Monday, September 27, 2004

Epstein's Freedom, Revisited

Yesterday, in response to a post by Tim Sandefur at Freespace, I posed five questions about Richard Epstein's new book, Skepticism and Freedom. Sandefur and Jonathan Rowe, writing at, have addressed the questions, here and here. Herewith, the five questions (italicized), followed by excerpts of Sandefur's and Rowe's responses:

1. In light of Epstein's belief that we ought to be highly skeptical of the idea that an outside party has better knowledge about the choices (and the benefits from them) that a person makes, how does Epstein reckon that the state, as an outside party, is able to determine that the parties to a forced exchange will be better off as a result of the exchange?

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.
2. What happens to the transactions costs that (presumably) keep the parties from undertaking an exchange that the state decides to force? Do the costs simply vanish or does the state (that is, taxpayers) defray them?

[J]ust 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.
3. Is Epstein's concept of forced exchange a justification of the integration of commerce (e.g., forcing whites to accommodate blacks at hotels, restaurants, etc., and forcing whites to offer houses to black as well as white buyers)?

[See no. 4: ED.]
4. If Epstein's concept of forced exchange justifies the integration of commerce, how does the state account for the preference of whites not to trade with blacks, or does the state simply regard that preference as illegitimate?

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....
Let me note two points that Epstein makes in Forbidden Grounds (a polemic against anti-discrimination laws). First, like me, Epstein doesn’t believe that the pattern of segregation that we saw in the Jim Crow south could have persisted absent enforcement by state and local governments. He notes the efforts of segregationists to restrict the black vote as powerful evidence of this. “Without ironclad white political control, someone, somewhere would have tried to gain entry into local markets, given the supra competitive returns.” (Epstein, Postscript, 8 Yale Law & Policy Rev. at 331).

In those areas of life where explicit ordinances demanding segregation weren’t present, private violence enforced the color line and the Jim Crow governments let that violence go by refusing, in violation of the 14th Amendment, to enforce the “equal protection of the laws.” Moreover, Epstein points outs that state governments could also enforce collateral restrictions against such firms that bucked the color line—taxes, zoning permits, health inspections, and the like, “could be brought to bear on firms that did not toe the line set by Jim Crow.” (Epstein, Forbidden Grounds, at 246.)

Yet, Epstein would indeed be willing to allow for the existence of anti-discrimination laws in the private sector so long as they were Pareto justified. But the problem is, according to Epstein, they clearly aren’t. Much of Forbidden Grounds and his law review articles on the subject were written to demonstrate this....
5. If the state chooses to treat the preference of whites as illegitimate, by what criterion does the state judge the legitimacy of the preferences of parties to a forced exchange being contemplated by the state?

[This] 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....

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 [the author of Liberty Corner] 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.
Both Sandefur's and Rowe's posts are worth reading in their entirety. Again, they're here and here.

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