Tag Archives: Richard Epstein

Richard Epstein on Originalism and Judicial Restraint

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I’m worried! I’m sympathising with organic farmers over a land use conflict!

Writing this blog of sound mind and sober disposition, I still have considerable sympathy with two organic farmers over a land use conflict they have with the neighbouring gun range.

blackstone nuisance

Local land use regulations allows a gun club to set up 600 m away with competitive shooting days all day for 88 days a year. That is a voluntary self restraint. They could hold shooting competitions every day of the year. The local land use regulations allow the use of guns on rural land. The gun club used this absence of a prohibition on the use of guns in the frequency of use to set up a gun range to fire guns all day long on rural land.

Now here is the rub. There something wrong with the concept of quiet enjoyment of your land if a neighbour can fire off a large amount of noises continuously. The occasional noise, the occasional gunshot yes, but all day? I live near the airport, but I knew it was there when we bought the property and the lands  was a little cheaper because of that.

The organic farmers are unusually pristine and prissy about what they want by neighbours to protect the sacredness of their more expensive snob food. I’m not too sure whether they would want to grant their neighbours an equal right to unusual land uses such as opening a gun range. That said, the organic farmers do have a point about a very noisy neighbouring land use that can be heard some distance away.

The organic farmers, of course, could have negotiated with their neighbours for covenants to restrict land use that undermine there are unusually pristine requirements for quiet enjoyment of their land and their neighbours land too. Easy to do when the land is first unused, but once economic activity accumulates, not so easy in terms of  transaction costs and hold-outs.

HT: Environmental Law 101 | Hoover Institution.

Zero hour contracts may be outlawed in New Zealand–updated

In another triumph of the Socialist Left of the National Party, the supposedly centre-right New Zealand government is considering outlawing zero hours contracts:

ONE News can exclusively reveal the Workplace Relations Minister is leaning towards outlawing the contracts and other employment provisions that he sees as unfair…

The Minister of Workplace Relations said the most punitive aspects of zero-hour contracts will be banned:

Mr Woodhouse has previously said a ban of zero-hour contracts would be an overreaction, but signalled the outlawing of aspects including:

•Restraint of trade clauses that stop someone working for a competing business if an employer does not provide the desired hours of work.

•The cancellation of shifts at short or no notice.

One reason for this is to neutralise a wedge issue with the Labour Party. The labour parties in both New Zealand and United Kingdom plan to outlaw zero hours contracts.

The NZ Labour Party’s Certainty at Work private member’s bill would require employment agreements to include an indication of the hours an employee will have to work to complete tasks expected of them.

Aaron Director pointed out that there are many real world business practices that behave differently from the caricatures in textbooks and arouse suspicious responses from economists (as well as from lay observers including lay observers with no ideological agenda).

Director said that visions of market power dance their heads and some of these suspect practices have been regulated for reasons he attributed in a large part to intellectual laziness. Ronald Coase made the same observation about knee-jerk responses to perplexing new business practices:

One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation.

And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.

Much of the lasting influence of Aaron Director and of Ronald Coase came from their ability to show that simple judgements about business practices often cannot withstand rigorous scrutiny.

The organisation of and the contracting practices in the labour market is not a complicated despite the best efforts of the Left over Left and unions to pretend that it is so, as Richard Epstein explains:

Labour markets are not characterized by tricky externalities. They do not pollute streams or require the creation of public goods.

They are not characterized by genuine breakdowns in information, as workers are in a position to observe the conditions of their employment on a day-to-day basis.

Left to their own devices, without explicit support from union activities, they will be highly competitive, and thus work hard to allocate scarce human capital to its most productive use.

Workers have the option to quit for higher wages, and employers can always seek out low cost techniques to reduce their labour costs. Any short-term dislocation for firms or individuals is more than offset by the overall increase in the system productivity, spurred in part by clear signals that should increase investments in human capital.

In the UK, the Work Foundation found that 80% of those on zero hours contracts are not looking for another job; only 26% wanted longer hours. This implies that 74% were content with their current work times arrangements.

