Taking the Environment to Court: How Rothbard Resolved Pollution Problems — Tim Terrell

[00:00:00] Speaker 1: I want to thank Brian and Shauna Sventrup for, who are members of the Minger Society, who are sponsoring my talk today. It's always great to be here. This may be my second favorite event of the year, only because Mises U, where I get this for a full week, is number one. And many of you have supported that event, and I'm grateful for that. I'm working on a book that is applying the principles of Austrian economics to environmental issues. And at the foundation of what I'm doing is a 1982 article by Murray Rothbard titled, Law, Property Rights, and Air Pollution. And Rothbard argues in that article that we cannot have a value-free law. It has a normative foundation. He says that nothing should be illegal unless it invades the property of another person. And he goes on in that article to discuss those invasions, and he makes the case that environmental problems are or should be considered invasions or torts. And this invasion can be a trespass or it can be a nuisance. But Rothbard is thinking of environmental problems as having this kind of resolution in court law. He says there must be a, quote, strict causal connection between an aggressor and a victim, and this must be provable beyond a reasonable doubt. It's important to recognize that an environmental problem is really a dispute over rights. Who has the rights to the air or the water or the land. And we get distracted sometimes in thinking about environmental problems as thinking about them as the concentration of some chemical in the air or the water. And we think of that as being the core problem, and it's not. I want to use the air for one thing. You want to use the air for something else. I want to use the water for one thing. You want to use it for something else. And our different uses will clash. That is a dispute over property. So we need to stop thinking about environmental problems as being a matter of simply changing physical characteristics of the surroundings. And think of them instead as being conflicts between people who want to use a part of the world for different things. In his 1982 essay, Rothbard applied the principle of homesteading. Where a person who first uses a resource, a natural resource, acquires ownership of it. And sometimes we think about that as being exclusively about land. We think about maybe the Homestead Act or something. We think about people claiming land by dwelling on it, farming it, using it for some purpose. That kind of Lockean concept. But as Rothbard points out in his essay, this can be about all kinds of things. A certain amount of ambient noise can be something that you homestead. A certain air quality can be something that you homestead. And so someone who violates my property right over land or air or even something like ambient noise can be taken to court. But Rothbard says that statements like everyone has a right to clean air are senseless because, well, for one thing, air pollution comes from a variety of sources, not just human generated. But he says, quote, one does have a right not to have his air invaded by pollutants generated by an aggressor. And so the courts are Rothbard's solution. Not regulation, not emissions taxes, not emissions permit schemes, courts. Thirty-five years ago this month, Ronald Kos won the Swedish Central Bank's Nobel Prize in economics. And he's best known for a resurgence of interest in courts as a way to resolve disputes over side effects of our production and consumption. And what economists will typically call externalities and the coast theorem, very well known among economists, says that if transaction costs are zero and courts define and enforce property rights, And then we will arrive at an efficient outcome. And transaction costs, by the way, are the costs of searching out, negotiating, carrying out an exchange. So then courts would decide a case, the two parties who are now sure who has the property rights would then negotiate to rearrange those property rights and would produce an efficient outcome. So compared to command and control regulation or emissions taxes or those kinds of government interventions, this looks like an endorsement of property rights. And we would say, "Well, this sounds pretty good. We like this." And then, Kos has some harsh things to say about government intervention to solve externality problems. He said, "There can be no presumption that externalities require government intervention. Just because they exist doesn't mean you have to have government solutions." He said, "The ubiquitous nature of externalities suggests to me that there is a prima facie case against intervention and the studies on the effects of regulation which have been made in recent years in the United States, which indicate that regulation has commonly made matters worse lend support to this view." Okay, so he doesn't really like a lot of regulation. This also sounds pretty good to us, and we could think, "Okay, well, why is it that Rothbard had this problem with what Coase said?" In fact, there are some very deep problems with the Coase theorem. For one thing, transaction costs aren't zero, and Coase knew this, and he said this, but I don't think he appreciated the full range of the problems that that implies. What it implies is that a judge who's trying to accomplish Coase's objective of efficiency is in an impossible position. In the real world where negotiation after the conclusion of a case is costly, it's not zero transaction costs, that decision of the court will stick. The property rights may not be reshuffled by these parties after the case, and so that means whatever the court decided is maybe permanent. But there are some other problems. First, judges don't know actual costs. Austrian economics emphasizes that costs are subjective. They're not available by looking at market prices. So the judge can't know what's efficient. And what's efficient is changing all the time. So there's no fixed, efficient outcome that is not going to be changed by time and innovation and changing human preferences. All these things are going to make it impossible for a judge to make an efficient decision. And Mises demonstrated with his explanation of the socialist calculation problem that governments cannot calculate what is efficient. And that's true in the courtroom as much as in a regulatory agency. There is another problem. And it is one that Murray Rothbard pointed out in law property rights and air pollution. And that is why should efficiency drive ethics? The Kosian judge tasked