a plan by the vast majority of the party.

Not a single red state ever passed such a plan -- the only state to pass a mandate into law was Massachusetts, not Kansas or Utah or Wyoming. No such plan was ever passed by the national GOP from 1994 -2006. No GOP Presidential candidate ever ran on such a plan (though Hillary Clinton and John Edwards both did -- and Obama campaigned against the mandate, but changing his mind apparently wasn't a "pathetic spectacle" by an "un-self-conscious hypocrite").

I challenge anybody here to come up with a comparable situation where a position mostly advanced by the opposite party was held up as evidence of "long and deep support" on the basis of a think tank proposal.

TD, I grant that support for the individual mandate was not universal among Republicans, but it was widespread. Butler started it at Heritage and was supported by those at AEI, although people at Cato always opposed it (not all of whom are Republicans, however). Mark Pauly wrote up a proposal for Bush Sr. in 1991 that did not go anywhere (and he remains perhaps the only Republican publicly supporting it). In 1993 20 GOP senators sponsored it under the HEART proposal. In 1994 Sen. Nickels of OK put forward a bill supporting it. After that, efforts to do anything about health care pretty much died out in Congress until Obama came in. While only in MA was it introduced, states in general have avoided messing with healthcare much, leaving that mostly to the feds.

Republicans running for prez supporting it (in the past) have included Newt Gingrich, who did so very strongly, and Rick Santorum, although he more recently denied ever having done so. Milton Friedman also supported the individual mandate, and essentially all Republican health policy analysts. The main alternative proposal put forward by some Republicans, notably Gramm and Armey, was for Medical Savings accounts, although that got much less support than variations on the individual mandate (it must be noted that Butler's original proposal focused on catastrophic coverage).

In any case there had been lots of Republican support, which suddenly completely vanished in 2009, except for Pauly. My challenge remains, even if the support was not universal. Name another party and issue on which there was such a total change of position in the US since 1941. You have not done so yet, TD.

As I said, no GOP Presidential ever ran on a mandate, and no Republican state or Congress ever passed one. Ever. Generally when a policy has "long and deep support" it is passed into law, not ignored for decades. Mandates were kicked around the party a bit, but never garnered much actual support, because it's a policy that's only preferred as the lesser of evils to single-payer or nationalization -- note that PPACA split the Democrat Party, not the GOP.

This is sort of the equivalent of being asked "Would you prefer to be shot or burned alive?" and then later being told you supported being shot so you really shouldn't complain about it.

In any case, the mandates the GOP envisioned were usually for catastrophic coverage, not comprehensive.

You also haven't explained why all these fervently self-righteous complaints about the GOP's unprecedented hypocrisy don't apply to Barack Obama, who ran opposing mandates but then supported them. Maybe you're seeing this with just a wee bit of partisan slant?

That my dear TD is obvious. The guy ran on trying to be bipartisan. So, here he makes an effort to reach out to the other party to support something he had previously not supported, but many in the other party did, only to be universally spurned by the other party. He reached out, but everybody out there just ran the other way, although I grant some never supported the individual mandate. But many did. They are the hypocrites, not Obama. Anyone whining about his "lack of leadership" on this matter really needs to have their head examined.

The ruling doesn't really change much. We still have to have the November election to determine if ObamaCare stays or goes.

That's not true at all.

The market took a deep dive for most of the day before recovering most of the losses. The early trades were panic selling followed by opportunistic longs of the cheap shares.

Health care stocks shot up on dumb money expectations, but then settled down. The long run prospects will probably depend on expectations of a change in the law by the next Congress.

Goolsbee wasn't answering frenzied calls from concerned investors like I was. The news was definitely unexpected by a large number of people, including clients I know who support the president's plan.

No matter whether you believe in efficient markets or short run anomalies, the net effect of the ACA won't be apparent in the markets for a year or more. It is too soon to look for the market judgment. The effect of the Cadillac tax, the expectations of health insurance costs, exemptions from the plan, and elimination of benefits are still up in the air for many firms.

