Why i'm not a member of the Pigou club - Part 2

As previously mentioned, levels of taxation in the UK demonstrate the practical problems of a Pigou tax, but again let me stress that I object in theory and in practice. In theory because we lack the knowledge to know what the correct amount should be (and possibly whether externalities are positive or negative), and in practice because political incentives are not aligned to put such plans into practice. Ed Lopez sums things up well:

The knowledge of which things are good or bad, in which circumstances of time and place, and to what dollar amount, are beyond the reach of anyone including policymakers; but even absent the knowledge problem, the incentive problem ensures that the enacted policies would be diverted by compromise from what little we do happen to know of the public interest.

This is in response to Jim's recent comment asking me to clarify my position - since value is subjective there is no objective way to define something as a "good" or a "bad". Markets do an excellent job of dealing with this subjectivism by tying outcomes to willingness to pay. If people (for whatever reason) are unable to demonstrate harm (through the legal system), there's no means for an economist to judge it a good or a bad. For any action, externalities exist. Economists are in no privileged position to "judge" which are best "for society".

Hence when Jim says:

If we're agreed that property development can involve negative externalities, then does a Pigouvian tax on those externalities represent a cost or a barrier to entry?

...his point is based on an assumption that Pigouvian taxes are the proper way to deal with such externalities. But I disagree. The obvious answer is that if resources weren't communal the externality would be internalised and the "problem" gets revealed, and it it's a genuine inefficiency, solved. But the argument here is not that "free markets don't provide environmental protection" because we're discussing policy changes. In other words, what direction should we head towards? The reason I'm not a Pigouvian is because although I might concede the need for environmental regulation -at some point - the current problem isn't a resource issue. In other words, the externalities argument - even if it has validity - doesn't argue against a claim that present Pigouvian taxes should be lowered.

But lets turn the question around, since the burden of proof should be on Pigouvians: Peter Klein poses a question for the Pigou club:

Please name the activities you believe deserve Pigouvian subsidies. For each activity provide the efficient subsidy amount, explain how this was calculated, and say how the revenues should be raised.

In the comments Steve Postrel mentions Aaron Wildavsky, and his subjectivist and cultural approach has influenced me heavily (Chapter 3 of Cultural and Social Theory (1998)). But this is a classic example (together with competition theory) where those who delight in critising economists rely upon the worst type of economics when structuring their arguments. Klein is still waiting responses.

Comments

[Mike Moffatt]

"If people (for whatever reason) are unable to demonstrate harm (through the legal system), there's no means for an economist to judge it a good or a bad."

Why is harm, or even intent to harm, necessary here?

If you trespass unlawfully on my property, I am not required to show harm or even intent to harm to obtain an injunction against you (though if I want to collect damages I likely will have to show some form of harm).

So why should I, as a land owner, be required to show harm from stopping your pollution, say run-off from your pesticides onto my lawn, from coming onto my property? Why even bother to have property rights at all, if you're going to through these out the window?

[aje]

"If you trespass unlawfully on my property, I am not required to show harm or even intent to harm to obtain an injunction against you"

Harm = rights violation. If you have evidence of me trespassing, you've demonstrated harm. If you don't have evidence, you shouldn't be allowed an injunction.

Is the smell of anchovies a good or a bad?

[Mike Moffatt]

"Harm = rights violation. If you have evidence of me trespassing, you've demonstrated harm."

Not in most legal systems, you haven't. Hence the difference between obtaining an injunction against the trespassing and obtaining damages.

[Jim]

I'm afraid I'm no clearer on what approach you're actually proposing here. I have no idea what this sentence means, for example: "The obvious answer is that if resources weren't communal the externality would be internalised and the "problem" gets revealed, and it it's a genuine inefficiency, solved". Or this one: "The reason I'm not a Pigouvian is because although I might concede the need for environmental regulation -at some point - the current problem isn't a resource issue". What's a 'resource problem' specifically? Can you explain how 'genuine inefficiencies' are 'solved' when if it was that straightforward they would presumably already be solved? And please don't tell me you're relying on Coasean bargaining.

