- Good evening and welcome.
It's my pleasure to welcome everyone
and to thank you for
joining us this evening
for the 12th Annual Hayek
Lecture here at NYU Law School.
I want to begin by thanking
our keynote speaker,
Professor Ellickson, for taking
the time to join us tonight.
Our colleague Richard
Epstein will introduce
Professor Ellickson in a moment,
but I want to say as well
myself how grateful we are
to have you here to present, what I'm sure
will be a terrific lecture.
The Hayek Lecture as you
know, is jointly sponsored
by the Classical Liberal
Institute here at NYU Law School
and by the NYU Journal of Law and Liberty.
The lecture was first held in 2005
with Professor Richard Epstein
as its inaugural lecturer.
And that was in many ways the beginning
of Richard's deep relationship
with the law school.
And he after that joined our faculty
as the inaugural Lawrence
Tisch professor of law.
If it were required to give
a complete introduction
to Richard Epstein, then that's
all we would do this evening
and we wouldn't get anywhere
near through the story.
If there is a picture
associated with the definition
of the word indefatigable,
it must be a picture
of Richard Epstein.
He wears an amazing number of
hats here, but is at bottom,
one of the most original
thinkers in the last 50 years,
at least in American law.
He is an immensely important
member of this faculty
in both his teaching and his scholarship.
He is a generous colleague.
He is a huge influence on
the shape of the way we think
about law in this country and beyond,
and we are enormously proud to count him
as our colleague here at NYU.
The Classical Liberal Institute
which Richard co-directs
with NYU economics professor, Mario Rizzo,
is itself an important part of the school.
It has a rather expansive
and interdisciplinary mission
held together by a guiding
commitment to examining the role
of sound systems of
property rights and contract
in advancing human
welfare within a framework
of limited government.
And as I say, it is
cosponsoring the Hayek Lecture
together with our Journal
of Law and Liberty,
which is the first student
edited law journal dedicated
to the interdisciplinary exploration
of classical liberal ideas.
We are enormously grateful to Richard
for his leadership of the
Classical Liberal Institute,
among many other things,
and indeed for all of his
contributions to the law school.
And with that, please join me
in welcoming Richard Epstein.
(audience applauding)
- Oh, they even give the
title of the lecture here,
so I'm perfectly safe in my introduction.
Anyhow, it is really a very
great honor to welcome you here.
I'm doing so not only on my own behalf,
but also on behalf of Mario
Rizzo, who's my co-director,
and Eva Dora, who's the only
person who actually knows
where the things and the pieces
and the parts are parked,
so as to keep us at the appropriate time.
Also happy to say that
sitting in the front row,
I have three of the fellows here,
Robert Miller, Stephanie
Jung and Shruti Rajagopalan
which I've learned after
many years how to pronounce.
And we have put this thing
together starting in 2013.
And one of the things
that we do is to host
the Hayek lectureship along
with the Journal of Law and Liberty,
the title of which is taken
from the three volume set of
books put together by Hayek
in the 1970s.
And it's peculiarly appropriate
under these circumstances
to have Robert Ellickson
come, because in many ways
he is sort of the embodiment
of Hayekian institutionalism,
a man who understands
things from the ground up
quite literally, not
somebody who looks at things
from the top down.
And I'm also very proud
that Robert is here
because he's been a long
and close friend of mine.
I first met him in the fall
of 1969 when he came out,
and he interviewed for a teaching position
at the University of Southern California,
when I at the ripe old age of 26,
was on the hiring committee,
dispensing the wisdom of the ages
beyond all possible compared.
And Robert came out, and in fact,
he had a very interesting background.
I mean, he did study at Oberlin College
for which we forgive him,
and he also went to the Yale Law School.
And then he spent a
year at MIT, I believe,
doing Urban Studies.
And I'm not mistaken then,
he did the most important
graduate education of his life.
He spent two years working
for Levitt and Sons
out there on Long Island.
And what he did was he
actually saw how real estate
and land use development took
place from the bottoms up.
For those of you who don't
know what Levittown is,
it was put together by
Levitt and Sons Builders.
And this was this huge post
World War II community,
which transformed very large
segments of Long Island
in a highly provocative,
imaginative and successful way.
And having the experience
of working for an outfit
like that, I think probably shaped Robert,
for the rest of his career,
because he never opposed
or approached law as a field to be studied
in opposition to practice.
It was a field to be studied
as a complement to practice.
Now, when he came out to Los Angeles,
the thing I first remember about Robert,
and it was not listed in
any of his biographies
but I'ma tell you about it anyhow,
was the brown Nash Rambler that he drove.
This was a man who shall we say,
had no common sense whatsoever.
He drove this dilapidated
car across the country,
comes to the Los Angeles freeways,
and essentially his first
major land use adjustment
was to trade that car
in for a newer model,
because it could have not made
it anywhere on the freeways.
And he and I were colleagues
at USC for two years,
'70 to '72.
He remained there if I'm
not mistaken until 1981.
And in the middle, he came and visited me
when I was at the University
of Chicago on 1974 and 1975.
And he used to say how much he
loved his Sundays in Chicago
in the cold, the winter and
return to USC, then to Stanford.
When he is with Stanford,
he undertook what I think
is one of the most remarkable
pieces of empirical research
ever undertaken by any academic.
He was close to the Shasta
County, and on weekends
starting on Friday, whatever it was,
he would drive and motor
up there and watch the way
in which people on the ground
actually worked in resolving
their disputes with respect to animals.
And he wrote a book on
this some years later,
by which time he was
at the Yale Law School,
essentially called "Order Without Law:
How Neighbors Settle
Disputes" if I'm not mistaken,
and in fact, it was one of
the more extraordinary books
ever written on this subject which won him
a Coif prize, I think in 1996.
And it's still fresh and original
and one should read it today,
because what you do in effect,
is you see the way in which legal doctrine
and private practice
of one kind or another essentially start.
And I think it's fair to say that Robert
is one of the founders of the sort of law
and social norms movement
in the United States,
probably its most preeminent expositor
of those particular elements.
He's also done a number of other things.
I've had the great pleasure
on multiple occasions,
to teach from his status
book on land use planning,
which he put together, this is a joke,
with amongst others, Vicky
Been, and now Rick Hills
of this particular faculty.
And he has always written
on wonderful topics.
He has this on.
And this talk is gonna be no exception,
because he's gonna talk about three things
which I'm sure he will
put together in a way
that I have not fully anticipated.
If I have it correctly,
one of them is going
to be street grids and Rick Brooks
and I had lunch today essentially,
had a spirited discussion
on this particular issue.
Then he's gonna talk about light house.
And for those of you who
don't understand this,
the light house was the subject
of some very interesting
work by Ronald Coase
on the question of whether
it was a public good
or a private function.
And then he's going to go
into much dicier territories.
And he's going to talk
about aid to the needy
as a Hayaken imperative.
And what I want to add to you
is this is not inconsistent
with Hayak, because Hayak himself,
particularly in his last
works, and even as far back
as the Road to Serfdom was always
a kind of a social democrat,
who thought that in addition
to market institutions,
and public infrastructure,
you need to have some kind
of a minimum support program,
which made him as I
mentioned to Bob earlier,
in some ways, at least quite
similar to Bill Clinton,
who was president of the United States.
I don't want to steal his thunder,
I would not be able to do so.
So I hope we will all
welcome here to the podium,
where he will give us
a great high tech talk,
having two monitors on
which he will display
all the maps that you
could ever hope to see.
So give a good hand to Bob.
(audience applauding)
- At our age, it's nice to
be reminded of one's youth.
So appreciate that, Richard.
Believe it or not, we played basketball.
Richard could go six inches
above the rim in his prime.
It's true that I've written a book
called "Order Without Law".
And my talk today actually is about that,
law actually might be
useful in some respects
to provide order.
So this in contrary to the the main theme
of that particular book.
This is the Hayek Lecture
and I'm a contrarian.
I know that most of the people
here would be associated
with classical liberal ideas,
and being a contrarian therefore
I thought what I would try to do is defend
the role of government,
defend the role of taxes
or regulation of these horrible things
that often classical
liberals are negative about
and it will be a limited defense,
because I am someone who thinks
we have far too much regulation
and also too much taxation in general.
