Keep it Simple, Solons

Michael McMenamin from the November 1995 issue

Simple Rules for a Complex World, by Richard Epstein, Cambridge: Harvard University Press, 361 pages, $35.00

You remember Richard Epstein. He's the guy who wrote Takings, the book on compensation for government regulation of private property that Sen. Joseph Biden held up for the cameras during Clarence Thomas's confirmation hearings for the Supreme Court. Biden made it clear that Thomas's having read or, worse yet, having been swayed by that scandalous tome would have done more to disqualify him in Biden's eyes than being the consumer of hard-core pornography implicit in Anita Hill's testimony.

Biden was right. If Thomas has been influenced by Epsteinand some of his decisions on the High Court are eloquent evidence that he has beenthen Biden and all other regulatory liberals are in for a tough 30 years (roughly how long Thomas intends to serve on the Supreme Court). Epstein's new book, Simple Rules for a Complex World, will give them even more cause to be afraid. Very afraid.

Epstein literally wants a revolution in the American legal system, turning it away from its heavy emphasis on government regulation as the solution for most social ills. He advocates a return to a simplified and modified version of the common lawjudicial decisions applying "a set of simple rules capable of handling the most complex set of social relations imaginable, whether in the United States or anywhere else." In the wrong handssay legislators or judgesthis book could make Takings look positively soft-core.

Here's where Epstein comes from: "[I] think that permanence and stability are the cardinal virtues of the legal rules that make private innovation and public progress possible. To my mind there is no doubt that a legal regime that embraces private property and freedom of contract is the only one that in practice can offer that permanence and stability....

"In reaching this conclusion, I have been heavily influenced by the work of Friedrich Hayek....Hayek's major target was central planning...the question of whether government officials could ever acquire the information routinely imparted by prices to organize product and labor mar kets. Today there is little general sentiment...in favor of the collective ownership of the means of production....Instead the newer pattern is to preach the virtue of markets in the abstract, and then to insist that government regulation of private enterprises is necessary to correct the legion of supposed market failures that arise in complex market institutions....

"[T]his book [i]s a reply to the argument that regulation is normally desirable even in circum stances where government ownership of the means of production is not. In my view, there is no sharp dichotomy between government regulation of wages and prices, on the one hand,
and government ownership, on the other. Rather, regulation takes certain elements from the owner's bundle of rights and transfers them to the state, where they again fall prey to the same difficulties that arose when central planning was defended on a grand scale. If the downfall of socialism comes from the inherent gaps in information available to public officials and from the inability of legal rules to constrain their self-interested behavior, the forms of modern regulation attacked in this book are subject to the same criticism."

Too Many Lawyers, Too Much Law" is the title of the first chapter, and it's all downhill for lawyers and regulatory liberals after that. Epstein cites a recent study to the effect that each addi tional lawyer reduces U.S. gross domestic product by $2.5 million, and that the optimal concentra tion of lawyers in the United States is 60 percent of today's level. Epstein has some ideas on how to get rid of the need for some of these lawyershis "simple rules" which, properly applied, could form a powerful analytical tool for legislatures to apply to new and old laws alike. There will still be lawyers after Epstein is throughyou didn't think you could get rid of us that easily, did you?but they will be more productively employed. Under Epstein's preferred legal regime, we would see no more technicians who spend their time becoming experts on the Internal Revenue Code, environ mental regulations, or the Fair Labor Standards Act, to name just a few of the more uncreative ways lawyers today waste their time and their clients' money.

Epstein's first two rules set the stage for all that follows. The first is individual self-ownership. The second is the right to own property and defines how rights in property are acquired. As Epstein says:

"My first two rules [would do] a good deal to create order in the legal landscape. The first rule gives people control of their own lives; the second assigns each external thing an owner....[T]he common law rules of personal autonomy and individual ownership necessarily decentralize control of both human and material resources. No single person, no select group of individuals, can decide who is going to own what things or who is entitled to deal with whom on the transfer and use of labor or talents."

The next two rules are the freedom to make and enforce contracts and the right to protect the things you own from harm by third parties. When combined with the first two, they "establish what some might call a libertarian synthesis. They describe a world with strong and well-defined rights in persons and property, complete freedom of exchange and powerful protection against external threats."

Epstein recognizes, however, that the first four rules won't solve every legal problem. He creates a fifth rule to apply where two parties, each with certain rights, are thrown together in un avoidable situations not covered by a contract and one side is in a position to indefinitely hold out against the weaker sideif you strictly adhere to the first four rules. Epstein calls it the rule of "Necessity, Coordination and Just Compensation."

It covers a lot of territory, is the least simple of all the rules, and is probably the most difficult for the lay reader to understand. For example, "there are some situational monopolies that the law does not create, and whose occurrence it cannot prevent. In those circumstanceswhich first arose in cases of necessitycontrolling aggression is but one side of the coin. The other side of the coin is the problem of coordination when one party is in a position to hold out the other for a huge portion of the potential gains from any contract. Here the task is to minimize the total distortions from two problems that often work at cross purposes with each other."

See what I mean? Epstein applies the rule to theoretical problems involving dying of thirst in a desert and joint ownership by mistake and to everyday problems like divorce, compelling specific performance of a contract, injunctions to protect against anticipated or threatened harm, and con spiracies against competition. I think he tries to do too muchany rule that can handle all that is not simple.

Take necessityif I'm dying of thirst and you have water, this rule says I can refuse to pay the outrageous price you demand (even if I can afford it) and simply take the water. In turn, you cannot use force to keep me from your water and all the law will give you is "just compensation" from me for the water I took, i.e. the market price. Epstein distinguishes this situationa bilateral monopoly where nobody but me is dying of thirst and I can get water nowhere elsefrom other cases of necessity like natural disasters where some merchants take advantage of shortages to gouge victims. There is no monopoly and the marketvoluntary exchangewill quickly reassert itself.