Reason Magazine - Contributors

Coercion vs. Consent

Mon, 01 Mar 2004 00:00:00 EST

The following exchange got underway at the Reason 35th anniversary banquet, which was held last November in Los Angeles. Keynote speaker Richard Epstein, the eminent legal theorist and author of the new Skepticism and Freedom, delivered a provocative talk about the foundations of libertarianism titled "The Ambiguities of Reason: Of Large and Small 'r's." For the spirited dialogue below, we adapted Epstein's comments and invited three responses, which are followed by a final comment by Epstein.

The Limits of Liberty
Why we need taxation and eminent domain
Richard A. Epstein

Perhaps the most fundamental question we face is how to think about liberty. Some libertarians stress the formal power of logic to resolve hard questions. They insist that all rights and duties flow from a necessary conception of individual autonomy or self-rule that allows all individuals to do whatever they wish with their own lives so long as they do not interfere with the like liberties of other individuals. No person may use force or deception against other people, either for his own advantage or for the advantage of third persons.

This moral imperative holds seemingly without regard for its social and economic consequences. Political organizations should adapt to this strong conception of rights and duties, the argument goes, and not yield to whim or fashion. Given this simple premise, individuals may use their own labor to acquire property, to exchange their labor or property with others, or to form complex business, social, and charitable organizations.

This strong intuitive conception of rights and duties tightly corresponds to our ordinary concept of right and wrong behavior. Most people do not seek to order their daily lives by discerning the origins of property in the mists of history; nor do they typically ponder the larger questions of public finance and political organization. But they are taught from birth to be neither bullies nor cheats. In dealing with life-size events, they adhere unswervingly to these simple basic principles. Why then resist their universal application? The content of the rules is clear, and any effort to switch to some calculus that weighs consequences case by case would at best yield indeterminate results, which would in turn heighten overall social insecurity. Better not to scratch beneath the surface. Even if these rules are not necessary truths, we should still treat them as such. Deductive principles order practical affairs well.

Unfortunately, this principle of personal guidance does not supply us with a comprehensive theory of social organization. First, there is the question of philosophical foundations. Can we really support any kind of political order that pays no conscious attention to the consequences it generates? On this point, the ostensibly deductive view is right to shun judging individual actions one case at a time. But this detached form of analysis really should be regarded as a form of closet consequentialism. Setting up public institutions to pass on all individual actions becomes so costly and intrusive that it flunks the standard of good government in just those consequentalist terms. But it is possible to moor this judgment of political structure in a keen appreciation of the mainsprings of human nature, which yields a decidedly mixed picture of the best and worst in human behavior.

We start with the biological observation that no individual could survive in a world of scarce resources without a strong measure of self-interest, one that includes at the very least his own family and close associates. That self-interest can manifest itself in one of two ways when dealing with strangers; through either aggression or cooperation.

The overall social consequences of these two approaches are massively different. With force, one person wins while the other person loses. With cooperation, both persons win. This simple observation underlies the consequentialist explanation for the libertarian preference for agreement over coercion: Take that arrangement that leaves both parties better off than they are under the alternative legal order. Contracts result in joint improvements, such that the greater the ease of contracting, the greater the gains from cooperation. Coercion creates at least one loser for every winner, where the losses (e.g., death, rape, or theft) can be huge relative to the gains on any intuitive interpersonal comparison of utility. When the odds are right, any individual may find it in his interest to use force or deception, but from a social point of view this conduct merits strong condemnation. The basic libertarian imperatives are well-grounded in human nature.

Yet just how far does this insight go in a practical sense? To hang your hat on empirical regularities is to retreat from the language of absolutes and to invite exceptions to general rules. If our ultimate criterion asks what arrangement leaves all parties better off than they are under the next best alternative, there may be cases where the dominance of agreement over coercion should be displaced. In fact, there are: Some contracts are suspect, and some force is justified.

In dealing with ordinary contracts of sale or partnership, we tend to ignore the consequences of these joint efforts on third parties, which any comprehensive social theory should take into account. In most cases, happily, these external effects are positive. Two or more traders not only increase their own wealth and happiness but also expand the opportunities for trade and advancement for others. But a contract to kill a third person has the opposite effect. Indeed, it is precisely because contract yields gains from trade to the participants only that we worry about such agreements, now called conspiracies, because of the threat they pose to the basic rights of liberty and property of others. We are now faced with the difficult practical question of how to identify these rights-threatening arrangements, to punish them if they achieve their object, and, more important, to nip them in the bud.

Concerns about bad contracts are not limited to such situations. Contracts that seek to bribe individuals to violate previous agreements are similarly dangerous. More controversially, contracts that operate in restraint of trade are also possible candidates for special treatment once it is accepted that overall levels of social output are higher under competition than under monopoly. Exactly what should be done with these arrangements, assuming that they can be properly identified, is no easy task, given the political risk that perfectly sensible business arrangements will be attacked by government action -- as is often the case when aggressive competition is branded "predatory" pricing, a dubious appeal to the libertarian norm against predation by the use of force.

Sometimes the strong libertarian synthesis breaks down in the opposite direction. The most conspicuous illustrations are condemnation and taxation, each of which contemplates the use of force against ordinary persons who have neither committed any wrong nor breached any promise. Yet it is in my view impossible to maintain any per se rejection of these two venerable if dangerous institutions, both of which are not only consistent with limited government but required by it.

The libertarian prohibition against force does not take into account the possibility that successful cooperation in key situations can be thwarted by individual holdouts. It will not be possible to build a railroad from point A to point B solely by getting the cooperation of 99 out of 100 private landowners along the way. The last one (indeed all) must be brought into line, and the way to do it is to compel the purchase by paying them the highest value of the land in any alternative use whose value is not dependent on the railroad that is about to be built. The public, including those whose property is condemned, gain the benefit of the railroad, but if compensation is correctly calculated -- a big if -- no individual suffers financial deprivation in the process. State coercion is used to create the win/win situations found in private contracts.

What works in condemnation cases helps explain taxation as well. The public enforcement of private rights and the creation of infrastructure through condemnation both need money that only compulsory exactions can supply. But once the coordination and holdout problems are overcome, much work has to be done to prevent massive abuses from working their way into the system. The flat tax is one sensible limitation on the power of taxation (others can be devised as well), for it allows state funding to vary in amount without picking on one segment of the population.

In sum, the central challenge to any political theory is to devise a set of institutions that first allows and then controls the use of coercion against individual citizens for their own benefit. In light of the justifications that have been put forward here, one could ask the question whether these concessions to state power amount to a backhanded capitulation to the modern welfare state, where any claim of the government to action in the public interest is sufficient to justify state intervention.

The short answer to that question is no. Indeed, there is a strong sense in which exactly the opposite happens. The traditional deductive form of libertarianism allows for state force to protect against aggression and fraud. The more complex version recognizes that state power is also appropriate to overcome holdout problems by the limited use of force. This two-tier inquiry clearly legitimates some forms of government action, but by the same token it makes the case against state intervention stronger in those settings where none of these justifications are available. It is easy to see why the state should keep its hands off the substantive terms of labor contracts in a deductive libertarian world. Hence we should get rid of minimum wage, antidiscrimination law, collective bargaining statutes, and mandatory pension and insurance regulation. Systems of price and rent control similarly go by the boards, as does the full range of tariffs, anti-dumping laws, and other impediments to international trade.

We arrive at the same results even after we recognize the legitimate state role in condemnation and taxation. Unregulated labor and product markets present no coordination and no monopoly problem. The basic libertarian position in favor of competitive markets is thus strengthened by allowing in principle a broader range of state justifications, none of which works in these cases. Removing these ordinary activities from the thrall of government regulation should increase the tax base and thus reduce the need for taxation, while simultaneously increasing the liberty and prosperity of all. The greater level of wealth should in turn reduce the calls for redistribution of wealth by state action, which in turn will reduce if not eliminate much of the welfare state. Government will still be larger than deductive libertarians might want, but it will be far smaller than the current bloated state.

Our limited use of coercion is done with the paradoxical intention of expanding the scope of individual freedom. It is always dangerous business, but it is only with a conscious awareness of how we must both use and limit government power that we shall find the intellectual tools to resist a descent into the all-powerful welfare state. The practical success of our endeavors depends on the ability to avoid not only the dangers of the all-powerful welfare state but also any categorical reluctance to use coercion to initiate forced exchanges that benefit us all.

Richard A. Epstein, the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, is the author, most recently, of Skepticism and Freedom: A Modern Case for Classical Liberalism (University of Chicago Press).

The Lesser Evil
Sometimes the cure is worse than the disease.
Randy Barnett

For most of his career, Richard Epstein has been urging libertarians to expand the exceptions to the prohibition on the use of force beyond self-defense, detention of rights violators, and restitution to include using forced transfers to solve the economic problems of "holdouts" and "free riders." Holdouts would be addressed by eminent domain, free riders by taxation. He justifies both of these expansions on consequentialist grounds.