But that was not Hayek's
view, Hayek in fact,
had thought long and hard
about the role of government
and favored affirmative
government activity
in some endeavors.
Let me give you my take on Hayek himself,
because I was giving this
lecture, it's named after Hayek.
I undertook to read Hayek's books,
starting with "The Road to Serfdom".
And I recommend that to you.
This is a man who got the
Nobel Prize in Economics
and deserved it in my judgment,
and for the following insight,
which is a very basic insight
that he had before anyone else did.
And it's connected to the notion
of the economics of information.
Would we be better off in
New York if there was a tsar
appointed by the mayor to control
the supply of food to New York City?
Because the reality is no one is in charge
of the supply of food to New York City.
And you might think that
a politician would say,
I run on the campaign of appointing a tsar
who will actually make up
for this lack that we have,
not having anybody
coordinating food supply.
Hayek was the first person
to think about the fact
that actually it was
better not to have a tsar
because if you had a central planner
who undertook to coordinate
the supply of food,
they could never get the
information they needed to do that.
That right now, the information
needed to provide food
to New York City is decentralized
to many, many players
who have local knowledge to use a phrase
that comes from Hayek but
he did not use himself,
and the coordination through the market
and this is what he did say explicitly
in "The Road to Serfdom,"
coordination to the market
actually was something
tremendously complex works
better than central planning.
That if you have a tsar as they
had in Moscow, for example,
the supermarkets will end
up having empty shells
as indeed they did.
This idea was later picked
up and made more systematic
by people like George Stigler
who wrote an important article
in 1961 called the
economics of information.
The transaction cost economics
inspired by Kosta's article
on social cost gave
rise to enormous amount
of attention to information.
But Hayek was there first, and I think,
therefore worthy of the
Nobel Prize that he received.
Being a contrarian, I will
also praise three things
that the city of New York
did during the 19th century.
And I will have slides showing
all these three things.
You might think about what three things
New Yorkers might have been
proud that their government did
in the 19th century, ahead of time.
But in order to establish
my credentials here
that Mario and Richard were
not crazy in inviting me,
let me now insult the city of New York,
for having performed poorly
in the areas that I follow,
namely of housing and land use.
The only competition to New
York in being the seller
in terms of policy making in this area,
I think might be the
city of San Francisco.
But I think the city of New York outstrips
the city of San Francisco handily
in the following three areas.
New York City has had rent
control forever in my view.
I will say things, very
conclusively things.
I've actually written about these things
and then the question
and answer can go deeper
into them for those who do feel insulted,
of the insulting policies,
insulted that I'm insulting these policies
of the city of New York.
New York City is a
bastion of rent control.
For me enough said,
this is not good policy.
New York City invented
exactly 100 years ago,
the first comprehensive zoning ordinance
in the United States.
Actually it followed
the city of Los Angeles
by a little bit, but it's the most famous
of the zoning ordinances.
As Hayek himself noticed,
the value of a piece of land
depends on what's going next door.
And therefore there are externalities
and actually, that this
is a tricky problem,
worthy of a course in
land use that Richard
occasionally actually teaches.
On the other hand, my
own view is that zoning
in a place like New York
probably does more harm
than good in many ways.
There are real externalities
from land uses,
but Edward Glaeser is
the leading authority
on housing prices in New York.
And Glaeser thinks that
the lack of density
in New York has driven up housing prices.
It made it much harder for
younger people, in particular
to live here so I will not give New York
any positive points for
having invented zoning.
New York once had a senator
named Robert Wagner.
Robert Wagner invented a program,
borrowed a program that New York had
and took it national and it was a program
called public housing.
This was invented in the city of New York
in the state of New York
and was taken national
by Robert Wagner in 1937.
I will say as a conclusionary matter,
I can expand on this if you would like
that this is another demerit
in the history of New York policies.
The current mayor is in favor of something
called mandatory inclusionary zoning,
which is that anyone who
develops an apartment building
has to set aside a certain number of units
for lower income families.
I've written about this
before most of you were born
and was critical from the outset that this
was a very bad form of welfare benefit.
I'm gonna endorse us having
some sort of welfare programs
but this, I think, is an inferior one.
So I've taken to insult,
since I'm going to praise
certain things that went on in
New York in the 19th century,
you should not take this
as a blanket endorsement
of everything that the city
of New York does, all right.
And here we are.
I will actually speak
about these three subtopics
out of order.
The first one I will talk
about is light houses.
But I want to relate the
libertarian thought to a book
by another Nobel Prize
winner, Daniel Kahneman.
If you've not read this
book, I do recommend
that I think it's an excellent book.
He got, also a psychologist by training,
but he received the
Nobel Prize in Economics.
And in this book, he says
that we make decisions
in two ways.
Most of our decision
we make heuristically,
very, very quickly, using
what he calls system one.
It's very, very fast.
He loves system one,
but it is mistake prone.
And a fair amount of the
book is designed to show you
that in fact, if you make decisions fast,
you're likely to make mistakes.
Another way of making decisions
is to be a rational actor,
which is the basic model in economics.
And the problem with
that is that it's tiring.
You make better decisions
when you think long and hard
about things but because we are lazy,
in fact, you often fall back on system one
because that's the nature
of people, to be lazy.
So I'll come back at the end
of my talk to these notions.
But I relate this to a
works in libertarian theory.
So if you have not read
some of these works,
I recommend that you read some of them
that might appeal to you.
I think that there are two authors
who I will compare to start with
who are what I will call slow
thinking classical liberals.
They actually think long and
hard about what markets can do
and what governments can do
and they don't have knee
jerk reactions to it.
And the two are listed there at the top.
One is Hayek who repeatedly in his books,
you may get a little bored
actually reading Hayek.
He really tortures himself
with what should government do.
Should we have building codes?
He thinks actually, yes.
So Hayek is a slow thinking person.
Milton Friedman's book,
I think is a better read
than Hayek's, "Capitalism and Freedom".
And I do think if you're a libertarian,
if you have not read that work,
I very much recommend it to you.
Friedman tortures himself with thinking
about what government should do
and what government should not do.
I contrast those two with the people
I call fast thinking
and anarcho-capitalists
and that's what they call themselves.
This is a very small category of people,
perhaps no one in the room.
But it'd be much more lively time
if there are some anarcho-capitalists here
because the people I am targeting here
are anarcho-capitalists.
Anarcho-capitalist at the extreme want
to have no government at all,
because government involves coercion
and we're better off with freedom.
And therefore, our goal
is to abolish government.
The quintessential anarcho-capitalist
is someone named Murray Rothbard.
You might want to look into it,
that work if you have not read it.
The other two that I list
here are not quintessential
anarcho-capitalists because they are not
quite as fast thinking.
see, if you're if anarcho-capitalist,
you would say do we want to have taxes?
The answer is always no.
Wanna have regulation?
The answer is always no.
You can really come up with
answers very, very quickly,
about what to do.
I happen to think that's wrong.
But the other two that I
mentioned, a famous one,
is Robert Nozick, who is
actually very close to Rothbard.
He wants to have the nightwatchman state
and basically thinks government
should be extremely limited.
I also mentioned David Friedman.
There are others I could go
into here that this is not,
these are not the only folks.
David Friedmaneman being actually
the son of Milton Friedman.
Milton Freeman not being
an anarcho-capitalist
but David Friedman is.
The main principle of
the anarcho-capitalist
is that voluntary
exchange is the way to go.
Voluntary exchange preserves freedom,
allows people to consensually contract.
I compared here at the bottom
with parado-optimality.
If people can, in fact
exchange an economic theory,
everybody is gonna gain,
assuming the contracts are fair
and contrast it with
Kaldor Hicks efficiency,
which is what you're going to get
if government does things like regulate.
So there are, these
are anarcho-capitalists
and the thesis, my thesis here for you
is if you are anarcho-capitalist,
you should think about whether
that's a sound position,
and maybe what you're doing
is just having something
that gives you a very fast reaction,
any kind of government
program you always know
if it involves taxes, you're against it,
involves regulation, you're against it,
but I would say that's actually wrong.
What markets cannot accomplish.
Richard mentioned the light houses.
This is inspired by a famous
article by Ronald Coase
that appeared in 1974.