Also, it's simply not true that we don't know whether any given externality is bad. Lead poisoning is pretty fucking bad, for example, and regulators saved untold numbers of lives by succesfully banning lead in petrol and various production processes, in the teeth of opposition from the industry and also I'm guessing from people who argued that the government shouldn't be in the business of regulating toxins because the market would sort it out. Well, the market never did and was showing no signs of doing so - see also any number of current environmental problems. Are you really trying to tell me that lead use should not have been regulated? How many decades do you think we should wait for these things to sort themselves out?

And yes, I'm moving from Pigouvian taxes to regulation here - that's the point. I agree that it's very difficult to precisely quantify costs and even if you can do that to levy taxes, which is why there are sound economic arguments for regulation over taxes in many cases - see my post here http://blog.ctrlbreak.co.uk/?p=599. Much regulation is a response to the difficulty / impossibility of applying either Coasean bargaining or Pigouvian taxes to a particular problem. I suspect you'll come back and tell me that if only the government got out of the way these things would resolves themselves just fine, but in that case I think we're dealing with different concepts of reality.

Finally, relying on an expensive and slow legal system to tackle each and every case of environmental harm makes no sense unless you're a lawyer for a firm (or other actor) who specialises in causing such harm. I would argue that getting away with imposing costs on others is a form of economic rent, and relying purely on the legal system is a pretty ideal way of ensuring absolutely enormous rents of this kind. Anyway if you think government can't establish the facts here then there's no reason to think the courts can, so this is just a red herring to distract from what appears to be your main message - if you can't pay someone to stop poisoning your environment then you'd better just get used to it. Correct me if I've got that wrong.

[aje]

Mike

Are you saying that the burden of proof *should* be on the defendant or that it *is*? I didn't realise that I could take a restraining order out on someone for no reason. That's pretty crazy.

Jim

This is extending beyond a discussion of Pigouvian taxes, and it seems that you're arguing against a utilitarian efficiency argument, and on the grounds of rights protection. I'm sure you realise that I don't believe that "if you can't pay someone to stop poisoning your environment then you'd better just get used to it". The problem is that "poisoning" isn't clear cut. If you can't prove that your environment is being "poisoned" then I don't think you should be able to prevent it from occurring, and without willingness to pay I don't think economists are in a position to make a judgment. The only regulation that's required is a protection of property rights (and yes, the burden of proof is on the accuser).

All this whinging about "shouldn't have to demonstrate harm" and "slow legal process" is what we hear from the relatives of murder victims who've witnessed the crime. But I don't think anyone would say that in such cases the judge should directly sentence the guilty. The reason is that it's through the process of the trial that we discover (i) if a rights violation occurred; (ii) who is guilty. Yes, there's cases that seem obvious, but it depends on whether you prefer Type 1 or Type 2 errors. You need a system to use in all cases, rather than have an individual person (the "King"?) pick and choose what's obvious and what isn't.

It seems that Mike and yourself are putting yourselves in the position of the person who "knows" that a particular activity is bad, and you can identify the perpetrator. This is making the assumption that I am claiming cannot be made. Plus, even if you have omniscience, you still need benevolence. Even if you and I know that X is a bad, we're not the ones making the laws so doesn't mean we'd end up with the optimal situation (and in fact we could end up with something worse). These issues can't be assumed away.

I understand your point about regulation vs. Pigouvian taxes, and I would agree with the following: "if a particular action violates someones rights due to an externality, rather than reduce it through taxation it should just be banned". The problem it's the the rights violation that should be banned, not the use of the material itself. But you can't just pick and choose "successful" interventions and use that as basis for an argument for regulation. And the point of the post was to challenge Pigouvians to give examples if successful Pigou taxes. Thus I'm not sure where our point of disagreement lies.

Regarding your specific points:

I have no idea what this sentence means, for example: "The obvious answer is that if resources weren't communal the externality would be internalised and the "problem" gets revealed, and it it's a genuine inefficiency, solved".

Externalities occur due to ill specified property rights, so if it's internalised we'd see market mechanisms push us in the right direction.

Or this one: "The reason I'm not a Pigouvian is because although I might concede the need for environmental regulation -at some point - the current problem isn't a resource issue". What's a 'resource problem' specifically?

