Scott Kuhagen on Space Law

Scott Kuhagen shares a new title of the U.S. Code - title 51 - which deals with "National and Commercial Space Programs". Scott also provides details on what this entails legally - it's not the creation of any new laws, it's the collection of old laws into a new title.

He could explain the implications of that, but I think the mere recognition is an important sign that human society - and specifically American society - has a future beyond the Earth.

You can get a degree in space law from Ole Miss, and my alma mater (George Washington University) offers a degree in space policy. Ole Miss publishes the Journal of Space Law as well.

The Supreme Court and Climate Change

Discover's blog notes that the Supreme Court has agreed to hear a public nuisance suit brought against six power companies by eight states for damages caused by greenhouse gas emissions. To a certain extent, this is very good news, because it's a defeat for the use of coercive force on the part of polluters who impose costs with impunity on people who, because of history and practicality, don't have property rights to the air they consume.

I am a little concerned about it, though. While some people see the legal system and tort law as a viable way to arbitrate these things, I'm skeptical. I come at this as an economist - the problem is that a cost-bearer and a benefit-enjoyer can't meet to negotiate the terms of the cost and the benefit imposition (or if they want any cost or benefit imposition in the first place). The crux of the issue is that the cost-bearer has no legal claim on which to base a contract.

A legal solution drawing on public nuisance law at least allows ex post compensation that may or may not be appropriate. That's better than the previous situation, but it still allows benefit-enjoyers to impose the costs of pollution without the agreement of the cost-bearer. In other words, there is no "double-coincidence of wants" that guarantees that we have gains from trade: there is a "single incidence of want" with ad hoc, ex post, legally determined compensation. Even if the courts could adequately assess damages (which nobody who knows anything about the socialist calculation debate should expect), they still can't guarantee welfare maximization because they can only guarantee that cost=benefit, not that marginal cost=marginal benefit. Not only can they only guarantee that cost=benefit for compensated cost-bearers (if that), but that is all they are tasked with doing.

I think the better route would be to say "the air is collectively owned and it oughta be collectively managed", and have the court order the state to fix the problem, much as they did with desegregation. With desegregation, the rights structure that was the status quo was unjust, but rather than telling whites to compensate blacks and letting the rights structure work itself out, the courts ordered the government to rectify the arrangement of rights in public schools and in voting. Ad hoc, ex post compensation is not the price mechanism and we shouldn't expect it to achieve optimal results. State action is not the price mechanism either, but it would be much closer to the price mechanism if we had an institution acting as the agent of the people (who, under the status quo, suffer from an incomplete property rights regime).

H. Vernon Eney - Goldbug

On a few occasions I've talked about my great-grandfather, H. Vernon Eney, and his work as president of Maryland's 1967-68 Constitutional Convention. The Constitution failed, but it was an important reform effort that tried to make the state government more efficient and more responsive to the needs of modern society. I've previously called his work an example of a non-reactionary case for states rights.

Well, one thing I don't share as often (that I haven't shared at all) is that in the thirties, Eney also played a small role in pushing back against the Roosevelt administration's most important policy of monetary stimulus: the demonetization of gold. I was reminded of this recently by a Peter Klein post about the "gold clause" cases in 1935. Eney argued a less famous gold case before the Supreme Court in 1937 (I believe this was ten years after he passed the bar). To be honest, the argument on the part of Eney's client (Machen) and two other petitioners was a little contrived. All three petitioners were arguing that they deserved interest payments on their Liberty Loans from after a 1935 redemption call. The argument was that the call was made null because it was a call on the initial bonds but did not stipulate that payment would not be made in accordance with the language of the initial bonds (i.e., in gold). They argued that "the payment that it [the call for redemption] promises is not the payment owing under the letter of the bond", and so was not valid.

The court ruled that the call for redemption was simply a notice that must be construed in the context of current law, and current law had stated that gold would not be paid out by the Treasury (this was the issue at stake in the earlier, more controversial rulings). The notice wasn't nullified by the fact that it didn't explicitly note that payment would be in a manner different than what was laid out in the language of the bond and so the petitioners were unjustified in demanding interest payments after the call.