This is the Eddystone light
which is the most famous
lighthouse in England.
And Coase included in this
article unfortunately I think a--
- Yeah, I'm sorry, you need to maximize.
- Okay, okay, there's no
pictures, okay, well, all right.
- I'm so sorry about this.
- Well, we had it set up.
- We did.
We had it going but this is a--
- (mumbles) can you help me?
- It's maximized on this one.
- It crashed?
- I see what happened.
- I'm sorry, everyone.
- Hopefully they can fix this in post.
- This is called Murphy's Law.
Which is actually order
without law, Murphy's Law.
Not actual law.
You see a lighthouse?
- There you are.
Okay, good, okay.
This was my prior slide where
I actually listed works.
And I referred to actually
places at the bottom of the slide
and things that were I'm
sure mystifying to you.
So slow thinking classical liberals
which I urge you to be.
Okay, what markets cannot accomplish.
That puts it to, perhaps
some people in the room.
Coase wrote this famous article in 1974
and included, unfortunately,
in my judgment,
the following phrase, a lighthouse service
can be provided by private enterprise.
And basically this
article if you've read it,
it's actually an interesting article
we'll read because like a
lot of things that Coase did,
it has wonderful institutional detail
about Trinity House that managed
the lighthouses in England.
But actually, this is an
extremely misleading article.
In fact, markets cannot
provide lighthouses
by almost everybody's
appreciation since then.
What markets can do is provide,
actually run a lighthouse
as occurred in England and
that's what Coase was actually,
if he were to defend himself would say,
well, this is actually privately run.
But that's like saying that the fireworks,
another classical public
good or the fireworks we have
in the fourth of July over
the Statue of Liberty ,
where do we have them here in New York?
Over the Hudson River, okay.
So will Private Printer
Enterprise provide fireworks
on the Fourth of July?
The classic economic analysis is no,
because a lot of people will enjoy it.
But you will not be able to collect fees
from the people who enjoy it.
There'll be all these free riders
and therefore fireworks
on the Fourth of July
will not be provided by the market.
You can hire a contractor to do it
as the city of New York does,
but you cannot expect
the market to provide it.
The lighthouses are the same,
this is the classical
analysis of lighthouses.
So Coase is correct that
there were private lighthouses
here but they survived
because customs officers
collected fees in the harbors
from all the ships that came in.
These fees were mandatory,
these were not a matter
of voluntary contract.
You had to pay the fee.
There are five articles that have come out
since Coase's article, the
first one by David Van Zandt
making this point.
And so Coase's example
of what the market can do
with lighthouses in fact is false.
I now turn to a topic that Richard and I
have discussed for 40 years,
which is the so called Mill Act.
If you know the Kelo case,
which is a famous case
in property rights involving
the use of eminent domain,
there's a great discussion
in the Thomas dissent
in that case of the Mill Acts.
Do we want to have
lighthouses in our economy
unless we want a lot of
ships to crash on the rocks
and so forth, the answer is yes, we do.
We're not gonna get them
without having a
government collected fees.
And similarly, if we want
Mills and our ancestors here,
a couple centuries ago, when
Grist Mills to grind grain
and saw mills to grind, to saw lumber,
we might not get them
without having things
called the Mill Acts
which were coercive acts.
This is much more controversial,
but let me show you
what the problem was.
This is from Sturbridge Village.
If you want to see a sawmill
powered by water today,
you can go to Massachusetts and see this.
The problem with the Mill
Act is that if you dam
a stream like this to create
the hit of water you need
to run your sawmill, you
will flood a certain area
and it might be that you
will flood so much land
that you will not be able to acquire
through consensual contracts those tracts.
And what the Mill Acts
did was allow people
to coerce floodees into
selling their rights
as a matter of law to
the builder of the mill.
Sometimes they received 150% compensation,
there were ways to limit
the use of this power.
And notice also that a
lot of these mills ponds
were fairly small, and arguably
that consensual transactions
would have worked.
So this was controversial.
At any rate, during the 19th century,
a time of limited government
in the United States,
when classical liberal
ideas were in the saddle
for the only time in American history.
They weren't into the saddle before then,
there was mercantilism before then.
They weren't in the saddle
in the 20th century,
but during the 19th century, they were
and during that period, in fact,
many states enacted these Mill Acts.
A more current controversy involves,
and this is one that you
might have a view on,
and I hope Richard perhaps
will give his current ideas
about this, is pipelines.
Do we want to have pipelines?
Well, it depends.
If you're anti-carbon, you might say no,
but many people in fact, think
pipelines are a good thing.
Can you get pipelines by contract?
And I would say the answer
is in many, many contexts,
you can't get a Nozickian kind of bargain
or Murray Rothbard kind of
bargain and get pipelines,
you have to use eminent domain.
This is a an issue Richard
in his book, "Takings"
and in other writings that he has done,
recognizes that there can be
real land assembly problems.
And if you want to have
pipelines, you may have to allow
eminent domain by a private party
in order to acquire the right of way
'cause otherwise you
simply won't get a pipeline
or you'll get it much, much
later than you otherwise would.
Another eminent figure and emerging figure
in libertarian thought is
Elias Solman and so forth.
And he at times has an, what
I'll call an unholy alliance
with green people, where
he opposes eminent domain
for pipelines because he is
an ardent property rights advocate.
He feels badly about this.
So I wouldn't call him a slow
thinker or a fast thinker.
I would say he's an
occasionally fast thinker,
but occasionally slow thinker.
He is a little bit mixed on this.
But you might think in your own mind
about whether or not you
want to have pipelines,
or you want to have pure
contracts, because in my view,
in many, many contexts, it's
going to be pure contracts,
you're not going to have
any pipelines at all.
And think about what, whether Elia Solman
has a sound or view on that.
Okay, I now present three triumphs
of 19th century New York City.
I start with, I think, the no brainer,
the one day would be proudest
of, which is this bridge.
Walking distance from
here, Brooklyn Bridge.
Can you get this by contract?
Can you get it the Robert Nozick way?
And the answer is, you don't
get the Brooklyn Bridge.
Your choice is honoring the
principle of free contract
or having a Brooklyn Bridge.
And if you would quiz
New Yorkers about that,
there's no data where they would come up.
We like our Brooklyn Bridge,
we're proud of our Brooklyn Bridge.
This is one of the wonders of the world,
the longest bridge in
the world at the time
that it was built.
Why can't you get it by contract?
Because the approaches
to the Brooklyn Bridge
are about a mile long on
both ends of the bridge.
And to assemble that land,
you had to use the
power of eminent domain,
you had to coerce people.
If you want the Brooklyn Bridge,
you can't do it by contract,
you can't do it the way
the anarcho-capitalist
would want you to do it.
The main thing that I will talk about now
is one of my passions, which is streets.
This is an unusual passion.
So let me try to get,
interest you in streets.
I do think coming to NYU,
I couldn't help but think
that you are the most knowledgeable people
about street patterns in New York City.
You're in exactly the location
where the street patterns change,
and you might have attitudes about Street.
So let me talk about streets.
This is a picture of a
great book that was done
by somebody here at NYU who still
on the NYU faculty, Hillary Belon.
And it's called the greatest grid,
you see the shape of Manhattan there
and you see the part that is gridded.
How did the city of New York develop?
It developed at the very tip of Manhattan.
This is the way Manhattan looked in 1775.
NYU at that time, was
way out in the boondocks,
way out in the rural areas,
only the tip was developed.
You may go see the show, Hamilton,
which you should by the way.
I think it's consistent with
classical liberal values.
I would guess that can be challenged
into the question and answer
and I don't know what I would say.
But the New York that
Hamilton comes through,
comes to in 1775 is the
tiny little tip of Manhattan
and the streets are chaotic as can be.
It's just spontaneous order,
if you will, bottom up streets.
What happened in New York
City, as many of you know,
was that the key event occurs in 1811
when the commissioners issue
a report that lays out a grid
roughly from NYU going
north of a set of streets.
And then the question in your own mind
is why did they do this in
a laissez-faire society?
Because what did they think?
Why did they think this was a good idea?
Why they just couldn't let
streets continue to bubble up.
You also probably have an
attitude toward this grid,
since it's the north of
NYU, this is what you have,
and you would know the
streets south of NYU
and you might have a
preference for one or another
about which one might be better.
