A Favorite Joke

One of the author’s favorite jokes was usedProbably. to illustrate the issue of incentive incompatibility in one of the popular economics books by one of the author’s favorite liberalNow that those who purloined that word have sufficiently soiled it by their actions that they no longer wish to be associated with it, can we have it back please? We’ll restore its honor and bring usage in the modern English-speaking world back into conformance with history and the rest of the world. economics professor bloggers.Now, not that one. The other one. David Friedman’s popular books on law and economics, Hidden Order and Law’s Order, are on par with Landsburg’s fine work in the genre. They are wonderful introductions to the subject for the intelligent layman, but will contain details and connections which will enlighten even the well-versed. Friedman’s more recondite The Machinery of Freedom (now available in a new edition and for free!) had, along with his father’s Capitalism and Freedom, had a formative influence on the author when he was a boy. It did not quite convert him from minarchism to anarcho-capitalism, but convinced him that it was a serious possibility. At present, one desires merely to shrink the government to a size that it could be drowned in a bathtub, to be followed with a long and interesting discussion about whether one proceed along that line.

PETA Fires Meat-Lovin’, Huntin’ Spokeman

BREAKING NEWS. ORIGINAL TO BLOG. MUST CREDIT. The People for the Ethical Treatment of Animals have fired their long-term spokesman Krzysztof Charamsa based on his public endorsement of carnivorism. Mr. Charamsa stressed that his support for this noble cause was not merely rhetorical, but that he is actively involved in steak-eating, hunting, and animal experimentation. PETA’s brazen act of carnophobic intolerance and employment discrimination has drawn outrage across the world.

What Type of Irrational Are Ohioans?

In a few weeks, Ohio will vote on not one, but two, constitutional amendments on marijuana legalization. The first, sponsored by a group of private citizens, would legalize recreational and medical marijuana. The second, sponsored by the state legislature, would constitutionally bar the first. The reason these amendments are brought to the attention of the gentle reader is not to comment on the drug war—the views of the author on which are predictable and better stated by others—but rather a few curious features.

Mandatory Sex Changes?

A striking, and perhaps increasingly common, feature of Progressive political rhetoric is how Progressive ideas only ever exist in two stages:

1. As long as the idea appears to be politically unpopular, any mention of it by a non-Progressive is easily dismissed by the Great and the Good. It is just a fringe phenomenon which cannot be associated with the decent, mainstream, common-sense progressive politician! Even talking about it is just cheap reactionary rhetoric to stir up the hatreds and fears their slavering hordes are so inclined to. Any effort to forestall such ideas from becoming fact, when that is so ludicrously unlikely, is just a distraction from the real issues. No honest journalist should fall for such an obvious con game by ever mentioning the idea.

2. As soon as the idea appears to be politically viable, it instantly becomes so obviously a good and right thing that anybody who does not support it reveals himself to be a hateful bigot. Such bigots must not be heard and their hate must not be allowed to poison the lives and threaten the security of so many innocent victims.

Notably, there is never an intermediate stage at which it is conceded that the idea might be worthy of discussion between decent, reasonable individuals with differing views. The transition from red-herring to holy-truth status is instantaneous. Debate is never appropriate.

The Best Part About Hitting Oneself in the Head with a Hammer

There is a fad, which the author was surprised to find even friends one otherwise respects to be engaged in, of natural childbirth. By that is understood to be meant a voluntary choice to give birth in the same manner our prehistoric ancestors did—without sophisticated medical assistance or pain relief. As one is reliably informed that human childbirth generally involves at least hours of substantial pain, and sometimes days of excruciating pain, one is rather surprised that any woman would volunteer herself for this ordeal. But whenever one inquires into what might motivate such a strange choice, one hears a variation of one or more of the following:

How an Alien Can Predict Humans

Imagine you were an alien come to visit the earth to find out what makes humans tick. The purpose of your mission is determine what the humans will do in the future and, in particular, if in time they are likely to become a threat to your civilization. If so, your civilization will put an end to the human one before it becomes a threat.

Salma v. Friedrich

For holiday cheer, I present the infamous Salma v. Friedrich Hayek comparison test.

Drunk Driving Licenses

Apart from the occasional self-indulgences like gloating (prematurely) or playing gotcha, I like to write about questions which I find interesting in the hopes that so will my band of readers. A question is interesting usually because it is hard; a question is hard usually because there are non-obviously-wrong arguments for both sides. One such case is whether it should be against the law to drive drunk.¹

Let's start with a few assumptions (all which are, to the best of my knowledge, undisputed facts):² The influence of alcohol degrades driving performance. There may not be any threshold beneath which there is no effect, but even if there is a threshold, it is quite low. Even under the current state of legal prohibition against drunk driving, tens of thousands of people die in the U.S. every year because of traffic accidents which would not have happened (or been fatal) if all involved drivers had been completely sober. Many of those who die (or are otherwise injured, often severely) were not themselves under the influence, or even passengers of the affected drivers who could arguably have said to assume the risk.

