Limitations of the Economic Way of Thinking?

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I've made two updates to my post below about charging the wrongly convicted for room and board. In these updates I've responded to challenging comments made by Greg Goelzhauser and Will Baude.

In this post I'd like to reiterate, with an example, my main point on this subject, which seems to be getting lost in the cacophony of interesting side-notes.

My main point is this: when determining compensation for damages, we cannot rely on simple moral principles, libertarian or otherwise, to do the job for us. Instead, we must use some form of economic analysis, and economic analysis, in general if not always, does not lead one to outrage without first performing the analysis itself.

Here is an example of what I am talking about: Perry de Havilland, who I greatly admire, wrote this followup to his original thoughts on the issue:

Yesterday I marvelled at the notion that David Blunkett had the gall to suggest that victims of miscarriages of justice should be charged for 'room and board'. That this has not featured on the front page of every newspaper in Britain is also shocking to me. ... If justice is administered 'in the name of the people' then surely amongst the endless litany of grotesque uses of the public purse that consume billions and billions of pounds, this would be a rare legitimate public charge that few would dispute.

However what is even more baffling to me that the Tory Party is not queuing up in the Commons to denounce Blunkett in the most extreme language allowed in Parliament. Why are they not trying to use this latest affront to common decency and natural justice and using it to paint the Labour Party as the party which tramples over civil liberties? They should be relentlessly calling for Blunkett's head over this and what do I hear? The sound of silence. ...

Regardless of whether or not the government manages to get this measure accepted or not, the mere fact Blunkett can even suggest such a thing without sparking clamourous calls for his removal from office is both a damning indictment of the moral and political vacuity of Britain's political parties and a chilling measure of state of Britain's culture. I sincerely hope to be proved wrong and see a ground swell of anger emerging in the press and polity in the next few days but I am not holding my breath. ...

One cannot even suggest deducting room and board from overall compensation? Few would dispute the obvious injustice of this suggestion? One should be denounced in the most extreme language allowed in Parliament even for suggesting such an outrage?

This is extremism. And while extremism in the defense of liberty is no vice, this is in no way a libertarian issue. It is an economic issue, and one that needs to be carefully thought through, not merely dismissed upon first glance.

This whole issue reminds me alot of the late, great brainchild of Robin Hanson: a terrorism futures market.

As I remarked a few months ago,

[I]t may be interesting to note how these kinds of economic arguments play out in the real world - a world where the majority of people are not familiar with the economic concepts such as efficiency and marginalism. In addition to Posner's baby flap, I can think of at least two other cases where well-established, non-controversial economic concepts were taken out of context and displayed to the public in a way that infuriated many people. Most recently, Robin Hanson's "terrorism futures market," as adopted by Darpa, was scrapped after economically illiterate politicians labeled it "ridiculous," "grotesque," "stupid," and "very sick."

A few years earlier, Lawrence Summers - then Chief Economist for the World Bank, now President of Harvard - wrote an internal memo that was later leaked and used to embarrass both Summers and the World Bank in general. The memo, available here, outlined a number of reasons why we would want to transfer pollution from developed countries to less developed countries. Although to many people unfamiliar with marginalism, this memo may seem "totally insane," I suspect the same is true with regard to other fields like sociology or philosophy, whose conclusions are nonobvious, counterintuitive, and often politically incorrect, but noncontroversial within the field itself.

Add another issue to long list of subjects economists cannot even speak of without fear of outraging the general public. I find this discouraging.

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Micha, I disagree that this

Micha,

I disagree that this has anything to do with 'economic thinking', rather it is just bad accounting.

If a city snowplow totals your legally parked car on the street and the wreck is towed to a city lot, should you be charged for storage no matter how much compensation you receive?

The cost of the wreck storage and the cost of improper incarceration are directly the fault and responsibility of the state. If not for its negligence, the costs would not exist and no justification whatever exists for attempting to pass them on.

Regards, Don

The only analogy that makes

The only analogy that makes sense to me is this:

Charging the wrongly convicted for room & board is the same as charging a rape victim for the use of a prostitute.

Don, In the case that you

Don,

In the case that you suggest, let's say the car is towed to a city lot and sits there for 3 months. Let's also say that if the car had not been towed, you would have left your car at an airport parking lot for 3 months and paid for 3 months worth of parking.

Insofar as the city is relieving you of the cost of paying for parking, that is a benefit to you, and should be deducted from any total compensation you receive. In other words, the compensation should make the wrongfully accussed indifferent between the money received and the lost freedom of prison time. Since one of the benefits of prison time is that you no longer need to pay for room and board, this should be deducted from the costs of lost freedom.

Billy, If he would not be

Billy,

If he would not be saving any money on rent or mortgage, then you are correct: the benefit of free rent should not be deducted from his overall compensation.

And, yes, a kidnapper should be able to charge his victims for room & board, in the sense that the benefit to the victim of not having to pay for these things should be deducted from the overall compensation required of the kidnapper.