The Pigouvian argument is that we need to plug the gap between private and social costs. My admittedly rudimentary carbon analysis shows that the amount of tax paid on petrol is significantly higher than the carbon footprint. The Treasury could pay for the carbon footprint of my car many times over in the amounts of tax I pay on it. My point is that tax revenues quite possibly exceed the amount that would equate private and social cost (meaning people consume less of the resource that is efficient), the problem isn't a lack of resources, it's a lack of political responsibility and integrity.

Can you explain how 'genuine inefficiencies' are 'solved' when if it was that straightforward they would presumably already be solved? And please don't tell me you're relying on Coasean bargaining.

We don't live in equilibrium conditions. Whether we use market processes or political process it takes time. Resource use and information is constantly changing so it's stupid to think that inefficiences should be "solved". They are constantly arising, the point is who has the knowledge and incentives to act on profit opportunities. I'm arguing that markets provide more information, and offer a larger incentive, than politics.

it's simply not true that we don't know whether any given externality is bad.

To finish up, you and Mike and injecting your value judgments into this debate. That is intellectually dishonest because you're pretending to be making objective, economic analysis. If you want to argue that lead (or more acurately, a new chemical that we need to decide whether to adopt Pigouvian taxes for) is "bad" then fine, but you have no economic reason for doing so. By saying "lead poisoning is pretty fucking bad" isn't naming a commodity, it's naming an actual rights violation. "Lead" is what we need to decide whether it's a good or a bad. For some people it's a good thing, for others a bad thing. Markets have a way of resolving this conflict If you want to argue unambiguously that "less lead should be produced" that's a value judgment based on your normative political philosophy.

If you can't even decide whether the smell of anchovies are a good or a bad, how can you decide on other issues?

[Jim]

"If you can't prove that your environment is being 'poisoned' then I don't think should be able to prevent it from occurring"

Prove to who, and how? The point I was making about the legal system is that there are massive transaction costs associated with using it, as well as strategic problems when you get more than a few actors involved, all of which makes achieving adequate redress very difficult and time-consuming, particularly for widespread impacts as in the case of many environmental (broadly defined) externalities. This makes it much less likely that external costs are going to be internalised. You can't just wave away the reality of seeking redress through the courts.

You say I'm assuming omniscience because in some cases the perpetrator and the extent of harm are unknown. So how exactly are the courts going to help in that case? If the information is available the courts it'll be available to regulators. You're assuming just as much omniscience as I am. In any case, I think you're vastly over-stating the information problems involved - cases where one set of actors is harming another but we have genuinely no idea who or how are surely the minority. Can you give me an example?

Like I said, I agree that there are problems with quantifying Pigouvian taxes, and to me this suggests a role for regulation in many cases. However, there is surely some role for Pigouvian taxes or a functional analog such as tradable permits. You say, "if a particular action violates someones rights due to an externality, rather than reduce it through taxation it should just be banned". Does the harm caused by climate change due to the accumulation of greenhouse gases in the atmosphere from burning fossil fuels not fit the bill of 'violation of rights' and if so would you really want fossil fuels banned? If not, then I don't think I understand your definition of rights violation.

"Externalities occur due to ill specified property rights, so if it's internalised we'd see market mechanisms push us in the right direction."

How? To take the classic example of effluent from a factory causing mass illness downriver, what's the appropriate definition of property rights and what's the market mechanism?

"The Treasury could pay for the carbon footprint of my car many times over in the amounts of tax I pay on it."

Not being a driver I'm not familiar with taxes on car travel but there are obviously externalities aside from carbon emissions involved, so maybe that's got something to do with the discrepancy. But the point that Pigouvian taxes may be too high is obviously true, and they can be too low too. I'm just still unclear whether you're saying (a) some improvement to property rights can more or less solve an issue like global warming or mass lead poisoning (to take the big examples for the moment), or (b) that such an improvement won't apply in these cases but that we still shouldn't implement a Pigouvian tax or regulation. If it's the former then please tell me exactly what we need to do because I bet I'm not the only one who'd love to know. If it's the latter then I think you're plain wrong.

"I'm arguing that markets provide more information, and offer a larger incentive, than politics."