The inherent inequality of bargaining power between employers and workers and the reserve army of the unemployed must not be all that they are cracked up to be these days if low paid workers have to sign legally enforceable restraint of trade agreements, which is a common complaint about zero hours contracts. The worker does not have guaranteed hours but must promise not to work for someone else in the same line of business.

Obviously, the few members of the reserve army of the unemployed lucky enough to have a low pay, insecure job that offers no regular hours have so many other job options that their employers must get them to agree not to quit and job-hop at will. Jobs must be readily available to low paid workers for otherwise why do employers insist on this restraint of trade in employment agreements?

If there is an inherent inequality of bargaining power between the bosses and the workers, why do employers seek restraint of trade agreements against these downtrodden workers who are supposed to have few options but to accept the miserable zero hours job offer before them?

The question that must always be asked is why do people deemed competent to vote and drive cars sign zero hours contract? What is in it for them – for the worker who signs these contracts – especially for workers who already have a job and are switching to a zero hours contract? David Friedman asked this question about the economics of restraint of trade agreements for employees:

…the employer who insists on an employee signing a non- competition agreement will find that he must pay, in additional wages or other terms of employment, the cost that the agreement imposes upon the employee, as measured by the employee and revealed in his actions.

It follows that the employer will insist on such an agreement only if he believes that its value to him is greater than its cost to the employee… The contract is designed, after all, with the objective of getting the other party to sign it.

If I am designing the contract and offering it to many other parties, that may put me in a position to commit myself to insisting on terms that give me a large fraction of the benefit that the contract produces. But it is still in my interest to maximize the size of that net benefit-which I do by only insisting on terms that are worth at least as much to me as they cost the other party.

If zero hours contracts are as bad as the Left over Left claim, the job quit rates for these contracts should be high, and people moving from existing jobs should be under-represented in this section of the labour force. If a worker already has a job, they have few reasons to sign up to such a purportedly poor job offer. Show me the evidence.

Unless we have a good idea about why firms are moving to zero hours contracts, which we don’t, and why employees sign these contracts rather than work for other employers who offer more regular hours of work, meddling in these still novel to the officious observer arrangements is risky.

Environmental Law 101 | Richard Epstein

Back in 1999, Richard Epstein wrote a great summary of what should be environmental law from an old common law perspective, from a classical liberal perspective, and a pragmatic economic libertarian perspective:

Stated bluntly, nothing in the theory of property rights says that my property is sacred while everybody else’s property is profane. That single constraint of parity among owners should lead every owner to think hard…

This recognition of the noxious uses of private property is the source of the common law of nuisance.

That law dates from medieval times, certainly by 1215, at the time of the Magna Carta. It is no new socialist or environmentalist creation for the twentieth century.

When the common law of nuisance restricts the noxious use of property, it benefits not only immediate neighbours but the larger community. If I enjoin pollution created by my neighbour, others will share in the reduction of pollution.

Simply by using private actions, we have built a system for environmental protection that goes a long way toward stopping the worst forms of pollution.

Epstein does not stop there. He recognises as he should that the common law of nuisance is not enough to stop all problems of pollution:

Yet before we leap for joy, we must recognize that private actions are not universally effective in curbing nuisances.

Sometimes pollution is widely diffused—waste can come from many tailpipes, not just one—so that no one can tell exactly whose pollution is causing what damage to which individuals.

Under those circumstances, private enforcement of nuisance law can no longer control pollution…

We do not change the substantive standards of right and wrong, but we do use state regulation to fill in the gaps in private enforcement.

Epstein then makes a plea for private covenants to deal with a great deal of the social frictions that arise in the suburbs:

But often when individuals worry about their local environments, they’re not particularly happy to treat the nuisance law, however enforced, as the upper bound of their personal protection.

They want (especially as their wealth increases) more by way of aesthetics and open spaces. Fortunately, our legal system has a way to accommodate these newer demands.