Micha, That's assuming they

Micha,

That's assuming they still didn't have a house to keep up. What if a husband is wrongfully convicted of a crime. His wife and kids still live in the house, and now they are deprived of his income. Specifically, they are deprived of his income by the institution that wrongfully convicted him (and now wants to charge him room and board).

Seriously, can any kidnapper charge their victims for room & board? If a private criminal can't, then why should a public official?

Micha, By your reasoning, if

Micha,

By your reasoning, if a farmer comes along and dumps a load of manure in your front yard, you would be willing to pay the bill for fertilizer that he sends in response to your complaint.

The free market is dependent on the mutual benefits that result from VOLUNTARY exchange.

No matter how valuable a gift you give me, it IS a GIFT.

Regards, Don

Don, That does not follow

Don,

That does not follow from my reasoning. There are no damages that need to be calculated in the case you describe. And you are quite right: people should not be forced to pay for involuntary gifts.

However, in the case of the wrongfully convicted prisoner, we must somehow calculate the damages done to him, and this compensation should make him whole again. Thus, the compensation would be such that he would be indifferent between the money received and lost freedom. Since lost freedom benefits him because he no longer has to pay for room and board, this should be deducted from the overall costs of imprisonment.

Micha, The incarceration

Micha,

The incarceration expense was spent for the benefit of the state, at the choice of the state, not the prisoner. If he had offered to behave under some form of home arrest, would the state have agreed?

Should the prisoner be charged for the benefit of not being executed? Did the state fear that his estate wouldn't be good for the electricity bill?

Regards, Don

Lost freedom does not

Lost freedom does not benefit him if he desires other accomodations. He is effectively being denied the ability to lead his life. He is not saving room and board; it is part of the cost.

I don't believe this has

I don't believe this has anything to do with the argument "well, you would've spent money on rent anyway, so we can charge you." A free market is based on *voluntary* exchange. When, at any point, was his incarceration voluntary? I can't believe that an Austrian site would actually have people *defending* the right of the state to charge for accomodations when they are taking away your freedom to make any choices.

Yes, this is a moral issue. The state is doing you no favors by incarcerating you.

I can?t believe that an

I can?t believe that an Austrian site would actually have people defending the right of the state to charge for accomodations when they are taking away your freedom to make any choices.

Micha is not an Austrian, and there are many non-Austrian contributors on this blog. I welcome their contributions and learn from their points of view.

When, at any point, was

When, at any point, was his incarceration voluntary?

Note that the economic argument does not involve charging him for the entire cost of the incarceration. We are not charging him for, say, the cost of the barbed wire fence, or the guards to watch over him. Those are not a benefit, from his point of view.

What we are charging him for are THE THINGS HE WOULD HAVE DONE ANYWAY. Namely, it is exceedingly likely that he would have voluntarily chosen to eat his full complement of calories every day so as to not starve to death. And he would have voluntarily chosen to sleep with a roof over his head, with climate control.

Unless this is the rare individual who would somehow not have paid for room and board during this period, we've provided something for him that he wanted. Therefore its a benefit, therefore it should be on the ledger.

Charging him for the cops who dragged him away, or the judge who sentenced him after he was wrongly convicted, that is wrong because those are not things he would have voluntarily chosen, or consider benefits.

Additionally, note that the prisoner is receiving substantial net compensation. Its easy to get riled up about this when you think that he's only getting a bill and not a check. The economic argument here is "Instead of giving them $150,000 a year for lost wages and lost freedom, lets just give them $140,000 a year because they did get room and board".

If you don't accept that the way to redress the wrong is to "make the victim whole", fine. Then don't give him any money. But how do you make it up to him? If you do accept that we should be trying to "make the victim whole", then you accept that we should be calculating the economic cost to the victim of his incarceration. And once you get there, you must agree with Micha, because the room & board are relevant to that calculation.

Patri, "...If you do accept

Patri,

"...If you do accept that we should be trying to ?make the victim whole?, then you accept that we should be calculating the economic cost to the victim of his incarceration. And once you get there, you must agree with Micha, because the room & board are relevant to that calculation...."

This criterion simply doesn't work. It would imply greatly disparate treatment for the homeless immigrant just off the boat and reimbursing Martha Stewart for her stock losses.

Even more important than the money is the necessity that the prosecutor involved be held accountable and can never even think for running again for elective office.

Regards, Don

There's no reason why the

There's no reason why the state shouldn't have to pay more than the actual damage done. This would act as a fine on the state, and hopefuly make the state try harder to get it right the first time.

Micha, I believe, if i'm not

Micha, I believe, if i'm not mistaken, that the talmud agrees with you. In a case where a person was living in another man's house without permission, and the he makes some repairs, the talmud says that you can deduct the amount of the repairs from the price of the rent that he has to pay.