To say that the market overreacted and quickly rebounded would be accurate. To say that "nothing" happened is pure ignorance. Goolsbee is a tool.

Yeah, Goolsbee should be embarassed. You don't need to have been glued to monitors all day to notice that markets plunged then recovered. Just looking at the SPX and VIX a few times that day would had sufficed.

I actually told our interns on the desk that it was one of the most interesting days in the markets of 2012 so far.

I was about to say, what market was this guy watching? Trading was wildly volatile for a few minutes when there were conflicting reports (CNN reported incorrectly that the law was overturned), and as soon as it was known that the law was upheld, the market crashed.

The market was up later in the day on whispers about Europe, which was up dramatically after US markets closed on news that the ESM could bail out Spanish banks directly rather than through the Spanish government. But it seems pretty unequivocal that the market considered the upholding of Obamacare bad economic news.

"as soon as it was known that the law was upheld, the market crashed"

S&P low on 28th was higher than the low of the 26th; the closing was higher than the closing of the 26th.

I wish all market crashes were like that.

Yeah it was just a 1.5% intraday drop or about $200 billion of value destroyed in a matter of hours. I guess by this administration's standards that's not too bad, actually.

Stock market returns under Bush vs. Obama

G.W. Bush - negative 3.5 percent annually
Obama - positive 20.1 percent annually


I personally don't think the President has much impact on stock market performance. But you brought up "this administrations standards."

"about $200 billion of value destroyed in a matter of hours"

I guess we weren't as wealthy as we thought we were.

"Obama – positive 20.1 percent annually"

Ha, that's if you bought at the Obottum.

And the year is young...

Original D might win the award for most intellectually bankrupt argument in a thread about intellectually bankrupt arguments. If a large corporation or a foreign government can do something that affects the market on a given day, of course the president can. That is a fundamentally different question than the general long term direction of the market over a long period of time, when the president doesn't even control the conditions at the beginning.

Wait, the premise now is that the President caused your little mini-crash, destroying hundreds of billions of paper dollars in a matter of moments (like market fluctuations don't happen every day and for reasons it is usually impossible to put a finger on) - not the Supreme Court?

You make me laugh. 3/10 on the troll scale.

Are you seriously arguing that the president isn't responsible for the effects of his own policy because it was upheld by the supreme court? And you call me a troll? Your idiocy is only surpassed by your undeserved smugness.

Lou, you're the one who said "this administration's standards." I merely pointed out that the stock market overall has performed much better overall than the previous. By that measure -- YOUR measure, not mine -- we should all wish for "this administration's standards."

Andrew' points to the Obottom, which correlates very well to when the last president left office. I'm curious what policy Senator Obama single-handedly put in place that led to a stock market crash.

Moving the goalposts much? The decision on Obamacare has a discernable effect on the market. That is separate and distinct from the business cycle that influences stock market returns over a long period of time. You weren't "pointing out" anything, you were just making yourself look dumb by misunderstanding a basic concept.

I'm not even on the trading floor and the phones started ringing off the hook. My management philosophy is to never react to news - the signal is either wrong or too late.

Yes, volatility was up that day and the broad indices don't tell the story of the market reaction. You've got to look at individual stocks for the shock factor. I told everyone to settle down. The health care sector is slowing but it is still the strongest sector in the economy. I didn't see any reason to change my long term market expectations, but I had to remind many people that they had a 10-20 year horizon and we didn't need to sell today. In fact, there were some good buying opportunities if you're an active manager which I am not. I don't churn client accountant and I don't let them churn themselves.

This was not the most harrowing news of the year, but it might have been the most unexpected news. I agree it was an "interesting" day. As one post on Facebook put it, "today, 30 million Facebook users will suddenly become constitutional scholars."

As one post on Facebook put it, “today, 30 million Facebook users will suddenly become constitutional scholars.”