One of our most important land-use control devices is the system of covenants by which all the holders of neighbouring lands agree among themselves and for their successors in title

Covenants might work in Greenfields developments in modern cities. But they really doesn’t work in managing land use conflicts in the inner city where regulation is been used to substitute the covenants for many decades.

Epstein’s ideal for modern environmental law is:

In sum, the system of public and private enforcement of nuisances and public and private purchases of environmentally sensitive sites is the way that sound environmental policy should proceed.

via Environmental Law 101 | Hoover Institution.

Some economics of zero hours contracts – part 1: concepts, definitions and initial puzzles

Unions say New Zealand employers are following trends overseas and adopting zero hour contracts: workers have to be available for work, but have no hours guaranteed. Unite Union national director Mike Treen said:

McDonald’s, KFC, Pizza Hut, Starbucks, Burger King, Wendy’s – all of the contracts have no minimum hours, and so people can be – and are – rostered anywhere from three to 40 hours a week, or sometimes 60 hours a week, and it depends a lot on how you get on with your manager.

No official figures are available on the number of people on zero hour contracts in New Zealand, but they are are available in the UK in the chart below. About 250,000 workers in the UK work on zero hours contracts.

These workers agree not to work for anyone else, but are not promised regular work at all with their new employer.

The question that must always be asked is why do people who are deemed competent to vote and drive cars sign zero hours contract? What is in it for them? David Friedman asked this question about the economics of restraint of trade agreements for employees:

…the employer who insists on an employee signing a non- competition agreement will find that he must pay, in additional wages or other terms of employment, the cost that the agreement imposes upon the employee, as measured by the employee and revealed in his actions.

It follows that the employer will insist on such an agreement only if he believes that its value to him is greater than its cost to the employee…

The contract is designed, after all, with the objective of getting the other party to sign it.

If I am designing the contract and offering it to many other parties, that may put me in a position to commit myself to insisting on terms that give me a large fraction of the benefit that the contract produces.

But it is still in my interest to maximize the size of that net benefit-which I do by only insisting on terms that are worth at least as much to me as they cost the other party.

The inherent inequality of bargaining power between employers and workers and the reserve army of the unemployed must not be all that they are cracked up to be these days if low paid workers have to sign legally enforceable restraint of trade agreements.

Obviously, the few members of the reserve army of the unemployed lucky enough to have a low pay, insecure job that offers no regular hours today have so many other job options that their employers must get them to agree not to quit and job-hop at will. Jobs must be readily available  to low paid workers for otherwise why do employers insist on this restraint of trade in employment agreements.

Why do workers sign these contracts, which can include a promise of exclusive services – not working for other employers? Several subsequent blog posts will attempt to answer this question

The inherent inequality of bargaining power between employers and workers doesn’t work too well here because  the worker is accepting this job as compared to these other options , which may include employment in an existing job.

Once a worker is on-the-job and has accumulated job specific human capital, issues of post-contractual opportunism come up on both sides.

An important function of the employment contract is to prevent attempts to renegotiate terms and conditions once one side of the other has committed to the relationship and will find it costly to go elsewhere.

Zero hours contracts are negotiated upfront, which makes them unappealing to anyone already has a job, unless the terms and conditions of a zero hour contract, including the wages paid are much more appealing than officious observers make out.

Richard Epstein made this point about the general operation of the labour market, which is of relevance to our search to the answers to the questions posed by this blog post:

Labour markets are not characterized by tricky externalities. They do not pollute streams or require the creation of public goods. They are not characterized by genuine breakdowns in information, as workers are in a position to observe the conditions of their employment on a day-to-day basis.

Left to their own devices, without explicit support from union activities, they will be highly competitive, and thus work hard to allocate scarce human capital to its most productive use.

Workers have the option to quit for higher wages, and employers can always seek out low cost techniques to reduce their labour costs.

Any short-term dislocation for firms or individuals is more than offset by the overall increase in the system productivity, spurred in part by clear signals that should increase investments in human capital.