In his writings on contract law, however, Epstein has insisted that we do not want to make categorical exceptions to contractual enforcement that are so malleable that people can define themselves into them at will. He allows that some agreements can be voided, such as contracts signed under duress or as a result of material misrepresentation, but each justified exception amounts to a direct or indirect way to police force or fraud. As he has written: "The rules in question should not create artificial incentives for parties to lower the level of competence they bring into the marketplace. It is dangerous to allow people to plead their own incompetence in any transaction that they wish, with the benefit of hindsight, to repudiate."

I am not sure he has adequately appreciated how his instincts about contract law defenses apply as well to the categories of free riders and holdouts. It is far too easy to assert the existence of these barriers to trade, and far too difficult to defeat unjust expansions of the use of force when these exceptions are allowed, even if he is right that some such problems are otherwise insoluble. If so, then the cure could well be worse than the disease, and no amount of fancy economic analysis can establish otherwise. The consequence of rent-seeking -- of interest groups using the coercion of the state to acquire unearned benefits for themselves -- matters as much as the consequence of failing to build a road. Ask the residents of Poletown, whose Detroit neighborhood was destroyed by eminent domain to build a General Motors assembly plant. Ask the Atlantic City client of the Institute for Justice who successfully resisted the condemnation of her house to erect a parking lot for Trump Towers.

I know that Epstein's theory of the Takings Clause would restore the requirement of "public use" that would prevent using eminent domain to transfer rights from A to B, and I agree his approach is better than what we now have. But who's to say that these takings for the "public good," as opposed to public use, do not increase aggregate welfare? Who's to say that the welfare created by General Motors remaining in Detroit is not greater than the welfare of the families who must leave their homes? Who's to say that the parking lot to be used by thousands does not create greater welfare than a house used by just one woman?

Due to limitations on our knowledge, we have little choice but to rely on the principle of freedom of contract to answer these questions, however imperfectly. Unlike self-defense and restitution, exceptions for free riders and holdouts cannot be justified as the enforcement of the rights of others. Authorizing force in defense of individual rights is a necessary evil to address the problem of compliance when persons put their own interests ahead of respect for the rights of others -- rights that are themselves necessary, on consequentialist grounds, to solve the pervasive problems of knowledge and interest. Caution should be our guide in pursuit of better consequences than properly defined individual rights provide.

Of course, to some extent this debate is moot. If we ever get to a libertarian world in which these are the only forms of coercion still existing beyond self-defense, etc.,we will know a lot more about how liberty actually works and how to achieve it politically than we do now. We will be in a much better position to decide whether to abolish these practices along with all the other vestiges of the welfare state. I should live so long.

Why then debate them now? For the same reason Epstein has been harping on these points for decades. We debate the form of the ideal end stage as part of the debate over whether to take any further steps in its direction. Epstein clearly believes that a more sympathetic and defensible end state is one in which these additional exceptions for free riders and holdouts exist. On this, I have always had my doubts.

I do not think that Epstein has ever seriously addressed the alternative ways of solving these problems that have developed historically on the market, and which libertarians propose be extended to address the problem of so-callled "public goods." "Public goods" are more a construct than an artifact of the world. It is often only a lack of imagination by academic economists that prevents them from seeing a solution. Indeed, one of the functions of entrepreneurs, as opposed to academics, is to figure out how to make a public good into an excludable private good.

Such techniques include creating the fencing technology needed to exclude free riders (think of the walls around movie screens and theater stages), tying nonexcludable goods to excludable goods, and such legal devices as conditioned contracts that go into legal effect only when a sufficient number of persons have agreed to pay for a particular project. Holdouts are dealt with by real estate developers assembling parcels of land in a variety of ways. I am not sure anyone can prove that these alternatives to takings and taxation will definitely increase aggregate social welfare. But I am certain no one can prove the opposite either.

This is not to deny that consequences matter, a point on which Epstein and I agree. Indeed, I think there are very few libertarians today for whom consequences are not ultimately the reason why they believe in liberty. The issue is always how best to achieve good consequences. As Epstein notes, making no exception to a general prohibition on the use of force is not an option. Self-defense is an exception, as is forcible compensation, and anyone who studies the common law of torts, contracts, and property knows that other exceptions are built right in to the doctrines that define the liberal conception of several property and freedom of contract.

The remaining dispute is over whether we should expand the exceptions to include holdouts and free riders simply because economic theory seems to suggest that only coercion can deal with them effectively. Epstein is convinced. I am not. I would prefer to jump off that bridge if and when we ever come to it, and only after the alternatives are thoroughly explored. I see no reason, whether tactical or principled, to let economic theory trump liberal rights when experience shows these problems are so often solved by entrepreneurs without benefit of any special license to expropriate the property of others without their consent.

In the end, we must never forget that permitting self-defense, restitution, and preventive actions against standing threats gives rise to the problems of power: enforcement error and abuse. Every additional exception legitimating the use of force, such as taxation and takings, further aggravates these serious social problems. The fact that we must take three steps down a dangerous road does not, by itself, justify taking two more, as Epstein seems to imply. Especially when, unlike force that responds to previous violations of rights, the problems of knowledge and interest surrounding these additional exceptions permit enormous opportunities for rent-seeking by those who can credibly claim to be increasing welfare by pursuing the "public good."

Randy Barnett is the Austin B. Fletcher Professor at Boston University School of Law, and the author of The Structure of Liberty: Justice and the Rule of Law (Oxford). His latest book is Restoring the Lost Constitution: The Presumption of Liberty (Princeton).

Swallowing the Rule
Epstein overestimates the power of his proposed limits on state action.
David Friedman

Like Richard Epstein, I find versions of libertarianism that claim to deduce it by straightforward arguments from fundamental principles unsatisfactory. One reason is that libertarians, like other people, have no convincing arguments to show that their principles are true. Another is that concepts such as rights, property, and coercion are very much more complicated, and less susceptible to simple rules and sharp definitions, then such versions of libertarianism generally suppose.

While we cannot logically derive our values, we have them. So do other people. Fortunately, human values vary a good deal less than one might suppose from reading political philosophers. Few egalitarians would prefer a society where everyone had a real income of $1,000 to one where incomes ranged from $90,000 to $100,000. Few Rawlsians would choose to improve the lot of the world's worst-off person by one dollar at the cost of massively reducing the welfare of everyone else in the world. And few libertarians, however hard-core in theory, would choose a perfectly free society of desperate poverty over one slightly less free and very much wealthier. Almost everyone, in my experience, values most of the same things, although not with identical weights. It is easy for both libertarians and socialists to claim to support their principles whatever the consequences -- when each group believes the consequences would be, on very nearly all dimensions, the most attractive society the world has ever seen.

If most people have at least roughly similar values, and if libertarians are correct about what sort of society libertarianism would produce, we need not justify our own values in order to argue for libertarianism. All we need do is to show that a libertarian society would be more attractive, by widely shared standards, than any alternative -- wealthier, wiser, freer, more just, better for poor as well as rich. That is, after all, what most libertarians believe.

Having adopted that strategy, I am sympathetic to Epstein's approach: Derive a legal and political system from the practical requirements for achieving the things humans want to achieve. My disagreement is with his conclusions.

To begin with, he is too pessimistic about the possibility of achieving important objectives without the state. Consider his claim that "the public enforcement of private rights and the creation of infrastructure through condemnation both need money that only compulsory exactions can supply."

The rights half of that claim assumes that private rights must be publicly enforced, despite a considerable number of societies where rights enforcement was produced privately. The infrastructure half assumes that the sort of coordination problems associated with building roads cannot be solved, imperfectly but adequately, by private mechanisms -- despite real-world examples where they have been.

Even if we accept those assumptions, the conclusion still does not follow. To justify taxation we need the additional assumption that rights enforcement cannot be done by the state at a profit, despite historical examples of societies where the right to enforce the law and collect the resulting fines was a marketable asset, and that the government cannot charge enough for the use of its roads to compensate the owners whose land was condemned.

A second general problem with Epstein's argument is that he overestimates the ability of his proposed rules to constrain state action. He writes: "It is easy to see why the state should keep its hands off the substantive terms of labor contracts in a deductive libertarian world....Systems of price and rent control similarly go by the boards, as does the full range of tariffs, anti-dumping laws, and other impediments to international trade."

In a world with income taxes, the state cannot keep its hands off the substantive terms of labor contracts because it has to define which terms do or do not count as income. And it requires only a moderate degree of economic ingenuity to create coordination arguments for state-imposed restrictions on labor contracts designed to reduce the deadweight burden from taxation or solve subtle problems of adverse selection.

Tariffs are an even clearer case. The infant industry argument for tariffs -- the idea that trade barriers are needed to help a potentially competitive industry get started -- can be, and has been, recast as a coordination argument, in which one's firms activities in a new industry are alleged to produce external benefits for other firms in the industry. And it is straightforward to show that a country in a monopoly position as either a producer or consumer can use a tariff or export tax to extract monopoly returns from its trading partners.