My guess is Hayek would favor the grid.
My guess is that Milton
Friedman would favor the grid.
I think it's not clear
because they were not
particularly urbanists,
and they didn't talk about
these things very much.
But here is the pattern for you to look at
of how streets developed
in the city of New York.
What happened in New
York was you had the tip,
there was very chaotic wall and
broad streets, and so forth.
As New York grew through a process
that I don't know anybody
has written much about,
micro-grids were imposed
on parts of the island.
Who imposed those micro
grids, I don't know,
they still exist here in the
West Village, for example.
And they are all tilted
against each other.
But you can see there that there are lots
of rectangular blocks that were
produced in lower Manhattan,
but they are produced within micro grids
that don't fit well together.
And if you don't believe
this is still the case,
I invite you to walk South
and have the pleasure.
So why did the people do this in 1811?
Let me say also the
key person was somebody
named Dewitt Clinton, who in 1807,
when this commission was
set up had the pleasure
of being both the mayor of New York City
and a state senator in Albany.
He calculated the politics as being such
is if you want to get a
grid, which he wanted to get,
you're not gonna get it
through local politics,
you had to go to the state level.
And so this grid was actually imposed
through state legislation,
because Dewitt Clinton,
the mayor, wrote a letter to
Dewitt Clinton, the senator
and said, please pass this
legislation, and he did.
And this was also by the
way, the fellow who did
the Erie Canal, this was
a purely creative person.
By the way, do you get the Erie Canal
through voluntary contract?
And the answer is no.
That's one for Elias
Solman to think about.
Do we like the Erie Canal in New York?
Well, I'll let you think about that.
So what do we have in New York?
We have an extremely
boring layout of blocks
that you're all familiar
with, on these rectangles.
Whether this was the right
call is a complicated story.
An interesting criterion for street grids
is what maximizes the value of the land.
And it's not clear that
these long rectangles
are the way to go compared
to other sorts of things.
So they made a bunch of judgments
and they didn't necessarily do it right.
So then the question is,
why did they do this?
And why, after they approved that grid,
why did local government for 60 years
or some people calculate it as 90 years
implement this program?
That's a remarkable thing.
You might think that a
later government would say,
we're not doing this anymore,
this program is a loser.
They implemented this over a
very, very long period of time,
and they were extremely proud of it.
They thought that New
York City was growing
and it was growing in
part because of this,
because I think they thought
it raised land values
at Glaeser's theory of good urban policy.
If you have good urban policies,
you gotta raise land rates.
They had this very
amusing and I don't know
if you can read it there,
this very amusing quotation
when they design this boring
layout because by and large,
aesthetic people look at New York
and they are just appalled by
the way, by these rectangles.
They said, we are aware of
the supposed improvements
of circles, ovals and stars.
But we're not doing it, we're
doing boring rectangles.
And why are they doing boring rectangles?
They say because it's
actually cheap to build
right angled houses, rectangles
are the way to go with lots,
are the way to go with buildings,
are the way to go with rooms.
This room was basically a rectangle.
And if you want to efficiently
allocate your land,
you go with rectangles and
that was their thinking.
Here's a city that did not go this route.
And so you might think,
whether New York City would be
a better city if it went
to Washington DC route
of having lots and lots of diagonals.
This is the law fall plan
that was out there from 1793.
The commissioners in
New York were very aware
of the wall fall plan,
because they were thinking
about stars, they could
think about law fall.
The law fall plan if you know Washington
angles various diagonals
toward the Capitol
and toward the White House,
which are two of the, the
two-circled environments there.
Is that a better way to go?
And diagonals are a good
thing for transportation
because you can go on a straight line
when you want to actually
go diagonally and so on.
But they didn't go that route,
and so think about whether
that was a good decision
on their part and we'll come back to it.
The grid, this boring
grid is actually embraced
by the city of Boston.
If you interested in streets,
the outlier in the United
States is the city of Boston.
You can live there for years
and never find your way around.
Because it grew up spontaneously
from the bottom up,
it never had its grid and whatever except,
and this is interesting about
Boston, if you know, Boston,
is that the Back Bay was filled,
it's where Commonwealth Avenue is.
When the Back Bay was
filled, what did Boston do?
They laid a grid upon the Back Bay.
So they somehow saw some advantages
in going rectangular as well.
So, why did the commissioners
impose this boring layout
on the city of New York?
And so, let me just indicate
some of the advantages
of the grid that might have given rise to,
why it might have increased land values
and so these are just, lift these off.
If you want to have through
transportation arteries,
all that boring traffic on First Avenue
and Second Avenue and so forth,
you're not gonna get it through contracts.
You're gonna have to get it through
some kind of public planning
and the grid provides for that.
When you first come to
Manhattan as a visitor
and get out of Grand
Central Station, let's say,
you walk for five minutes
and you say to yourself,
I think I can find my
way around this city.
You don't say that about Boston ever.
You don't say that about
London ever and whatever.
But in fact, it is very
easy to orient yourself.
The whole purpose of cities,
as developed by economists
is agglomeration economics,
allow people to get together
for economic transactions,
social events, and so forth.
And finding one another
and moving around easily
and being able to orient yourself quickly
is in fact a great advantage.
So New York not only have the boring grid,
you have the extremely boring
numbering system and whatever,
which makes it all
extraordinarily transparent.
If you have these micro
grids, which New York has,
south of here, you do have
lots of awkward intersections,
you end up with lots of little
triangular lots and so forth.
And if you're interested
in efficient use of land,
you want to avoid that pattern.
And Dewitt Clinton in 1807
is insistent on avoiding it
'cause he thinks there's
advantages of some sort
in doing that.
If you have rectangular lots,
surveying is much easier to do,
you're much less likely to have disputes.
There's a famous work by (mumbles)
in the Journal of Political Economy,
showing that square forums of all things,
rectangular forums are
vastly more valuable
than irregularly shaped forums,
partly because there are
fewer boundary disputes.
And the last thing I mentioned here
is simplifying land transactions.
You cannot imagine what the
New York real estate markets
were after this grid was imposed.
Auction houses for lots.
Was it easy to identify where your lot was
and what you were pricing it
and for a buyer to compare
whether that was a good buy.
Elsewhere, many of the lots
were all 100 feet deep,
either 20 or 25 feet wide.
It was a piece of cake to do that.
So sort of the uniformity of
the transactions help things.
Here's the kind of thing that you see.
These are excerpts from the Belon book,
which is a wonderful book about this grid,
showing you how an auctioneer advertised
the lots that were for sale
and how similar they were.
This is one of the most remarkable slides
I know about the history of
New York, unbelievable slide.
West 133rd Street, 1877, Harlem going up.
Entrepreneurs, we don't
know who they were,
we don't know how they
got their financing.
I think if you're interested
in the history of business,
you might write a book about this
to figure out who these people were.
Do these people know what
the street pattern is
in this neighborhood?
Do they know the lot sizes that are likely
to occur across the street?
They are using stock designs based upon
the standard New York lot
to build these brownstones
and they're building them like crazy.
They're out there in the
wilderness and whatever
but they know a great city
is sweeping north from NYU,
and they're gonna be part of the action
and they are building for.
Okay, let me just say briefly about,
because streets are my passion
is that it's not at all
clear New York City chose
a maximizing shape for its blocks.
These blocks may have been too long.
Notice that the patterns here are,
you see the New York
blocks are very, very long.
My own city of New Haven had
massively inefficient blocks
because they were much, much too large.
If you have not been to Savannah, Georgia,
think about the advantages
of smaller blocks
because maybe this would
have been even better.
Savannah is the most
interesting layout of the city.
Again, you would never
get this by contract.
It had to be done by
some central authority.
They have little parks interspersed
with their small blocks.
And Savannah is I think,
one of the extremely interesting cities
of the United States.
New Yorkers ended up being
extraordinarily proud
of their grid, thought
that this was essential
to their success.
And again, as I say, stuck
with it for 60 to 80, 90 years.
But the planners made some mistakes.
They didn't have enough open space.
Do we like Central Park?
Was that one of the triumphs
of the 19th century?
New Yorkers would have
said, you bet it is.
And you get Central Park by contract
and the answer is you
don't get it by contract.
