Maskin on Markets
Austrian economists argue that individuals' preferences are relevant to resource allocation only to the extent that they are demonstrated through action. Economics is, after all, about the process by which subjective preferences are converted into objective, observable market phenomena like prices and quantities (see Joe Salerno's comment here). The Walrasian model, by contrast, takes consumer valuations as explicit magnitudes. My "true valuation" for good X is, say, $10, regardless of my behavior in the marketplace; in principle, I could communicate this valuation to a central planner who could then allocate resources to maximize my utility (and overall social welfare). The "knowledge problem," in this view, is not that preferences are latent and manifested only through action, but that people are unwilling to share their private valuations with the authorities. Mechanism design, according to Eric Maskin, provides a potential solution.
Nobel economics winner says market forces flawedMon Oct 15, 2007 4:47pm EDT
By Jon Hurdle
PRINCETON, New Jersey (Reuters) - Societies should not rely on market forces to protect the environment or provide quality health care for all citizens, a winner of the 2007 Nobel Prize for economics said on Monday.
Professor Eric Maskin, one of three American economists to receive the award, said that he "to some extent" takes issue with free-market orthodoxy championed by U.S President George W. Bush [!] and some other western leaders.
"The market doesn't work very well when it comes to public goods," said Maskin. . . .
In its statement with the award, the Royal Swedish Academy of Sciences said the market's efficiency may be undermined because consumers are not perfectly informed, competition is not completely free, and "privately desirable production and consumption may generate social costs and benefits." . . .
"How do we ensure in the case of public goods that they are provided at all, and that they are provided at the right level, taking into account citizens' preferences?" [Maskin] said.
A clean environment, for example, is not a private good in that "my enjoyment of it doesn't preclude yours," he said.
"So the theory of mechanism design asks what sort of procedures or mechanisms or institutions could be put in place which allow us to choose the right level," he said.
Those mechanisms could include taxes to allow the more efficient provision of public goods, he said.
Comments (64)
The market doesn't work very well when it comes to public goods
That's because there is no market for those goods.
The fact that there is no market for those goods demonstrates that people are not willing to pay for them when they have the option not to do so.
If people are not willing to forego other things in their lives in order to pay for these public goods, then they don't actually prefer them.
When you begin with the assumption that public goods must be provided, then you invariably conclude that they must be provided by force since that is the only way they will exist.
It looks like the thesis of this year's winner is, yet again, the product of an assumption that markets ought to be used for some purpose other than to allow buyers and sellers to find each other and prices to be set. You have to assume that in order to believe in the idea of "market failure" in the first place.
It's just another variation on the idea that other people exist to make your life easier -- that the government or its court theorist has the right to skim off of their productivity, to harness them as you would a beast of burden.
Published: October 17, 2007 1:06 AM
Maskin wrote:
In its statement with the award, the Royal Swedish Academy of Sciences said the market's efficiency may be undermined because consumers are not perfectly informed, competition is not completely free, and "privately desirable production and consumption may generate social costs and benefits." . . .
How does government replacing the free market give consumers perfect information and make competition completely free? This statement is absurd.
One of the most important strengths of the free market is that there is not perfect information. The market is much better informed and dissiminates information much better than even a near perfect government can. The government by its nature is significantly more limited than the market.
And concerning perfect competition how does government monopoly power increase competition? In a government system there is absence of competition so the very idea moves farther away from perfect competition. The free market allows imperfect competition to be perfected as competitors enter the market and arbitrage away imperfections. Making a good a "public" good exaggerates and then institutionalizes imperfect competition.
This has to have something to do with global warming?
Published: October 17, 2007 7:23 AM
More efficient mechanisms to provide goods that, if left alone, no one would opt for... right.
Published: October 17, 2007 7:34 AM
Question: How much credence does a Nobel prize have when Al Gore is named a recipient?
Answer: About as much as when Miss [State] is named Miss America.
Point: Many "qualified" candidates are overlooked in a beauty pagent, rendering the pagent basically meaningless. I no longer have any respect for the Nobel prizes.
Published: October 17, 2007 10:38 AM
Receipt of a Nobel Prize gives you about a one-third chance that either you or your ideas will be discredited in your own lifetime.
Also the Nobel prize in economics is not the same Nobel prize that is handed out to other recipients. It is funded differently and just happens to be handed out at the same time as the other Nobels.
Published: October 17, 2007 11:05 AM
""The market doesn't work very well when it comes to public goods,"
Didn't Hans Hermann Hoppe refute this nonsense ? I am referring more specifically this: http://mises.org/journals/jls/9_1/9_1_2.pdf
Also more fundamentally even from a mainstream point of view, isn't this just the same old, same old ?