There are many other examples of government policies that Epstein does not like but that could be defended on his principles, including government involvement in education, in research, and in the production and regulation of information. His exceptions swallow his rule, leaving us with everything up for grabs -- and familiar public choice reasons to expect that far too much of it will be grabbed.

Epstein hopes to prevent this outcome by better institutional design. Perhaps that is the best we can do. But there are at least two other alternatives worth serious consideration.

The first is the extreme version of the libertarian state: no coercion beyond a monopoly on retaliatory force. Such a state will do less well for us than a state that initiates coercion in the rare circumstances where doing so produces large benefits. But it might do considerably better than the realistic alternative: Epstein's society as we can expect to see it actually implemented, in a world with plentiful arguments for extensive uses of state power and strong incentives to act on them.

The second alternative is to eliminate state coercion by eliminating the state. In that world, some coordination problems will go unsolved, making the result worse than the world that would be produced by a state run by perfectly wise and virtuous libertarians. But eliminating the state also eliminates the largest coordination problem of all: the problem of controlling the state. Given the record so far, that is a more serious problem than how to build roads without the power of eminent domain.

David Friedman is a professor in both the law school and the economics department of Santa Clara University. His first book was The Machinery of Freedom: A Guide to a Radical Capitalism (Open Court). His most recent is Law's Order: What Economics Has to Do With Law and Why It Matters (Princeton University Press). A draft of his next book, Future Imperfect, can be found on his Web page.

Beyond Economics
Freedom is more than dollars and cents.
James P. Pinkerton

Richard Epstein makes the useful point that libertarianism should be embedded in a practical philosophy, and he offers an elegant two-tier approach to deciding when and where to work toward the laudable goal of "expanding the scope of human freedom." I can't quibble with his approach to the issues that fall within his purview, but I also can't help but observe that the most important issues of the day seem to fall outside of that purview. Epstein's circumscribed approach to libertarian philosophy will, I am afraid, also circumscribe libertarianism's appeal and influence.

On the biggest issues of the day, Epstein is silent. I looked in vain for words such as drugs, pollution, immigration, foreign policy, terror, Iraq, or even Bush. That, to me, is the definition of a narrow piece. Not that there's anything wrong with that, but I believe libertarians have an important contribution to make on the hottest of the hot-button issues: drug laws, immigration controls, environmental regulation (including the reality that the United States is involved in a host of international agreements that affect America, no matter what we do), biotech and stem cell research, and, most of all, the "war on terror," which affects everything from civil liberties to federal spending to the ongoing war in Iraq.

By comparison, the issues Epstein wants to grapple with fall mostly within the realm of economics, including the minimum wage, antidiscrimination rules, collective bargaining statutes, mandatory pensions, insurance regulations, price and rent controls, and tariffs. Opposition to all these statist measures is firmly in the libertarian tradition; as Epstein says, it's all part of his plan to "reduce if not eliminate much of the welfare state."

Yet while it's fine to pound away on any and all of these issues one more time, I wonder what the ROII -- Return on Intellectual Investment -- will be. Most people, certainly most economists, accept the general proposition that markets work, and so the fight of the future is over applying Smithian wisdom in specific cases. The Institute for Justice, for example, recently filed suit against the Louisiana Horticulture Commission, which cartelizes florists. Such market-freeing cases are important, and Epsteinian thinking can help. But for the most part, the national agenda has shifted away from economics to other issues that seem more pressing. Indeed, the U.S. seems to have settled into a complacent Clinton-Bush consensus that accepts the idea that if the economy is booming, federal revenues ought to be spent -- and then some. Today prospects for reducing, let alone eliminating, the welfare state seem poor.

At the same time, prospects for expanding the warfare state -- which will, in turn, further ex-pand the welfare state -- seem excellent. In today's America, the spending of blood and treasure for foreign wars -- even those, such as Iraq, that violate international law and are based on government deception -- is practically unquestioned. A government arrogant enough to lie, big time, will never be a modest government. And then, of course, having made more enemies around the world through offensive wars, Washington must spend more on "defense," including homeland defense. Finally, after pledging a welfare state for Iraq (Washington is now a gold rush for lobbyists and contractors brandishing newfound expertise in anything "Middle Eastern"), it will be impossible not to keep and expand the welfare state here at home. Just days after the 1918 armistice that ended World War I, British Prime Minister David Lloyd-George promised "a fit country for heroes to live in." Britain's subsequent socialist bender proved that it's possible for a country to win the war and then lose the peace, and thus betray its heroes.

In today's America, war veterans will soon be granted larger benefits, but such expenditures will only be an overture to the lawsuits some of them are already filing against anyone with a deep pocket. When's the last time President Bush made a real push against the trial lawyers? He can't deal with tort reform or any domestic issue because he's too busy vindicating his foreign policy.

In addition, a government that's "strong" enough to rearrange the domestic affairs of other nations likely will feel equally confident about continuing to meddle in matters that should be private here at home, be they sexual, medical, or pharmacological. Randolph Bourne was so right: "War is the health of the state."

Some libertarians, of course, endorse the Bush Doctrine, explicitly with their words or implicitly with their silence. They argue, in effect, that the maintenance of freedom here requires us to force others to be free. I disagree with this neo-Rousseauean argument; I predict that if the Bush Doctrineers get their way, our future politics will go the cynical and perhaps dirigiste way of France, as every big-governmentalizing action is justified in the name of la gloire -- oops, I mean "democracy."

By all means, let's have a debate about American imperialism. My fear is that if we don't raise our voices, then libertarianism, a la Epstein, could become just a synonym for economics. In which case, we might have prosperity, but we won't have peace, and we won't have freedom.

James P. Pinkerton is a columnist for Newsday and TechCentralStation.com. He is also a contributor to the Fox News Channel and a fellow at the New America Foundation in Washington, D.C. He worked in the White House under Presidents Ronald Reagan and George H.W. Bush and in the 1980, 1984, 1988, and 1992 presidential campaigns.

A Moderate Responds Richard A. Epstein

Of the two basic points I made in my initial remarks, one has escaped serious criticism: that the traditional natural law justifications for freedom are not sufficient to sustain the case for individual liberty or for limited government. We are, as it were, all consequentialists now. The particular debates, therefore, are more focused. Randy Barnett and David Friedman claim that any system of forced exchanges is likely to produce more mischief than it eliminates. James Pinkerton argues that any libertarian theory that obsesses on economics runs the risk of losing the large struggles over peace and freedom. Both criticisms deserve responses.

Barnett thinks state coercion is not justified as a means to overcome major coordination problems because the risk of abuse is greater than the potential gains from the method. But his examples do not support that conclusion. Of course, the citizens of Poletown didn't want to not have their community ravaged for a pittance, nor did Donald Trump's neighbors want their homes converted to his parking lot. But it is wrong to look at this one feature of the eminent domain equation in isolation. Barnett's objections to eminent domain depend solely on the unknowable subjective value each person attaches to his or her possessions. But if that point is decisive, then eminent domain is also illegitimate when used to condemn land for national fortifications or public parks, when the public-use criterion cannot be contested at all.

Thus there are several real difficulties with Barnett's examples. First, the private use in both cases expands eminent domain power where it is least needed. Second, the puny compensation offered systematically ignored the subjective value of the private landowners and the dislocations the taking brought into their lives. Narrow the permissible set of purposes for takings and boost the compensation, and this takings problem will shrink, without using the meat cleaver of incommensurate subjective values to savage eminent domain.

Next Barnett claims we don't need eminent domain because private ingenuity can overcome holdout problems. But only sometimes. Private developers can use quiet tactics to assemble large parcels, but only because the law turns a blind eye to the low-level frauds that are used to mislead sellers about the buyer's intentions. But governments acting through public debates and appropriations can't use the same tactics to assemble land for highways. The history of oil and gas production, with the need to assemble and organize complex network industries, shows how holdout problems can stop development in its tracks. Indeed, the entire structure of property law rests on an implicit set of forced exchanges, which give first possessors, inventors, and writers priority over the rest of the world when astronomical transaction costs block voluntary negotiations. Too often private ingenuity blocks social coordination. It is much more sensible to stick with the more modest proposition that as transaction costs go down, the need for state intervention is reduced.

David Friedman's remarks are vulnerable to both these and other objections. The societies to which he refers but does not name are small communities, such as medieval Iceland, where tiny numbers and kinship relationships eased the path to social organization. Modern societies have bowed to the inevitability of some taxation, even if they have not done enough to constrain its use.

Again, it is not enough for Friedman to list the instances where state power fails. My own view gives no scope for tariffs because local protection is their raison d'être, notwithstanding all the palaver about infant industries. By contrast, the state sponsorship of scientific research has created public goods; before I ruled the National Science Foundation out of bounds, I would examine the evidence that advances in health have more than repaid their cost. Improve the system, yes; abolish it, no.