And I'm arguing that the whole point of externalities is that they tend to be cases where the incentives don't work. I suspect you'll keep coming back to say that if we just have 'better' property rights somehow the market will start to work, but so far this has all been very vague and I think you may be under-estimating the problems of (a) assigning property rights and (b) ensuring that people can act upon them without the kind of costs that bring us back to the problem in the first place.

"If you can't even decide whether the smell of anchovies are a good or a bad, how can you decide on other issues?"

Please stop trotting this out like it's some sort of game-changing zinger. You brought up body odour the last time we argued about this and I answered that then, so feel free to refer back.

[Jim]

Bryan Caplan has inadvertently waded into our argument today: http://econlog.econlib.org/archives/2008/07/bryan_caplan_po.html , quite helpfully I thought.

He finishes up with "But until Pigovians forthrightly acknowledge that the right solution to most negative externalities is tolerance, not taxes, I'm not going to join their club."

I don't have any problem with that. As my answer to your body odour question indicated, I think a lot of 'negative externalities' get resolved or ignored through the normal course of social interaction, and arguably what we think of as 'culture' and 'society' are just institutionalised settlements of interpersonal externalities. The fact that even though people could try to resolve many kinds of interpersonal externalities (eg a woman wearing a veil) through financial payments but choose not to suggests very widely spread norms that aspects of cultural behaviour etc should generally not be financialised.

I think reasonable people can agree on that while acknowledging that actions that cause noticeable economic harm (ie to asset values, incomes, human and environmental capital, etc) can be a valid subject of state intervention of some kind, within reasonable limits. Is this always a clear-cut line? Not always. Is that a devastating critique which means there is no justification for the state intervening in this way. Hell no.

[aje]

I like Bryan's post too - externalities are everywhere, and part of society. It's when rights are violated (what I referred to as "demonstrable harm" above, and what he calls "physical trespass") that we have a legal system to redress.

As I recollect you failed to answer whether body odour is a negative externality, and similarly I take it that you're not claiming that the smell of anchovies can be objectively declared a good or bad. This underlines my point about subjectivism, and the inability for *economists* to contribute. I presume that you feel that body odour and anchovies are relatively minor issues, therefore it doesn't matter that they're ambiguous. This poses two problems: if you don't have a framework for dealing with minor externalities, why should we trust it for major ones; (ii) on what basis are you determining whether something is minor or major? As I keep pointing out, markets resolve this through willingness to pay. But psychological damages are not enough - without demonstrable harm (manifest in action) we must remain silent. What *economic* argument do you have for saying that activity X should be taxed at rate A? And I appreciate that you're not an economist, but a very large part of my original argument is about the justification for Pigou taxes on efficiency grounds. I can perfectly see non-efficiency rationale, but if these are the actual arguments it's a conflict over values rather than a technical discussion.

But out of curiosity, let's say that somehow you convince me that economists do have the capability to say that the optimal tax to close private and social cost is £20m. Or, to be fair, let's say that economists are in reasonable agreement that it's "large", and want marginal steps in that direction. Do you also believe that politicians face the right incentives to adopt this plan? What do you think the historical record is at matching policy to "expert" prescription?

The problem here is that *even if* you convince me that we have enough rough theory to back up our intuition that there's too much carbon being admitted, and a moderate tax would realign incentives - I do not believe that granting politicians the power to levy a tax would lead to a net increase in social welfare.

Despite the best intentions of people like Mankiw (and he's tried to persuade me to "join" the Pigou club, and I found his arguments compelling) he just doesn't adequately address the rejoinders by Coase, Buchanan, and Hayek.

I realise i'm rambling, but I think once comments extend to this degree it's somewhat inevitable. I am enjoying reading your responses and am not as dogmatic as I sound.

[Jim]

Again with the bad smells argument. Look, I said before that I didn't think body odour was a good example of an externality since the 'costs' it imposes on others can be pretty effectively internalised when those others shun us or expose us to ridicule. The same applies to a whole range of effects we have on other people. As I've said, I think ordinary social interaction takes care of a lot of these without either the market or the state getting involved. It's when culture and the force of persuasion break down that market and state solutions start looking more suitable. And of course, Coasean bargaining is largely inapplicable in the real world so state intervention can at least theoretically help.