I was wondering if that was going to happen, but the entire (surprisingly subdued) reaction from people I know was between "wow" and "yay Roberts for upholding this clearly awesome law!" The lawyers didn't post about it, and only one friend of a friend tried a Constitutional argument of any sort. (obviously, maybe my friends are just unusual)

I'm an attorney (by education), so I have an academic interest in the decision. But i learned decades ago not to whimper and moan about the whimsical nature of American politics. It will drive you nuts if you dwell on it too much.

It's not that I don't have my preferences, but I understand that my vote and my voice carry little weight in the outcomes. Most laws I consider mere annoyances. I thank God to be living in the USA where the worst I have to worry about is my effective tax rate.

My native land of Canada is a relative paradise in this world as well. I also had the privilege of living in Germany.

There's so much misery in the world to become riled about petty things. I've seen the political tides ebb and flow since Johnson was president. Andrew, not Lyndon. :)

The market plunged on the original reports that the law was overturned.

The market came back after the early news headlines were corrected.

Ignoring the reaction to the false headlines, the market was unchanged.

Ignoring the reaction to the bad headline is bad reporting or analysis.

Healthcare stocks hit a high when it was announced ACA was unconstitutional, dropped when that was repealed, bounced with the verdict and then declined over the course of the next half hour to the day's low between 11 and 11:30.


Nobody watches CNN, and I've got the ratings numbers to prove it. :)

Seriously, your intraday ticker is broken. Some of us watch markets for a living.

We know why stocks trade because our clients tell us. The rest of you are, at best, spectators sitting on your La-Z-Boys.

The effect on health care earnings is ambiguous at best, even if the law remains intact. There is also a small matter to attend to in November.

But whatever fairy tale you tell yourselves to sleep better at night....

Current system is fascism. That’s true. But true free market economy always finishes as fascism (corporationism). That’s something that you guys don’t see. Let me give you an example:

It is 1998. Nobody heard of web search, right? I don’t think that the term was even defined. So, obviously as nobody knew what it was, there was no Government regulation or intervention in the web search market, right? So, we have 1998 and we have 2 guys in a Garage creating Google. And thanks to the lack of regulation and lack of the Government intervention Google works out beautifully. So far so good. We have 100% pure beautiful capitalism for Google. Everybody happy. Capitalism at its finest. Now comes the part that is explained by Marx and you guys simply don’t grasp: In the year of 2010 Google sponsors a bill to regulate the market economy so its position as a monopoly for web search is secured by the law. That’s the fact bill like this has been developed by Google. Now Google bribes (aka ‘lobbies’) the House/Senate/etc and gets what it wants: if you use Google connections goes through fat and fast Internet connection. If you use something else, no matter how many times better, the law says that slower connections must be used. That’s exactly right. That’s fascism: laws created by corporations to secure their monopolistic positions at the same time empowering Government more as now it needs to eavesdrop only Google’s traffic. Everybody wins. Except for constituency that is. Fascism. In other words once those corporations grow big enough thanks to the lack of regulation and free markets THEY will regulate instead of the Government (democratically elected Government I should add).

And I know what will you say: “Ahh.. it’s still because of the GOvernment because the Government enables this. Because the GOvernment allows bribing and lobbying to happen”.
Well, this argument is aking to communists argumentation that communism would work great if just people could understand that they ought to be equal and not want more than their neighbor. It is the same stupid logic: oh capitalism would work great only if these stupid people would understand not to take bribes, lobby and have no special interests. It is utopia my friends. Politicians will always accept fact checks from corporations. This way corporations ultimately destroy capitalism that created them and replace it with corporationism known also as fascism. That’s the path that not only Google took, but also banks in the past – hence FED was created to secure their interests in 1917. Big Pharma, hence MedicAid and Medicare were created. And military complex hence all the wars.

You see capitalism is self-destructing. So go there and read Marx before dismissing him as an idiot.

