The Libertarian Quartet

Richard Epstein from the January 1999 issue

(Page 3 of 3)

That is undeniably a clever solution, but it is not one that operates solely within the confines of the libertarian quartet. The only way the fee can be charged is through the exercise of state monopoly power at the port. Indeed, in many cases the task of collection was left to customs officials. No competitive firm could collect that charge from its customers if they were free to go elsewhere. And the port fee system is easily subject to monopoly abuse if the revenues exceed the cost of providing the lighthouse and are diverted to other ends. The private owners of the lighthouse have a monopoly position and, unless some common carrier obligation is imposed, can charge what the traffic will bear. Indeed, the British parliamentary reports from the 1830s that recommended the shift to public ownership of lighthouses noted that the revenues far exceeded operation costs.

For Coase, this problem did not matter, since his main mission was to show that economics textbooks which treated lighthouses as the classic government-provided public good erred because they did not study the actual practices of lighthouses. But for Barnett, these observations are much more damaging, for they show the intractable second-best nature of every public good problem. The only way to avoid the evident dangers and inefficiencies of government funding is to take the risk of private monopolistic behavior. No a priori answer tells us which loss is greater.

More generally, holdout and monopoly problems are very tough, and sometimes they require all sorts of government coercion. To analyze when and how that coercion can be used requires a far more detailed examination of the intricate takings and just compensation problem than Barnett offers in this book. By failing to undertake this task, Barnett misses
the opportunity to weigh in against those forms of redistributive regulation--whether through assigned risk pools in insurance or the grotesque universal service obligation that is part of the 1996 Telecommunications Act--that have much more to do with subsidy than with efficient deployment of resources in a network industry. The dangers of misguided regulation are hard to attack credibly simply by declaring every deviation from the libertarian quartet unacceptable. What is needed now is not a blanket rejection but a differential analysis whereby some systems fail and other succeed.

Last we come to the question of the criminal law, on which I shall comment only briefly even though it occupies much of Barnett's attention. As might be expected, he is a strong defender of privatizing the criminal law function, and he relies on economist Bruce Benson's useful work to show the extent to which the private sector in law enforcement has grown faster and performed better than the public sector in recent years. Although that point is surely true, Barnett could have spent at least some time trying to explain whether, and to what extent, improvements in public law enforcement account for some of the rapid decline in the crime rates that we have observed in recent years.

Even if we put that question aside, Barnett makes the same mistake of proportion that occurs elsewhere in the book. It is easy to show that increasing the level of private enforcement in the overall mix can produce substantial improvements, especially against a baseline of a generation ago. But it hardly follows that we should go the whole nine yards and do away with public enforcement altogether.

Indeed, much of the success of private enforcement depends on its ability to rely on a public enforcement backup. Private police may be good at preventing crimes and nudging suspicious types along their way (something the regular police could do if the Supreme Court came to its senses and eased up on its hostility toward anti-loitering laws). But when murders and robberies occur, when individuals cross state lines, when the use of force may be required in a standoff, the private police rely on public enforcement.

The University of Chicago has had extensive policing of Hyde Park for the better part of 50 years, but no one supposes that we would love to see the Chicago police leave the beat. Quite the opposite: Local arrangements are designed to make sure that each investment by the university does not lead to a corresponding diminution of public enforcement in the neighborhood, given the obvious temptations involved. What has to be done is to work on the proper mix of public and private. Law enforcement, like the construction and maintenance of infrastructure, has a necessary public component.

In sum, Barnett's book represents much of what is sound and much of
what is suspect in traditional libertarian thought. Its basic instincts on the importance of liberty, property, contract, and tort are undeniably correct. The difficulties start when defenders of this system exaggerate its ability to address the wide range of problems that require some degree of government taking and regulation.

In refusing to address those problems, Barnett reminds me of physicians who defend therapeutic nihilism, claiming that most medical treatments have negative results, so patients are better off with no treatment at all. That position became untenable probably by the end of the 19th century, and certainly after the end of World War I. Yet it holds a lesson for us today: Regulation can kill, just as bad medicine can kill, but it can also serve useful ends.

Today the knowledge required for sensible regulation is available. Incremental improvements are possible; bad schemes can be denounced, good ones improved. That debate is where the action is, but Barnett will have to sit on the sidelines. Regulatory nihilism will not cut it as we enter the 21st century. Regulation beyond the libertarian norms is a necessity. The only question is whether we shall do the task wisely or poorly.