Friedman's pipe dream is that the alternative to limited government is no government at all. Not so. A large society with no central authority offers an open invitation to some sleazy individual to consolidate power in his own name. Constitutional government uses deliberation to expand the base of public support. Friedman's void at the center promotes totalitarian rule, not individual liberty.

Pinkerton charges me with an excessive preoccupation with economics. In part, I plead guilty to the charge that a short essay did not cover the waterfront and offer this belated response. First, on matters of value, nothing says that only markets matter. Indeed, as Barnett's comment and my reply to him indicate, one powerful reason for strong property rights is to allow people to pursue their subjective understanding of the good while respecting the like liberties of others. Nothing in my approach privileges certain kinds of preferences over others.

Let me turn next to Pinkerton's lists of specific issues. Pollution, how it should be attacked and when (at low levels) it should be allowed, lies at the heart of any law and economics program. The drug question also is amenable to that approach. Does drug use impose a peril on nonusers that requires some intervention before the fact? If so, what? Here's one three part program that might work: 1) abolish drug offenses, 2) remove all state subsidies for rehabilitation, and 3) refuse to reduce criminal responsibility by reason of voluntary drug use. As to terror, we all face the sticky tradeoff between liberty and security, where the only sensible program (even in Barnett's universe) asks whether additional precautions are more intrusive than beneficial. This is the heart of law and economics. Uncertainty makes utilitarians of us all.

Bush and Iraq are topics on which lawyers don't have much to say. I can predict what set of rules will help generate responsible political leaders, but I cannot make hard policy choices as a matter of general political theory. Just when should one nation intervene in the affairs of another, be it for humanitarian reasons or by way of anticipatory self-defense? Again, it is a matter of hard tradeoffs. But this is hardly an indictment of my approach. It only shows the great need for statecraft.

Nor does a focus on legal institutions trivialize issues such as character formation, family, or personal life. Here Pinkerton's criticism of me echoes that which John Stuart Mill made of Jeremy Bentham. Bentham was weak on personal virtues. There's a reason. Lawyers specialize in the question of how and when to use force. They deal with individuals as strangers, trading partners, family members, and litigants. Professionally, they don't have any inside track on matters of character, duty, and virtue, however vital.

Any libertarian who thinks you can promote virtue solely by abstaining from force and fraud is smoking some banned substance. Character helps people choose the proper course of conduct among those that are legal. Legal and political theory do themselves a disservice when they poach on questions of personal behavior. They are at their best when they deal with matters of constitutional structure and political power. It's nice, just this once, to occupy the odd position of being a moderate.

Color Schemes

r-epstein@uchicago.edu (Richard Epstein) — Mon, 01 Jul 2002 00:00:00 EDT

Election 2000

info@reason.com (Mike Godwin) r-epstein@uchicago.edu (Richard Epstein) — Thu, 01 Mar 2001 00:00:00 EST

Constitutional litigation will return to normal, but the political battles are just getting started.

What is the moral of the Great Florida Recount? Bush supporters, whether devoted or tepid (I fall in the latter category), may be personally relieved that the outcome lined up with their votes. But partisan politics aside, we can learn larger lessons from this classic judicial brawl. One lesson is that tragedies and near tragedies develop one small step at a time. Each side is rightly and mightily distressed with the prior machinations of the other. Each is therefore emboldened to take the next small step. Each step prompts the next until we come to the brink of a constitutional crisis.

That's just what happened starting November 7, 2000. Most pundits thought Al Gore's prompt request for a hand recount in friendly precincts would prolong the election by perhaps another week. They were the same type of folks who in August 1914 thought that British troops would return home from France by Christmas. What the election optimists missed is that both sides of this close conflict deeply believed that they had right on their side.

That is the second lesson of Florida's long count. The prolonged grudge match between George W. Bush and Al Gore offers ample confirmation of the endurance of primal instincts in human affairs. In our over-intellectualized analysis of politics, we place too much emphasis on the word "political" and too little on the word "animal" in the phrase "political animal." Alas, nature's first maxim of survival is to avoid a fair fight when both sides run the risk of serious injury. Nature therefore codes all animals to hold their ground when right, and to slink away when wrong. That game plan works pretty well except when each side to a dispute thinks in moral terms and believes it is right. Then a battle royal ensues.

The mutual sense of being wronged intensified the conflict, as did the fact that each side needed to make only the kinds of arguments most congruent with its legal philosophy. Democrats take an expansive view of language and harbor a yen for social justice, while Republicans gravitate toward plain-meaning interpretations and the rigorous application of formal rules. Truth is, this contest would have been over sooner if the litigating position of each side had required it to embrace the legal philosophy congenial to the other. But instead, the striking correlation of their legal strategies to their deepest psychological predispositions goaded both sides to fight harder.

The initial Gore response was an irritated expression of disbelief at the large but confused "butterfly ballot" vote for Pat Buchanan in Palm Beach County. But since Democratic operatives had prepared this ballot (to make the print easier for seniors to read), the Gore people could not lash out at Republican misdeeds, nor rectify the error in court. They did, however, think that the Republicans owed them one on the recount, and thus were emboldened to pressure canvassing board officials in Broward and Miami-Dade counties to run a hand recount that paid ever-greater homage to dimpled chads.

Republicans reciprocated in kind because they had no remorse for having won Florida fair and square, notwithstanding Democratic blunders. They showed their true colors when Florida's Secretary of State Katherine Harris eagerly exercised her discretion to deny the contested counties a waiver of the one-week deadline established for recounts. After all, the initial review of the ballots in Broward and Palm Beach counties resulted in only about 2 percent of the "undervote" being converted into votes. Thereafter, the consistently more lax standards in Broward County converted dimpled chads into 567 net Gore votes. Palm Beach County followed a more erratic but conservative course, which in the end produced, depending on who is believed, between 176 and 215 net Gore votes.

Clearly the choice of standards mattered. To forestall such erratic behavior, what Harris should have done was first to allow more time to complete a recount, but then to insist that manual recounts did not change the standard for a valid vote, which at least required that light go through the hole. Instead she neglected to give any principled defense of her position, which made her vulnerable to attack. In fact, her legal argu-ments were strong: Florida election law requires an "error in tabulation" to trigger the hand recount, and the machines had worked just fine.

The Florida Supreme Court, however, was now poised to do a bit of high-stepping of its own. The state election law was poorly drafted. Yet it is best read to say that the canvassing boards had to present tallies to the secretary in a week, though leaving her with the power to extend the deadline. The Florida Supreme Court exploited the textual ambiguity to come up with a solution that was inconsistent with any plausible reading of the statute. In a good day's work, that court read "error in tabulation" to allow Gore to challenge the traditional standard for a valid vote. It brushed over the obvious statutory concern with finality in election disputes; it authorized highly subjective hand counts without any safeguards against favoritism and bias; and out of whole cloth it created its own new November 26, 2000, deadline for finishing the hand count.

The Republican faithful on and off the U.S. Supreme Court noted the obvious distortions of the statutory scheme. But they were faced with the same dilemma that had just sapped the legitimacy of the Florida Supreme Court: The higher a case goes in the judicial system, the narrower the grounds for review, and the stronger the arguments needed to sustain a reversal. The Florida Supreme Court did not meet that burden when it overturned the secretary of state, so the conservative five on the U.S. Supreme Court faced the next round of the ongoing realpolitik dilemma: Play the game straight at your level and lose to the machinations of the judges below, or stretch the law a bit at your level, if necessary, so as to undo their error with some judicial innovations of your own. The case had not gone far enough to stop all litigation in Florida cold, so a grumpy but unanimous U.S. Supreme Court asked for the Florida Supreme Court to explain itself -- only to set the stage for a bigger fight next time round. Nine troubled justices retained peace without honor, through delay.

Back in Florida, business continued at a brisk pace. The canvassing boards in the key Florida counties all responded differently to the November 26, 2000, deadline. Broward finished its count and came up with a trove of over 500 new Gore votes. Miami-Dade called off its count, and Palm Beach County came within two hours of finishing its own recount. Harris, ever jealous of the prerogatives of her office, rejected the Palm Beach request for delay, and certified the Bush victory. That action promptly moved the case from its protest phase to its contest phase.

This move is larger in legal than popular estimation. A protest leads to more administrative work, but a contest requires a full-dress trial, complete with fact witnesses and cross-examination. The contest trial was held before Judge N. Sanders Sauls. who, consistent with the first Florida Supreme Court decision, found that the canvassing boards had not abused their discretion in the extended recount phase. He also found, more debatedly perhaps, against the Gore team on the grounds that they failed to meet the probabilistic burden of proof required for a contest.

Normally, a Supreme Court on appellate review is hard pressed to overturn a trial judge who has found in favor of an administrative official. But by a 4-to-3 vote, the Florida top court confounded most people's expectations by deciding, first, that every vote must count when the intention is clear, and second, that a recount of the undercounted votes throughout the state must be conducted under judicial supervision. The new dose of uncertainty could only benefit Al Gore.

