Monday, November 28, 2022

Andrew Koppelman’s Half-Way Hayekianism

Guest Blogger

For the Balkinization Symposium on Andrew Koppelman, Burning Down the House: How Libertarian Philosophy Was Corrupted by Delusion and Greed  (St. Martin’s Press, 2022).

Jonathan H. Adler 

Andrew Koppelman’s Burning Down the House is a simultaneously engaging and frustrating book. It offers a refreshing center-left appreciation F.A. Hayek and provides insightful critiques of more rigid and radical libertarian thinkers. Yet it also strangely resists serious consideration of the broader application of Hayekian insights and is too quick to assume a conscientious Hayekian would be part of the today’s center-left coalition.

Part of what is so refreshing about Koppelman’s book is that his appreciation of Hayekian insights is so rare in center-left discourse. He understands that liberals should be more  concerned with poverty than inequality. Market-driven increases in standards of living around the world have been a boon for humanity, increasing lifespans and reducing human suffering. Moreover, there can be no meaningful wealth redistribution if there is not sufficient wealth to redistribute. Koppelman  also appreciates that the benefits of markets are not purely economic.  “In a diverse society, markets facilitate peaceful cooperation among people who radically disagree about fundamental values,” he observes. (175) As a consequence, the market “stimulates not only competition but empathy.” (176)

Having shown an appreciation for many of Hayek’s core insights, Koppelman is most effective explaining why Hayek’s whiggish liberalism is a better policy guide than the rigid anti-statism of some other libertarian thinkers, Murray Rothbard in particular. Whereas Hayek counseled skepticism of state intervention, he was under no illusion that private ordering is inherently superior to governmental action across-the board. Rothbard, on the other hand, often confused constraints on government with the protections of individual liberty. In the case of pollution, for instance, Rothbard vacillated between prescriptions that were too severe (one unwanted molecule crossing a property line constitutes trespass) to those that were too lax (no pollution is punishable unless the harms to health are proved beyond a reasonable doubt). Neither is a recipe for maximizing liberty.

Although Koppelman clearly prefers Hayek to the likes of Rothbard, he does not offer Hayek unqualified praise. Some of his criticisms are more persuasive than others however. He charges that Hayek has an “excessively crude understanding” of private property (18). Apparently Hayek’s understanding is too “limited” because he lacks a full understanding of all they ways the state may recognize or structure such rights. (18)  It seems to me that it is Koppelman who is missing the point, for the contours of private property are not infinitely malleable if it is to facilitate a Hayekian market order and safeguard liberty.

Just as a central planner lacks sufficient information to direct a modern economy, property rights cannot be simply “designed” from the ground up to generate particular distributional consequences. Transferable property rights are the foundation of private markets, and thus are essential to the Hayekian order Koppelman rightly celebrates for generating wealth and prosperity. It is one thing to levy taxes to provide for public goods. It is quite another to treat property rights as mere “conventions” that can be “designed with their likely distributional consequences in mind.” (98) Property rights without a solid core are much like the markets without prices against which Hayek inveighed. Indeed, the market discovery process Hayek described is dependent upon a system of secure and transferable property rights. It is for these reasons that Hayek wrote:

The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves. If all the means of production were vested in a single hand, whether it be nominally that of “society” as a whole or that of a dictator, whoever exercises this control has complete power over us.

Koppelman wants to argue that “the standard justification for most of the regulation we have now is Hayekian” (46) He identifies the pervasiveness of “externalities” to support this claim, but then turns around to acknowledge that “This argument will not, however, necessarily justify the regulations that actually exist.” (49) He admits that “in any specific area of policy, imperfect markets need to be compared with imperfect government.” (49) This is because “whatever the defects of an unregulated market, the effects of regulation are sometimes worse.” (50) Precisely so, but then Koppelman cannot resist making broad pronouncements about the terrible consequences of limiting regulatory authority and magisterial benefits of expansive regulation.

Requiring compensation for property owners would eviscerate environmental protection, he claims, without considering the empirical evidence and practical arguments why commandeering private property for conservation purposes actually undermines conservation (and has led to the premature destruction of species habitat, among other things). Koppelman is correct that the devil is in the details, and empirical evidence matters. He is too quick to assume that such analyses support current and proposed regulatory schemes that many libertarians oppose.

Sometimes the answer to imperfect markets is not regulation, but the enhancement or repair of market institutions. Put another way, sometimes when markets fail, the answer is to fix them (or, in some cases, to allow them to operate) rather than to constrain or control them. Fishery conservation provides the perfect example, where sustainability has been enhanced not by regulatory interventions but by the creative extension of property rights in marine resources. He recognizes Hayek’s insight that “price mechanisms transmit more information than any central planner can possibly know” (14) but fails to consider the implications of this insight for regulatory policies he is inclined to defend.

That regulatory proposals may survive a benefit-cost analysis hardly makes them Hayekian, particularly when such analyses often rely upon the same pretense of knowledge as other forms of economic planning. As the Congressional Budget Office found when it looked back at agency assessments of their own rules, both costs and benefits of federal regulations tended to be overestimated (and benefits more so than costs), indicating the difficulty of anticipating how market actors will respond to regulatory constraints. It is one thing to observe that thorough examinations of likely costs and benefits can help inform regulatory decision-making. It is quite another to suggest that a prospective estimate of likely costs and benefits is sufficient to judge whether a given regulatory intervention is appropriate.