Paul Blumenthal, Founder.

I've read Marx, does Marxism always start with genocide and end with collapse and corporationism?

Only in practice. In theory it creates the best possible overall outcomes.

It is 1998. Nobody heard of web search, right? I don’t think that the term was even defined.

You are kidding, right?


He's not kidding, he's trolling for clicks.

Why would the markets react to the Court doing the same thing it has done since 1937?

On the assumption that they had acted earlier on reports of how the Court was suspected to be leaning

The real markets question is why did InTrade blow it so badly? Sure, a prediction market not predicting an uncertain event isn't a "market failure" but surveys of legal professionals were generally much closer to 50-50, the case against PPACA was nowhere near a slam dunk, and rumors/leaks of the result were supposedly floating around days if not weeks before the decision was announced.

So: were market participants simply naive, relying on the media narrative post-oral arguments despite oral arguments not being terribly important? Were they too disconnected from the events as Ritholz suggests? Is there a political selection bias among InTrade bettors, maybe amplified in this particular market?

Or was ~0.8 really the right p for this case given all of the information available before the majority opinion was read?

Tabarrok seems enthusiastic about InTrade; I'd like to see his take.

I don't see any big mystery. If the market has an event at 80%, that doesn't the event should always happen. In fact it means the event should FAIL to happen 20% of the time. This was one of those times.

Nobody claims that Intrade is a time machine, or a mind reader, or a crystal ball. It's simply an aggregator of public information. If it is efficient, that simply means that it is difficult for an individual to make money betting against it in the long run.

Sure; I alluded to that above. The question is whether this coin flip was really weighted as heavily as Intrade suggested. There were a lot of reasons to think that p > 0.7 was an unreasonably high probability to assign for individual mandate being overturned. See for example which notably was written before the decision. Maybe Intrade nailed it and we saw the unlikely outcome, but I have a hard time reconciling those odds with the facts of the case and the composition and history of the court.

The Commerce Clause argument did lose, and people accurately predicted that from the orals. The tax argument was a minor one beforehand, and few people spent much time on it after.

Also, in any betting market you have to look at closing lines. It didn't close at 80% but around 70%, for what that's worth.

The real markets question is why did InTrade blow it so badly?

Because the markets are more rational than Roberts?


Roberts wrote an 11th hour change of opinion that disagrees with the rest of the majority. So, close to the end InTrade might be pretty accurate. I know that if I flip a coin it is 50/50 and yet on one flip it turns out 100% what it lands on. If Roberts were a coin wouldn't you have assumed beforehand to be weighted towards the conservative side? I don't think many experts predicted Roberts actual reasoning. If so, they should have bet more money.

On the other hand, maybe people are distorting it as a hedge. Maybe it is a mistake to use a prediction market for your predictions.

Tabarrok seems enthusiastic about InTrade; I’d like to see his take.

Me too.

The thing is, InTrade might have been roughly right. There probably was a 70% chance of overturning until Roberts pulled his last minute for it after he was against it. And that still leaves a 30% chance of upholding.

Are you 'enthusiastic' about Vegas lines? They are not always exactly right individually.

70% chance of what?

This was a complex legal decision based on law and precedent. InTrade makes it sound like the probability an umpire's decision on one particular pitch will be a ball or a strike, and oh, by the way, it happens to be a pivotal pitch for the inning or the game or the series or the season.

For those who are mightily concerned about when or if ACA will ever have its intended or feared impact, this wasn't any different than the votes in Congress or the president's signature. One could say that the decision was already carved into stone, and the Court just revealed it to us.

I'm not telling you to like the decision or agree with it or to accept the consequences. But this is a legal decision. It's not about winners and losers even though real people see themselves as winners or losers in this.