Published: October 17, 2007 11:24 AM
Sorry for the two posts in a row. But isn't mainstream economics supposed to be a "positive"(as opposed to normative) science ? How in the world can mainstream economics justify all this talk about public goods in that framework ?
Isn't the argument basically the following when put into syllogism form ?:
Premise 1: Goods X, Y and Z can't be produced other than by the government.
Premise 2: Goods X, Y and Z SHOULD be produced.
Conclusion:The government should produce goods X, Y and Z.
However how in the WORLD can they justify premise 2 without reference to some normative system of ethics ? At least if we are to accept the (normative, and therefore self-contradictory ?) proposition "Economics should only deal with positive matters and not normative matters" ?
Published: October 17, 2007 12:02 PM
Wow. I truly am amazed. How in all reason and even unreason can this be passed off as economics? Forgetting Austrian theory, I would think that even mainstream economists would be apprehensive about Maskin's approach (even though it's in keeping with the implications of their approach). Still...I am floored. Truly. This is what earns you a Nobel Prize today?
The silver lining is the Nobel award becomes ever more irrelevant as a marketing prop each year. Professional economic orthodoxy just continues to implode leaving ever more room for correct Austrian theory.
What a great blog post. I thought I understood the depths to which the orthodoxy had descended. I must really be out of it.
Published: October 17, 2007 12:31 PM
However how in the WORLD can they justify premise 2 without reference to some normative system of ethics ? At least if we are to accept the (normative, and therefore self-contradictory ?) proposition "Economics should only deal with positive matters and not normative matters" ?
One could think of it in the opposite direction without violating the normative restriction on Economists. We want X. How can we apply economic theory to help us produce or sustain X efficiently?
Where markets do not exist (or can not exist) people can signal their preferences though polls and voting. For instance citizens who want a cleaner environment can elect representatives who share their view. Economists, using positivst theories, can help those representatives acheive the desired normative outcome in ways that are more efficient than would otherwise be the case.
Published: October 17, 2007 12:35 PM
"Should" is a personal judgement. As soon as someone uses the word "should" they are presenting their own preferences.
Those who say government "should" provide those services are using the ends to justify the means.
When presented with ends justifying the means, I've found, proponents of public goods can do nothing other than get angry and call me names.
Published: October 17, 2007 12:41 PM
Kristian you are totally correct.
Nelson, sure, we can frame it in terms of if you want x, then do y, but it does not follow from that that you should do y, which is normative. And the government is FAR from being the only solution to the problem of public goods, and in fact being so quick to use government force to solve our problems has crowded out potential market solutions to them, and in some areas it is in fact governments that cause 'market' failures (this is the topic of the books Unwarranted Intrusions and Beyond Politics.) Also, implementing policies typically requires tax funds, which again brings more normative issues into play.
Published: October 17, 2007 12:46 PM
Same old shit, different day.
I suppose socialists kind of prefer to give the award to socialists. Apparently, degrees in economics are now optional, too.
Published: October 17, 2007 1:03 PM
There are no market failures, just instances where the market doesn't produce the outcomes that socialists want.
Published: October 17, 2007 1:58 PM
but it does not follow from that that you should do y, which is normative.
I'm not disagreeing with this. What I am saying is the absence of a market (or private ownership) does not imply an absence of preferences, wants, desires, etc... Externalities can NOT be eliminated by pretending that they don't matter or that we can't measure them, which seems to be the Austrian (or at least Rothbard's) position.
Published: October 17, 2007 2:26 PM
Externalities can NOT be eliminated by pretending that they don't matter or that we can't measure them, which seems to be the Austrian (or at least Rothbard's) position.
You can certainly identify what matters to you. And of course you can come up with a scale of your own. But there is no objective scale.
Published: October 17, 2007 3:34 PM
I like the [!] after Bush's name in the quote. I had no idea that Bush champions a free market...
Published: October 17, 2007 3:54 PM
You can certainly identify what matters to you. And of course you can come up with a scale of your own. But there is no objective scale.
I disagree. Votes are objective. The number of votes for or against an action (as well as non-votes among eligible voters) can be counted. I will grant that they may not be perfect, but they do provide data that can be used for determining the preferences for or against certain externalities by the group of voters.
Published: October 17, 2007 4:25 PM
Nelson wrote,
Thats all very true, but it doesn't change the fact that we cannot measure values independently of voluntary action. Votes aren't subjective, but they incur no significant cost, and so aren't a form of economic calculation (especially when you consider special interest politics). There is just no way for government to know how much to reduce each externality by, or how much different public goods are desired.
I am not completely familiar with the Austrian stance on how externalities should be dealt with, so I won't comment on it. But I do know their criticisms are significant. I'd be willing to bet that many Austrians support Coase's idea that low transaction costs can facilitate the removal of externalities, performing economic calculation in the process.