Your response to this, as far as I can work it out, appears to be that even in clear-cut cases of significant economic harm where (even if costs are difficult to precisely quantify) there is a good case that the state can move incentives *in the right direction*, you are saying it shouldn't be allowed to because it is bound to abuse the power. Well sorry but that really is pretty dogmatic, and as I've said I think it basically condones and encourages a particularly widespread form of rent-seeking, a form you appear to be completely unconcerned about, which is puzzling to me.

This bottom line appears (and again, correct me if I'm wrong, I'm just trying to interpret what seem like quite gnomic statements) to be motivated by a particularly extreme interpretation of public choice economics which entirely ignores the effects of societal norms, democracy and a free press in tempering
government excess. It seems to me that this interpretation of public choice fails to differentiate between governments because it fails to explain why all governments are not uniformly awful. To put it another way, maybe you think politicians are 'all the same', but I reckon there are a lot of people in Zimbabwe who would beg to differ. It's just not true that all governments are uniformly awful, so it's just not true that a government is bound to abuse any powers entrusted to it, so it's just not true that there is a prima facie argument against Pigouvian taxes, so most reasonable people agree that in many cases the benefits of regulation / taxation outweigh the potential risks.

Now, it may be that according to your own version of economic theory democratic government fundamentally can't work, so that it just *can't* choose the right kind of cases to get involved in and it *can't* choose the right kind of way to get involved. If that really is your view then we're just going to have to disagree, but suffice to say I think you're sacrificing reality on the altar of dogma. I don't think it's true that 'economists' in general aren't qualified to assist in these kind of questions - but it's certainly possible that your kind of economist isn't. That's not meant to be an insult, just an observation, and possibly chimes with your line that this is turning into an argument about values rather than technique.

Lastly, you've also repeatedly suggested that 'better property rights' will somehow allow the market to 'internalise' externalities', without explaining how despite me reapeatedly asking. As I said, I would really love to hear what property rights regime would allow the market to 'solve' problems like anthropogenic global warming or lead poisoning (to take the 'biggest' examples I can think of), because such a solution could make me and a lot of people very happy, and I urge you again to not keep this kind of world-changing idea under your hat.

[Jim]

I see in comments on the Econlog post that Mike Moffat asks what I think is a very good question:

"Tort is much more efficient."

Stylized Example - Someone gets sick from air pollution (which happens all the time - go visit a respiratory ward and you'll see what I mean) and racks up a $10,000 medical bill. For the sake of argument, assume that 90% of that pollution came from automobiles and there are 30,000 registered cars in the area.

I have clearly been harmed here. But what is my option - to sue each and every driver in the city for 37 cents to cover my damages?

Nobody's given an answer yet, unfortunately, but I'd be interested in yours.

[aje]

"Your response to this, as far as I can work it out, appears to be that even in clear-cut cases of significant economic harm where (even if costs are difficult to precisely quantify) there is a good case that the state can move incentives *in the right direction*, you are saying it shouldn't be allowed to because it is bound to abuse the power."

I'm asking you to clarify the economic analysis that tell us what "clear-cut cases of significant harm" are, without willingness to pay and/or demonstrable harm.

"Well sorry but that really is pretty dogmatic, and as I've said I think it basically condones and encourages a particularly widespread form of rent-seeking, a form you appear to be completely unconcerned about, which is puzzling to me."

The Public Choice argument isn't dogmatic - it's based on established and empirical evidence regarding political processes. This whole debate started with the empirical evidence that petrol tax is significantly higher than the amount it would cost to offset carbon emissions. I'm willing to accept that there might be more eternalities than this, but you need to define and quantify them. Rent-seeking only arises through the political process, so if we have market remedies i'm relatively unconcerned about it. My concern is that once we grant Pigouvian taxes they're be applied on grounds of rent-seeking rather than economic rationale.

"a particularly extreme interpretation of public choice economics which entirely ignores the effects of societal norms, democracy and a free press in tempering
government excess. "

No. Social norms (i.e. tolerating body odour) are part of my reason why political intervention is often counter productive. I think that voluntary norms-based governance are a powerful way of dealing with externalities, and are better than centrally-planned state action.