Once again, the majority of the Florida Supreme Court twisted Florida law by ordering what was in essence a judicial continuation of an administrative recount. But at the contest phase, simply having election officials count ballots doesn't cut it. A trial was required to allow both teams to call local officials to the stand as fact witnesses, subject to cross-examination. That trial also should have allowed the Bush forces to challenge the legality of the undervote recount in Broward, Miami-Dade, and Palm Beach, but the four-member majority simply added those Gore votes as-is to the final tally, without taking any evidence at all from the Bush team. In essence the Florida Supreme Court appointed Judge Terry Lewis as de facto secretary of state to complete a recount, but made no provision for it to be challenged thereafter in any full-fledged contest.

So the case went up again to the U.S. Supreme Court. Only now the judicial dilemma was still more acute: If a bare majority of the Florida Supreme Court could have succeeded with its maneuvers, then Al Gore might well have been handed the presidency. In response, the five-member majority of the U.S. Supreme Court played a tough game of tit-for-tat. They stayed the Florida recount under a broad definition of "irreparable injury" to avoid, as Justice Scalia said, casting a "cloud" over the entire election. Justice delayed was, in a sense, justice achieved. The stage was set for a full-scale reargument, where once again the conservative majority had to show not just that the Florida Supreme Court was wrong, but so terribly wrong as to offend some constitutional guarantee.

The fits-and-starts of the Florida recount and contest procedure presented two lines of attack. The five conservative justices (Rehnquist, O'Connor, Scalia, Kennedy, and Thomas) invoked what can only be described as the broadest equal protection test known to man, for which they have been skewered by an enraged liberal press. Doctrinally, these critics have a real point. Normally, it is critical to know just what class of persons is disadvantaged by unequal treatment. That question can be answered with tolerable certainty in the "one-man/one-vote" cases decided in the 1960s. In those cases, residents of urban counties had a tiny say in state governance compared to their country cousins. But in the Gore/Bush bash, it is odd to lump all undercounted voters, whoever they might be, into one protected class, especially since any Bush undervoters were quite happy to see their votes uncounted so long as the Gore undervoters were equally ignored.

Worse still, this weird equal protection theory should not have ended the case. Rather, it cried out for the remand sought by Justices Souter and Breyer so that the Florida Supreme Court could establish a uniform standard of its choosing, and thus throw the election to Gore by declaring all dimples equal and valid. So the majority of the U.S. Supreme Court deftly cut off that possibility by noting that, under Florida law as interpreted by no less than the Florida Supreme Court, the overriding intention of the Florida legislature was to choose a slate of electors before the December 12, 2000, date (after which the slate could be challenged in Congress). The real decision was 5 to 4, not 7 to 2 as some conservatives have claimed.

The conservative core (Rehnquist, Scalia, and Thomas) went one step further by invoking Article II of the Constitution, which governs executive power. That article provides that the electors in each state shall be chosen "in such Manner as the Legislature thereof may direct." Florida's law calls for a popular vote under a complex election code that Florida courts interpret. This novel constitutional claim does not necessarily turn on bad faith conduct by the four Florida judges, but rather it becomes necessary to show at least that their decision deviated so far from the statute as to constitute new law of judicial origin. Take this line, as the conservative core did,and the judicial process ends with Katherine Harris' certification of George Bush.

Can that extreme claim be defended? In a low-stakes contest no one would bother to cast aspersions on the majority of the Florida Supreme Court. In this high-stakes case, aspersion looks well-grounded, if it matters, given how the Florida Supreme Court took over and continued the recount started by the canvassing boards. The Florida court created a new scheme for judging elections that can be referred back to the original statute solely by fanciful interpretative footwork. But for the U.S. Supreme Court majority, the operative principle may well have been only this: One bad turn deserved another. And thus the 5-4 majority ran out the electoral clock by overriding a 4-3 Florida majority.

For the public, this struggle was no doubt like a football game that went down to the wire but did not make it to overtime. The spectacle is over, and we can all move on. But academics and politicians have longer memories that lead to endless postmortems. Hyperbolic politicians will seize the platform to denounce the outcome. Key black leaders and liberal commentators have already mindlessly denounced Bush v. Gore as another Dred Scott decision, without acknowledging just how ugly a situation Dred Scott created.

This overblown rhetoric will die down with the next political flap. Still, liberal legal academics will linger on to rub conservative faces in the mire of their newfound activism. But they will have a practical objective, which is to give the next open U.S. Supreme Court seat to a political moderate. In the courts, ambitious lawyers will find constitutional meaning in administrative flip-flops until the Supreme Court states that this equal protection dog barked only once; constitutional litigation will quickly return to normal.

What remains is the uneasy aftertasteof this big decision. But ultimately that will prove more congenial to sober minds than would the alternative of an indefinite and prolonged struggle lasting into the next year. Remember that when two animals fight to the death, sometimes both die of their wounds. Here at least the Republic marches on, chastened, weary, and wiser. It was far from pretty. But it could have turned out far uglier than it did.

Impractical Equality

r-epstein@uchicago.edu (Richard Epstein) — Sun, 01 Oct 2000 00:00:00 EDT

Assault with Blunt History

r-epstein@uchicago.edu (Richard Epstein) — Mon, 01 May 2000 00:00:00 EDT

Unexplored Tributaries

r-epstein@uchicago.edu (Richard Epstein) — Mon, 01 Feb 1999 00:00:00 EST

The Libertarian Quartet

r-epstein@uchicago.edu (Richard Epstein) — Fri, 01 Jan 1999 00:00:00 EST

The Structure of Liberty: Justice and the Rule of Law, by Randy E. Barnett, New York: Clarendon Press, 347 pages, $29.95

Randy Barnett's new book, The Structure of Liberty, weaves together the two main strands of its distinguished author's career. In the realm of the practical, Barnett has drawn on his extensive experience as a state's prosecutor in Cook County, Illinois. As a legal theorist, Barnett (now a law professor at Boston University) builds on the great writers of the liberal tradition--Hobbes, Locke, Hume, Hayek, and Nozick--for his own theoretical defense of the rights and duties that all individuals owe each other as a matter of natural law. He then uses his judgments on rights and duties to define the province of a properly limited government's activities. Barnett's instincts should be more widespread today, when lawyers, philosophers, and policy makers automatically posit a government solution for any perceived social failure. His interest in basic theory as it relates to the uses and abuses of political power makes his views on a wide range of state policy issues, from taxation to criminal law, worthy of careful attention.

In natural law tradition, the purpose of government is to address the downside of human nature, which in Barnett's view requires a proper response to the problems of knowledge, interest, and power. The problem of knowledge is the difficulty of understanding other people's subjective preferences and predicting the complex forms of behavior to which those preferences will lead. The problem of interest is the natural partiality that persons give to their own concerns relative to those of others. Finally, the problem of power concerns the dangers of excessive or inadequate enforcement of legal norms.

Answering these three challenges defines the three major parts of this book. The solution requires the rule of law: coherent, fixed, intelligible, predictable, prospective, public, and stable rules of conduct with which rational human beings can comply. Only a system that embraces the rule of law can allow individuals to plan and organize their lives in an intelligent fashion.

Once these concerns are identified, Barnett outlines the basic rules of proper conduct to facilitate the flourishing of human beings in a society where scarcity of resources requires the limitation of individual freedom. To his critics on the left, much of what he has to say will seem to come from another century, or perhaps from another planet. I shall not tarry over their objections. But I too have major disagreements with Barnett's theory, because I also think that he tries to get along with a state that is too small, one which cannot discharge the essential functions needed to advance human flourishing or social welfare. The challenge is to point out the weaknesses in Barnett's theory without throwing us into the deadly, all-consuming embrace of the welfare state.

The dispute here goes to the heart of the question of what it means to be a libertarian. Like all great terms, libertarian evokes powerful emotions because it contains deep-seated ambiguities. It could refer to a philosophical system, or it could be identified with a political party whose views are imperfectly aligned with that system. But even if we put politics to one side, the term should be understood in opposition not only to socialism and welfare state liberalism but also to social conservatism of all stripes. Viewed in that context, Barnett and I are as one.

My disagreement with Barnett is not over the primacy of individual liberty as the end which government serves. Rather, it is over the seeming paradox of whether liberty must be limited so that it may be preserved. Barnett sees little place for any such limitations within a system of liberty, and by implication in a system of libertarian thought. My view is that, however indispensable liberty is for the advancement of human welfare, it must, like all great principles, be hedged in by other principles that flesh out a more complete legal system. I see a limited but irreducible function of government in responding to the problems of monopoly and public goods, while Barnett thinks these concerns require no concessions toward a larger state.