Published: October 17, 2007 4:45 PM
From what I've read so far on the sight, the Austrian view is either a) pretend externalities don't matter by stating that they can't be measured anyway (without actually proving they can't be measured) or b) use property rights and court torts to account for them (never mind how someone claims a property right on air or where these omnipotent universal jurisdiction courts come from)
Published: October 17, 2007 5:54 PM
Nelson: "a) pretend externalities don't matter by stating that they can't be measured anyway (without actually proving they can't be measured) or b) use property rights and court torts to account for them..."
I can't speak for every Austrian, but generally Austrians believe that weak property rights cause externalities. Instead of dealing with the symptom, the externalities, Austrians would prefer to deal with the cause, weak property rights. The US gov did a good job of cleaning up air pollution, but private individuals may have done a better job through the courts. It's hard to say.
Published: October 17, 2007 6:08 PM
I disagree. Votes are objective. The number of votes for or against an action (as well as non-votes among eligible voters) can be counted. I will grant that they may not be perfect, but they do provide data that can be used for determining the preferences for or against certain externalities by the group of voters.
Voting is at best an attempt to capture an expression of preference at an instant in time. The results are not necessarily valid a few minutes after the vote.
What's worse is that voting exposes the very problem our three math-amigos claim to be saving us from. Where do these voters get their perfect information with which to cast their votes? Why don't we just let "voters" spend their money? Spending is voting too. It just isn't done in unison. And instead of each voter considering his options in isolation, each voter is influenced by all previous voters through fluctuations in the price.
Published: October 17, 2007 6:12 PM
'From what I've read so far on the sight, the Austrian view is either a) pretend externalities don't matter by stating that they can't be measured anyway (without actually proving they can't be measured)'
Example?
' or b) use property rights and court torts to account for them (never mind how someone claims a property right on air or where these omnipotent universal jurisdiction courts come from)'
Most pollution causes bodily harm, which you can sue for, so I am not sure why this poses any special difficulty.
Published: October 17, 2007 6:13 PM
Oh yes, forgot to add - Caplan deals with this whole rational voter affair in his The Myth of the Rational Voter.
Published: October 17, 2007 6:22 PM
Nelson wrote,
They cannot be measured by any means I'm aware of. Attempts by government to correct externalities suffer from the economic calculation problem. Without economic calculation - that is, a free market in dealing with public goods and bads - there is no way to objectively valuate the subjective demand (or repulsion towards) of public goods (or bads). Well, the Coase Theorem does undoubtedly make sense. I've just never heard any Austrians support it, although I'm not sure why not. Of course that doesn't help in situations with extraordinarily high transaction costs - but those situations do not imply governmental costs aren't equally high, or worse.
Published: October 17, 2007 6:22 PM
Grant, there is an article IIRC on why the Austrians do not fully support Coase. Rothbard partly outlines why in his article Law, Property Rights and Air Pollution and Hoppe does so in The Economics and Ethics of Private Property. The disagreements are mostly conceptual if I remember well, and on details, but I haven't looked into the matter much. My guess is that it stems from the methodological and ethical differences the two schools have, in spite of the similarity of their conclusions.
Here is the article I had in mind:
http://mises.org/journals/jls/1_2/1_2_4.pdf
Published: October 17, 2007 7:32 PM
Spending is voting too.
Please do not tarnish the good name of spending by comparing it to the vile act of voting.
Spending is mutually voluntary and therefore peaceful, cooperative and beneficial.
Voting is the designation of an agent to commit criminal acts on your behalf for your benefit, coupled with an attempt to cloak these criminal acts in the pretense of legitimacy.
By the way, Austrians deal with externalities by reference to property rights.
Published: October 18, 2007 8:25 AM
where these omnipotent universal jurisdiction courts come from
You really don't get it.
Just like every other good, a decentralized, voluntary court system produces a better product (in this case, a body of law) than a centralized, monopolistic one.
Published: October 18, 2007 8:29 AM
'Spending is mutually voluntary and therefore peaceful, cooperative and beneficial.
Voting is the designation of an agent to commit criminal acts on your behalf for your benefit, coupled with an attempt to cloak these criminal acts in the pretense of legitimacy.'
Exactly. Competition in the political sector and voting are not analogous to market competition and spending. Public choice economists and Austrians have gone to great lengths to show why this is so, but your explanation sums it up more or less.
Published: October 18, 2007 8:44 AM
If voting is to be determined an economic action, the vote must be cast with money. For example, if I wish that those without health insurance be insured by government, then I vote and write a check for the amount that reflects how much this issue means to me in the long run. I would certainly prefer a Ferrari to a Toyata, but I have no effective demand for one. Could I vote to obtain one?350
Published: October 18, 2007 10:47 AM
Spending is mutually voluntary and therefore peaceful, cooperative and beneficial.