Riveting stuff, huh? Anyway - I've always thought the small part that Eney had to play in monetary policy during the Great Depression was interesting, and this post by Klein today reminded me of it. It would probably be a stretch, I suppose, to say that if he had won it would have worsened the "depression within a depression" of 1937!

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Note: Justice Cardozo, who delivered the opinion of the court in this case, is pictured above. Cardozo was appointed by Hoover in 1932, and was generally considered to be a liberal justice. He has also been said to look like Conan O'Brien, but I personally don't see it.

Thoughts on sending a political institution in to do a market's job

I've been a little skeptical of claims from people like Jonathan Catalán at Economic Thought that tort law and full legal liability is the best way to prevent disasters like the recent oil spill. So far, my arguments have been along prioritarian/corner solution lines. My point has been that the market trades off costs and benefits. Even if it recognizes the cost of something like an oil spill, it will say "well, that would be bad but I'm willing to risk it for some profits". Normally this is very good. We don't want our resource allocation decisions to be guided by extreme caution and risk aversion, so letting people with skin in the game decide on how to trade off risk and reward is usually the best way to maximize social welfare. But sometimes it isn't. Sometimes we as a society want to prioritize certain concerns.

For example, doctors, above all, "do no harm". The medical profession would be extremely different in its decisions between risk and reward if it didn't have these priorities institutionally built in. Thinking about when markets can and can't assess risk properly often comes down to a question of whether market failures exist. They clearly exist in the medical profession - doctors know considerably more about the product that they are selling than their patients do. That asymmetric information distorts the market. The institutional solution to that asymmetric information problem has been a strict code of conduct that's not negotiable in market optimization decisions (I suppose this suggests that Hippocrates anticipated Stiglitz?).

Another example that I often bring up here is positive or negative externalities. I like working things out in markets, but you can't do that efficiently if the property rights regime keeps the market from incorporating information about certain costs or certain benefits. That is the situation with the oil spill.

One solution that some people propose to the externality problem is tort law. If firms can't pay the costs of their actions in the market, they can at least pay in court - and they'll factor those costs into their decision making (a la Jonathan's post). My objection to this claim so far has been that even if tort law does solve the market failure problem, we still may have social priorities that demand a corner solution that the market may not be able to provide. BP will trade off the costs and benefits of different ways of plugging the hole, while Obama will insist that we simply "plug the damn hole". Before the spill, we might have said that complete risk aversion is inappropriate - we might have wanted to trade off the chances of failure with the prospect of profits. After the spill, profit for most people was no concern. We needed to plug that hole effectively, regardless of the costs. My critique has been that whenever we genuinely have these "regardless of the costs" needs, that's not something that you go to the market to solve.

But that is essentially a question of what we are optimizing. If we are optimizing some sort of prioritarian understanding of social welfare, then the market is inappropriate because the market optimizes a utilitarian understanding of social welfare. But that still assumes, with Jonathan, that tort law and the institution of the courts (if freed from liability limits) would be successful in forcing BP to deal with all costs and all benefits (ie - internalizing the costs and benefits that thus far had been external to the market transaction). I wonder, though, if we need to question this assumption.

Two things I read this morning raised this concern for me. The first is a report that eight people were sentenced to two years in prison in India for the Bhopal gas leak that killed thousands in India in 1984. I was born in 1984. These people have had to wait 26 years for Union Carbide to pay the cost for their decisions. Now, India of course is not the United States (although it took 19 years for Exxon-Valdez to be settled here), but it still raises two obvious questions for me:

1. Even if limited liability were repealed as Jonathan wishes it would be, what makes him think that the courts will impose costs with sufficient fidelity to correct market failures, and

2. Do the courts at all consider discount rates when they reach these conclusions?

The first question is the more obvious one, but I think the second question is more interesting. The people of Bhopal suffered the costs that they suffered 26 years ago, and they were only compensated for those costs 26 years later. For that to fully compensate their costs, it needs to be considerably more than the costs that they suffered in 1984. If this idea of time-preference is confusing for you, think of it this way: if you buy a house the bank that's lending you the money to buy it bears all the costs immediately. But you're only going to compensate them for those costs over the next thirty years. The bank values money in the future less than money in the present, so to compensate them for that delayed restitution you have to pay interest. The same principle should apply in tort law. Maybe it already does - I'm not a lawyer and I just don't know. But it should. And if it doesn't, then that's one more reason to be skeptical of Jonathan's position.

