Mario’s comment on the Richard Epstein quotation I posted yesterday struck me as marvelously interesting–so much so that I passed the exchange along to Richard, who is teaching this term at NYU. Below, Richard’s reply.
Peter Robinson sent me a copy of his kind post about the excerpt from FREE MARKETS UNDER SIEGE, which captures my view of the difficulties inherent in the modern social democratic state that rejects the dangers of takeovers of the economy, but still wishes to encroach ever further on the domain of private choice. I have not changed my views since I wrote that passage three years ago, so my brief purpose here is to comment on the post of Mario Loyola which ranges across a number of important topics.
First, with respect to the tobacco cases, I did indeed have much to
do with the first round of defense of these cases, when individual law
suits were the main source of attack from the mid-1980s until the early
1990s. But I never testified before Congress, or appeared in any public
event. My own position on those cases is that tobacco contains no deep
mysteries, and its dangerous properties have been well known for many
years, so that no individual should be able to claim that he was taken
unawares of the harm it could do. The increased risk of cancer is one
that is assumed by smoking cigarettes, and all the modern theories that
undermine that conception should be regarded as a giant mistake that
have led to the various master settlements which have nothing to commend
them, and massive litigation on collateral matters that are a huge waste
of social resources.
On his larger point about the regulation of monopoly, it is
important to note that the simple account of John D. Rockefeller misses
much of what went on. His Standard Oil Monopoly was losing share before
the Company broke up, and the pieces continued to lose share afterwards,
at about the same rate. The decision was at best a neutral factor. The
analysis of the case should not be influenced by mom and pop type
images. Any effort to protect them from competition introduces a form
of deep social rigidity that blocks innovation that lowers the price and
increases the quality of goods for lots of small moms and pops who are
overlooked in the populist account of the antitrust laws. It is logic
of this sort that leads to the attacks on Wal-Marts for supplying goods
at low cost in convenient settings.
The fear of concentrated losses from competition is overstated as
well. The key feature of competition is free exit and entry into
markets. Once it is clear that the technology has shifted, we want
people to exit early into new lines of work, some of which are created
by the very technology that has displaced them. Efforts to hold back
the tide of innovation lead to legislative initiatives whose major
effect is to encourage some people to stay on in a business after it has
passed its time. Their resistance creates short term losses for
everyone else, only to prove hopeless in the long run, as they are swept
away, with even greater dislocation by the cumulative forces at work.
So it is dangerous to favor legislation that converts a continuous
process of job migration into a discontinuous one that proves more
painful for all. Never think of markets as though innovation only
destroys. A successful innovation creates more innovation than it
eliminates, and sympathy for the loser only aggravates their plight, and
that of third persons.