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Archive for April, 2011


The Advancement of Social Welfare

It was strangely fitting for me to read Epstien’s conclusion at the end of our semester. I was intrigued by his idea that his arguments were made to show that property rights are necessary for as he puts it the ‘advancement of social welfare’. That statement caught my idea. Because in the midst of all the talk of the ‘reasoning’ behind the choices that are being made in legislature, government, judiciary, relationships, pirates ships is the idea that somewhere, somehow, this  understanding of these principles, specifically the analysis of public choice and another economic ideas, will benefit us.

Everything that we have learned we must realize is being learned selfishly, for one self interest or another we put in the effort to read, go to class, analyze and discuss these ideas. We don’t do it just for the ideas sake, we do it because we stand to gain something. Some sort of welfare or utility is being gained by our actions.

That’s the biggest thing that I’ve come to realize is that my actions are entirely selfish. Even the ones that I deem as entirely unselfish are somehow and in someway helping me to gain utility. I don’t give money to a charity because I’m just charitable, however much I’d like to think that is the case, I give it because I get a ‘good feeling’ or I get some sort of utility for my efforts.

Now this isn’t a new idea to any of us, so you might be wondering, what’s my point? Well, Epstien mentions ‘social welfare’ which relates to maximizing utility over a large group of people. As I thought about this I realized that the reason a rational person would care about the welfare of a group only if there was some advantage for them in the long run. Wither they be decreased costs in the long run which then mean a greater utility gained over a long period of time, or an increase in utility the only reason a rational being would maximize social welfare would be if there own personal welfare would increase.

Which leads me to wondering, what increase in welfare was Epstien hoping to gain by writing about property rights. Putting the idea that he as writing purely to gain money aside, we can assume that he was writing because he believes with increased property rights would come somehow to him an increase in his overall welfare.

But the interesting thing is even if his idea was wrong, say completely wrong, like, he thinks Barak Obama isn’t a natural born citizen wrong, he can still make a ‘rational’ decision to write about about his idea if he perceives that he would benefited from it.

Reality then doesn’t matter as much as perception of reality does. What we perceive to be true in a sense becomes our truth and the basis for which we make rational decisions. If I perceive something to be true then any attempt to maximize my utility can indeed increase my utility because I get some benefit, real or imaged, out of my effort.

This was especially clear to me when I was looking at the coverage of Barak Obama’s birth certificate. Because in reality the effectiveness of these tactics would be minimal. You wouldn’t get him removed from office, but somehow people get utility from trying. The effort is what gives them utility.

Utility. That’s what its all about. Maximizing it personally is what everything we’ve learned is about.

Judges or Economists?

Friedman seemed to write his last chapter differently than the rest of the book. It seems he finally came to terms with the “real world” versus the economically ideal feeling instilled in me that I often had after reading Laws Order. To begin, I believe that it is completely correct for judges to care about things such as “justice or “fairness”. Although they may be not be economically effiecient all of the time their is nothing wrong with that. Judges are NOT economists, nor should they be. Although I happed to find myself on the efficiency side of the ailse often, their are times when other things take priority. Judges should be allowed to do the job they were designed to do.

As Kelsey already pointed out, a key passage is on pg. 299 where Friedman explains that the market is unable to correct poor decisions judges may make through natural feedback, “No comparable mechanism exists to push judges toward efficiency.” Exactly! Are judges and the United States judiciary in general not created specifically to be insulted from outside pressures and forces? Nearly every aspect of our high-level judicial appointments–lifetime tenure for good behavior, nominated not elected, private and secretive nature, informal code of coduct, dress, and behavior–are in place specifically to counterbalance the whims of the people, and I would argue, the market. While Friedman is completely correct in saying that one important judge can do “an enourmous amount of damage…billions of dollars down the drain”, how would increased market pressure effect this?