So, case closed; so much for that "hard" question, right? Not quite.

After all, the question for debate was not whether it should be against the law to negligently or recklessly injure or kill innocent bystanders. That is the one with the easy "yes." The question was whether driving drunk per se—i.e., regardless of whether anybody has been hurt—should be subject to legal punishment.

Answering "yes" to that question seems straightforward, but runs headlong into one of the most basic and soundest principles of good law-making: That the state should only impose legal punishment, civil or criminal, where there is a specific, involuntary victim.³ Without such a victim, the state is just meddling: The driver after all chose to drink and presumptively for good reason: enjoyment is a good reason. Without any offsetting loss somewhere else—and in cases where there was no victim there appears to be none—legal prohibition of drunk driving seems sub-optimal: In so far as it deters the driver, it makes him or her worse off by the opportunity cost of drinking. In so far it does not, it makes him worse off by the legal punishment (and the rest of us by paying the cost of imposing that punishment). So laws against drunk driving just seem to be contrary to sound principle and economically inefficient.

The obvious response to that is that while any individual act of drunk driving may be victim-less, each creates a small, but non-trivial, risk of serious harm. Therefore drunk driving should be prohibited regardless of whether any particular instance actually causes any harm.

Except that is not the way we regulate risk generally and for good reason. Generally, individuals are free to do all sorts of risky things: Hang-gliding, working as a miner or lumber jack, operating an off-shore oil-rig, performing (or having) high-risk surgery, or even just plain old driving a car completely sober. The risky behavior itself is not prohibited; only if the harm occurs is there any legal sanction: the risk taker just has to bear his own damages and, depending on circumstances and legal standards, the damages suffered by others.

That is a good rule, both from the standpoint of principle for a free society and, not coincidentally, from the standpoint of economic efficiency. If you internalize all the benefits and risks to one person and then allow that one person to make the decision whether to engage in that risky behavior,⁴ you will generally get just the right level of risk taking: Those activities which overall are beneficial will be undertaken and those which are not, will not.

The problem with applying this rule to drunk driving is that the rest of our legal system is insufficient to deal with cases in which a serious accident actually does occur. Damages to the victims are easily evaded through bankruptcy (or even the threat thereof). Even if these damages were non-dischargable, it seems doubtful in many cases that the perpetrator would ever be able to offer full financial restitution. Even criminal penalties for drunk driving causing severe injury or death to innocent bystanders (while much harsher than they once were) are still extremely lenient compared to those meted out to criminals who cause the same amount of harm intentionally.

So, when the risk actually occurs, we will not adequately deter the perpetrators and often cannot sufficiently compensate the victims of drunk driving. This under-deterrence will, by standard economics, lead to an overindulgence in the risky behavior. So we have a law which places additional deterrence against the very act of taking the risk, regardless of whether it actually occurred: the law against drunk driving. This is probably wise and creates more economically efficient incentives than a regime which permits drunk driving in combination with the limits on deterrence and compensation mentioned above.

Still, there is something about this which rankles this author's principle explained above. And perhaps the combination over-deters drunk driving too? Certainly, given physiological fact, it seems hard to believe that it does not under-deter drivers just beneath the legal limit or over-deters drivers just above it (or both). And is it not a dangerous precedent towards all sorts of slippery slopes?

So I would suggest a solution for at least a part of the problem: An optional license to drive drunk available only to those who can post sufficient bond or insurance and assume sufficient criminal indemnity that they will not be under-deterred. Note that such a license would not protect against legal liability for damage caused to others: Drivers with such a license would still face full civil and criminal sanction for that. The only difference is that the mere fact of driving under the influence would not itself be a crime for such drivers.

Needless to say this is not an entirely satisfactory solution. The collateral or bond posted would have to be large enough to cover judgment even in very severe cases (like multiple deaths of innocent bystanders) and would hence likely would be in the tens of millions—in other words, anybody who could afford a drunk driving license already can afford a chauffeured limousine, a currently available alternative. As for the insurance option, it seems likely that the adverse selection problem would be so severe that the premium would also be more expensive than currently available legal options.

So are we stuck in the current second best (at best) solution?

¹ That I consider this to be a hard case may convince some of my readers that this author is a "case" of quite another kind. But please hear me out.

