Coase Colored Glasses


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.

Vagueness–Change You Can Believe In

After reading the final chapters assigned to us for this class I can only come to one conclusion, it is way easier to write a blog post when we only have one topic to write about. When I’m trying to think of how to attack these last blog posts by mashing everything together my mind finds a blank on where to begin. Law is a very tricky subject, especially when thinking about it in an economical way. I would like to say I have always tried to think about legislation and peoples rights as technically as possible and it wouldn’t scratch the surface of how hard it is to plan for different scenarios in developing law. When Epstien summarizes by asking the questions on private property when determining peoples rights that he talked about in chapter 6 is a great example of how vague legislation has to be. It seems to me that when dealing with peoples rights the rules have to be vague in order to force a case-by-case situation. Sure you have the original framework that holds everybody to a standard (i.e. The Constitution and Bill of Rights). But it is ridiculous to think that a government can just write any piece of legislation that will resolve any criteria of problems, especially in our quick changing day and age. But is our country down a road that is inevitable to reach an end? I have often times wondered this through out this class. It has always seemed to me that government is getting more outlandish with more chaos; that there is more bickering and talk of need for bi-partisanship. This was made more clearly to me to be bull*&^% when I was listening to the radio a couple days ago about this very subject. A political talk show that I listen to was talking about a speech done by former representative Bob Bennett about how we as a society need to ignore political gossip in the media and how stuff like that are making our government worse than it has ever been. A man called in and made the comment that this statement was false and maybe Mr. Bennett should consider the government during the civil war. He talked about how we as a nation have been going through things like this for decades and how political slander has been around for a long time; it is just more publicized now. This made me realize that our nation has been through similar situations for years and it is the vagueness in our law that has kept it consistent through changes in society. Sure we base laws off of past events and suits that have happened, but it is the vagueness with these standards that have kept up with change.

The Efficiency of Study Law and Economics

Reading the last chapter of Friedmans book has confirmed my belief the efficiency and law is in the eye of the beholder. The debate for and against efficiency answered no questions but only sparked more as to the efficiency of law. In the end, while I have learned a lot about the law and about economics in this class, my view of the subject is no more decided than when I started the class. Maybe it was Friedmans writing, or all the great points made by fellow classmates, but in the end, I really have no idea as to whether or not law is efficient or economically just. What I do know is that upon closer examination, while there are flaws in the legal system, they are essentially doing the best they can with the resources and information available. As Friedman and Posner mentioned, no judge, senator, or lawyer can have an omniscient view of the situation, and certain things can not be accounted for. All we can expect is that they try their best, and with my optimistic point of view, maybe that is the best we can do. And maybe it is all that is really necessary for any of us.

It depends

Reading this last chapter in Friedman’s book just drove home one of the most interesting rules in economics. Whenever an economist is asked a question, the correct answer he should use is, it depends. In economics everything depends on individual circumstances and preferences. There is no way to say that one answer is better than the other unless it involves a preto improvement. With the judiciary, I think that they try to find what is best for the greater whole, but it is not possible to be in a position where you have enough information to make decisions like that. There are just too many variables that have to be accounted for. But I do think that they can make an educated decision on what is best. They are in a position to be impartial and see both sides of the equation. They can try and gather as much information that they can, then make a decision solely on efficiency. With that though someone will always be worse off, and hence it will always depend on what is the correct choice.

Progress in Society

In his epilogue, Friedman breaks down the advancement of our society in ideology bit by bit, and describes how we have grown in efficiency through our rules and laws.  His brief history of economic thought reminded me of Atlas Shrugged (which I’ve heard is now a film).  In the book scholars (reminiscent of many of today’s liberals) state that our society should be advanced enough to get past competition, and gathering wealth, and develop more love, sharing, goodwill, and brotherhood.  They propose that to do so, each person should do a job they are assigned to do, and nothing else.  Something they can benefit everyone with.  That person should not expect to be paid more than they need to live, no matter the job.  That way we can evolve ideologically out of our caveman moneygrubbing stage.  In the book, the society fails because no one has the incentive to do good work.  No one lives comfortably or safely anymore because the options have been diminished by low supply and high demand.  They return to the stone age.