First I ask exactly what kind of market feedback would create outcome that are more efficient in our judiciary. Second, how can we structure such feedback in a way that only allows it to fix ineffiecent and harmful judicial precedents without opening up the judiciary to every form of political and societal pressure the  plagues the other branches of government. Our congress is closely alligned to the people will, especially on issues that approach consensus, and yet they seem to be consistently not trusted and even demonized. My vote, leave one branch insulated. Unfortuneatly, as my post last week points out, we currently have two insulated branches–the judiciary and the bureaucracy.

I conclude by quoting Friedman, “A more serious problem with testing the thesis [Posner’s] is that often we simply do not know what the efficient rule is.” Ah, its never been better stated. I would classify myself as at least a relatively intelligient and informed individual yet I am never certain my choices are efficient according to my own rationality. Do we seriously expect the courts to divine efficient outcomes every time? Even economist disagree on the “right” solutions. Ultimately, i applaud continued efforts to apply economics to our world for it own betterment yet I am content with the fact that our judges are allowed to use the common law to rule, or better yet, judge, on each case individually occasionally.

Judicial rationality

What is the motivation for a judicial decision? Is a judge going to base his decision on popularity, the judges personal ideology or based off of the chance that a judgement will be overturned by a higher court?

I felt that the others for these chapters spent a lot of time beating around the bushes. Whether that was on purpose or not it has yet to be determined. I found a few factors that they discussed that seemed to put together more of a base to prediction of what judicial decision making.

First, a judge is only going to make a ruling if he feels that his decision may stick most of the time. There may be an exception where a judge may choose to pass a ruling that they know will be overturned for reasons that are not normal. Some examples of non-normal motives would be a strong ideological drive, the popularity that may be gained from being edgy and controversial, etc. For the most part I feel that it would be in a majority of cases to base decisions within the reason. As a judge is higher up the hierarchical ladder we may see him making more decisions based off of ideology, but probably not popularity due to the fact that they will probably not receive a promotion or pay increase.

Secondly, if a judge as in our system is removed from lobbying and election pressures, anyone judge will make a decision based on moral ideology. I would have put constitutional or precedence loyalty in the same category, but both seem subject to the views of the individual. A judge may feel that stare decisis is not a legitimate reason for changing a decision based on a change in judgement circumstances, the terrible ruling of a case or possible wanting to create waves. Motive is based off of personal ideology and preference, but only placed in check when the danger of an overturning is possible.

I do know that this doesn’t necessarily happen to make pediction much easier, but it is necessary to state that judicial decision making because of its immunity to most outside pressure is to be based with the complex nature of each individual.

Epstein is a smart dude

Reading Epstein’s last reflections of his book was not what I was expecting.  Instead of summing up everything he had written about and giving his opinion about property rights and whatnot, he asked questions and left the conclusion open for the readers to figure out.  Personally this book really made me think about which side of the fence I sit on about these issues.  At the beginning of the book I could see why zoning laws were believed to protect citizens’ property values.  If industrial, commercial, and residential areas are all mixed together it would create a lot of nuisance and property values could plummet for residents.  I suppose that defining what is industrial, commercial, and residential property is the bigger issue.  Also the takings clause that allows the government to take one’s property and return a just compensation.  The Founding Fathers weren’t incredibly specific on what just compensation meant and on what grounds the government could take it.  I can agree with taking a run-down neighborhood and turning it into parks or something, but should they have the authority to take property and give it to companies because of the economic benefits?  It may be efficient, but is it right or just?  I don’t think so.  I think efficiency can be sacrificed to preserve justice and morals.  Some may argue that efficiency creates societal norms and mores, or that norms and mores create efficient outcomes.  But I’m gonna pissed if the government forces me to give up my land or property to a steel factory or something.  It just isn’t right.