You don't get it Nozickian world,
you don't get it an
anarcho-capitalist world,
you need eminent domain
to get at Central Park
and that was retrofitted on
the grid in New York City.
Okay, let me just say
that my comments here
about the grids and the
advantages of grids,
I think are comments about central cities.
If you want to think about
streets, it might be t
hat if you're in Phoenix,
that you like the grid
that you have, which is
the Jeffersonian township
and section system that
exists in the United States,
from Ohio West, basically.
But notice what you see there
is actually developers
on their own initiative
putting in curved streets.
So it might be that would
maximize those land values.
Elsewhere, are not grids.
Again, whether these impact
to maximize land value
and whether that's the sole
criterion, is a complex story.
There was an article that I sent in
for part of the continuing legal education
for people who are actually
interested in streets,
and you can get that citation.
Okay, let me turn now to
a final couple of topics
that are dealt with by
the anarcho-capitalist,
and I think very badly.
Air pollution.
Here's one approach to air pollution.
We'll do it the Coasian way.
Doesn't matter what the
property rights are,
we will bargain costlessly
to the optimum amount
of pollution regardless of
what property rights were.
Therefore, we can have no
rights against pollution.
What's interesting about all
the three anarcho-capitalists
who I list here is that none
of them come to that solution.
They all rather and this
is extremely puzzling to me
and assign I think the
weakness of their thought
is they all decide that
what we should have
is class action lawsuits.
It says they've read each other
and in fact, they do cite each other
because they are something of a crowd.
And I think Rothbard,
this is not good property,
this is not a good property
exam if Rothbard writes this.
If you're going to enjoin
anyone from injecting pollution,
you don't need a class action,
all you need is a single individual
because you're gonna enjoin
all those polluters, whatever.
But notice that you have enormous amount
of state coercion here under this system.
These are rules being created by judges.
You have a state, they have to be enforced
if you're going to enjoin,
and people are violating the injunction.
You have to be imagining an
enormous state and whatever.
So Rothbard kind of
bails out on this issue.
He could have said let's ignore pollution
and let's leave it to
voluntary transaction.
He doesn't say that, he comes up
with something utterly inconsistent
with his own beliefs, I think.
David Friedman class
actions by the many victims
against the many polluters.
This is a really big
class action, let me say.
We are all victims and we are
almost all of us polluters.
And this is a whopper.
And if you are interested
in transactions cost,
I think this is a huge loser.
And notice, again, it's David
Friedman opting for coercion.
So while he does this in
this particular context,
I don't know.
And Nozick not being a lawyer
says group suits against polluters
rather than saying class actions,
but it's gotta be the same kind of idea.
So my sense is this is
not a sign of strength.
My own view is that actually,
we need to act on pollution.
That having coercion by the EPA,
bad as the EPA is going to be, in fact,
will work better than wasting all our time
with these class action payouts
from all of us to all of us.
Okay, the last topic that I
mentioned is the welfare state.
The anarcho-capitalists are on
the same page on all of this,
which is surely we care about
the situation of the needy,
but the right institutions
to deal with this
are voluntary institutions.
Let it be families, let it be charities,
let's not tax ourselves, to give to
through the welfare state to people,
let's rather do it through
voluntary transactions.
And they are very consistent about this,
Nozick is particularly insistent about it.
Let me just say that
and this is an example
of where both Hayek and Milton Friedman
are not fast thinkers.
They write explicitly about this.
They say they have a
sophisticated view about it.
They say maybe in the
world of hunter gatherers,
maybe in a world of small towns, t
that those other systems
would be sufficient.
But in mass modern society,
this will not work.
You have to have taxation, and
they both come out explicitly
in favor of some sort of
financial support for the people
that are particularly destitute.
I don't think they've
thought very much about it.
Milton Friedman for years
pushed for a minimum income tax
as you notice, as an illustration
of where he was on this,
and I think there was, he did not deal
with the problem of moral hazard.
My own view is, there are
lots of people in their 20s
who would like to spend their
time playing video games
in their basements and my own view,
we should not be making transfer
payments to those people
and I don't think Milton Friedman
fully encountered that notion.
Okay, so let me just now
finish up with my last slide,
and urge what I regard is
a more constructive thing
for somebody in the room
to be thinking about,
then they had to perfect
anarcho-capitalism,
which I think is a dead end.
At the end of his book,
Kaneman challenges the realism
of a later book by Milton Friedman,
that he wrote with his wife,
which is called "Free to Choose".
They could dead aim at this.
And he says, think about our
two systems of making decisions
that he's described at length in the book.
We actually aren't very
good at making decisions.
Our first system doing things
fast is often mistake prone,
and we regret our decisions.
And we realize, once we
actually labor over the decision
that we made the wrong decision.
The second decision process
is the rational actor
that we would like to have in economics,
but we're so damn lazy, that
we don't do it very often.
And therefore, we often
fall back to number one.
And therefore we aren't
that good at choosing.
And this is a real challenge to I think,
many classical liberals because they do,
a lot of classical liberalism
rests on deferring to choices
and Kaneman is challenging
basically that model.
So my sense is this
has lead to literature,
as you probably know, on
libertarian paternalism,
about structuring of decision
processes with nudges,
Cass Sunstein and Richard Thaler,
there's a pretty substantial
literature on this.
But I think if you are a
libertarian and do think that
people should be, have a lot of autonomy
and freedom of choice and whatever,
this is an important
discussion to get involved with
to think about what extent
Kaneman's analysis for example,
does, it does challenge a
classical liberal thought.
So as I understand it, we
now have time for questions
and answers and we should move to that.
And I've tried to provoke you by insulting
both the praising 19th century New York,
insulting 20th century New York
and challenging anarcho-capitalists.
(audience applauding)
So, I'll ask, Richard is irrepressible.
So we'll come back to
him later but there was--
(man mumbling)
So, yes.
Yes, I think the
microphones are there for,
so everyone will hear you.
(man mumbling)
- [Man] All right, so I'm very excited.
So the general kind of
gist of the examples
you gave were to give an example
of a large public works project
or something that was done
by a state historically.
And then to say, well, because it was done
by a state historically,
it couldn't have been done another way.
And so you gave the example,
I'm just gonna pick one,
because I've just been reading about this,
the Brooklyn Bridge.
So you gave the example
of the Brooklyn Bridge
and you said this couldn't be
done through private means,
through a private aggregation of property.
But I would just point
to, so for instance,
the Pennsylvania Station, Penn Station
was actually assembled
through private means.
So Alexander Cassatt, who's
the brother of Mary Cassatt,
the painter, I thought
that was interesting.
They went to the Tenderloin
District and to be sure,
they definitely used secrecy
to avoid holdout value.
But they ended up purchasing all the land
that became Penn Station and
Bill totally through contract,
the nozickian world that you give,
they did it totally
through private contract.
So I guess my question is, is why,
and then you look at like James J. Hill,
he was the Great Northern Railroad guy,
and a lot of the railroad in the north
was done without eminent domain.
So I guess my question to you is,
why are there structural reasons
why this couldn't take place?
- Well, the standard
kind of analysis of this
is that numbers matter.
That if you have to assemble 1000 parcels,
all of whom have sort of veto power
over what you're trying to
do, which might be the case
with some pipelines, or some highways,
or I think the Brooklyn
Bridge literally probably
did involve condemnation
of hundreds and hundreds of parcels.
And they had no, they had decided
where they wanted to have the bridge,
and they really had no option to move it,
that in those circumstances,
you're more likely to need eminent domain.
If you're trying to assemble
land for a couple of blocks,
and this is this is I think,
Elliot Solman's critique
of a lot of economic development takings
is that that kind of
assembly can often be done
through voluntary transactions,
and that there are eminent domain abuses.
One of the reforms that's
sometimes talked about
is pay more than just compensation,
for example, to discourage
the use of those powers
and to provide more confidently
a compensation to people.
So I do think the numbers are,
the standard analysis is numbers.
Richard is here and I'm sure
as irrepressible, as always.
So we'll get his view on this eventually.
- [Man] Can I make one
quick, one last quick point?
Okay, and then the last quick
point is on the lighthouses
'cause I can't resist.
So the sort of classical
argument made and this was made,
I think James Buchanan made
it and Samuelson made it
is that the light beams are indivisible.