² Should any of them not be, kindly correct me in comments, preferably with citations—but please avoid claiming that I made any unstated assumptions or jumped to conclusions.

³ Yes, this author is aware that there are other, indeed many, laws which violate this principle. But in these other cases, the author is against those other laws because they violate this principle (or at least that is a shorthand for the author's opposition). Whether and why laws against "drunk driving" should be any different to this author (and those similarly inclined) is what makes this question interesting.

⁴ This assumes that the risk taker is rational. And, yes, the author is aware that there is evidence that some people in some situations do not act rationally; indeed, most people most of the time do not consciously reason the way the caricature of homo economicus does. Yet, this author is willing to defend in another post the proposition that within a liberal legal system and society, most mentally competent adults make most important decisions in their lives as if they were homo economicus. In short the rationality assumption only be true by introspection for small fringes of society (including many economists and fellow travelers), but nevertheless true as a matter of positive economics. And, specifically to the subject at hand, while it may be disputable whether an inebriated individual is fully rational, the person who decided to get inebriated generally would be.

Wisdom of a Criminal Defense Lawyer

Everybody is innocent of something.

—Unnamed Criminal Defense Lawyer (and friend of author)

Salt Passage Research: The State of the Art

The always-interesting and almost-always-correct Prof. Landsburg links to a very amusing social science pastiche.

Princess Brides in D.C. Circuit Briefs

While on the subject of literary allusions in legal briefs, here is my favorite from a D.C. Circuit brief I filed in a FERC case a couple years ago:

[T]he Coalition claims that only a 'a structurally competitive market' qualifies. Id. (emphasis added); accord id. at 11, 22, 23, 24, 28.^2
2 '[They] keep using that word. I don’t think it means what [they] think it does.' William Goldman, The Princess Bride 114 (Harcourt 2007) (1973).

Brief of Supplier Intervenors at 8, Public Service Electric & Gas Co. v. FERC (D.C. Cir. 2008).

Underpants Gnomes in FERC Briefs

From a brief I filed with the Federal Energy Regulatory Commission on Monday:

However, this still leaves an Underpants Gnome-sized chasm³ at the core at the center of the California Parties’ argument: The California Parties completely failed to establish any causal connection between propositions 1 and 2.

³ The industrious underpants-stealing gnomes were introduced to the world by the television program “South Park.” Famously, their business plan consists, in its entirety, of three stages: “Phase 1: Collect Underpants. Phase 2: ? Phase 3: Profit.” Wikipedia, Gnomes (South Park), http://en.wikipedia.org/wiki/Gnomes_(South_Park) (last modified Jan. 2, 2010). The gnomes’ business plan have since become a byword for theories with large logical gaps of which their expositors appear to be blissfully unaware. See, e.g., Editorial, Obama and the ‘South Park’ Gnomes, The Wall Street Journal at A16 (May 26, 2009) (postulating that the television episode may “surpass[] Milton Friedman’s ‘Free to Choose’ as the classic defense of capitalism”); Ezra Klein, The Underpants Gnomes Theory of Single-Payer, The Washington Post Blog (June 26, 2009), http://voices.washingtonpost.com/ezra-klein/2009/06/the_underpants_gnomes_theory_o.html. So too here: The California Parties proceed, as if blissfully unaware, to propound a theory in this case that totally lacks any causal connection—or even any attempt to draw a causal connection—between the successive steps of argument. In actuality, of course, the California Parties are keenly aware of these fatal flaws but apparently have no choice other than to pretend that they simply are not there.

Id. at 8.

Update on July 12, 2010: FERC adopted the position argued in the brief and dismissed all claims by California against my client and even went on to quote the underpants gnomes. Initial Decision on Motions for Summary Disposition at P 221.

A "Financial Crisis Responsibility Fee" on sub-prime borrowers

The administration proposes to impose a punitive ex-post-facto tax "Financial Crisis Responsibility Fee" on banks who received TARP bailouts--regardless of whether they wanted, needed, or have repaid the funds. Wall St. Weighs a Challenge to a Proposed Tax, New York Times at B1 (Jan. 17, 2010). Of course, bailout recipients with sufficient links to the Democratic Party, such as the union-owned automakers and retired-politico-operated Fannie Mae and Freddie Mac, are exempt.

But haven't we been told that the financial crisis was caused by all those irresponsible sub-prime mortgages? So, surely, sub-prime borrowers should not escape their share of the blame. So let's make them pay another percent or two of interest on their mortgages, regardless on whether they are current on their mortgages, have repaid them, or discharged them in bankruptcy. That is not the deal they signed up for? Well, no, but then neither is it the one the TARP recipients signed up for.