Ramblings…

I recently read a book (“The Future and Its Enemies” by Virginia Postrel) with one central point: We need a dynamic society, and dynamism is evolution through variation, feedback, and adaptation. The opposite of being dynamic is being static. On page 299, Friedman notes the difference between the assumption that executives of firms will act efficiently and that judges will act efficiently. The crucial difference is, “The market provides feedback, positive and negative reinforcement, to guide business firms toward efficient behavior. No comparable mechanism exists to push judges toward efficiency.” BAM. There you have it – the big difference between applying economic principles to the economy and applying them to government and law. The market is great at giving feedback – if left to itself. But government gets in the way of market feedback. That’s why I think there should be as little government intervention as possible in the economy; because I believe in the power of feedback and adaptation leading to progress. So government and law is really a static system. Is this a problem? If it is a problem, how do we implement variation, feedback, and adaptation? As others have mentioned, perhaps consistency is law’s highest virtue. However, consistency isn’t very good if we are consistently inefficient or unjust. Besides, with a lack of feedback, we wont have as clear of signals telling us in which direction to move to better society. As much as I hear people complain about the evils of money, it serves as a pretty good mechanism signaling information. And let it be known that that is one of my biggest pet peeves – people who go on and on about how evil money is. Well guess what, if you want to do good in the world, you have to have money. So hate business all you want, but if there weren’t those of us interested in making a profit, there would be no one to support the charities. Don’t bite the hand that feeds you.

On an unrelated note, isn’t reading Friedman entertaining? My favorite bits from tonight:

“The direct use of force is so poor a solution to the problem of limited resources and diverse ends that it is rarely employed save by small children and great nations.” (pg. 309)

“…creating an olfactory externality…” (pg. 306)

Activate the Mechanism.

Friedman restates in his last chapter what he’s been proving throughout his book: “Determining what legal rules are economically efficient can be a hard problem” (299).  We don’t expect all judges to be economists, and “even if judges know enough economics to realize that they ought to be making efficient rules, it does not follow that they know enough to do it.”

I, for one, have often felt like Friedman’s arguments were circular and sometimes anything but conclusive.  Friedman now confesses that one problem is the “often we simply do not know what the efficient rule is” (304).  So if we can’t expect judges to know economics well enough to make efficient laws (Friedman rhetorically asks how we can expect average judges to do better than Posner, one of the most intellectually able and economically sophisticated judges of this century), what are we to do?

The answer lies somewhere in the analysis of the free market and its comparison to government and law.  That’s the premise of law and economics.  Friedman says “The market provides feedback, positive and negative reinforcement, to guide business firms toward efficiency.  No comparable mechanism exists to push judges toward efficiency” (299).  What if there was?  That’s the answer to the problem of quote unquote ignorant judges, right?  If there was a way that judges received positive and negative reinforcement, they would also be guided toward efficiency.  What could this mechanism be?  I submit that the answer is not as simple as ‘the Coase Theorem” or “a free market” or “common law.”  Common law, after all, is what Friedman is arguing is inefficient.

This ‘mechanism’ must be somewhere in the legislative process.  Friedman “offered intellectual property law as evidence in favor of efficiency,” which is legislated law.  What could provide feedback for legislators and judges?  Here’s all I could think of: a panel of economists who have to approve legislation and judges’ decisions.  I don’t think that’s right, though.

Talking about efficiency in government …

It seems as there are always intentions of being efficient, and, in a perfect world, everything would be. Since this is the imperfect world, not everything is efficient. Back in our nation’s infancy, it was about finding the fine line in which on one side the federal government had enough power to function in a manor that is for the good of the entire nation, and on the other side the people are happy with the amount of powers left with the individual states. In the creation of the constitution, the delegates had efficiency in mind. They wanted to give only the minimum amount of powers to the federal government, knowing that was how they had any chance of keeping it efficient. They had the monarchy of Great Britain and the Articles of Confederation to learn from, and they did their due diligence trying to avoid the worst in search of the best qualities in each. Once again the delegates created a pretty darn good form of government, for the perfect world, but as history has shown the same national government is straying from the original intent of the document. Yes, I do know that the original intent of the constitution or any law created by the legislature of a time so far gone is impossible to determine. The judiciary is then tasked with an impossibility. From their world view, maybe there is no way to reconcile the guidelines for government operation and the rights of individuals in this time that is so far removed from that of the Framers. Possibly the inefficiency comes from a vain but conscientious attempt to do such an impossible task.

