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Ronald Coase, Regularly Removed from Polite Company
September 5, 2013 Regulation

Our entire series on Being Removed from Polite Company could be populated with Ronald Coase stories. By now I am sure most readers of TUW would have read something about Coase’s life since he passed away earlier this week, including the story of how both he and James Buchanan (both Nobel Prize winners of economics) were run off the University of Virginia campus for not partaking in the echo-chamber of 20th century liberal ideas. So much for diversity.

In any event, one of the things that I admired most about Coase was that though his detractors viewed him as a market ideologue, he was about as far from dogmatic as anyone I have ever encountered. Most of his critics probably didn’t read a thing he wrote, and surely did not speak to him. I’ve seen him in interviews basically arguing that his appreciation of competition and markets came from empirical observation that they made people’s lives better off, and that there was no reason (he implied) that he wouldn’t support other institutional arrangements if they were favorable. He didn’t start from the proposition that markets were awesome and then spend a career trying to justify it. What I enjoyed and respected most was his demand that people be consistent, use good arguments and practice good logic. He took ideas to their logical conclusions and demanded that people be aware of the conclusions of their thoughts.

My favorite example comes from this somewhat famous paper from Coase (I am sure you can find a free version if you look online in enough places). In it he challenges those folks who believe that regulation in the typical consumer goods market is a good idea. He doesn’t challenge that idea per se, instead, he does as I try to do here, accept the premise. Suppose, he says, that regulation works great for food, drugs, interior decorating, and the like. Fine. If you believe that regulation is desirable AND is effective here, then logic requires that you believe that it works even better in the market for ideas. One reason of course is that it is far easier to learn about good and bad products than it is about good and bad ideas. In other words, if you lay out all of the reasons why goods regulation (according to its proponents) is a good idea, then each of those arguments is stronger when it comes to ideas. How many university-types do you think agreed with the implication? And how many would support ideas regulation on campus today? I can assure you there is no shortage of “harmful” ideas on campuses these days, perhaps even emanating from me.

Let me give an analogy to make that point. I ask students in classes to consider if they think government should regulate activities that are risky, harmful and can produce bad consequences for “society” at large. They of course say yes, there are many cases where this makes sense (and perhaps I agree). But then we go through a thought exercise where the act of college students seeking partners and ultimately having sex with partners is perhaps one of the most risky and dangerous things that can happen, especially as compared to most risks that people think government should protect us from. My point in the exercise is NOT to promote the regulation of college students’ sex lives (though I wonder at times …), and that is obvious from the example, but rather for them to rethink and reconsider the case for more “typical” regulation, even such as on pharmaceuticals and recreational activities. It was the same with Coase’s example. If regulation in the market for ideas is perhaps something to be questioned, then using logic, it follows that you ought to question the rationale for regulation in more “typical” goods markets.

Of course, people will twist themselves up into very interesting pretzels when challenged like this. Uh … hum … ah … it’s … just … different.

There is so much more to say about Coase, and if you click around through our old environmental posts you will see plenty that is due to his ideas. We will slowly point some out again in the coming months. He lived a long and great life, and while he will surely be missed, his ideas are going to be around for a long, long, long time.

"2" Comments
  1. The day after Coase passed away I mentioned to one of my PhD cohorts that Ronald Coase had died. Her response: “….ok…” Blah! What a world we live in.

  2. He will be missed, but his ideas live. He gave much for us to think on, and be humbled.

    I defer to Wintercow, an economics expert who has spent more time than I thinking about Coase’s ideas, but above WC refers to the transaction costs, the friction, of regulation.

    Barry Commoner, a leftie from the 60’s, once declared that he and his allies would defeat nuclear power through litigation and make it unaffordable, and he did, mostly, over the past fifty years.

    Or, our ethical drug industry spends over a billion dollars per approved drug to prove not safety but efficacy, to make sure no snake-oil salesman profits by selling his wares to hillbillies, and even then each drug company has to have a brigade of lawyers to defend against torts for officially approved drugs. Broken windows everywhere.

    Or, to get a federally subsidized mortgage for a house you cannot afford, the seller might have to build a sand mound for the on-site sewage system, or raise the electric boxes a few inches, to comply with code designed to keep backhoe operators and electricians employed, plus the workers at Square D and Caterpillar employed. More friction, more broken windows, more effort going up in smoke.

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