Barnett begins by explaining why his view of human nature makes him a natural lawyer. Unlike many of his ilk, he is quite relaxed about this characterization, using homey examples (for which he has a real gift) to illustrate his position. Natural law has gotten something of a bad name in instrumentalist and policy-oriented quarters. It is condemned for appealing to (take your pick) deductive, immanent, necessary, or self-evident truth (or worse, Truth) that retains its plausibility only at a high level of abstraction. Such a charge can be lodged against the abstruse writings of such political theorists as the late Leo Strauss and such modern jurists as Ernest Weinrib and Lloyd Weinreb. Barnett, commendably, has less lofty goals in mind. For him, the phrase natural law helps remind us that salient features of human nature are not easily manipulable. He rightly cautions against the oft-heard claim that human nature is "socially constructed" (it is never quite said by whom) and therefore can be reconstructed in ways that fit contemporary ideals of human (read, gender or racial) equality.

Yet Barnett does not press the point on his skeptical readers as hard as he might, for his main goal is to persuade us that natural law should be understood in a conditional "if-then" sense. Thus, if you want to achieve human flourishing, then these are the rules of conduct that you have to obey. His asserted parallel is to engineering principles, which say that if you want your building to stand, then you had better put your center of gravity over your base; if you want your building to fall down, then by all means have a lopsided overhang. The parallel is instructive, but not in the sense that Barnett intends. There are no laws of engineering; there are only laws of physics that indicate the relationships between distance, mass, time, force, and so on. Those laws cannot be couched as "if-then" instructions; they are the constraints that must be respected for any human project, whether noble or nefarious, to go forward.

The moment, therefore, that we couch human laws in these terms, we are not working parallel to natural (i.e., scientific) laws. Rather, we are asking how we can maximize certain outputs, such as human flourishing, given the constraints that we face. Many of these constraints are imposed by physical laws; others are biological imperatives that have to do with caloric intake, heat retention, and reproduction. But no matter what their source, Barnett's version of natural law, like that of the most successful of the classical liberal writers, becomes in practice nothing more or less than a sensible, constrained form of utilitarianism which measures the success of rules of conduct by the way in which they allow individuals to order their own lives, and groups to order their collective existence.

In this framework, the distinction between the language of human flourishing and that of social welfare becomes important. The former talks about the individual in relative isolation and treats self-realization as the highest goal. But that approach tends to miss the question of conflicts between individuals, which are more squarely addressed under theories of social welfare. These theories compare social states--claiming, for example, that social state A should be preferred to social state B if one person is better off in state A than in state B, and everyone else is at least as well off. Such calculations are not easy. But Barnett does not explain why the individualistic account provides us with better traction for social problems than the more comprehensive accounts, such as the test of Pareto superiority just mentioned, which is commonly used in economic theory.

By stressing the personal account of human flourishing, Barnett fails to discuss with sufficient fullness the key question of which rules of conduct should be individually chosen and which should be legally imposed--that is, backed with the coercive power of the state. Eating three square meals a day, avoiding smoking, and getting enough sleep sound like fine rules of conduct, but only a dangerously authoritarian state (such as ours is now becoming, on the first two points at least) would make adherence to such dietary, tobacco, and sleeping laws subject to collective control.

What, then, should the objects of public force be? Here Barnett draws on the work of the philosopher Hillel Steiner to insist that state power should be directed toward the articulation and formation of "compossible rights." These are the rights which it is possible for individuals whose personal interests sometimes diverge to assert for themselves and to recognize in others in ways that maximize their respective spheres of freedom. At this point in the book, the discussion of natural law recedes into the background, for Barnett is rightly concerned with getting people to buy into his substantive regime, even if they reject his legal metaphysics. He adheres (as do I) to the classical liberal tradition that starts with four simple rules as the keys to organizing social behavior.

The first of these is the principle of individual liberty, which gives to each individual a sphere of control over those matters closest to him. Liberty allows individuals to pick courses of action that advance their own flourishing. Since individuals live not in a void but as physical entities bound in time and space, the rule of first possession allows each person to choose and defend some part of the earth's surface on which he can carry out his own plans.

As social beings, humans understand the mutual benefit that comes from cooperation and exchange; therefore they must have a law of contract that permits them to deploy and redeploy their labor and property in ways that work to their own advantage. The freedom to contract, moreover, covers the right to determine with whom one will contract; rightly understood, therefore, it embraces a freedom from contract as well. And to make sure that liberty, property, and contractual interests are respected, a law of tort (or crime) has to be invoked to punish those who seek to gain advantage by deviating from the accepted rules--that is, who violate the fundamental liberal prohibition against force and fraud.

The case for this libertarian quartet is so powerful that it would be foolish for anyone to mount a frontal assault on it. But that is just the point. The opponents of freedom of contract never take so silly a position as to urge the prohibition of
all contracts. Rather, they make selective claims of market failure that are said to justify various forms of state intervention. Barnett's defense of this libertarian quartet is underdeveloped because he does not explicitly address and reject the focused attacks on freedom of (and freedom from) contract that form today's conventional wisdom.

On the top of that list stand anti-discrimination laws, which forbid the use of race, sex, age, disability, and sexual orientation (for starters) as reasons for refusing or failing to do business with someone. I have already climbed to the top of the rafters to denounce these interventions in competitive labor markets as mischievous. We would have more vibrant labor markets by scrapping the entire government apparatus in favor of the 19th-century common law regime that allows people to refuse to deal for good reason, bad reason, or no reason at all. Barnett has to agree with this conclusion, so it would be nice to see him call outright for the repeal of Title VII of the 1964 Civil Rights Act and similar legislation.

That position is not necessarily conservative, since (as I argue in Forbidden Grounds) repealing anti-discrimination laws would undermine the color-blind norm in private competitive industries--a norm that is supported by such prominent conservative thinkers as Abigail and Stephan Thernstrom--and pave the way for private affirmative action programs, however foolish they may seem or be. The decentralization of the affirmative action problem would allow individual firms to take advantage of local knowledge. Research universities, for example, might have different thresholds for affirmative action than regional colleges. Or affirmative action might be introduced at lower cost in the social sciences than in the physical sciences. Allowing different levels of affirmative action for different institutions would help defuse the chronic political tension from pointless presidential commissions that search for a misguided social solidarity on matters best left to the multiple judgments of separate firms.

But on this question Barnett gives us only silence. Ditto for wrongful dismissal suits (detailed in such gruesome particularity by Walter Olson's The Excuse Factory), collective bargaining laws, minimum wage laws, equal pay, family leave, and mandatory pension laws--all mistakes in his view and mine. Opponents of contractual freedom trot out arguments of exploitation and market failure to justify their schemes. To make good Barnett's claim that freedom of and from contract represents sound social policy requires a close, patient analysis of the proposed reforms and the institutional dislocations they cause. Barnett's Olympian detachment sounds ecumenical, but it does not take the fight to where his political opposition lives. His elegant theoretical defense can be airily dismissed by people who assert that this finespun theoretical structure could not survive the pounding it would receive in the real world.

Barnett's adversaries are not solely on the left. One commonly cited source of market failure is the inability of firms to take into account safety risks when they set working conditions for their employees. Enter the Occupational Safety and Health Administration, with its bureaucratic imperatives, nosy inspectors, and mind-numbing regulations. Philip Howard achieved massive and deserved publicity with his book The Death of Common Sense by pointing out the absurdities this system has wrought. One unintended but powerful consequence has been to disrupt local safety regimes with external standards imposed by people who mistakenly think that capital improvements are more effective than worker cooperation in achieving safety objectives.

Yet Howard's book fizzles in the end, because he is unable to rid himself of the thought that OSHA has a useful role to play in workplace safety. He therefore veers away from the evils of inflexibility by embracing a common-sense discretion that allows officials to waive OSHA's rules based on local conditions. But in so doing Howard substitutes one set of vices for another. Which firms get the waivers, and why? Discretion is often exercised in arbitrary and capricious ways that cannot be ferreted out by the crude devices available to the legal system. One connected firm gets a waiver, and it then lobbies fiercely to keep its key competitors from getting the same relief. Barnett could have advanced his case mightily by pointing out that a system based on freedom of contract avoids these multiple embarrassments by reducing tout court the opportunities for political intrigue. And he could have referred to economist W. Kip Viscusi's solid empirical studies, which show that firms face the lash of a hefty wage premium (even with OSHA in place) if they do not tend to worker safety.

My first criticism of Barnett, then, is that he does not tackle head on his chief adversaries in those arenas where the quartet of libertarian principles is able to ward them off. My second criticism cuts in the opposite direction. Barnett does not satisfactorily defend the quartet as the outer limit of state intervention--though, to his credit, he is well aware of the challenges that are raised in both moral and economic theory to this four-part approach.

The first challenge involves the so-called cases of necessity, wherein a person in imminent peril wishes to override the absolute right of an owner of private property to exclude other individuals. The basic virtues of a rule of exclusion for land and chattels is well understood. Without exclusion, cultivation, development, and conservation of natural resources are curtailed, because B can always reap or destroy the crops that A has planted. The necessity exception, endorsed by virtually every legal system that proceeds by the common law method Barnett defends, does not allow B to enter A's land willy nilly. But it sometimes does permit entrance if B must take refuge from an ocean storm, subject to his obligation to compensate A for any loss thereby inflicted. It might not let B enter A's cabin if A is present, but it would allow him to break into A's unoccupied cabin in order to forestall death from starvation or cold, just as it would allow B to enter A's land to save the life of C.