Fuzzy Law and Fuzzier Economics, You Got That Right

Friedman begins chapter 19 with the question, “Is common law efficient?”. So naturally I thought that through out the course of the chapter he would actually answer this question. I have my own thoughts and opinions about this matter but I was looking forward to what Friedman would say. I was sorely disappointed. Instead of answering the question he gave copious examples for both sides. One minute the common law is efficient and the next it is not. He then to goes on to say that “the jury is still out”….cute. He is undecided about the efficiency of the common law system and the Posner thesis. I guess I should have seen it coming after the entire chapter was spent arguing both sides, but still it was a little shocking. Friedman has seemed to know the answer to all the economic questions so far and yet he cannot answer what seems to be the most simple one?  Overall not his best chapter.

At the end of chapter 19 Friedman says, “My own conclusion is that the jury is still out on the Posner thesis.  Some features of the common law make sense as what we would expect in an efficient legal system, some do not, and in many cases we simply do not know with any confidence what the efficient rule would be.”  This statement was by far the most interesting thing in the whole chapter.

The Posner thesis that he is referring to is the idea that the common law system, which is what we have in this country, is the best way to maximize  economic efficiency.  He gives several reasons for his ideas and Friedman either supports them or tears them apart.  (I never can tell anymore wether he agrees with or thinks a certain topic is dumb)  Either way this last statement that I quoted is the best way to describe the Posner thesis.  I can’t think of another way to have our legal system.  Yeah I know about the Civil law and what not but i just don’t think they would work the same way.

I will be the first to agree with you that the courts are not necessarily the best at deciding things logically or efficiently.  The few classes that I have taken have shown me examples of the Supreme Court making terrible decisions.  Yet at the same time I have read cases where it makes sense logically why they decided that way.  I guess what I am saying is that I agree with Friedman.  Sometimes the common law system is the way forward and sometimes it is not.  Most importantly though, like Friedman says, many times we just don’t know what the best option would be.  We don’t know what would be the best way to fix the problem.  Luckily the common law allows for judges to do the best that it can.  Wether they do a good job or not is not clear.

Reversal of Opinions

Friedman’s chapter was complicated but interesting.  I was surprised at how many examples Friedman was able to come up with of cases that support either efficiency or inefficiency in the common law system.  After strenuously trying to understand what position Friedman was taking on the subject he basically said that we don’t have enough information to really determine efficiency or inefficiency.  I was thinking that this would have been the result because it really seems to depend on the situation and whether we are looking at a short term horizon or long term.  Even if we would like to analyze efficiency with determined criteria, the results would be different looking 5, 10 or 15 years into the future.

After reading these discussions, I believe that probably the most important element of a legal system such as the United States’ is predictability.  If the system is drastically changing then efficiency is certain to be less than a stable system.  Even if the legislation or common law practice is inefficient, the population can plan and act accordingly to minimize the negative effects.  We cannot expect an individual such as a judge to be able to take into effect all the factors of a market.

When Friedman was talking about the pig farm example, I couldn’t help but think that it was the individuals responsible for the election of the officials that should have been worried about their personal outcome (yet we know that elections aren’t efficient).  When it comes down to it who really is interested in sacrificing their own livelihood in order to benefit efficiency and the economy?  If I was the pig farmer, I would probably reverse my previous views and hire a good lobbyist.  Everything seems to be relative to time and place.  Hopefully, people that actually care about others are in positions of power and responsibility, but nothing that we have studied about incentives leads me to believe this.

A profession that I am seriously considering is teaching. I often think about the type of professor I want to be. I realize that the way I would teach might be exactly the practices that irritate me presently. Sometimes I think, “I will not act like this professor” and other times I think, “If I have to deal with this torture, my future students will as well.” I consider myself to be rational; yet looking at the reversal of my opinion leads me to think that I maybe should reconsider my assessment.

In the economy and law predictability is necessary but not necessarily feasible.