"maybe you think politicians are 'all the same', but I reckon there are a lot of people in Zimbabwe who would beg to differ"

The Public Choice criticism isn't an attack on the motivations and ethics of political leaders. The argument isn't that they're all corrupt. It's that politic doesn't offer the right incentives to result in socially optimal behaviour. Buchanan and Tullock didn't argue that politicians were evil, just that they were no more saintly than you and I. The Austrian addition is that even if they're angels, they face incentives that produces bad outcomes. Clearly this differs in scale, and I'm not claiming that we're all like Zimbabwe. Our democratic institutions are more effective than Zimbabwe, but they're still perverse. Just because Gordon Brown isn't Robert Mugabe doesn't grant him the capability or incentive to adopt economically rationale Pigouvian policy. That's not nihilism, it's pragmatic realism. You're happy making marginal arguments, but even slight interventions lead to unintended consequences and a slippery slope. Lot's of sensible people supported Mugabe's original land redistribution, without anticipating the long run implications.

"Now, it may be that according to your own version of economic theory democratic government fundamentally can't work,"

Please, I'm not claiming to have my own version of economic theory. You know full well I consider myself to be an Austrian economist. This isn't a personal debate.

"I would really love to hear what property rights regime would allow the market to 'solve' problems like anthropogenic global warming or lead poisoning"

I've often stated my position on global warming. I'm a fatalist. But that is completely independent from my criticism of Pigou taxes. I appreciate that's frustrating and slightly cowardly, but it shouldn't be ignored. If you want a strategy to deal with global warming, i'm not pretending to have the answers. That shouldn't prevent me from making scientific arguments that critique existing proposals. You're conclusion might be that without a better alternative we should at least "do something". Fine, but that's based on emotion not reason. Doing nothing is probably a bad idea, but the burdon of proof is on you.

[Jim]

Sorry for the delay in responding, but I'm writing this while on holiday - how's that for dedication?

"I'm asking you to clarify the economic analysis that tell us what "clear-cut cases of significant harm" are, without willingness to pay and/or demonstrable harm"

Well there's a whole field of environmental economics that does just that. Or do you think that Nordhaus et al are wasting their time?

"This whole debate started with the empirical evidence that petrol tax is significantly higher than the amount it would cost to offset carbon emissions."

No it didn't. You claimed that on the basis of an "admittedly rudimentary carbon analysis".
An analysis, I might add, that implicitly answers your question above.

"Rent-seeking only arises through the political process"

Or through the absence of a political process. As I've said, polluters and others who impose demonstrable harm on others through externalities get away
without paying the costs when they can convince the government not to impose any tax or regulation, which is why they spend enormous amounts of money and time lobbying to that effect. Your stance provides implicit support for that kind of rent-seeking, whether you like it or not.

With apologies for length, let me try and retrace some steps in your argument. You said that "Externalities occur due to ill specified property rights" and that people should pursue redress through the courts, but you haven't said how property rights could be better specified in order to address environmental externalities, and the courts are obviously hugely inefficient because of the strategic problems and enormous costs involved, and now (in your other post responding to Mike Moffat) you seem to be moving to the general position that people mustn't mind pollution all that much if they choose to live in a polluted area, and anyway pollution is better than the hideous nightmare of any government intervention whatsoever. I've got a few questions on this.

Firstly, whatever happened to "if a particular action violates someones rights due to an externality, rather than reduce it through taxation it should just be banned"? Either you think 'rights violations' are a very small category of activity (and note that Caplan's 'physical trespass' concept is capable of extremely wide interpretation once you accept that 'trespass' is not limited to human locomotion but encompasses physical effects of human actions), or you think the government should ban more activities - which is it?

Second, how do you reconcile this property rights-based approach with your other position of (what I've decided to call) 'Market Panglossianism' 'ie people still move to London despite the smog', since the latter assumes that people must have consented to the status quo even if it looks like their property rights are being violated? If someone can show 'demonstrable harm' to the satisfaction of the courts then doesn't this prove that location doesn't reveal preference after all?