Put another way, if a man is on trial for murder, there is a reality of his guilt or innocence. Disconnected from that reality are people's desired outcomes. Then there is the application of the law as interpreted by the judge, argued by counsel, weighed by the jury. The outcome is not a roll of the dice. It is based on deterministic factors that usually have a rational basis. The outcome need not conform to either reality or desires to be rational. Our legal system is an approximation of justice. It is a process, not an outcome.

This makes non lawyers very uncomfortable. It makes me uncomfortable which is why I ceased practice as a prosecutor. Attorneys are often more concerned with their batting average, their case load, and their billable hours to concern themselves with truth and justice. The process is what pays the bills and the outcome might get you more business.

If you say this was an errant decision, I agree with you. But I don't believe Chief Justice Roberts failed in his duty. In fact, deference to the will of Congress as a default is the usual decision of the Court. Overturning the will of Congress is the fluke. The Court is not precisely the check and balance you might wish it to be. It is not an arm of governance.

I suppose we should have had more Amendments to our Constitution to make things more clear.

" . It is a process"

Ha! We're talking about SCOTUS. The people who brought you such hits as Kennedy v. Louisiana.

That's a pretty disingenuous article by Goolsbee. The sort of notch effects he is looking for are almost never found. For instance, if health insurance is so important, there should be a perceptible difference in the health of those age 65 versus those age 64, but there isn't. So if Goolsbee were intellectually honest, he would admit that by his own logic, health insurance makes no difference, and Obamacare is a complete waste of time and money.

So ... most people have no health insurance at 64 before they're covered by Medicare at 65?

Doesn't even have to be "most" as long as its "some" you should see a notch. The truth is that health coverage is a lot less important in aggregate than made out to be.

Well, yeah -- we went from one kind of crappy system to another kind of crappy system.

Goolsbee made a good point, and you also make a good point. Many things turn out to be less important than we think.

Goolsbee didn't make any point. He misrepresented the market's reaction, and then misinterpreted what it really means. He might as well have been looking at the results from a European soccer game.

I'd be the first one to tell you that there was a lot of market activity that day. Much of it might have been related directly to the decision. But the results of one day of trading is not a "vote" on the desirability of the legislation.

When there are various policy announcements, the markets will move. But if the market believes the move was poorly motivated, it will move back. Some sell, others buy cheap and price moves back up. Nobody has any idea what everyone's order book looks like or how people value liquidity or rebalance. The market price is the result of millions of transactions that also include what's going on in bonds, foreign equities, derivatives, etc.

Some day traders made a fortune. Others lost a fortune. Some institutions bought good stocks cheap when dumb money panicked. It's all in a day's work. Goolsbee trying to infer some cosmic message from this is just crazy.

There is a reason why buying is called "long" and selling is called "short."

Out to lunch you are, Willetts. Goolsbee may not have discussed the entrails of the day's actions, but his point was that in the end the market did not have all that much of a reaction. The immediate reaction was a drop, but it was rapidly overcome, and the more serious reaction was the split among health stocks described in the link by Tall Dave, hospital up, insurance companies down.

The point is that many of the critics of Obamacare have been utterly hysterical all along, shrieking in town meetings about non-existent death panels, wanking on and on about alleged uncertainty, when the biggest source of uncertainty is their very own efforts to undo the law. All of this is wildly and ridiculously exaggerated as is obvious if anyone looks at Massachusetts where no Republicans are trying to overturn RomneyCare. It is too popular, including with small businesses. The market's basic lack of major reaction, aside from a few hysterians immediately upset by the overturning of the intrade forecast, is evidence indeed that the market understands how it is in Massachusetts, just fine thank you, if not perfect. You guys carrying on look like a bunch of totally hysterical fools..

Proof that Goolsbee is either clueless or a hack?

The stock market doesn't necessarily distinguish between efficient activities and wasteful ones.

I'd even say it prefers wasteful ones. It prefers profits. Efficiency would reduce profits, right?

Oh yeah, Obama said healthcare reform was required to fix the economy.

What did the market say about that?

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