Regarding my latest Libertarian Bookworm post, Thomas Anger at Liberty Corner has some really interesting questions. I’ll do my best, but I would love to hear from others who might have the answers, too.
First, Anger points out that Epstein’s statement that we ought to be very skeptical of the proposition that some third party knows better than the two contracting parties what is best for them, seems in some way at least to conflict with his belief that the state may legitimately force exchanges when they make leave all parties no worse off. The issue is one of valuation—if third parties can’t compute value for the two contracting parties, how can the state know that a forced exchange will leave them worse off? This challenge echoes Randy Barnett’s challenge to Epstein in their recent debate in the pages of Reason magazine. Although Epstein didn’t really answer, I think one answer would be that the value isn’t always indecipherable. People are often able to put a money value on their losses, including the loss of their rights. In theory, just compensation would leave parties no worse off, even in their own eyes. (One major problem in eminent domain is that the erosion of the public use clause necessarily undercompensates, in addition to its other negative effects.) Epstein would probably say that in many cases people can tell you whether they’re worse off or not. True, this subjectivism could exacerbate holdout problems, but it’s at least a partial answer. Also, suppose everyone in the state agrees to the proposition that dollars shall be legal tender for subjective losses. If they do that, then it might be perfectly fine for the state to measure people’s losses in money values, and decide that they’re better off when those money values rise, even in the face of a person claiming that he’s been wronged.
Epstein does answer Anger’s second question—just compensation would make up the transaction costs (which, presumably, would be lower anyway for the state than for the parties themselves, since in Epstein’s view, the lower transaction costs for the state are a primary justification for state action to begin with), and that compensation would come from flat taxation.
Third and Fourth, Epstein doesn’t, so far as I know, use his forced exchange principle to justify curbs on private racial discrimination—but, as I said, I haven’t read Forbidden Grounds, so perhaps Jonathan Rowe knows better than I. I have tried to make that connection myself in previous posts, however. In any case, the principle of, say, “exclusionary contracting,” has always been sloppy, because every contract is exclusionary to some degree—just like the whole principle of “monopoly” is sloppy, since every person is a monopoly unto himself. So how to distinguish refusals to deal on the basis of race (illegitimate) from refusals to deal on the basis of bad credit or even just personal dislike (legitimate), or from even more troubling things like refusals to deal on the basis of religion (I think perfectly legitimate) or sexual orientation (same), has always been a problem in this area of the law. I don’t think Epstein has an answer for this that’s more strict than “I know it when I see it,” but I don’t know that anyone else does, either. The best that can be offered, so far as I know, is a highly technical version of “I know it when I see it” which is what fills the economists’ textbooks regarding monopolies.
Anger’s fifth question confuses me a bit. I think one problem is that Epstein’s not arguing that these preferences are illegitimate, or even that the state should ignore them. He’s saying that the state could adopt a forced exchange: that is, force a new state of affairs on the world while compensating those who would prefer otherwise, in most cases. But this raises the spectre of the protection racket—that is, people will demand compensation for refraining from doing things they had no right to do. Epstein sees this problem, but I don’t think he has sufficiently answered it, at least, not in Skepticism And Freedom. He says
[N]o skeptic has yet defended the bright idea that the right way to curb coercion is to compensate individuals whose (Hobbesian) liberties—the unfettered use of their physical capacity to cocerce others—we curtail. The follow-on effects will be disastrous as eager, if perverse, individuals would line up round the block in order to be bought off from threats that they should never have made in the fist place. The use of the term “coercion” in connection with monopoly behavior provokes the opposite response. Here, the risk of follow-on mischief no longer applies…. To speak in this context of “coercive” behavior is not to speak of activities that are wrong in themselves. It is rather the more modest inquiry of whether it makes sense to limit the pricing and sales strategies to the monopolist endowed with legal protection or natural advantage.
Id. at 122. But this answer doesn’t satisfy, so far as we’ve been analogizing segregation to a monopolist refusing to deal. In the latter case, the refusal to deal considered wrongful for reasons having little to do with economic efficiency. The best solution that Epstein offers in his context is to “den[y] the monopolist the absolute right to exclude by requiring him to supply his goods or services, not at whatever price he [can] fetch, but only at reasonable prices”—that is, he introduces a notoriously vague term which brings up all sorts of extra problems. Are those problems so bad that the cure is worse than the disease? I don’t think so, in the context of segregation, but as Anger says, it’s awfully hard to draw the line, once we’ve conceded the state’s authority to force whites to accommodate blacks. Good intentions can then go terribly awry, as we all know.
I’d love to hear other people chime in on this one. I’m far from being an expert on antitrust law or the economics of monopolies. (Very far.)