But like I said above, in this case, we should make the state pay more than the actual damge

while extremism in the

while extremism in the defense of liberty is no vice

Personally, I disagree with this. Not only are extremists less likely to come to the rational conclusion (in my experience), but they turn off non-libertarians, making the philosophy seem nutty instead of sensible.

This criterion simply

This criterion simply doesn?t work. It would imply greatly disparate treatment for the homeless immigrant just off the boat and reimbursing Martha Stewart for her stock losses.

Indeed it does, this is a trivial consequence of the economic way of thinkiing. If this seems strange to you, then no wonder the rest of what Micha and I are saying does too!

If you imprison a bum and you imprison a CEO, you have done them different amounts of damage (measured in money). The CEO could have earned millions a year. The bum would only have earned a couple thousand a year from panhandling. So of course it takes different amounts of dollars to "make them whole".

The difference is not as pronounced as this, because we don't just use wages. We also use the value of their freedom, which should vary much less (although also some). For example, if we jail a person who is bedridden for medical reasons, haven't we cost them less than if we jail a healthy person? Again it takes different compensation to make them whole.

You are welcome to disagree with the economic way of thinking, and "making someone whole" in an economic sense. Just understand that it is the entire approach you disagree with, and not the specifics (about which Micha is quite correct).

I agree that there should be some liability for prosecutors. Although note that if you have too much liability, you may not have any prosecutors. (or may have to pay them a very high salary), Actually I expect the prosecutors would buy Misconviction Insurance...which is not a bad thing, since the insurance company has incentive to evaluate and monitor the prosecutor.

Mongoose: There?s no reason

Mongoose: There?s no reason why the state shouldn?t have to pay more than the actual damage done. This would act as a fine on the state, and hopefuly make the state try harder to get it right the first time.

Agreed. For example, if we only figure out that a conviction was wrong half the time, then we need to charge the state double the cost to create the economically efficient incentive.

However, even if we do something like this, we should at least be starting with an accurate measure of cost before multiplying. Its hard enough to be economically efficient, ignoring relevant factors makes it even harder :).

First, sorry for the

First, sorry for the misunderstanding regarding the posters on this site. Also, I certainly wouldn't want to stifle debate.

However, while I think I at least understand the argument, I still disagree with it in every way. While my objections are largely to the morality of the situation, there is an economic consideration that I don't think has been mentioned. The victim, as well as the rest of us, already pay for the "system" through taxation. This is the collective (errr..) agreement that we more or less make as being a part of nation. The costs of the victim's food and board are already considered as part of this taxation. Essentially, the state is double charging for the same costs by charging this individual for room and board.

Regards,
Hans

Patri, "Not only are

Patri,

"Not only are extremists less likely to come to the rational conclusion (in my experience), but they turn off non-libertarians, making the philosophy seem nutty instead of sensible."

You think you're not an extremist?

This is quite horrifying,

This is quite horrifying, Micha.

Before I checked in on these discussions, I would never have figured you for someone who goes about arbitrarily asserting others' "benefits".

Good god.

Yes, anyone who suggests

Yes, anyone who suggests charging presumably innocent parties for services rendered under coercion ought to be ridiculed and denounced.

This is such a blatant violation of common sense and justice, as observed by free men, women, and nations, that any encroachment by such "leaders" ought to be exposed for what it is.

Beyond monetary considerations, and economic value, what is priceless is one's freedom and free rein in home and amongst family.

If anything, the state should be making restitution to individuals imprisoned wrongfully - not the other way around.

Any other ideas on the matter reflect a dangerous shift in determining value to purely economic, financial, and administrative considerations that have precious little to do with our great tradition of liberty.

It?s unclear to me how a

It?s unclear to me how a free citizen can be charged for a service delivered to him through coercion.

Such a reality violates first principles of free market theory.

The reality also violates common sense political codes cherished in lands characterized by free men and women (politics).

If the government imprisons me for a crime it cannot prove, or that later is shown to have been falsely proven, how can it possibly charge me for its discretion and investment in that misguided effort? Will there be another hearing to examine the preponderance of evidence for doing so, as in a civil hearing or parole violation, or is the very fact of arrest (since assumedly on some basis of proof) enough?

Indeed, the only time one gets charged for the reasons of another?s coercive activity is when one is required, as a guilty party of a crime and found such in a court of law by one?s peers, to make restitution to the state (and perhaps the victim). This follows from the legal basis of being "guilty", not for purely administrative reasons that have nothing to do with guilt.

Further, the whole precedent of charging someone for prison time is ludicrous. Will this then be extended to all prisoners behind bars? How will this affect reimmersion into society after release, since, as hard as it is to find a job, you?re paying back rent, board, and utilities due?

It?s very clear to me that authorities ought to establish the precedent of charging guilty parties for services rendered, through coercion, before intending to charge wrongly detained and presumably innocent parties for services rendered, through coercion.