Zero hours contracts are a new labour market phenomena . That is no reason to automatically default to monopoly explanations for their emergence, including their emergence in a highly competitive industries and highly competitive labour markets where  employees change jobs regularly.

As Coase said in the context of industrial organisation as a whole and novel business practices in particular:

One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.

The next blog post arises out of my first exposure to the labour economics of working arrangements. Specifically, how the fixed costs of employment and the fixed cost of going to work  both lead to minimum hours constraints in most employment contracts.

Most of what I know about the  labour, personnel and organisational economics of working arrangements  was about explaining  why employers would expect an employee to work as a minimum number of hours if they were to employ them at all. Always good to start with explanations as to why zero hours should not exist, but they clearly do.

Subsequent blog posts will discuss zero hours contracts in the context of the team production and organisational architecture; and zero hours contracts, equalising differentials and job sorting.

Rawls, Nozick and Gore Vidal on envy

Nozick argues that one of the unchallenged assumptions made by egalitarians is that the have-nots resent the haves only to the extent that the haves possess power and wealth that were unearned. The envious man, if he cannot also possess a talent and success that someone else has prefers that the other not have it either. The envious man prefers neither have it if he does not have it.

An old Russian joke tells of a poor peasant whose better-off neighbour has just bought a cow. In his anguish, the peasant cries out to God for relief from his distress. When God replies and asks him what he wants him to do, the peasant replies “shoot the cow.”

Nozick said that what really rankles the have-nots is the haves who clearly earned their status and possessions:

It may injure one’s self-esteem and make one feel less worthy as a person to know of someone else who has accomplished more or risen higher.

Nozick said that proximity is a bigger factor in the creation of envy than just desert. Envy is local rather than global in its scope with your neighbour as the target of your envy is rather than far-off figures you don’t really know who may be far more wealthy and successful than the people you actually envy in your day to day lives:

Workers in a factory recently started by someone who was previously a worker will be constantly confronted with the following thoughts: ‘Why not me? Why am I only here?”

Whereas one can manage to ignore much more easily the knowledge that someone else has done more if one is not confronted daily with him.

The point, though sharper then, does not depend upon another’s deserving his superior ranking along some dimension. That there is someone else who is a good dancer will affect your estimate of how good you yourself are at dancing, even if you think that a large part of grace in dancing depends upon unearned natural assets.

These considerations make one somewhat sceptical of the chances of equalizing self-esteem and reducing envy by equalizing positions along that particular dimension upon which self-esteem is importantly based.

Knowing that another’s superior ranking along some dimension depends in part upon unearned natural assets does not soften this loss of self-esteem. These considerations made Nozick sceptical of the chances of equalizing self-esteem and reducing envy by equalizing positions along that particular dimension upon which self-esteem is importantly based.

Nozick said that a contraction of options through regulation, redistribution  and other government mandates will only increase envy because it will inevitably result in fewer socially acceptable ways of demonstrating personal worth. With fewer options (i.e. less freedom), the perception of inequality and emotion of envy are likely to be more, not less pronounced. Nozick has point here: primitive societies were racked with envy and  any good fortune good fortune has tainted by genuine luck from  escaping harvest failures and disease.

Nozick said we should expand a person’s options through capitalism thereby making it more likely that he will find something that he does well and on which he can base his self-esteem. Nozick said we should expand a person’s options thereby making it more likely that he will find something that he does well and on which he can base his self-esteem.

Adam Smith wrote that matters of justice can only be resolved if people distance themselves from the grubby particulars their own positions in particular disputes. This view evolved into Rawls arguing that the justice of social institutions should be tested from behind a veil of ignorance where people are ignorant of their particular role in society and individual talents.

Rawls had no place for envy behind his veil of ignorance:

  • Principles of justice should not be affected by individual inclinations, which are also mere accidents; and
  • The parties behind the veil of ignorance should be concerned with their absolute level of primary social goods, not with their standing relative to others.

