prior probability

See here. Alas, it looks like the “excellent” SBF has defrauded the world of crypto. (As an aside, the Amazing Tyler Cowen is also the co-author of “Talent: How to Identify Energizers, Creatives, and Winners Around the World.” Cowen’s “Talent” now joins Andrew Cuomo’s tome on “American Crisis: Leadership Lessons from the COVID-19 Pandemic” in the ash heap of book history!)

I will conclude my review of Klein and Clark’s classical liberal theoretical framework (see their 2010 paper on “Direct and Overall Liberty“) by making the following three closely-related observations:

1. Point #1: Ronald Coase’s key insight about the reciprocal nature of harms (see, e.g., image below) applies to all governmental actions. (All laws, rules, and regulations, for example, involve direct coercion or restrictions of liberty.)
2. Point #2: Because harms are reciprocal, it does not really matter what the “overall” effect (net positive or net negative) a governmental action has on our liberty. Why not? Because regardless whether the amount of overall liberty is positive (+) or negative (–) on balance, one group of actors or set of interests will always be harmed by the governmental action.
3. Point #3: Therefore, the question we should be asking is not whether the overall amount of liberty produced by a government action is + or –. Either way, someone or some group is always going to be harmed by that action. Instead, we should be asking: what is the optimal amount of harm?

To conclude, allow me to illustrate these theoretical points with a concrete example: copyrights. In brief, the purpose of copyright law is to reward content creators by protecting their original works of authorship, and this legal protection begins as soon as the author or creator fixes his work in a tangible form of expression. To protect this property right, copyright law also imposes legal liability on would-be copiers or unauthorized users of copyrighted materials. As a such, one could argue that copyright law promotes the liberty interests of copyright creators at the expense of the liberty of copyright copiers.

But that is not the whole story. In practice, copyright law is not just about protecting the property and liberty interests of copyright creators. It is also about finding the optimal amount of copyright infringement! Under the fair use doctrine, for example, copiers are allowed to “steal” under certain circumstances. Broadly speaking, fair use is about balancing the interests of both creators and copiers, but if we define fair use too broadly, making it easy for copiers to “steal” too much intellectual property, content creators will be harmed. But at the same time, if we define fair use too narrowly, then it is the copiers who are going to be harmed! This is Coase’s key insight about the reciprocal nature of harms.

As a result, the right question to ask about copyright law is not, “What is our overall level of liberty with or without copyright law?” That question is impossible to answer. The question we should be asking instead is: “What is the optimal level of harm?” Once our analysis of copyrights is formulated this way–in terms of reciprocal harms–the problem of coercive laws becomes soluble: We should choose that level of fair use that minimizes the overall level of harm.

I am interrupting my review of Klein & Clark because a category 1 hurricane (now a tropical storm) is passing through Central Florida, where I live. Although this storm hit the Bahamas yesterday (see below), I have not seen a single report in the mainstream media (national or local) about how this storm impacted our Caribbean neighbor.

As I mentioned in my previous two posts, as part of their framework for determining whether a proposed law, regulation, or public policy is pro-liberty or anti-liberty, Daniel Klein and Michael Clark identify 11 types of government action in their 2010 paper on “Direct and Overall Liberty.” Here, I am reproducing their taxonomy in its entirety below (the labels in bold are Klein and Clark’s), along with an illustration or brief description of each category:

1. Thoreauvian coercion (pp. 50-52): protesting an unjust law by breaking that law (e.g. Rosa Parks)
2. Coercive hazard (pp. 52-54): paternalistic laws designed to protect people from risky situations, such as seat belt and helmet laws
3. Disarming or defusing private coercion (pp. 54-55): laws that regulate or forbid the ownership of weapons
4. Controlling pollution (pp. 55-56): air and water pollution laws
5. Restrictions to prevent rip-offs (p. 56): laws against counterfeiting, consumer protection laws, occupational licensure, etc.
6. Subsidizing against coercive taboos (pp. 56-58): the example Klein and Clark give here is public funding of stem-cell research
7. Taxing to fund liberal enlightenment (p. 58): public schools, student loans, etc.
8. Coercively tending the moral foundations of liberty (pp. 58-59): paternalistic laws designed to promote traditional values (e.g. Nancy Reagan’s “Just Say No” P.R. campaign against drug use)
9. Logrolling for liberty (pp. 59-61): party politics
10. Stabilizing the second-best (pp. 61-63): adopting an illiberal policy at time T1 to avoid a worst outcome at time T2
11. Military actions (pp. 63-64): use of military force overseas to topple dictators and promote freedom overseas (e.g. the war effort to defeat Nazi Germany in the 1940s or the illegal U.S. invasion of Panama in 1989 to arrest strongman Manuel Noriega)

If I read Klein and Clark’s paper correctly, the purpose of this comprehensive taxonomy is to narrow down which areas of government action are more likely to lead to restrictions of our overall liberty–or conversely, produce greater levels of liberty overall. Although this taxonomy is somewhat quirky, I want to make a larger point here: there is a common thread that ties together all these disparate categories. Specifically, what all 11 areas have in common is the use of government coercion (or the threat of such coercion) to remedy a harm.