If someone hired a hitman to have you executed, you'd be okay with it because both the hitman and the purchaser of his services engaged in a mutually voluntary, and therefore peaceful, cooperative and beneficial, deal.
Published: October 18, 2007 11:02 AM
If someone hired a hitman to have you executed, you'd be okay with it because both the hitman and the purchaser of his services engaged in a mutually voluntary, and therefore peaceful, cooperative and beneficial, deal.
Do you really think that's a meaningful question?
Published: October 18, 2007 12:53 PM
Spending is mutually voluntary and therefore peaceful, cooperative and beneficial.
If someone hired a hitman to have you executed, you'd be okay with it because both the hitman and the purchaser of his services engaged in a mutually voluntary, and therefore peaceful, cooperative and beneficial, deal.
Do you really think that's a meaningful question?
I see no question in what I wrote. I was merely pointing out the absurdity of your statement because it ignores the interests of external parties in transactions.
Published: October 18, 2007 1:56 PM
Nelson: "If someone hired a hitman to have you executed..."
One cannot rightfully sell something owned by another without their permission, silly.
Published: October 18, 2007 2:33 PM
One cannot rightfully sell something owned by another without their permission, silly.
Then if we the people collectively assert ownership of the air (or river or other shared environmental good), we can rightfully limit the ability of humans to pollute it. It seems collective action isn't so incompatible with the Austrian viewpoint after all.
Published: October 18, 2007 3:05 PM
I was merely pointing out the absurdity of your statement because it ignores the interests of external parties in transactions.
You discussed two transactions actually: one whereby two parties make an illegal contract (also called a criminal conspiracy), and another whereby the hitman kills the victim.
I object to the second transaction because it is not peaceful or voluntary, but aggressive in the extreme.
I object to the first transaction, not because money or even a contract for services is involved, but because it is a conspiracy to commit an illegal act.
Your example remains a silly attempt to raise the issue of externalities.
Then if we the people collectively assert ownership of the air (or river or other shared environmental good), we can rightfully limit the ability of humans to pollute it. It seems collective action isn't so incompatible with the Austrian viewpoint after all.
There is no such thing as collective ownership. There is only individual ownership, or joint ownership. If you and a bunch of other people jointly homestead heretofore UNOWNED property, then you all own it according to whatever division of rights that you all agree amongst yourselves.
Neither you nor any number of your fellow travelers have any right, regardless of how many of you there are, to appropriate property that others own.
As to any property you or anyone else owns, you always have the right to prevent others from polluting it. That's a property right.
However, you do not have the ability to prevent pollution of property that you do not own.
Published: October 18, 2007 3:22 PM
You discussed two transactions actually: one whereby two parties make an illegal contract (also called a criminal conspiracy), and another whereby the hitman kills the victim.
And you didn't qualify your statement that "Spending is mutually voluntary and therefore peaceful, cooperative and beneficial." You could have said "Spending is mutually voluntary and therefore peaceful... when it affects no one else."
There is no such thing as collective ownership.
Oh really?
There is only individual ownership, or joint ownership. If you and a bunch of other people jointly homestead heretofore UNOWNED property, then you all own it according to whatever division of rights that you all agree amongst yourselves.
So change my 'assert' to your 'homestead' and that fixes that objection.
Neither you nor any number of your fellow travelers have any right, regardless of how many of you there are, to appropriate property that others own.
First of all I already stated that we asserted ownership (call it homesteading if you like). But now you're getting into normative territory. I thought that wasn't allowed?
Published: October 18, 2007 4:18 PM
So change my 'assert' to your 'homestead' and that fixes that objection.
No, you are still fundamentally confused. The protection against pollution based on property rights has NOTHING to do with the number of people who own the property in question. The owner, whether that is one person or 100 co-owners, has the right to prevent harm to his property.
Your "assertion" of collective ownership over property THAT IS ALREADY OWNED BY SOMEONE ELSE is precisely the kind of false property claim that is often used by various organizations, such as governments, to claim that they have the power to interfere with other people's property rights, particularly as to the use of land. The examples of this infringement are too numerous to list.
I have many normative arguments. It's certainly allowed in the larger sense (although not really appropriate for proving scientific assertions). A normative debate is the mode of argumentation that you invited when you stated that I was "okay" with a contract for murder.
Published: October 18, 2007 4:57 PM
THAT IS ALREADY OWNED BY SOMEONE ELSE
How can you claim that factories (or whoever) own the air? It is shared by all. Therefore no one has, according to your own statements, the right to pollute it without permission according to a "division of rights that you all agree amongst yourselves."
