A Buck Is Just Another Ration Card

The price system, like queuing, is just another way of rationing access to resources.  And it’s perfectly reasonable for the government to prefer to impose a queuing system over a price system in certain circumstances.  For example, if you don’t want the rich to take all of a fixed resource.

So it’s perfectly reasonable for San Francisco to prefer that parking spaces go to the lucky, persistent, or fleet, rather than to the highest willingness to pay.

And perfectly reasonable too for San Francisco to put a stop to attempts to circumvent its preferred rationing system.  Attempts like this.



Stevinus's wind chariot for Prince Maurice of Orange.
Via Wikipedia, Stevinus’s wind chariot for Prince Maurice of Orange.

Preferences and Incentives

Our voluntary service he requires,
Not our necessitated, such with him
Finds no acceptance, nor can find, for how
Can hearts, not free, be tri’d whether they serve
Willing or no, who will but what they must
By Destiny, and can no other choose?

Paradise Lost : V : 529-34.

Why is it so important that obedience be voluntary and not necessitated?  After all, if the point is obedience, either will do.  The problem with necessitated obedience seems to be that it is fragile.

Voluntary obedience means obedience that isn’t compelled by external circumstances.  I clean your home because I love cleaning homes or love you or think it’s my duty.  You’ll stop me cleaning your home when you kill me.  This contrasts with necessitated obedience.  If you take all my money and then offer me a buck to clean your home then I’ll do it because otherwise I’ll die.  But if you don’t create a situation in which I have no alternative but to clean your home, I won’t do it.

Voluntary obedience is choice in the sense of preference alteration.  Necessitated obedience is choice in the face of static preferences.  Voluntary obedience is when you make your own preferences, necessitated obedience is when your preferences make you.

Basic economics can’t really distinguish between voluntary and necessitated obedience because it tends to treat preferences as static.  So it only admits of the existence of necessitated obedience.  In economics, the only way you’ll clean my house is if you’re forced to choose between doing that and starving.

Let’s look at another example.  Suppose you have the following game.

A's payoff / B's payoff B Cooperates B Betrays
A COOPERATES 5 / 5 0 / 8
A BETRAYS 8 / 0 4 / 4

Cooperation is efficient in the sense that the sum of the payoffs to parties A and B is the greatest when both try to cooperate. The trouble is that neither will want to cooperate.  For each, the payoff of betrayal exceeds the payoff of cooperation both when the other cooperates (5 > 4) and when the other does not (4 > 0).

Economics typically solves this problem through redistribution.  Suppose the penalty for betrayal is that you must pay 4 to the other party.  Now the game looks like this.

A's payoff / B's payoff B Cooperates B Betrays
A COOPERATES 5 / 5 4 / 4
A BETRAYS 4 / 4 4 / 4

Both parties have a chance to end up better off if they cooperate, so now they will both cooperate.

Both parties behave well, but they do so only because redistribution compels them to behave well.  If the redistribution that compels good behavior is removed, then they will regress back to their old noncooperative behavior.  In this sense their good behavior is necessitated and therefore fragile.  It is a world in which each party bides her time, waiting for the moment when the system will break down and betrayal can again produce a windfall.

Suppose that instead of redistributing payoffs, you were to change the preferences of the parties such that betrayal ceased to have any value to the parties.  They value 8 in betrayal as 0 and 4 in betrayal as 0 too.

Now the game looks like this.

A's payoff / B's payoff B Cooperates B Betrays
A COOPERATES 5 / 5 0 / 0
A BETRAYS 0 / 0 0 / 0

Now both stand to gain only through cooperation, so both will cooperate.  The difference here is that no amount of redistribution can compel the parties to prefer betrayal.  They are no longer mercenaries, blowing with the prevailing wind.

If your goal is to create an enduring commitment to cooperation, you want this second scenario, because it is immune to changes in the power of government to create felicitous incentives.  You want to change preferences, not incentives.  Only in this way can you ensure that Abdiel

Among innumerable false, unmov’d,
Unshak’n, unseduc’d, unterrifi’d
His Loyalty he kept, his Love, his Zeal;
Nor number, nor example with him wrought
To swerve from truth, or change his constant mind
Though single.

V : 898-903

For the economist, changing the betrayal payoffs to 0 makes the problem trivial, because the problem, for economists, is always how to achieve efficiency in the face of static preferences.  Rewriting preferences to make things work is cheating.  But of course rewriting preferences in real life is not as easy as zeroing betrayal payoffs in a matrix.  It was the major project of the pre-modern world; and remains a major project of the modern business world (though more in service of getting consumers to tolerate betrayal than of procuring universal cooperation).

It is no wonder that voluntary fidelity was elevated to divine command in the pre-modern world, where government was too weak to  redistribute wealth.   Where incentives could not be manipulated reliably, cooperation leading to an improvement in the fortunes of the group as a whole could be achieved only by manipulating preferences.

. . . unjust thou say’st
Flatly unjust, to bind with Laws the free,
And equal over equals to let Reign,
One over all with unsucceeded power.
. . .
Yet by experience taught we know how good,
And of our good, and of our dignity
How provident he is, how far from thought
To make us less, bent rather to exalt,
Our happy state under one Head more near

V : 818-21, 826-31

In many older cultures, the aggressive anticipation of needs is the signature of commitment, loyalty, and friendship.  You find that friends expend a great deal of energy giving you help you didn’t ask or pay for.  This behavior expresses felicitous preferences.  Your friends are showing you that they want to do these things, not that they must do them.




