One economist I enjoy reading is Steven Landsburg. In a series of blog posts, he has discussed “ruthless efficiency.” Essentially, he advocates wealth-maximization (e.g., efficiency) when discussing policy. It all boils down to the compensation principle. Should Bill Gates give a dying man in the desert a bottle of water? Only if the bottle is worth more to the thirsty man (willingness to pay, as measured in dollars).
When I think about the world, I put it much more into a Posnerian law-and-economics framework like that than anything else.
For the series of blog entries, read each of the following consecutively:
Steven Landsburg discusses “Efficiency Experts” and explains the welfare criterion here.
Steven Landsburg discusses “Efficiency: The Hard Cases” (using the aforementioned example of Bill Gates and a dying man) here.
Steven Landsburg discusses “Ruthless Efficiency” and explains why we choose paying monthly Internet-connection bills rather than sending that money to starving children here.
“Should Bill Gates give a dying man in the desert a bottle of water?”
Not if he wants to kill 10 people (including Bill Gates) or start a world war or something.
“Only if the bottle is worth more to the thirsty man (willingness to pay, as measured in dollars).”
It may be a necessary condition, but it’s definitely not a sufficient condition. Bill Gates must receive something worth more to him than the bottle.
“Steven Landsburg discusses “Ruthless Efficiency” and explains why we choose paying monthly Internet-connection bills rather than sending that money to starving children”
You can send all the money you want to starving children. That won’t magically solve a food shortage.
Landsburg kicks ass. However, I think he sometimes plays fast and loose with the “we” word. I know in academia this is a very common way of speaking but it can be a real trap in thinking through tough issues. More important for the individual decision-maker is “I” - what should I do, rather than, what should we do? Of course, he does this while discussing policy recommendations where the “we” is inescapable, it’s just the nature of the case.
But this is part of the problem. It could be that there is no right answer to policy problems exactly because we are reasoning about "we"s instead of "I"s. The underlying Coasean analysis provides a method for ruminating about what might be right answers to some policy problems but it really doesn’t tell us what is, in fact, the right answer. And this is precisely where I think the argument for the privatization of law shines through, namely, that the production of law suffers from the Hayekian knowledge problem just like any industry which is not subject to the discipline of profitability. The problem of figuring out what the right laws are is too complex to be handled by a few brilliant academic economists, law professors, professional legislators and their legal staffs. It’s so complex that it really requires an entire industry of entrepreneurial trial and error that would permit a market process to reveal what are, in fact, the right answers. We might be able to guess a lot of the right answers using methods of analysis, but we can’t guess nearly as many of the right answers as I think we ought to be finding.
One quibble I have is with the trapped miner analysis. I think he neglected to account for the fact that saving the trapped miner is not nearly as costly as the labor and bill-of-materials might suggest because people would willingly pay to have the trapped miner saved, even without being taxed. This is a function of human nature plus the profitability of beaming the images of the trapped miner to people who will then be highly motivated to pay to see him saved versus the unprofitability of sending camera crews to Ghana to beam back images of dying Ghanaians (which would, in all likelihood, still have a less motivating effect for a variety of reasons). In other words, it’s not just about saving lives or caring about people who are nearer than farther, it’s also about how the media infrastructure interacts with human nature.
People always act rationally. The outcome of rational behavior is sometimes not efficient. But I’m not sure “we” should care about outcomes. Stated another way, I think that whether or not an outcome is efficient is never a good argument for overriding the legal principle that would otherwise obtain in a natural order society. “It will be more efficient for everyone if my company is permitted to bulldoze your house and pave it over with a highway.” Even if it’s true, so what?
I don’t believe you’re wrong. To quote Bryan Caplan, “One of the chief efficiencies of private rule-production would be the opportunity for consumers to pick and choose from a host of possibilities. At the same time, law and economics scholars would have a new field to study; instead of theorizing about what is efficient, they could go out and observe what is efficient in each sub-market—then explain why it is so.” I think it is important for us to consider rule-production in terms of efficiency, but we should always humbly acknowlede we do not have the wisdom of a free market,. The importance of law and economics, in my opinion, is that we’re at least headed in the right direction.
The “so what,” in that example, is that you would prefer the world to be poorer rather than less “free.” That’s not a value all share. For instance, I see no contradiction with a “natural order society” that allows eminent domain; I’m not sure it would be the case, but I don’t immediately discount it.
Actually, I don’t think it matters whether we have value “freedom” (I agree with placing it in quotes, btw) or not. I’m analyzing the problem from the point of view of the individual as if he were involved in a legal dispute - what terms would the individual agree to, what arguments would he accept, and why? Efficiency might explain why certain laws come to be but it can’t explain why individuals would accept those laws.