Published: October 18, 2007 5:06 PM
Nelson,
Stop commingling your air with mine. ;P
Published: October 18, 2007 5:34 PM
So it could it therefore be argued in the meantime the factory that pollutes the air and water should get first dibs? At least they're providing jobs, products and creating all round wealth. Those who are object to the factory and want it shut down are merely imposing their personal preferences over every one else?
But I still don't get the part where privatising commons will automatically save it from pollution? A person who privately owns a lake could just as easily charge fees to polluters to dump toxic waste. A person who owns a forest reserve could sell it for lumber if that person fell on financial hard times. I'm sure Libertarians would object to land being bought and sold with restrictions where the buyer can't choose to modify what he/she just bought. Check out Australia where a house get heritage-listed because it's just happens to be very old and the many buyers find out after they bought the darn thing. Similarly, I thought courts were supposed to merely arbritrators in the Libertarian world. They simply assert one party has more of a case than another yet don't have any real enforcement rights. Nor are courts charities either, how many people could afford the time and money to battle somone else in court for an extended period?
Oh dear voters don't have the perfect information and aren't allowed to play in Libertopia? Many of you just condemned Jon Hurdle (up top) for daring to assert that buyers and seller don't have perfect information? 'Oh but thet's where the fun part begins, caveat emptor?' I still think the example of the hitman contract is a good one since Libertarians are the first to complain about how no one has the right to impose 'positive duties'. If some guy and a hitman make a deal it's only up to the victims to defend themselves or call upon their private security providers.
Published: October 18, 2007 10:20 PM
Stop commingling your air with mine. ;P
Touche!
It does bring up a valid point though. Even if you own your air space and permit no one to pollute it how are you going to reasonably enforce that wish? The courts idea seems a little unworkable when you consider all the potential actors involved.
Published: October 18, 2007 11:50 PM
"I'm sure Libertarians would object to land being bought and sold with restrictions where the buyer can't choose to modify what he/she just bought."
You've brought this up before, and I have informed you that you're wrong on it. Why persist?
"Similarly, I thought courts were supposed to merely arbritrators in the Libertarian world. They simply assert one party has more of a case than another yet don't have any real enforcement rights."
But they do. Provided they could prove guilt, they would have the power to enforce their decisions.
"Nor are courts charities either, how many people could afford the time and money to battle somone else in court for an extended period?"
That is a fault of the current system, which has both high costs and inefficient enforcement of justice and allows far too many appeals. It is the one which is skewered in favour of special interests. The idea behind private courts is that they would have a limited number of appeals. If two courts reached a decision, it'd be binding. If one contested the other's decision, a third court would be appealed to. If two of the three courts agreed, the decision would be binding.
"Oh dear voters don't have the perfect information and aren't allowed to play in Libertopia?"
Rather than bringing up a strawman, read Caplan's The Myth of the Rational Voter.
"If some guy and a hitman make a deal it's only up to the victims to defend themselves or call upon their private security providers."
Are you being deliberately obtuse? Please explain why any court should uphold a contract between two individuals to harm a third.
Published: October 19, 2007 8:33 AM
Curt Howland:
"The ends justify the means."
That (above) is a plain statement of fact. Means are used to achieve ends and, therefore, must take whatever justification is due them from such ends. No possible exception is even imagineable.
But, as used in the service of Marxist designs, the plain statement is "loaded" with their own "in-group" brand of doublespeak (which, not coincidentally, has from time immemorial served malefactors of every type and persuasion as justification): "Whatever means we employ or urge others to employ are justified by the ends we expect or hope to achieve."
It was ever (and will be forever) thus. The only rebuttal might seem homely and even off the mark but it's the most applicable: handsome is as handsome does.
Published: October 19, 2007 8:44 AM
Please at least elaborate on the part about the (ir)rational buyer Anthony? Buyer and seller don't have perfect information? = eh. Voters don't perfect information? = Democracy is discredited.
P.S. I forgot the answer as to why buyers have to abide by rules of the seller. :( It's just when I hear about the odd story about buyers finding out they have a heritage-listed and can't renovate even when not repairing makes the house dangerous and so forth, I would tend to side with a libertarian notion of his/her house and if they want to repair/renovate . . .
"Oh dear voters don't have the perfect information and aren't allowed to play in Libertopia?"
I typed that!? :\ Hmmm, too much caffeine.
Published: October 19, 2007 9:26 AM
Even if you own your air space and permit no one to pollute it how are you going to reasonably enforce that wish? The courts idea seems a little unworkable when you consider all the potential actors involved.