Natural Machines

“Machines — as in contraptions made with wire and metal and stuff — are not natural.  Sure, animals are like these machines in that they have nerves that connect things and bones and other mechanical parts.  But animals are really chemical contraptions; they’re not anything like the computers and cars that humans make.  That’s why animals are natural but computers and cars aren’t natural!”

But nature’s chemical machines have made her wire and metal machines.


Public Platforms


Modernity and Control

Sometimes I wonder whether humanity has made itself better off by choosing industrialization.  Are we really happier living long lives?  Was life more meaningful when expectancy was 30 but you had nature and love and tragedy?

But then I think that this expresses a characteristic modern conceit: that modernity is something we chose.  That it’s somehow less natural than the jungle that once hemmed us in.

The aluminum and plastic boarding tube in which I wait while queued to board my flight hems me in the way the jungle might have hemmed me in a thousand years ago.  I did not choose that it should arise and I certainly cannot stop it (as environmentalists have learned, bitterly).  I may think it’s a good thing and prefer it fervently, but that does not give me leave to ascribe my agency to it.

What sets modern culture so far apart from ancient culture is the conceit of control.  It’s so seductive: we produce our own environment!  But we do not control ourselves.

Yes, industrialization takes hard work and planning.  And that feels like control.  But think of it this way.  The history of the modern world is strewn with the carcasses of countries that didn’t industrialize and were stomped on by industrialized countries as a result (think China in the time of Empress Cixi).  Industrialization creates an arms race that makes industrialization indispensable.  North Korea might want in a sense little or no industrialization, but it still has to have enough to get nuclear weapons, otherwise it has no hope to persist.  Industrialization is power, and power is unavoidable.

Anyway, at some point, the conceit will wear off and we will relate to the forest of machines the way we used to relate to the forest primeval.



Backwardness of law

Doctrine and Predictability of Result

“[D]octrine was in a shambles and predictability of result at a minimum.” Dukeminier, Property, 7th, at 1073, quoting 57 Or. L. Rev. 203, 209.

One encounters the assumption of a connection between clear doctrine and predictability everywhere.  But has it been proved, or studied?  It doesn’t seem intuitive.  We don’t read White House press releases to predict what the President is going to do.  We read newspaper articles and works of political science that are based on many more sources.  So why would we suppose that a clear statement from a court press release (that is, a judicial opinion) is a useful predictor of anything?

Predictability would seem to have to do with information about the judiciary qua institution, who’s in it, the forces acting upon them, the views of peers, the media, the subtle pressure of interest groups, zeitgeist, the judges’ ambitions and fears, the way daddy treated them during adolescence, and the like, not merely the judiciary’s own self-serving statements about how it will behave in future.

And the same goes with people, too, doesn’t it?  You’re always the last to know when you’re  in love.

Legal education

The Law School Crisis Is a Keynesian Crisis

Dear Dean Chemerinsky,

I enjoyed your Op-Ed with Carrie Menkel-Meadow in the Times today and agree with its conclusion that the crisis in law school enrollments doesn’t call for reform to legal education.  But I think there’s a better economic argument for why that is the case.

Everyone agrees that the drop in enrollments is driven by a drop in demand for lawyers.  If that drop in demand had come about because some competitor to law schools were producing better lawyers, then it would be reasonable to think that law schools need to improve their product in order to compete.  But here’s the thing: law schools as a group have no competitors.  The only way to become a lawyer is to go to law school.  And, in aggregate, employers who need to hire lawyers have to hire the lawyers law schools produce, regardless of quality.  They have nowhere else to turn.

So the drop in demand for legal services simply isn’t driven by a lack of competitiveness; it’s got nothing to do with the quality of legal education.  It’s got a lot to do instead with the weak economy and with a lack of commitment on the part of the government to ensuring access to justice for all Americans.  If medicine were not heavily subsidized by the government, medical schools would be in the same pickle as law schools.  You would have MDs working at Starbucks while trauma patients bleed to death in the streets.  Instead, today we have JDs working at Starbucks while desperate homeowners try to defend against foreclosure pro se.

The solution to the problem is for law schools to go to Washington and demand more subsidization of legal services for regular Americans.  The enrollments crisis is a Keynesian crisis.  Unemployment due to lack of demand.  As in all such crises the solution is not to blame the worker (or, in this case, the law school).  Instead, the solution is government stimulus; a stimulus that in the case of the legal market can bring about more justice in addition to saving law schools from themselves.


Paradise Lost

In Milton Keynes

                                                           But go with speed,
And what thy stores contain, bring forth and pour
Abundance, fit to honor and receive
Our Heav’nly stranger; well we may afford
Our givers thir own gifts, and large bestow
From large bestow’d, where Nature multiplies
Her fertile growth, and by disburd’ning grows
More fruitful, which instructs us not to spare.

Paradise Lost : V : 313-20.


Pay for Delay

I have been following the debate in the pages of Antitrust between two groups of distinguished economists about “pay for delay”, which is when a branded drug maker pays a generic drug maker to delay entry into the market.   The question is how much pay for delay do you need before you can conclude that the payment is anticompetitive and should therefore be treated as a violation of antitrust or competition laws?