Ayn Rand’s depiction may be fictional, but I believe that it would be something like that.  The collective good is not to force everyone to do something and sharing the proceeds.  The collective good is allowing people to earn and create as much as they will.  Laws to protect the individual from the collective and other individuals are needed, not laws to force people to be a servant of the collective.  Friedman says,  “since the objective is important to almost everyone, it makes sense to think about what rules best achieve it.” The U.S., though not without its problems, is a place where the rules allow anyone who will to achieve.  Economics is not a conservative ploy to promote free markets, and open, fair institutions so the few can become rich.  It is a science that studies what promotes productivity and growth.  If we try to leave, in the name of goodwill, these proven principles behind for group primacy, we really will return to caveman ways.

I definitely have a great Juvenile Past

I’ll tell you this. I definitely have had my fair share of instances where I have noticed that some judges definitely think efficiently. I know this may seem that I am a little bit sketchy but allow me to go back a little bit. I’ll admit it. I was at one point kind of sketchy. So one day I decided to go to a store with some friends. The next second later I see my friends stealing some stuff and they run out of the store away from some security guards. Obviously I was a little bit confused as to what was going on and I was a little unsure what had happened. Seconds later I get tackled by a security guard who was alerted thankfully that I had entered in with them. What a good time. Now let me tell you the difference between what happened with that judge and what happened to me the first time I had gotten in trouble with the law for joy riding when I was like 15. When I was arrested for being an “accomplice” to a crime I had no idea was being committed I was sent to the first district judicial court. This place was pretty great. I came in shorts and a t-shirt, unbeknown to me it is custom for people to dress up for court. (It was my first time) The judge dismissed me to go and purchase clothes that I would look more appropriate in and I left. I thought this at the time to be quite a waste of my time and definitely a waste of court fees. After all they were just sitting there waiting. Not a very efficient way for them to spend their time. I came back and he decided that it would “do me good” to spend some time in a juvenile detention center. The crime? Having friends that stole stuff. There was video footage of me purchasing a cd on the other side of the store and yet I too was to be punished. For a week I would be in what we youth affectionately called “DT.” It soon came to my attention that this place must have cost some serious money to shack me up in for a week. 3 meals a day, one on one staff some parts of the day, different teachers for the separate grades and select other staff. All to teach me a lesson? Ya wanna teach me a lesson? Don’t send me to a place with my friends for a week and make us legends of the school on the tax-payers dime! Not efficient at all! Ya wanna know what fixed me from my joyriding life? The judge that I spoke with there sentenced me to a large find and lots of community service hours. Low-cost for the courts and makes money to pay restitution. And guess what else? It worked! I didn’t not want to work for free. I especially didn’t want to do it during my prime hanging out hours and I learned my lesson albeit the hard way. Just one instance of one juvenile delinquent that learned his lesson and he did it the efficient way. I hope that more judges will become this way as what was discussed in Friedman at the beginning of ch. 19 when he talks about Posner who said, “that the common law could best be understood as a set of rules designed to maximize what we have been calling economic efficiency.” The law in at least one of these cases helped me to understand the rules from an economically efficient angle. I definitely learned my lesson.

Back to Deterrence

While reading the book by Friedman for this week, I was struck most by one statement: “… deterrence can be made into a private good and even judgement-proof criminals are worth deterring” (p.305). About halfway down that page he continues to argue that in cases where the victims are anonymous, deterrence cannot be made into a private good. But either way, it’s still a good, right?

If someone prints libelous statements about me in the Statesman, I can receive damages to compensate for the harm done to my name, let’s say $5. Additionally, I can receive punitive damages, let’s say $2,000, in order to deter the author of the article from publishing falsities about anyone. This then makes the overall cost of libel $2,000, which acts as a deterrent against other journalists publishing false, damaging statements. This scenario provides a private good, and it also provides a public good. I benefit from the deterring punishment. Society benefits because the outcome deters journalists from printing false stories that could cause an uproar or damage the reputations of any number of people within society. I’m still trying to work this argument out, but so far I can’t think of a legal scenario where deterrence is a bad thing.