What makes you think that a governmental system (i.e., governmental courts or regulators) will enforce your anti-pollution goals BETTER than a system that actually cares about property rights?
Governments are the biggest violators of property rights around. Prior to around 1840 or so, during the first phase of the Industrial Revolution, the governmental court system took anti-pollution property rights much more seriously than they do today. You could sue for nuisance and trespass if someone polluted your property.
Then, the ever-growing central government got involved, and it changed the rules. In order to protect the growing American industrial sector, in some cases openly acknowledging as part of their legal opinions that factories were the life-blood of the economy, granted polluters special protection. Acts of pollution that would otherwise have been prohibited were now permissible as long as the polluting activity was "reasonable."
This was essentially a legal way of giving factories a free pass to pollute. And it was done for supposedly economic reasons. Well, the people on the receiving end of the pollution were clearly harmed economically. Government courts didn't care.
Property rights guard against pollution far better than a central government.
There's a blog on this particular topic -- http://commonsblog.org. Free-market environmentalism. Check it out.
Published: October 19, 2007 10:17 AM
What makes you think that a governmental system (i.e., governmental courts or regulators) will enforce your anti-pollution goals BETTER than a system that actually cares about property rights?
Governments can make laws (legal decisions) before the pollution occurs, so everyone knows the ground rules ahead of time and therefore can make more efficient choices. The system you reference (and I'm going to assume you're talking about courts because you were so vague) can only judge injuries after the fact, which can be very problematic as the act in question may be irrevokable. If an actor pollutes he could be affecting 6 billion people and their descendants, but the logistics for such a case would be almost impossible to overcome. How do you prove that a particular actor was the cause for your pollution and not some other actor? How much will these court battles cost? Etc...
Published: October 19, 2007 10:34 AM
Governments can make laws (legal decisions) before the pollution occurs, so everyone knows the ground rules ahead of time and therefore can make more efficient choices.
Government has no means of knowing how to make the economic calculations necessary to evaluate the costs and benefits of its regulations. Therefore, any regulation it makes is necessarily, at best, arbitrary.
Because these regulatory decisions are not susceptible to economic calculation, the decisions end up being based on some other criteria. The most you can hope for is a good faith guess, but the reality is that the regulators end up being bought and paid for by the people or businesses that are most directly affected by the regulation.
If you do not understand this, then you have not read Mises on the Calculation Problem.
The system you reference (and I'm going to assume you're talking about courts because you were so vague) can only judge injuries after the fact, which can be very problematic as the act in question may be irrevokable. If an actor pollutes he could be affecting 6 billion people and their descendants, but the logistics for such a case would be almost impossible to overcome. How do you prove that a particular actor was the cause for your pollution and not some other actor? How much will these court battles cost?
How much will arbitrary governmental regulation cost?
I happen to be quite familiar with large court cases, and it is patently obvious that the courts, even though they decide cases one at a time, have a larger effect in terms of altering people's behavior, than any executive regulator.
For starters, the regulators end up being "captured" by the industry they regulate. (Actually, I believe that this is not an accurate description of the pattern -- business often is the promoter of the regulation in the first place, using government to squeeze out competitors. So, the regulators are not so much "captured" by the businesses they regulate; they are installed by these businesses to do their bidding from the very beginning.)
If, in the judicial branch, you cannot prove the existence of a particular cause of supposed pollution, and its harm, then how can you legitimately base an executive government action on mere supposition and conjecture?
Are you fond of executive governmental action because the burden of proof is lower? Because you only need votes instead of science and evidence?
Published: October 19, 2007 12:51 PM
George: "How much will arbitrary governmental regulation cost?"
Excellent point! It's strange that people think government action is costless!
Air doesn't have to be owned to be protected by property rights. This past week AEP lost a suit by eastern states for producing acid rain and damaging their forests. If individuals, or groups, could prove damage from air pollution, they could sue as well. The property protected is the body, land, etc.
Published: October 19, 2007 1:01 PM
Government has no means of knowing how to make the economic calculations necessary to evaluate the costs and benefits of its regulations.
The legislative branch of government can know by the same means as the judicial branch. There is an entire subset of economics devoted to the study of the environment and the costs and benefits of regulations concerning it.
Therefore, any regulation it makes is necessarily, at best, arbitrary.
Judicial decisions can be just as arbitrary as legislative decisions. There is nothing innate about good decisions that restricts them to judges but not legislators. And vice versa with respect to bad decisions.
Published: October 19, 2007 2:06 PM
The legislative branch of government can know by the same means as the judicial branch.
Courts don't engage in that kind of macroeconomic analysis when they make their decisions. (Not unless they are Posner/Chicago School aficionados, in which case they are encouraging the courts to act like legislatures, which is deeply misguided.)