And so it would be impossible
to basically row out
in the middle and (mumbles).
But doesn't this kind of
thinking sort of beg the question
so that if you were in a system
where private enterprise was allowed
and this had to be
provided for the market,
you would develop mechanisms
for specifically targeting
and you could have kind of GPS
devices or things like that.
And so, the actual
belief in market failure
hinders the kind of tools that
could solve market failure.
- Yes, that's a nice point.
My sense is the history, the
literature on lighthouses
is pretty robust.
In my article that I'll
eventually submit on this,
I'll cite all five of
these critiques of Coase,
goes into some of these issues
and it may be that today for example,
lighthouses I should say are obsolete,
as we know through GPS as it happens.
But there were, an interesting
collection of institutions
for lighthouses and occasionally
they were done by charity.
So I spoke a little too strongly.
Often these were done by monasteries
where the monks would put out lights.
And it was expected that
the people who benefited,
the shippers who benefited
from those lights
would make donations to the monasteries,
and that occasionally worked a little bit.
But by and large in
situations where it was tried,
and there was not a government involvement
in collecting of the fees,
the lighthouses disappeared.
And that, quite well
documented by David Van Zandt
and other scholars thereafter.
And coase misleadingly says it can be done
by private enterprise.
What he means is that you
can hire a private firm,
just to repeat the analogy,
you can hire a private firm
to put off your fireworks
over the Hudson River
for the Fourth of July,
that can be done privately that way.
But you won't get it by contract.
You have to have taxation,
taxpayer supporting of that.
So let me throw that example back at you.
Do you think you can imagine a world
where we get Fourth of
July fireworks, whatever,
and take care of the free rider problem?
- [Man] Should I answer?
- Yeah.
- [Woman] So I appreciate your point
that it's going to be incredibly
or prohibitively expensive
to collect money from every single viewer
of the firework, right?
So that's the logic for why
the state must provide it.
But there are private parties
that do provide fireworks.
The New York fireworks is sponsored
and run I believe by Macy's, right?
And the one over the Hudson
River on Fourth of July.
So there is a residential
claimant who has no expectation
whatsoever of individual
contractual payments
from every single viewer or enjoyer
of the positive externality.
What they do expect is
it's so well publicized
that we all seem to know that
it's the Macy's fireworks,
or the Macy's parade, that there
will be some other benefit.
So now this leads well
into my next question.
So the only alternative to
state provisioning in my mind
is not private provisioning,
where every single person
is contracting with
every other individual.
It could be a large number
of individuals contracting
with one single private party.
So something like you see
in the Disney city, right?
It was one entirely assembled by private,
just like max mentioned to
avoid holders, they use secrecy.
The other is it's entirely run privately.
It has its own police
station, its own fire station,
its own sewage lines--
- So in fireworks by the way, Disney--
- [Woman] And also fireworks.
In which case you have a very large number
of private individuals
who contract individually with Disney.
So what I might think is yours
might be a scale argument
with a residual claimant
and not necessarily
a public private division.
So that's my--
- Well, the scale argument
is related to my response
to the earlier question, which
is the larger things get,
very often the larger the
numbers of land parcels
that are involved, the
harder it is to do it,
to do it by contract.
Richard, good time for Richard.
- [Richard] As you well know,
unlike the incorrigible Max,
I'm on the classical liberal side.
But what struck me as
being odd about the talk
and I'd like to have your reflection to it
is what about the
various kinds of failures
in putting grids together
and other devices,
and how you deal with them.
So if you look at the San Francisco grid,
remember, they had a section going south
and a section going northeast
and they didn't match them up.
And so to this day, on Market Street,
you have complete chaos.
And so the question that one
wants to ask on this thing,
I have two questions
is, how do you make sure
when you put these things together,
that you get institutional
arrangements that can optimize
the way in which they go?
And what set of tools do you need?
And you mentioned, in fact, New York,
you thought made a mistake in terms
of the size of the block.
So it would be interesting
for you to tell us
how it is that you want to
assemble the information,
which will allow you to do the correct way
with respect to a function
which I also agree with you
is essentially a public function.
That's the first part.
Second part is there is no public choice
in the model that you just
gave, which is a little bit odd.
And the issue about eminent domain
does not only apply to
streets, but it also applies
to all the other stuff
that you talked about.
And so if you talk
about modern regulation,
zoning, and so forth, all of these things
essentially got the
lift, because you decided
that there was a low
level rational basis test
of one sort or another, starting
with Euclid if you recall
in the expansion of the definitions
of nuisance and everything else like that,
which led to sort of radical
overclaiming by the state.
So the question I wanted
to ask for you is,
implicit in your model
with respect to the land,
you essentially assume
that if you're gonna take
this sort of land, that you're going
to owe some compensation that's needed.
And the New York City as you remember,
the way this was done,
you lay out the grid,
you don't take any land.
But then when the time
comes to take those streets,
you take it, but you don't
have to compensate for anything
that somebody wants to build on it,
which is the correct solution.
- If they build it after the map, yeah.
- [Richard] Right, after
the map is putting out.
But you still get things
like air rights and (mumbles)
and so forth.
So the question I wanted to ask you,
is if you put the public
choice dynamic into this,
and you look at the zoning
and the other kinds of uses,
how would you apply the taking scores
to the regulatory side?
Would there be a discontinuity
to the physical occupation cases
or there'd be a continuity
between the two of them?
- Okay, good questions.
Let me just say about the,
and measuring the success of,
first off I do think the main
lobby that would have lobbied
in favor of the Dewitt
Clinton plan in 1811
would have been people
interested in real estate.
The biggest player was John Jacob Astor,
the richest man in the
United States who started off
with fur and then moved into real estate
and knew how to play
the game extremely well.
On the other hand, I think that Astors
wanted something that would
raise the value of land
and by and large that was
pretty close to consistent
with what was beneficial
for New Yorkers in general.
And so, and to me, the success of the grid
is it's remarkable to me that this program
which took an enormous amount of effort
and required leveling
of all sorts of streets
and unbelievable changes
to the city was implemented
over all these decades and the people
of New York stuck with it.
They thought it was a winner.
Henry James and people like
that, who lived in this area
say we live in the most incredible town.
Every five years, everybody
moves three streets uptown
or something like that.
They said, we're just growing like crazy.
And they thought it was a winner.
So the fact that they
stuck with it strikes me
as a sign in favor of the New York--
- [Richard] No, I agree with that.
I think one of the things
you might want to explain
is the grading issue is simply huge
under these circumstances,
because what happens is,
If you want to have a level street
which you need for horses,
then there's the real question
of what you do with the
plots if you can't get in
and out of the park, so you
have to level huge portions
of land to make this work.
I think that's what's going on.
- And there's a recent paper
out in the Virginia Law Review
by Molly Brady about state state courts
deciding that people who are stranded
because their lot was way above the street
in many states any way, were
entitled to compensation
under the state constitution,
which brings me to your second point,
which is Richard and I actually disagree,
despite our comradeship
on the basketball court,
believe it or not many years
ago, on constitutional matters.
I am not somebody who would be an activist
at the federal level in
particular, on lots of land issues.
I'm a defender, believe it
or not of the Kelo decision,
which is anathema to Elliot
Solman and to Richard as well,
on the ground that the
mistake there was made
by the Connecticut Supreme Court.
We don't need national rules
on economic development taking,
and therefore I'm not as
aggressive as Richard is,
has been at times anyway
with the Federal Constitution
on deciding things.
- [Richard] Somebody else come.
- [Woman] Okay, well I
really enjoyed the talk.
So you might think that
one of the kind of sources
of the transaction costs that
kind of impede contracting
to develop the bridge or
the big infrastructure
is the form of landowners
that land ownership takes
and this is a point that Lee
Fannell has recently made
in this paper, fee simple obsolete, okay?
And where she argues that
it's really the monopoly
that the fee simple provides,
that that's really a big
obstacle to assembling land.
It's a big issue now, she
says because we need to,
repurpose land on a large
scale in density urban areas.
So I'm kind of, and the
alternative, of course,
one alternate would be something more,
having land ownership take
more like the form of a lease.
So I guess the question
I'm kind of asking you is,
do you think that there is a
problem with the fee simple?