Working backwards, i.e. starting with item #11 (military actions), the harm to be avoided might consist of some perceived threat overseas, such as radical militants plotting to commit acts of terrorism against innocent civilians. Next, with item #10 (stabilizing the second best), the worst outcome to be avoided might be the possibility of a violent insurrection. With item #9 (logrolling for liberty), by contrast, the harm is having to accept the bitter with the sweet; for example, a politician who reluctantly supports an anti-liberty policy (such as authorizing the sale of F-15s to Saudi Arabia) in order to get a pro-liberty law enacted (school vouchers).

Moving on: with item #8 (coercively tending the moral foundations of liberty), the harm to be avoided are the inevitable evils that might result when “people have too much freedom” (to quote Klein and Clark). Additionally, with item #7 (taxing to fund liberal enlightenment), the harm to be avoided is citizens’ lack of appreciation of the benefits of liberty, and similarly, with item #6 (subsidizing against coercive taboos), the harm to be counteracted are attitudes about certain taboos (such as stem-cell research or human cloning) that “lend themselves to coercive governmental actions.” (Klein & Clark 2010, p. 56.) Likewise, the next four areas (items #2, #3, #4, and #5) also involve the prevention or reduction of harms. With item #5 (restrictions to prevent rip-offs), the harms to be avoided are scams against the public, while with item #4 (controlling pollution), the harms in play are various forms of pollution, such as carbon emissions, toxic waste, lead poisoning, etc. With item #3 (disarming or defusing private coercion), the harm to be avoided is the possibility of dangerous weapons falling into the wrong hands, and lastly, with item #2 (coercive hazards), the harms at stake are risky behaviors, like riding a motor bike without a helmet.

[That leaves item #1 (Thoreauvian coercion). Although, as Klein and Clark concede, this area involves “actions by private parties” (p. 51), not the government, protests against unjust laws are often inspired by harms perpetrated by the government itself. In the case of Rosa Parks, for example, the harm was racial segregation in public transportation, a system of apartheid enforced by municipal laws and the local police.]

Now that we have identified the common thread tying together all 11 areas of Klein and Clark’s taxonomy of governmental actions, the two concerns I raised in my previous post (see here) can come into sharper focus. To the point: if my intellectual hero Ronald Coase (pictured below) is right, i.e. if harms are a reciprocal problem, then any governmental action designed to prevent or reduce an existing harm will itself create a new set of harms. Why is Coase’s insight relevant to debates about liberty? I will explain why in my next post.

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.

I recently stumbled upon this 2010 paper on “Direct and Overall Liberty” by Daniel B. Klein and Michael J. Clark, the first page of which is pictured below. How did I not discover their excellent paper before? Among other things, the authors identify 11 types of laws, regulations, and policies and provide a general framework for determining whether, on balance or “overall”, a proposed governmental action is pro-liberty or anti-liberty by comparing and contrasting two key variables: (a) the direct or immediate effects on liberty of the proposed measure, and (b) its indirect or long-term effects. (The authors also anticipate some objections to their framework and respond to additional objections in a follow-up paper they wrote in 2012. See here.)

To the point, the main contribution of both papers is to show how, in many real-life scenarios, the direct and indirect effects on liberty of any given governmental action might diverge or come into conflict (“the possibility of disagreement between direct and overall liberty is real”), thus making it difficult–if not impossible, I might add–to determine whether a proposed law, regulation, or policy is pro-liberty or anti-liberty on balance. Despite this indeterminacy, Klein and Clark conclude that we can safely ignore the indirect effects of most governmental actions by applying the following rebuttable presumption to such actions: a law, regulation, etc. should be presumed to be anti-liberty overall whenever the direct or immediate effects of that measure are anti-liberty.

Alas, I hate to be “that guy”, but there are two logical flaws with Klein and Clark’s framework. One is that most if not all laws, whatever their subject matter, are coercive by their very nature and thus restrict liberty in one form or another. As a result, we cannot safely ignore the indirect effects of laws. The other (more significant) problem, however, is what the late great Ronald Coase referred to as the “reciprocal” nature of harms, including the harm of restrictions on liberty. In brief, even if we are somehow able to predict what the indirect or wider effects of a proposed law will be in the future (a big “if” given the problem of uncertainty), someone’s liberty is always going to be reduced or hindered regardless whether the law is enacted or not. I will further elaborate this key Coasean point in my next post.

I am posting two versions of this beautiful song: one by Shakira; the other by Honeyfox.

I have been attending the 13th annual Constitutional Law Colloquium at the Loyola (Chicago) Law School this weekend. Among my favorite talks thus far is “Disingenuous Interpretation” by my new colleague and friend Michael Smith, who teaches law at the University of Idaho. His paper is not yet posted on SSRN, but he has blogged about some of the ideas in his paper here. (Professor Smith has also graciously provided me a copy of his draft paper, so I will be blogging about his work on constitutional interpretation soon; in the meantime, check out his 2020 paper “Shooting Fish.”)