The second problem with sending in the courts to do a market's job is of course the question of whether the courts are impartial in the way that a market is. Recent reports of over half the federal judges in the Gulf recusing themselves because of ties with the oil industry suggests that we should be skeptical of this assumption. This isn't something we should criticize the judges for - it's just an inevitable problem with the institution. There's nothing wrong with having oil interests and being a federal judge. They're allowed to own stock like anyone else. But when the institutional solution that you provide is directed by a certain group of elites, it introduces serious risks of conflicting interest. This is as true of regulatory bodies as it is of courts.

My view on how to address this problem is similar to my view of the political economy aspects of fiscal vs. monetary policy as stimulus (specifically, the political economy reasons for why I prefer fiscal stimulus to quantitative easing): if you have to engage in what is essentially "picking winners" and there is a serious risk of partiality, it's better to do the job in a transparent, deliberative setting where multiple perspectives have a voice and a vote than it is to do it in an opaque setting with fewer voices and votes (like a court or the Fed). There will always be problems with political solutions. Legislatures are not immune to these problems. But they are more accountable and visible than other institutions.

When we can rely on market institutions to make these decisions we should rely on them - but there are many cases where we can't. When we can't, the question is "what is the best political or social institution to remedy the problem"? Since courts impose costs that are not imposed by the market, they're very, very attractive as a market alternative to a lot of people. I think we need to be more critical of that.

Scott Kuhagen is blogging

I wanted to alert everyone to a new blog by an old classmate of mine, Scott Kuhagen. I went to high school and college with Scott, and have always been impressed with the guy's brain. He is an LSE alum and currently a law student (Temple), and it looks like he'll be blogging about law for the most part. He spends a lot of time thinking about immigration issues, but his posts so far look quite broad.

And speaking of blogs, I'm ditching the classical liberalism blog I started. It's not that I don't think it's an important project, it's just that (1.) I was running it as a link farm and there's actually not a lot of good regular blogging on the nature and composition of the classical liberal tradition - or at least I haven't turned it up with my searches to any extent that's going to allow thematic posting on a regulat basis, and (2.) the readership here is interested enough in these questions that if I ever have thoughts on the parameters of classical liberalism I can always talk about it here. I knew it might end up being a dud - turns out it is.

Guantanamo Prisoners

Andrew Sullivan points out an incredible resource: a full list of all 779 detainees at Guantanamo Bay. For those of you not interested in purchasing a book on this, a great deal of information is available here, here, here, and here. All prisoners are listed on these links with their country of origin and release date (for those that have been released). Most prisoners also have links associated with them to earlier posts on the author's blog, or relevant news items. This obviously isn't comparable to the Gulags or anything like that. We can't forget that these prisoners were captured precisely because there was reason to believe they were committing heinous crimes against the U.S. and against humanity. They needed to be imprisoned and interrogated. At the same time, a lot of what happened at Guantanamo does soil the reputation of the U.S., and went beyond what was needed to effectively prosecute the War on Terror. Indeed, some of the harsher methods used at Guantanamo made the fight against terrorism less effective; this was the very basis for most of the opposition.

The prison's operation was also of dubious constitutionality and legality. What is the purpose of fighting an enemy that is trying to destory our institutions if we abandon those institutions ourselves? Guantanamo's legacy is complex. I have a lot of reservations about what went on (and is going on) there, although I don't have a problem with it's mere existence. This complexity requires sober deliberation, and sober deliberation requires access to information. This compilation of information on the detainees is ample fodder for the sort of deliberation we need. Let's learn who these men were.