That view that 'if you live there, you must like it' also surely rests on the assumption that the market for location is efficient, but in your post on competition you argued pretty strongly that it isn't - you can't have it both ways. Aside from that, it's pretty clear that mobility is both very costly and highly constrained, and that information on environmental characteristics is necessarily incomplete because we don't know what's going to happen to a particular location over time, so I don't see how anyone can argue that location perfectly reflects preference.

Finally, I honestly don't know how you can look at a situation such as global warming where the existing incentives are clearly wrong and the consequences horrific and yet be dead-set against any government intervention, even a very simple and transparent one which most people agree will push incentives in the right direction, because you think more power for the government is inherently a bad thing. If that's your view, suffice to say I find it extremely morally problematic, but at least we got to the bottom of it.

With that and that growing realisation that we're just talking past each other now, I'd like to draw this back to what I was trying to get at with my original question about costs of and barriers to entry. Let's assume that I want to start up a business of some kind that would necessarily involve some demonstrable violation of your property rights, say the odour of my anchovies factory drifting over your golf course and making people throw up. Let's also say there are three main categories of response to this: a government regulation requiring me to install some expensive de-odourising mechanism, a Pigouvian tax levied to account for the costs of anchovy pong, and a Coasean bargain struck between you and me. Which of these, if any, constitute a barrier to entry, and which a cost of entry?

[aje]

Your stance provides implicit support for that kind of rent-seeking, whether you like it or not.

There's no rent-seeking to prevent increased taxation on the use of the colour orange. If the government makes a credible promise that they do not see it as part of their remit to arbitrarily intervene in markets, this would *not* result in rent-seeking to preserve that policy. It doesn't make sense to lobby for a policy that isn't under threat of changing.

the courts are obviously hugely inefficient because of the strategic problems and enormous costs involved

You keep making this argument, but either compare the strategic problems and costs between government intervention and legal resolution, or speak in terms of principle. The fact that courts are costly doesn't make alternatives free. This is a classic nirvana fallacy.

Either you think 'rights violations' are a very small category of activity (and note that Caplan's 'physical trespass' concept is capable of extremely wide interpretation once you accept that 'trespass' is not limited to human locomotion but encompasses physical effects of human actions), or you think the government should ban more activities - which is it?

I think this is conflating law vs. legislation (and possibly underpins much of our debate). In some fundamental sense I don't think murder should be banned. As a violation of rights it's the proper function of the courts to deter and punish murderers. Similarly when it comes to environmental effects it isn't up to the government to "ban" activities, it's up to the courts to decide whether something has violated rights and if so to seek redress. If it's the case that asbestos causes harm there's no need to "ban" it because insulation companies wouldn't install it for fear of imprisonment. Similarly health insurers wouldn't pay out to hospitals that use un-sterilised equipment.

Broadly speaking, i'm arguing that most issues of externalities can and are decided according to social norms, custom, and (in a liberal society) tolerance. Since this issue is at route a property rights issue then the courts are the best place to decide cases that can't be resolved informally.

I'm not changing track over whether markets are efficient or not - i'm building my argument on the grounds that (i) markets lead to coordination; (ii) we live in disequilbrium. Hence "efficient" in the neoclassical sense is unhelpful. If you move next door to me and open a smelly factory, i should be able to sue. If I move next to an airport, i should realise that noise pollution is factored into the price of the land and I have no right to seek government help to transfer wealth from air passengers to myself. I think this is pretty consistent.

RE global warming - i've lost count of the times i've declared my position on this, so i don't see why you continue to falsely label me. I'm willing to speculate a little about carbon emissions, but in terms of global warming I have no opinion and no position.

I'll answer you're final question in a separate post. I hope you've had a good holiday.

[Quinn]

"In some fundamental sense I don't think murder should be banned. As a violation of rights it's the proper function of the courts to deter and punish murderers."

I'm curious as to in what fundamental sense you feel murder could not be proscribed. Courts should deter before and punish after, but what about during murder? A role for the state there, perhaps? Or are we talking a nirvana fallacy?

[aje]

I'm not arguing that there's no role for the state, just that this role should be conducted through (and subject to) the legal system

[Quinn]

So while being murdered you call your solicitor to petition the courts for an injuction, rather than the police whose role is to prevent a banned activity?