Which is the kind of most pervasive form
of land ownership today?
Or the transaction and was it
kind of a historical mistake
to make the fee simple, basically,
the predominant form of land ownership?
Yeah, that's my question.
- I'm a huge fan of the fee simple,
disagree with Lee's thesis
for Hayekian reasons.
That the great thing about the fee simple
and individual land ownership
is it gives decisions
about the use of land to the
person with local knowledge
about what that parcel, but
the structures on that parcel
about the land on that parcel
and that this is a wonderful way
of invoking localized
knowledge in a Hayekian way.
And I'm extremely skeptical,
this is exactly the kind of situation
where I don't think experts who control
a large amount of land
whether it's a Disney World,
or whether it's a government
or whatever will do as well
in coordinating and making
decisions about land use
as will these decentralized landowners.
So I am a Hayekian and a
big fan of the fee simple.
- [Man] Yes, yes, so with
Milton Friedman's point
about the provision of welfare,
how in smaller groups of people,
you're probably gonna see people
with personal relationships,
something at stake,
that will take care of people
if they get in trouble.
In cities, you're gonna
get less and less of that,
it's more impersonal.
It seems to me like a lot of the things
that you and a lot of
these thinkers are assuming
about, like, the culture
of the decision makers
is that they're all the
impersonal city people.
And that it's totally inflexible
who they're gonna feel they
have close relationships to.
And so I guess, what I'm wondering is,
how much room is there
for taking into account
what you can do to change culture
and creating the provision
of these things you
couldn't have otherwise.
Like, what comes to mind
is there's organizations
like the Mormon Church,
like the Catholic Church
that can raise massive amounts of people.
If people feel like they're
connected to these other people,
they're gonna respond and be
willing to contribute, right?
They don't see it as
that i personal thing,
and then the calculus
can't seem to break down.
This wouldn't solve necessarily things
like the pipeline, right?
But it would seem to take care of others.
If that's so, do you
think that, part of the,
if there was a path forward
would be to encourage people
to see themselves as part of a yeah,
part of a group I guess?
- Well, I'll invoke the
phrase civil society
of which I'm a huge fan.
If you're a decentralized or a Hayekian,
I think via this stripe, you
obviously want to encourage
all those kinds of institutions.
A problem in designing a welfare state
is that people are mobile.
And that creates enormous
numbers of complications.
And there are people,
George Stigler was very much
of this view that welfare state policy
is inherently national policy,
you might even say it's
even supernational in scope.
So that if New York City, for example has,
if some locality has
more generous policies
toward distribution, there's
a problem that rich people
will move out of there and
poor people will move in there
and therefore the design
of the welfare state
is very complicated.
I follow those issues some.
All I can say is that
both Hayek and Friedman
were very clearly in favor of
some sort of welfare state,
and it becomes crystal
clear in their writings
all the way along.
Hayek says this in "The Road to Serfdom".
He's on that page from the get go.
So I think we're better
off having strong families
and churches and other
agencies and so forth.
And the welfare state should be designed
to try to mobilize them.
Families, I think, the whole
nugget of our civilization
is the household and the family.
And if we lose it, we
lose it with the household
and the family, we've really
lost it to a great degree.
So I'm very, very supportive
of using those institutions
as we can, but my own view is
the state inevitably will be
somewhat involved as well.
- [Man] Hi Bob, so this is terrific
and I have an empirical question.
I'm not quite sure how I
think it would turn out.
But it's something of the nature.
Do you think it's easier to
build a bridge or a tunnel?
Controlling for the
technology and the cost of it.
And I'm sort of curious
about sort of surface grids
and subterranean grids.
And what's getting me was the suggestion
about the Macy's Day
Parade, it seems that,
or the fireworks, that they're engaged
in some type of joint production.
They are producing both the
fireworks show and goodwill.
They can't capture from
the consumers for the show,
but they can capture on the goodwill.
And maybe the monks too who
are also doing the lighthouses,
they're capturing, so
on the surface level,
there are multiple things
that might actually
facilitate the transaction.
So maybe the bridge will
be easier than the tunnel.
Although I once did a project on,
the best title paper I never published,
hold outs and holy men.
And I was looking at the church
on the south side of Chicago,
trying to assemble land
for shopping centers.
And it turns out, but the
holdup problem was worse
with the church, than
with private developers.
So it could cut in the other way.
So what are your intuitions about,
I saw those five causals
we're trying to measure
on the surface; transportation, building,
the view event and all of that.
- Well, when you go subterranean,
way down subterranean,
the efficient scale of
ownership can be quite different
than it is on the surface.
So that our fee samples,
by and large are based upon
what's the best surface use and whatever.
In many nations, subterranean
minerals are owned
by the state and so it's
all unitized in the state.
Many people think that
that was advantageous
because for oil and gas, for example,
you don't have to unitize the field,
it's already unitized in the state.
The counter to that is an interesting one,
which is why was fracking
invented in the United States.
And many people say the
reason fracking was invented
in the United States is we
have subterranean ownership
of minerals, and therefore,
the incentives for people
to be creative in how
they mined were greater,
because you could do it
through transactions,
you didn't have to wait for
the state to invent fracking
or to allow fracking.
And therefore, what looked
like a disadvantageous
form of mineral ownership
actually led to advances
in fracking technology.
And this is actually related
to the first question
that was asked, which is that
the nature of property rights
affects the levels of
innovation and whatever
and we had innovation on
fracking, perhaps because of,
because I do think for me,
a pipeline which doesn't go down very far
is no different than a fee
simple, that I would prefer
that the fee simple owner
own down to the depths
of the pipeline.
But when you get down to
deep minerals and so forth,
I think it's more complicated.
Just as it is when you go
up to advocation easements
and so forth.
- [Man] Yeah, about a year ago,
I took Professor Rizzo's
course on classical liberalism.
And Professor Epstein
came in to guest lecture
a couple of papers he wrote.
And Professor Epstein can speak
for himself on his position
but it seemed to me that
he would agree with you
that there are market failures
that would justify government coercion
to get things accomplished in general.
Now, however, when it comes to
taking money from one person,
simply to give it to another
person, he could not find,
at least in the class, at that
time, a philosophical basis
for doing that.
I think in one of his books,
I read that he would
support that as a matter
of public policy.
But still, there was no
philosophical basis for doing that.
Would you have a philosophical
basis for doing that?
I would like to hear
from Professor Epstein
whether he has found one.
I wrote a paper for the class
that I thought found one,
and it was called Curing Epstein's Bar.
That's just the joke.
Anyway, I actually named it that.
But go ahead, please.
- Well, I will have a mundane answer to it
and then we can hear
from Richard directly,
which is it's possible
that the transactions costs
of doing this through the state are lower
than doing it through all
these admirable institutions
of civil society, given the
problems of coordination
there and so forth.
And for example, I do not
give to beggars on the street.
And the reason is, a statist reason.
I say, I don't know if
this person is deserving.
But I think there are specialists
out there in the world
who do know whether this person is worthy
because they can apply for
assistance of various kinds
and those people know about who's worthy.
And I'm gonna defer to those experts.
And that's sort of it.
So I don't know whether utilitarianism
is respectable in this crowd,
but it's respectable with me.
And to me if it's cheaper
to do it that way,
cheaper to do it through, to do the state,
that might be a reason to
do it through the state.
- [Richard] I take a position which is
somewhat similar to yours.
What I start off with is
what is the justification
you want for voluntary
transfers to be made
through a charitable system?
And this is a non-trivial story,
because I still remember
the longest lunch I ever had
in my life was in 1972,
with Aaron Director,
who insisted that redistribution of wealth
based upon need was not
an appropriate measure
because this was all subjective,
and you could not make interpersonal
comparisons of utility.
And he told the story
of a man who had a rupee
and the question was whether he gave it
to the Maharaja or whether he
gave it to the untouchable.
And the Maharaja looked
at the man and said,
"Why on earth would you want
"to waste your money on the untouchable?"
And he thought that this
was a decisive answer.
It took me about five years to realize
that there was madness in
this particular remark,
because if you actually looked at the way
in which the distributions go,
there is no voluntary
redistribution from poor to rich.
It's always going in
the opposite direction.