As these examples show, the exact scope of the privilege is hard to define because so much depends on the messy balance between B's need and the strength of A's property interest. But we have to fight through the examples to reach rough cloture. To say that B may be "morally" entitled to take A's resources while denying that B could be "legally" entitled is not very helpful. To say that a slippery slope could lead to the unacceptable expansion of the privilege (which has not been the case) is to ignore the dangers of a rigid rule that allows no privilege at all. Some limitation on liberty and property is recognized in practice. Barnett is mistaken to conclude that the principle of absolute exclusion is deductively necessary. A more nuanced concern with the demands for social utility under extreme conditions would lead to a better result.

The necessity cases represent only the thin edge of the wedge. The greater challenge to the libertarian quartet arises when the stubbornness of a single individual can prevent the implementation of a collective goal that advances the subjective interests of all parties, especially maximizing the output of common-pool resources. A group of landowners sits atop a valuable pool of oil and gas. Many people own property along a river or stream. Many fishermen or hunters have access to wild fish or birds. In each case, the rule of first possession is inadequate to stop the premature consumption of valuable resources. From the earliest times, legal systems have responded to these risks by adopting systems of common property that operate side by side with systems of separate property. Often these common systems are customary in origin, as with the rules that govern rivers and beaches. Sometimes they are developed by painful experience, as with statutory restrictions on groundwater use, fishing, and oil and gas exploration.

In each of these cases, the pattern runs roughly as follows. When resource utilization is low, people see great merit in a rule of capture, which is cheap to enforce and gives clear title to the first possessor. But when utilization rates increase, the first possession rule leads to premature and wasteful efforts to gobble up resources before others do. The capture rule for groundwater yields to some mushy regime of correlative rights and duties. The fishery is subject to catch limits. Oil and gas exploration is governed by spacing and unitization rules that prevent overexploitation. In each of these cases there are smart ways and dumb ways to proceed after the first possession rule is abandoned. But the strengths and weaknesses of the various approaches have to be examined directly. It simply will not do to assume that the capture rule, with its enormous defects, always comes out on top simply because the alternatives are subject to error.

The same difficulty with the libertarian quartet arises with the provision of classic public goods: common carriers, street lights, lighthouses, and the like. Barnett is very skeptical of taxation and regulation because they run smack into the problems of knowledge, interest, and power with which he is rightly concerned. But as with natural resources, it is wrong to assume that the imperfections of the libertarian quartet are smaller than those of some collective solution.

The requirement that common carriers serve all comers (explicitly overriding freedom from contract) is of very old origin, and it represents one possible response to the question of monopoly power. Even today, the strongest defenders of competition in the telecommunications market recognize that some form of regulation is necessary to secure interconnection (with appropriate access fees) between the local exchange carrier that controls the last mile of wire and the long-distance carriers that compete with each other. Volumes could be written about mistakes in the design and implementation of the 1996 Telecommunications Act. But the one objection that does not hold water is the idea that businesses with a legal or de facto monopoly should have the absolute power to exclude.

Barnett does not deal with these ex-amples directly. Rather, he notes, correctly, that the mere presence of a coordination problem does not justify the use of government intervention to whip recalcitrant participants into line. But that skepticism can be incorporated into a more sensible view that weighs the gain from overcoming the monopoly problem against the administrative costs of putting some particular solution into place.

Barnett engages in a calculation of that sort when he relies on economist Ronald Coase's famous 1974 article, "The Lighthouse in Economics," which attacked the orthodox view denying the ability of private firms to provide lighthouses. The beacon so provided has been called a public good that no one will pay for if others will provide it anyway. Since all self-interested parties can take the position of free-riders, the lighthouse will never get built. But it turns out that it does get built, and the fees for it are collected not as ships sail by on the open sea but when they dock at nearby ports.

That is undeniably a clever solution, but it is not one that operates solely within the confines of the libertarian quartet. The only way the fee can be charged is through the exercise of state monopoly power at the port. Indeed, in many cases the task of collection was left to customs officials. No competitive firm could collect that charge from its customers if they were free to go elsewhere. And the port fee system is easily subject to monopoly abuse if the revenues exceed the cost of providing the lighthouse and are diverted to other ends. The private owners of the lighthouse have a monopoly position and, unless some common carrier obligation is imposed, can charge what the traffic will bear. Indeed, the British parliamentary reports from the 1830s that recommended the shift to public ownership of lighthouses noted that the revenues far exceeded operation costs.

For Coase, this problem did not matter, since his main mission was to show that economics textbooks which treated lighthouses as the classic government-provided public good erred because they did not study the actual practices of lighthouses. But for Barnett, these observations are much more damaging, for they show the intractable second-best nature of every public good problem. The only way to avoid the evident dangers and inefficiencies of government funding is to take the risk of private monopolistic behavior. No a priori answer tells us which loss is greater.

More generally, holdout and monopoly problems are very tough, and sometimes they require all sorts of government coercion. To analyze when and how that coercion can be used requires a far more detailed examination of the intricate takings and just compensation problem than Barnett offers in this book. By failing to undertake this task, Barnett misses
the opportunity to weigh in against those forms of redistributive regulation--whether through assigned risk pools in insurance or the grotesque universal service obligation that is part of the 1996 Telecommunications Act--that have much more to do with subsidy than with efficient deployment of resources in a network industry. The dangers of misguided regulation are hard to attack credibly simply by declaring every deviation from the libertarian quartet unacceptable. What is needed now is not a blanket rejection but a differential analysis whereby some systems fail and other succeed.

Last we come to the question of the criminal law, on which I shall comment only briefly even though it occupies much of Barnett's attention. As might be expected, he is a strong defender of privatizing the criminal law function, and he relies on economist Bruce Benson's useful work to show the extent to which the private sector in law enforcement has grown faster and performed better than the public sector in recent years. Although that point is surely true, Barnett could have spent at least some time trying to explain whether, and to what extent, improvements in public law enforcement account for some of the rapid decline in the crime rates that we have observed in recent years.

Even if we put that question aside, Barnett makes the same mistake of proportion that occurs elsewhere in the book. It is easy to show that increasing the level of private enforcement in the overall mix can produce substantial improvements, especially against a baseline of a generation ago. But it hardly follows that we should go the whole nine yards and do away with public enforcement altogether.

Indeed, much of the success of private enforcement depends on its ability to rely on a public enforcement backup. Private police may be good at preventing crimes and nudging suspicious types along their way (something the regular police could do if the Supreme Court came to its senses and eased up on its hostility toward anti-loitering laws). But when murders and robberies occur, when individuals cross state lines, when the use of force may be required in a standoff, the private police rely on public enforcement.

The University of Chicago has had extensive policing of Hyde Park for the better part of 50 years, but no one supposes that we would love to see the Chicago police leave the beat. Quite the opposite: Local arrangements are designed to make sure that each investment by the university does not lead to a corresponding diminution of public enforcement in the neighborhood, given the obvious temptations involved. What has to be done is to work on the proper mix of public and private. Law enforcement, like the construction and maintenance of infrastructure, has a necessary public component.

In sum, Barnett's book represents much of what is sound and much of
what is suspect in traditional libertarian thought. Its basic instincts on the importance of liberty, property, contract, and tort are undeniably correct. The difficulties start when defenders of this system exaggerate its ability to address the wide range of problems that require some degree of government taking and regulation.

In refusing to address those problems, Barnett reminds me of physicians who defend therapeutic nihilism, claiming that most medical treatments have negative results, so patients are better off with no treatment at all. That position became untenable probably by the end of the 19th century, and certainly after the end of World War I. Yet it holds a lesson for us today: Regulation can kill, just as bad medicine can kill, but it can also serve useful ends.

Today the knowledge required for sensible regulation is available. Incremental improvements are possible; bad schemes can be denounced, good ones improved. That debate is where the action is, but Barnett will have to sit on the sidelines. Regulatory nihilism will not cut it as we enter the 21st century. Regulation beyond the libertarian norms is a necessity. The only question is whether we shall do the task wisely or poorly.

Unmanageable Care

r-epstein@uchicago.edu (Richard Epstein) — Sat, 01 May 1993 00:00:00 EDT

Peering into the future is always risky business, and health care is no exception to the general rule. But if one prediction can be ventured, it is that there will be greater government control over the provision of health-care services in this country 25 years from now than there is today. It is only with somewhat less confidence that we can predict that this expansion of government activity will be a failure–regardless of the particular path of reform chosen by the Clinton administration during the next four years or (another prediction) by its successor administration four years hence.