Koppelman notes the that the federal Clean Air Act appears to have been the source of particularly cost-effective regulatory interventions, but in this it is more the exception than the rule. Retrospective analyses of federal water pollution regulations have not reached the same conclusion, even if somewhat due to the difficulty of quantifying regulations’ effects. Further, many of the Clean Air act’s benefits were unanticipated, as the extent to which particular pollution controls would protect human health was underappreciated and the extent to which producers could adopt alternative compliance mechanisms, such as switching to low-sulfur coal instead of installing costly pollution controls or purchasing emission credits.  In short, a truly Hayekian perspective would require far more humility about regulatory interventions than Koppelman evinces.

Koppelman is particularly concerned about the political rights’ implacable opposition to meaningful climate policies, and rightly so. Even libertarians should take climate change seriously (particularly those who claim to support property rights).  It is also quite possible that Hayek would have agreed, but this does not mean there was anything remotely Hayekian about the failed Waxman-Markey climate bill. Koppelman suggests it was a simple “cap-and-trade bill” that would merely have “imposed a price on carbon emissions.” (219).  If only. In reality, the climate change legislation backed by Obama that passed the House was a regulatory monstrosity larded up with special-interest giveaways. It would not have priced carbon so much as created a massive regulatory super-structure. (Indeed, the cap-and-trade portion of the bill much resembled the variants of “market socialism” against which Hayek argued vociferously.) Had the aim merely been to price carbon, Obama would have backed a much simpler and straight-forward approach, focused on actual pricing and eschewing regulation. There is no guarantee such a bill would have passed, but it certainly would have been more Hayekian.

“Sometimes, when the state fails to intervene when it should, someone gets rich.,” Koppelman observes. “Libertarian hyperbole is often abused in the service of mooching and looting.” (55) True enough. Yet it is also true that sometimes when the state intervenes when it shouldn’t, someone gets rich too. Public-spirited rhetoric often masks special interest giveaways. Koppelman seems to recognize this, as he notes that “much of the new inequality . . . is not the effect of competitive markets but of crony capitalism in which large corporations and banks have used ther power to skew the rules.” (19) Yet he nonetheless resists considering the extent to which crony capitalism infects regulatory policy.

As much as Koppelman protests against the insights of public choice theory, federal regulatory policy—and environmental policy in particular—is littered with examples of regulatory interventions that were as much about favoring or benefitting particular interest groups as they were safeguarding environmental resources or protecting public health. It is also often the case that public spirited policies are crafted and manipulated to maximize the benefit to private interests, such as when regulatory standards are set so as to maximize the benefit to particular firms or industries. Grand-fathering existing facilities under pollution control laws may make some economic sense, but it also minimizes the political opposition, while often having the effect of ensuring the dirtiest and least-efficient facilities stick around for a much longer time.

An added frustration of Burning Down the House comes from Koppelman’s own internal inconsistencies, as he repeatedly makes claims that are contradicted or withdrawn elsewhere in the book (as with his claim about the justifications for current regulations noted above). He claims that “there’s not that much daylight between Hayek and Obama.” (192)  Yet a few pages later acknowledges that Obama’s response to economic downturn “was firmly Keynesian” and rejected the Hayekian prescription. (202) That is more than a little daylight.

Koppelman wishes us to believe that “the logic of Hayek’s philosophy” should lead to “more energetic regulation and redistribution.’ (64) Yet as he later acknowledges, such a claim can not be maintained without “burrowing deep into the specifics” of each policy question. (70) Broad generalizations will not suffice, and yet they are found throughout the book’s discussion of regulation.

            A final frustration worth noting is Koppelman’s insistence on claiming Hayek for the modern center-left. It is entirely to note that much of the Republican Party has turned away from Hayekian policies, and Koppelman’s claim that aspects of the GOP’s policy (non)agenda are Rothbardian, but it strains credulity to suggest that  “the ideas of Hayek . . . are today commonplace in the Democratic Party.” (13) Hayek famously explained why he was not a conservative, but that hardly means he would have felt at home in the party of Gavin Newsom, Lina Khan, Sherrod Brown, and Elizabeth Warren.

            Whatever disagreements I may have with Koppelman—and the above indicates I have more than a few—it is worth reiterating the positive aspects of his book. His engagement with the classical-liberal tradition, and Hayek in particular, is welcome from a left-leaning intellectual of his caliber. Burning Down the House may not have all the answers, but it is asking some of the right questions, and it usefully poses challenges to which those who purport to love liberty should respond. 

Jonathan H. Adler is the inaugural Johan Verheij Memorial Professor of Law and founding Director of the Coleman P. Burke Center for Environmental Law at the Case Western Reserve University School of Law. His books include Business and the Roberts Court and the forthcoming Climate Liberalism: Perspectives on Liberty, Property and Pollution.

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