Why Economics is Important for Law: Understanding Fungibility

Last year, the US Supreme Court decided that public sector employees cannot be forced to pay union dues if they do not wish to belong to the union. The challenge to forcing government employees to contribute to unions as a condition of employment was on 1st Amendment grounds, that such a requirement constituted compelled speech. Not all Justice agreed, however. According to the Wisconsin State Journal:

Liberal Justice Elena Kagan, reading a summary of her dissent in the courtroom, said unions only could collect money for the costs of negotiating terms of employment. “But no part of those fees could go to any of the union’s political or ideological activities,” she said.

Kagan displays a rather common misunderstanding regarding the fact that money is fungible, and even money specifically earmarked for a certain purpose can increase an individual or organization’s budget for another purpose.

Consider the following hypothetical: say you are someone whose monthly budget is $400 for rent, $300 for food, and $200 for narcotics. Say you are now given $300 in food stamps, with which you can buy the basket of groceries that you previously bought for $300 in cash. You now have $300 freed up for other purposes. Thus, food stamps do not only subsidize food purchases, but enable recipients to expand their budget constraints on other margins.

It should therefore be clear that unions receiving money that is supposed to be only used for negotiating terms of employment have more resources to engage in political activities than they would without the disputed requirement. This applies across a variety of earmarks. Despite the Hyde Amendment’s requirement (with some exceptions) that taxpayer money not be used to pay for abortion procedures, Planned Parenthood receiving federal funds for non-abortion purposes allows them to re-allocate some money they would have used to for those non-abortion purposes and spend it on abortions.

Ultimately, the idea that earmarking funds for certain purposes means only those purposes are subsidized is false, as long they supplement any budget with fungible resources. Even if we lived in a moneyless system and traded ration cards or vouchers for everything, if those can still be bartered, they are still fungible, albeit to a lesser degree.

The Perverse Incentives facing the American Psychiatric Association

Which also applies to any medical professional who is compensated through insurance programs and is able to affect what types of things are covered by insurance. There is an interesting post on the Cato Blog called Will “Internet Addiction” Be Our Next “Crisis?”and it mentions a recent NPR interview of a psychiatrist “who believes that internet addiction is indeed a mental health disorder and laments the paucity of programs available to treat afflicted adolescents.” But, “because it is not recognized as a disease in the US, treatment is not usually covered by health insurance.”

This is not to say that psychiatrists will try to have behaviors officially labeled as disorders solely in order to create more opportunities to receive money through insurance claims, but this psychiatrist does say that “some clinicians creatively assign as a diagnosis one of the psychiatric co-morbidities that accompany almost all of their patients with internet addiction, in order to get insurance to pay for it.”