Reply to Klein and Clark (part 2)

I mentioned in my previous post how much I enjoyed reading this 2010 paper on “Direct and Overall Liberty” by Daniel Klein and Michael Clark. At the same time, I also identified two logical flaws with their framework: (1) the coercive nature of all governmental actions, and (2) the reciprocal nature of harms. Here, I will flesh out both objections in greater detail.

By way of background, one of the most influential ideas in classical liberal political philosophy is John Stuart Mill’s harm principle. In summary, Mill claims that people should be free to act however they wish unless their actions cause harm to somebody else. In other words, coercion is justified only to prevent harm to others. (For reference, I shall call this familiar argument the “libertarian” or “classical liberal” conception of liberty.) A logical or self-reference problem, however, arises when we apply this classical liberal principle to the government itself, since all governmental actions are coercive. (After all, a law, by definition, restricts the liberty of those who would prefer not to comply with the law.) That is my first objection above.

My second objection (and the more serious one) is that harms are ultimately a reciprocal problem, a counter-intuitive insight that can be traced back to a pair of papers written by an obscure British economist at the time, Ronald Coase: one in 1959 (“The Federal Communications Commission”), the other in 1960 (“The Problem of Social Cost”), both of which are reprinted in Coase’s beautiful book The firm, the market, and the law, the cover of which is pictured below. In summary, before Coase, the conventional view among economists was that government restrictions on liberty are justified only to curb so-called “negative externalities”, i.e. situations involving harms to third parties, such as air pollution, loud noises, and radio signal interference, just to name a few. Coase, however, ripped the logic of this conventional economic wisdom to shreds in a single sentence in his social cost paper:

The traditional approach has tended to obscure the nature of the choice that has to be made [between A, the wrongdoer or the person causing the harm, and B, the victim of the putative harm]. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is, How should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. The real question that has to be decided is, Should A be allowed to harm B or should B be allowed to harm A? The [correct solution] is to avoid the more serious harm

In other words, negative externalities are a reciprocal problem: one side is always going to suffer harmful effects no matter what the government does or fails to do. To take Coase’s original example (factory smoke), if the government adopts a laissez faire industrial policy and permits the owner of a factory to emit smoke, the downwind neighbors will be harmed. By contrast, if the government decides to prioritize the environment by enacting a law to prohibit the factory from polluting the air, then it is the owner of the factory who will be harmed. (In fact, it is not just the owner of the factory who will be harmed but also all consumers who wish to purchase the products produced by the factory.)

Furthermore, to say that the owner of the factory has a moral or legal right or liberty interest to use the factors of production free from government intervention is not dispositive because one could just as well argue that the neighbors have a moral or legal right or liberty interest to clean air or to good health. However we frame the problem–as one involving property rights in the factors of production or rights to good health–the problem remains reciprocal. The liberty interests of one of the parties will be hindered however the government responds to this situation!

In reply, Klein and Clark might try to sweep my reciprocal harm objection under the rug, so to speak. After all, “negative externalities” are just one type of a wide variety of policy areas (11 categories in all!) that they identify in their paper–namely, the category they label “controlling pollution.” In reality, however, the logic of Coase’s reciprocal harm insight applies to all 11 of Klein and Clark’s categories! I will explain why in my next post.

The Firm, the Market, and the Law, Coase

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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2 Responses to Reply to Klein and Clark (part 2)

  1. Pingback: Review of Klein and Clark (part 3) | prior probability

  2. Pingback: Recap of my review of Klein & Clark | prior probability

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