A proper court decides on the basis of the property rights of the particular litigants before it. That's the entire point I have been making all along.
There is an entire subset of economics devoted to the study of the environment and the costs and benefits of regulations concerning it.
So? There is also an entire subset of (pseudo)economics that presumes to study the effects of the minimum wage, and empirically calculate the macroeconomic costs and benefits of that form of regulation. Same for corn subsidies and sugar price controls. But it's sophistry. It can't be done, because there is no control group for economic experiments.
Judicial decisions can be just as arbitrary as legislative decisions. There is nothing innate about good decisions that restricts them to judges but not legislators. And vice versa with respect to bad decisions.
Wrong. Legislative decisions are made on a completely different set of criteria and economic incentives than judicial decisions.
When courts (i.e., arbitrators) are selected by both sides, then the arbitrator's biggest selling point is his neutrality. Also, courts compete with each other on the basis of the body of law that they can offer (i.e., its decision-making criteria, its work-product) -- it announces its decision-making system beforehand, so that consumers can make an informed decision about the probable outcome of any particular case. The entire body of Western contract law was developed in private court systems in this manner, just as private arbitration companies continue to make such decisions today.
A legislator gets chosen by being anything but neutral. He gets selected by being biased and partisan. Legislators have no economic incentive to make neutral decisions, or even logically-consistent decisions. They get elected by promising unearned benefits to the largest group of voters.
Because of these incentives, politicians have developed the fine art of DISGUISING what they will probably do once in power, unlike courts, which announce in advance the rules by which they decide cases.
Published: October 19, 2007 2:33 PM
When courts (i.e., arbitrators) are selected by both sides, then the arbitrator's biggest selling point is his neutrality. Also, courts compete with each other on the basis of the body of law that they can offer (i.e., its decision-making criteria, its work-product) -- it announces its decision-making system beforehand, so that consumers can make an informed decision about the probable outcome of any particular case.
This presupposes that both sides want to go to court AND can agree on the same court. The legislative model doesn't have such restrictions.
Published: October 19, 2007 2:52 PM
This presupposes that both sides want to go to court AND can agree on the same court.
Yes, it does.
Remember, however, that one of the features of private courts is that if a litigant refuses to abide by a court's decision, then that litigant may be barred from coming to that private court in the future, if he ever finds himself in need of its assistance.
The legislative model doesn't have such restrictions.
That's one of its major failings.
Published: October 19, 2007 3:15 PM
"Please at least elaborate on the part about the (ir)rational buyer Anthony? Buyer and seller don't have perfect information? = eh. Voters don't perfect information? = Democracy is discredited."
http://www.tomgpalmer.com/archives/042136.php
Skip down to Russel Hanneken's first post, it explains Caplan's arguments more succinctly than I could. Governments and markets are not comparable entities - their modus operandi is in fact nearly antithetical.
Published: October 19, 2007 6:30 PM
That's one of its major failings.
And one of the "private courts" system's even worse failings is it doesn't exist, and likely won't in our lifetimes, in the way you think necessary to solve problems. If one wishes to solve a problem today, instead of just complain about it (or "the system"), they can work with the system that is already in place, even if it is less than perfect. I find legislation to be not as troubling as you do, but that is merely a difference of opinion.
Now, given that there exists a problem, such as the unintended consequences of pollution, what does Austrian economics offer as a possible solution to that problem under the current governance framework?
Published: October 19, 2007 7:04 PM
http://mises.com/blogs/tokyotom/archive/2007/10/02/starve-a-cold-feed-a-fever-links-to-austrians-on-environmental-issues.aspx
TokyoTom put together that collection of links. I'm sure if you ask him, he'd be more than willing to point you in the right direction for Austrian works on the matter.
Published: October 19, 2007 7:53 PM
There are many links, perhaps you could save me some time and point out the ones that apply under our current system of governance as I had asked instead of the more optimistic visionary ones that rely on a different underlying system.
Published: October 19, 2007 9:27 PM
What?! The government can't make laws period because they don't know the calculations for it all. Similarly what would private courts do? If the rich pay the courts to make decisions in their favour and against the other guy with not much money then since the private court is a business and keeps ruling in favour of the rich guy and is apparently capable knowing of all the costs of abritration then any and every decision is the right one? Or alternatively the government or anyone perhaps shouldn't bother making laws? Plato said millennia ago "good people are peaceable anyway, bad people just break the law anyway". Everyone should be a sovereign individual whereby you write your own laws which is to say you write what is your personal standards of what is expected of anyone who steps onto your property as well what you intend to do if someone creates a negative externality on to your property?
Published: October 19, 2007 9:52 PM
Why on earth would I feel the need to be constrained by what you call "the current system"?