Rawls was nonetheless alive to the possibility is that:

The inequalities sanctioned by the difference principle may be so great as to arouse envy to a socially dangerous extent.

Rawls’ project was to outline a realistic utopia — a society that could really exist given actual human nature. Political philosophy must describe workable political arrangements that can gain support of real people as they are.

On envy, Rawls’ main fall-back was the background institutions (including a competitive economy) making it likely that excessive inequalities will not be the rule. He recognised that the income of the poorest, along with the whole of society, benefit from competition in a market economy. Richard Epstein explained how the market is important to distributive justice and social peace despite envy:

Strong competitive markets do not favour one individual over another. They work well to harness individual self-interest to generate massive amounts of wealth, widely distributed in society, through voluntary transactions. Behind the veil, rational people should the support of strong and transparent markets as their first order of business.

The Case for Boring Courts and Very Bored Lawyers

The world would be a better place if law was the most boring occupation about.

Lawyers and the court room make for great TV drama, but if the outcome of most litigation was fairly predictable, we would all be better-off.

Ordinary people would not fear law suits or suing to uphold their rights if the law was simple. With the law clear-cut, every-one knows where they stand. People settle out of court. They do not misbehave in the first place because they know they will be liable and will have to pay.

Richard Epstein contents that

…greater judicial sophistication has not brought forth higher quality judgments, but rather the reverse

…An easy mistake for a modern judge to make is to assume that the tools he or she possesses are capable of being put to good ends, and that it is possible to tell which of the parties in a given case are the ‘good guys’ and which are the ‘bad guys’.

…Most of the cases that a judge sees are aberrations.

Yet it is a great mistake for a judge to assume that the rules a court creates only apply to the aberrational cases.

The legal rules will also govern the mundane cases that remain within the system, to be resolved without litigation.

The judge needs to fear that laying down an ideal rule for this one case in a thousand may unglue the system that works well for the other 999 cases.

We all bargain in the shadow of the courts and the law. Bargaining and the enforcement of contracts and property rights and the resolution of disputes would be a lot cheaper if we knew what would happen if we did not settle and went to court.

As an example of the simple rules he champions, Epstein proposed that the default divorce settlements be 50:50.

Epstein also supports employment at will as the default rule because "you’re fired, I quit" could not be simpler to understand and administer.

Everyone knows where they stand and a free to make more detailed marital or employment agreements if they wish. Many do: contractors and short-term routinely earn a premium over permanent employees with more job security.

The law attracts more than its share of reformers wanting to use the courts and judge-made law for political purposes.

If you want to reform the world, do what we ordinary people have to do: change your vote, write a mail to an MP, protest, donate to or even join a political party, or run for parliament.

Some lawyers think themselves above how ordinary people must resolve their differences in democracies: by trying to persuade each other and elections.

The great strength of democracy is a small group of concerned and thoughtful citizens can band together and change things by running for office and winning elections.

That is how new Australian parties such as the Labor Party, the Country Party, Democratic Labor Party, the Australian Democrats and the Greens changed Australia. One Nation even had its 15 minutes of fame with its 11 MPs. Australian state upper houses even have Christian, family and shooters parties and many independents. A middle-of-the-road Senate independent in South Australia nearly topped the poll.

All of these parties started in a living room full of angry, motivated people.

I agree with Antonin Scalia when he said that the purpose of the law is to slow the impassioned majority down:

Judges are sometimes called upon to be courageous, because they must sometimes stand up to what is generally supreme in a democracy: the popular will.

Their most significant roles, in our system, are to protect the individual criminal defendant against the occasional excesses of that popular will, and to preserve the checks and balances within our constitutional system that are precisely designed to inhibit swift and complete accomplishment of that popular will.

Those are tasks which, properly performed, may earn widespread respect and admiration in the long run, but — almost by definition — never in the particular case.

Democracy is government by checks and balance by putting the parties and branches of government in continual tension with each other – it is not trusting the specific people who are currently in power.