The prediction of failure does not rest on the expectation of specific blunders beyond our current comprehension. Instead, it rests on broad principles. The physical rules of universal gravitation, applicable today, will be applicable tomorrow, and these rules predict that top-heavy structures are unstable and likely to fall when pushed. The laws of economics are not quite so inexorable, but they constrain the organization of complex social structures in much the same way that the laws of mechanics constrain the field of architecture.

Alas, the sad truth is that even the most talked-about current proposal for universal and comprehensive healthcare coverage– "managed competition''–contains within it the seeds of its own destruction. It is not so much a coherent government plan as an oxymoron. It is possible either to have managed health care or to have open competition in health-care services. It is not possible to have both simultaneously. That conclusion is based not on particular insights about health care but on general propositions about the uses and limits of competitive markets.

Competition does not take place in a void; it rests on a well-articulated system of property rights. The essence of that system is unchanged from Roman times to the present, and we cannot bend or ignore its basic logic to accommodate the political whims of our frenetic times. The key feature of property rights is that each owner has the absolute right to the exclusive use of his resources and need part with them only through exchange on terms that are mutually advantageous to him and to his trading partner. Starting from that secure base of property rights, each exchange moves the parties to a higher level of welfare–for why else would they consent to the transaction? At the same time, strangers to the transaction profit as well because their opportunities to trade are generally enhanced by the increased wealth of their potential trading partners. But there is no duty of any owner to enter into any particular transaction for the transfer of goods or the provision of services based on the need of the other party.

Once the basic property rights are in place, there is no plan at the center–no government monopoly–that prescribes who shall trade with whom and on what terms. In open markets, when a trade takes place, both sides are winners. When a trade does not take place, there is no reason to panic and every reason to believe that the parties have found more profitable avenues of exchange–unless, of course, the state has thrown regulatory barriers in their way. As Robert Nozick wrote (before his regrettable communitarian conversion), a system of voluntary exchange is totally antithetical to the achievement of any "patterned" outcomes, desired by the society as a whole or any dominant political faction. What emerges from the interplay of independent actors is a just distribution of goods and services not because of what it is but because of how it came to be.

Judged by this standard, any system of managed competition is a contradiction in terms. The ordinary system of markets does not seek to ensure that all individuals purchase health-care insurance, or, if they purchase it, do so in any fixed quantity. Instead, health care is but another good; from the point of view of the legal system, it is neither more nor less important than a good pair of tickets to the Super Bowl. We know of the importance of health care not from any government mandate but because of the willingness of individual actors to acquire it through contract.

We also know that for some people health-care protection may not be as important as it appears to us, for they have chosen to go without it, preferring instead some other use for their resources, be it food, shelter, education, or amusement. Long ago Thomas Hobbes stated what modern planners too easily forget: "The value of all things contracted for, is measured by the appetite of the contractors; and therefore the just value, is that which they be contented to give."

Managed competition does not work in this fashion. There is no option for any individual to leave the system. All must obtain coverage whether they want to or not. But the question is what counts as coverage. If the system simply required parties to obtain some health-care coverage, the mandate to insure could be met by purchasing limited protection–say, against exotic tropical diseases only. Yet universal health coverage is supposed to be comprehensive as well. Managed competition thus faces two unique challenges: First, it must specify a class of mandatory purchasers; second, it must specify a class of minimum mandatory purchases. It can survive neither.

In a voluntary market, persons have a choice not only of whether to buy health care but of how much health care to buy. With managed health care, however, people must purchase enough health care to satisfy the demands of a central planner. Cheap coverage only for some rare tropical disease is now conclusive evidence of an intent to evade the requirements of the universal plan. No longer can we obey Hobbes's injunction and let private appetites determine the scope of contractual rights and duties. The central planner determines whether firms must supply alcohol rehabilitation, sex therapy, psychiatric care, or a spare set of dentures. Those people naive enough to want coverage simply for bodily injury and disease will not be permitted that option. The choice is all or nothing.

These regulatory edicts on scope of coverage will not be made by independent professionals acting in the best interests of their own patients. Rather, they will be made by bureaucrats unable to fend off the sex therapists and alcohol rehabilitation specialists, who insist that no one can have "decent" health-care service unless their own specialty is added to the mandatory list. The motley collection of required services will quickly swell to the point where it becomes unattractive to consumers.

Now many Americans will face an unhappy choice: purchase health coverage that offers less value per dollar than that which could be acquired in a voluntary market, or do without. (People have been choosing the latter in large numbers during the last 10 years, responding to minimum requirements for health-insurance coverage established by many states.) Knowing pundits will chalk up the decline in rates of coverage to market failure rather than the regulations that choked off the market's vitality.

What happens to the millions who cannot enter or must exit the regulated market? Given the aspiration of universal health care, someone else must provide for the newly dispossessed. Because of managed competition, it is no longer possible just to remove the minimum coverage requirements so that some portion of the uninsured could filter back into the voluntary market. In any case, while this cost-reduction strategy will increase the market penetration of health insurance, it cannot work miracles. The perfect voluntary and competitive market cannot and will not provide universal health care: No supplier will provide care that costs more than its recipient can pay–period. Just as an insistence on universal automobile insurance leads to assigned-risk pools, so too managed competition must take care of its non-market participants.

But how? Here the alternatives are very unappealing. One approach is to raise the additional funds for universal coverage through a tax imposed on the fees paid for health-care services in the private sector. But this tax system will have to chase its own tail. Any tax on the health system will increase customer costs without increasing customer benefits. Those purchasers who value the mandated coverage more than its cost, but less than its cost plus the special tax, will exit the regulated system.

Even at the first stage the stampede to the exit is likely to be large if the tax is substantial, especially if persons without coverage in the regulated market can obtain it for little or no cost from the government pool. After the exit, the tax base will be smaller, requiring a still heavier tax to fund the government-controlled segment of the market. And so on with each turn of the screw. It is not at all clear that a taxed market and a subsidized market can survive side by side. The latter is likely to drive out the former, or at least substantial portions of it. The predator will then die because its voracious appetite has extinguished its prey.

One attempt to discourage exit from the regulated market is the "play or pay" proposal. The idea here is a simple one: Those firms that do not supply the minimum mandated coverage are required to pay a tax to the common fund. But how should that tax be set? If it is set too low, the world will have lots of payers, no players, and insufficient revenue for the government pool. If the tax is set equal to the cost of covering the firm's workers in the government-run market, there is a built-in shortfall: No money can be set aside to provide for the huge membership of unemployed persons who depend on the fund for their coverage.

So even if firms decide to play, they will still have to pay, albeit somewhat less. And if they decide to pay, the cost could quickly escalate, encouraging other steps to avoid the tax. Companies could hire fewer employees to reduce the head tax; they might decide to scale down their business, or even leave the market altogether. The system of play or pay could turn into a system of play or pay, then fold. The problems of health-care coverage would remain unsolved, and wider economic markets would be disrupted. The costs would thereby be diffused but not eliminated.

Ultimately, some broad-based levy on earned income or all income (or perhaps a national sales tax or value-added tax) will be needed to fund universal coverage. These taxes will reduce the rates of investment, production, and profits otherwise attainable in the private sector, and they will generate fierce opposition from a public that knows it's already overtaxed. And the government will still have to figure out just who will provide health care for the people who are not placed in the regulated market. Successful insurers will probably be forced to provide coverage at a loss for those persons unable to secure protection in the regulated market. And when that system fails, the government will become the ultimate manager of competition; it will go into business itself, with the same success and imagination that it brings to the operation of the Post Office or the public schools.

To be sure, there are some gains that managed competition might achieve. Insurance firms might seek to make contracts to provide low-cost care for their customers. But those incentives to reduce costs all come from the competition side of the package. The addition of government-assigned business will invite cost-plus forms of accounting that will have exactly the opposite effect and will create massive disputes over which of the carrier's joint costs should be assigned to the private and which to the government portion of the plan. The managed side of the package will thus impede efficiency in the name of universal and comprehensive health-care coverage that we cannot afford to provide given our shrinking resource base.

We have to let go of the allure of universality, which is today treated as though it were an undeniable ethical imperative. In part the slack will be picked up by a resurgence of private charitable care, which hospitals could provide if freed of their regulatory burdens. And cities and states could again run a system of public hospitals to take care of some of the poor and emergency cases. This system consciously gives certain persons second-class health care at best and leaves the risk of no health care at all.

But it also offers hidden gains. Persons who know that their health care is at risk will have an incentive to take steps to reduce their need for it: There will be less drinking, less drug use, and less casual sex. Likewise there will be stronger incentives to tailor health plans to meet what people regard as their essential needs, not what regulation requires them to purchase.

There is, of course, a big cost: Some people will surely die for want of health care, as they have died in the past and as they continue to die today. But the issue is not whether there will be comprehensive universal health-care coverage funded out of public revenues. It is beyond our power to legislate that into existence. The issue is whether we can find ways to increase access by reducing costs. Unless we let go of the impossible dream of universal health coverage, we will engage in punitive regulatory measures that will not save those in need but may well bring down the entire health-care system in ruins.