Austrian economics, and anarchistic political philosophy generally, illuminates the criminality perpetrated in the name of "the current system," as well as the economic harm caused by "the current system."
To even ask what Austrian economics can offer to work within "the current system" is to misunderstand Austrian economics.
What can be done short of abolishing government that would help the cause of anti-pollution? Decentralize political authority. Repeal all federal legislation on the matter. Promote the cause of any person or property owner you believe has been or is currently harmed by a polluter, and seek to repeal whatever special governmental favors that polluter has received or is receiving. I am willing to bet that the worst offenders are also among the largest beneficiaries of government largesse.
One of the worst offenders that I can think of off the top of my head is the automotive industry. Do you have any idea of the magnitude of the subsidies that the automotive industry gets? Who builds all the roads? Who plans all the cities so that cars are necessary? Who builds massive freeways that promote urban sprawl and thus car-dependence for hundreds of millions of people? Who manipulates the price of oil? Who fights wars that oil and car companies don't have to pay for that are expressly fought so as to keep the price of gas down? George H.W. Bush, the President from 1989-93, said that if he hadn't invaded Kuwait, the price of gas would be $6.00 a gallon, or something like that. How is that not a gasoline company subsidy? At the beginning of the 20th century, GM and Firestone bribed local officials all across the country into ripping up trolley lines. New Orleans and San Francisco, I believe, are the only cities that still have a couple miles of lines from that era.
But government manipulation of the transportation industry is as old as the industry itself. If you read DiLorenzo's The Real Lincoln, he explains how the War for Southern Independence was fought not to end slavery, but to give the federal government power over subsidies for "internal improvements" (i.e., roads, railroads, bridges, canals, etc.).
As a result of governmental control over this industry, it has created, over the course of decades, a completely car-based society, generating massive pollution. That's the kind of fiasco that only government can deliver.
Published: October 19, 2007 10:42 PM
G. Gaskell, your answer could be the millions of tax-paying car drivers. 'Twas interesting to read about how the steam car was displaced by the petrol car because the petrol car makers could meet consumer demand faster even though the steam car was a reasonable good alternative and low-polluting. But what d'you s'pose would be the free-market solution then? Highly densely packed cities where people could use mass-transit, bicycles or even walk? Rural areas could still perhaps use horses for the slower pace over rough terrain? Trains to transport the farming produce to the big city or something?
Published: October 20, 2007 2:35 AM
what d'you s'pose would be the free-market solution then?
I don't know. No one does. That's the thing about complex adaptive systems, particularly one with such a high degree of complexity as the entire US or world economy -- when you change an element that is as significant as eliminating the US automotive, road-building and oil market manipulations and subsidies, there's no telling what the end result would be.
I don't hate cars. I just oppose car-centered subsidies. I think cars are great technology, although it has been stagnant for the last 40 or 50 years or so. I think that there would have been transformational advances by now had it not been for the market interference.
I assume that, in the absence of these market intrusions, there would be fewer miles of 8-lane highways running through semi-urban hell holes, fewer traffic nightmares, more dense urban land use in some places, etc.
Published: October 20, 2007 9:37 AM
'Similarly what would private courts do? If the rich pay the courts to make decisions in their favour and against the other guy with not much money then since the private court is a business and keeps ruling in favour of the rich guy and is apparently capable knowing of all the costs of abritration then any and every decision is the right one?'
Why, pray tell, would anyone favour or even acknowledge a court that is biased? No one would patronize it, no one would take it seriously. Markets do not work as simply as "you're rich, therefore the best consumer." Profits are not maximized in that way, at all. However, establish a monopoly over the provision of justice, make it a coercive one, and then you will have inefficient, blind justice. It would do you good to actually read up on what market anarchists advocate, e.g. Rothbard's For a New Liberty or Anarchy and the Law, before jumping to blind criticism, and maybe a bit of economics too.
Nelson, if you want the answer to that, email TT. I have not read all of those sources.
Published: October 20, 2007 9:40 AM
If you choose a court where they highly likely to rule in your favour time and time again, why wouldn't you like it? If certain people keep bribing (or even threaten) statist courts then why wouldn't they bribe (or even threaten) private courts? I don't why everyone's supposed to become a moral individual just because the systems are privatised.
Published: October 20, 2007 10:46 AM
I found this on TokyoTom's list. It seems rather reasonable.
http://www.independent.org/Pdf/Tir/Tir_01_3_Hill.Pdf
Published: October 20, 2007 12:57 PM
TWLP Sam, precisely for the reason that these courts would have no legitimacy in the public eye. Other courts could simply refuse to do business with them, or even treat them as courts. Mutual recognition will be vital in market anarchism.
Published: October 20, 2007 6:05 PM