And the argument that you start to make is
people do make interpersonal
comparisons of utility,
but they're better at
making them from themselves
with their own money
and watching after it,
than trying to get some
independent party coming in
and telling you what the
differences turn out to be.
So I think the case for private charity,
laissez-faire is really very strong.
And I agree, I think with
the comments that were made,
that the amount of this stuff
that will start to take place
in a voluntary society,
particularly at the peak of laissez-faire,
when you didn't have much of this system
was simply enormous.
Fr example, HIAS, Hebrew
Immigrant Aid Society made sure
that every person who came off the boat
was put into a private home
under care the day they arrived.
And they did this for
hundreds of thousands, indeed,
millions of people in the period
between about 1885 and about 1915.
I mean, just straight voluntarism there.
So that's the first point.
The second point is, you're
right about the mobility
and all the difficulty.
So the way in which I try to put it
is that the public justification
for these charities
is most comfortable when
the amount of transfers
you're making are basically the same level
that you would find in a voluntary society
given all the difficulties you have
in measurement and coordination.
And that the great
difficulty and the issue
is not deciding whether
or not this is a good idea
at that level, but the great question
that Hayek answered is
how do you make sure
that the national health
system which gives you a bed
when you're acutely ill
doesn't become the Medicare
and Medicaid system in the ACA of today?
And so the reason why I get
skeptical about this stuff
is I don't think you
could hold to the optimum.
So you have this terrible choice
of too much or too little.
And what happens is, once the
coercive stuff gets in there,
the voluntary stuff disappears,
which is surely the case with charity,
much less aid to the
poor today than in 1935.
Most of it now goes to education, arts,
and other kind of rich
to rich kinds of people.
So my answer would be philosophically,
that would be the justification.
But institutionally, I
think it's very precarious.
- Well, I agree with two
statements that you made
that there's going to be
some, if the state takes over
or gets involved, there'll
be some crowding out
of these other institutions.
And that should be taken into account.
And the second one is I
think our welfare state
is quite a mess.
And I mentioned some housing programs
which I think are utterly worthless.
These affordable housing units,
we now produce these, we
spend a million dollars
to provide a unit to somebody
who's a relatively low income,
relatively low income group
rather than giving them $200,000
in cash or $300,000 in cash,
which they often would prefer
to getting that unit
and that there's massive
inefficiency there.
So I do worry about the expansion
or the nature of our welfare
state as it has grown.
Clay has been, yes.
Clay and then we finish, okay?
- [Clay] So I wanted
to make an observation
and then ask a question.
so the observation is, I've no doubt
that some of the questions suggests
that public goods can be
created by private actors.
The Penn Station example is a nice one.
I think the Walt Disney World
is actually a bad example
because, known by its official name,
the Reedy Creek Improvement District
is nothing other than a
state created monopoly
with an extraordinarily state
supported restrictive set
of basically ordinances
that get in the way
of voluntary transactions
rather than facilitate them.
A nice example, I think, is put forward
by Russell Harden in his
book on collective action
where he recounts that
Howard Hughes was a,
when he moved to Nevada, as an insomniac
loved late night westerns
and couldn't find any
on Nevada TV.
So he bought a TV station
and had it show nothing
other than westerns, late at night,
therefore creating the public good
of allowing insomniac
Nevadans to watch westerns
all night long.
And that I think is sort of the point.
So, my understanding is always in trying
to get these debates about
private versus public
provision of public goods
is as compared to what?
And the issue with the private situation
is the private actor may
provide a public good
but will provide it at
a quality and quantity
that is consistent with the interests
of the private provider, which
may or may not coincide well
with the interest of the public at large.
Of course, as you've just suggested,
the public actors don't
necessarily entirely reflect
the desire of the public
for quantity and quality.
But let's not fall into
the Nirvana fallacy
of assuming that private
actors who provide public goods
do so in a in a manner
that coincides perfectly
with public interest,
while public actors do not.
In fact, what's going on
is as compared to what
and I think that's the crucial question.
Not who can do it but who can do it better
or in a manner more consistent
with public interest.
The question is, and the
slide has now disappeared,
but I remember it well enough,
to the extent that system one
and system two are in place
and system one is the more common one
and extraordinarily error prone.
And its system to maybe less error prone
but is extraordinarily exhausting.
What are you telling us?
What is Kaneman telling
us about contract itself?
Because if what if the suggestion is gee,
the alternative to public
vision is private contract,
are you telling us that contract itself
may be sufficiently deeply flawed,
that we have to be very
wary of relegating a lot
of our public oriented decisions
to the contracting process?
- Okay, on your last point,
Kaneman got this prize
in economics, because in part
behavioral as I understand it
in most economics department
and Mario can describe
what happens at NYU.
Behavioral economics has
been quite well accepted
across the board in economics,
still controversial to some extent.
But the implications for
economics are pretty profound.
And I do think that
this is a frontier issue
on which we should all be working.
Many of us are confident
that even using system one,
that we do pretty well, we
go out and go to McDonald's
and we probably do use
system one McDonald's,
rather than actually
looking at that menu afresh,
and so forth.
The habit of getting the
Big Mac or whatever it is.
So I do think there are
enormous implications for it
and I would think that that's coming in.
And then you have people who,
people like Sunstein and Thaler
who are trying to structure
choices in some sorts of ways
and maybe that's, maybe that makes sense.
And I can imagine there are libertarians
who might take a look at all this,
maybe in economics
departments who just say,
we're not buying any of this and whatever.
It just doesn't, for a variety of reasons.
One of the examples that
has come up repeatedly
is the fireworks displays.
And I'm getting the impression
that it's all Macy's money
and I wouldn't be surprised
actually if that were the case,
but I think it's an
interesting empirical study.
Think about next time
you look at fireworks,
who's paying for it, and
I think it often comes out
of the taxpayers' pocket.
I know it does in my city,
small city and my guess
is it happened that
that's the case in lots
of these situations, more
expensive fireworks displays
in New York City as well.
The final--
- [Woman] It's my specialty.
So since it's the last
word, I think it's important
that it be about time.
And so when you talk about
fireworks, that's pretty much
immediate bang for the buck.
And when you talk about
something like the structure
of a city like Manhattan,
the payoff for that
you see a century into the future.
And so I was thinking of
this as you were talking,
and there's a lot of, you
speak of behavioral economics.
A number of studies suggest
that people individually,
excessively discount future
consumption or cost in a way
that is illogical, unless
you price in the risk
that you yourself might die.
And so then therefore, what
is the point of putting
a lot of effort into
this, into the future?
And so my question would be, do you think
that private or public
systems are better at solving
long term problems?
The instant question would
be probably government
but in democracy, every
four years you get turnover.
Presumably, you seem
like a spry young crowd.
Hopefully all of us have a life expectancy
past the next election.
Is there any systemic reason
to believe the government
is better at solving long term
problems than private actors?
- My guess is there's a literature
on this, there should be.
I mean it's a wonderful question.
And I think behavioral economics
suggests that individuals
and probably the private sector will not,
be all that good at
discounting and whatever.
And I think there's lots of good reasons
to think the public sector
is gonna be pretty bad at it as well.
That people in office might
only consider the initial term.
A wonderful thing for
us is that politicians
actually care about their
place in history and so forth,
if they're conspicuous,
I'm not sure if people who
are not conspicuous care
much about their place of history
because they recognize their
place in history is zero.
But Dewitt Clinton may
have cared about this
and New York City may
have benefited from it.
So thank you, set up some good questions.
I do that's where
libertarian intellectuals
should spend their energy
on those kinds of issues,
rather than this, will of the wisp
of anarcho-capitalism which
I regard as a total dead end.
So thank you.
(audience applauding)
- Look, what we learn
from all of this is that,
essentially the study of society
is the study of rival imperfections
between alternative systems,
both of which disappoint acutely.
And so the question is just
how do you slow down the race
to the bottom under all
of these circumstances?
And Robert has given us some
instinct as to how it's done.
Some of his points I agree with,
others have been sources of
disagreement for 40 odd years,
and will God willing continue to be such
for another 40 odd years between us.
But there is I think some
reception food over here.
(mumbles) opened up to the world at large
and so why don't we give them
another round of applause
and then,
(audience applauding)
go over to the food.