with this maximization of efficiency would regard it as being unimportant. Who actually has the property rights according to some ethical framework? The question is what allocation of property would be the most efficient? So if we're going to borrow an example from Kos, let's say we have a steam locomotive that is traveling along a railroad track and it's emitting sparks and those sparks burn down some valuable crops alongside the tracks. Then Kos says that who's liable should depend on the total social product if the liability is assigned to the railroad versus the total social product if the costs are imposed on the other party. So we might well ask, how does the judge find total social product? What does that even mean total social? How would you add that up? And the judge doesn't ask, the Kosian judge doesn't ask if he's interested in efficiency, you know, who was there first? And the Kosian view is that this isn't really important for efficiency. As Donald Whitman explained it, quote, one must consider who should have been first instead of who was first. Should? Well, this makes an ethical standard out of an impossible calculation of efficiency. The courts can't know who should have been first. What they can know is who was first. Now Rothbard wrote, quote, "Even if the concept of social efficiency were meaningful, they don't answer the questions of why efficiency should be the overriding consideration in establishing legal principles. We're now out of Wertfreiheit or value neutrality and we're back to unexamined ethical questions." So property rights are a matter of justice. You and I have property rights not because some judge granted them to us or decided that it was efficient that we should have them. We have property rights because of the ethical foundation of those rights in the nature of our existence and our work. It's justice and not efficiency. So this leads us to the problem of, or principle of, strict liability. So strict liability means that if a person commits an action and it results in a harm, that person is liable. It means we're not getting into questions of whether that person used reasonable care. We're not trying to get into questions of whether they meant to do what they did, intentions. What we're after is not some weighing of benefits and costs. It means the principle of strict liability means that rights are well and truly protected. It means they can't be removed simply because someone decided that the person who was first shouldn't have been first. And this was once a respected principle. You can take a couple of old court cases. One Carmichael versus the city of Texarkana where a municipal sewage system was emptying into the cesspool at the edge of a person's farm. And that was polluting a creek that ran across the farm. And so the farmer took the city to court. And the court, properly in my view, said that the city had to stop. And it said, quote, "the court cannot take into consideration the circumstance that a vast population will suffer by reason of its interference." So the court was basically saying we're not getting into these questions of whether the cost of the city is greater than the cost of the farmer. That's not it. It's strict liability. Who has the rights? Who does not have the rights? Another case, a 1919 case, Anderson versus American smelting and refining, involved a Utah farmer who was complaining because sulfur dioxide and arsenic emissions were affecting his crops. They were originating from two nearby smelters, harming his cattle, damaging his farm. About 60 other farmers joined in on this lawsuit. And the court ruled in favor of the plaintiff, the farmers. The defense had said, the smelters had said, "Well, we have no technical solution to this. It's just going to be happening. This person's crops are just going to have to continue to be damaged." And after all, we're a large and important industrial enterprise. And so the court should take that into consideration. And what's that compared with a few farmers? But the court said, quote, "no industry, however important, can justly claim the right to live or operate, which creates a nuisance in operation or trespasses upon the property or the inherent personal rights of others." Roy Cordato wrote that strict liability is efficient. Not in the Kosian sense of weighing social costs and weighing social benefits or anything like that, but it's efficient in that it promotes the ability of people to seek their own individual goals. That's what strict liability does for us. "Holding defendants prima facie strictly liable," Cordato says, "for damages would also provide an incentive to internalize harmful effects. This would reduce the extent to which conflicts in the use of property ever arise, further reducing the level of uncertainty in the formulation of plans." And this tended to be the principle that became embedded in the common law. In Wisconsin, well before the Clean Water Act, there were operations along rivers in Wisconsin. I think they involved some timber operations, maybe some electric utilities. And these would discharge an effluent into the river, which would, of course, go downstream and potentially affect the use of the river by people who were downstream of these operations. And so, these firms, basically under common law principles, recognized we're going to be strictly liable for the damage that we're doing downstream. So, before we start, we'd better get the rights from those downstream landowners. So, effectively what they did is they went downstream to all the people who had shoreline along the river and they bought the rights to the shoreline so that when they did discharge the effluent, they were not adversely affecting a downstream landowner. So, that's an action they took in advance to try to prevent those kinds of liabilities. And that's, of course, one way to do that. Now, if the downstream shoreline were too valuable for them to be able to buy it all up, then that would be a signal to the firm that maybe that was not the best place for their operation. Now, we may think of common law as being just another type of government intervention. And judges today are typically selected by political appointment or by voting. But the roots of the common law are in private, voluntary institutions. Murray Rothbard said that the fairs of champagne and the great marts of international trade in the Middle Ages enjoyed freely competitive courts and people could patronize those that they deemed most accurate and efficient. Bruce Benson has written about the medieval law merchant which governed without the coercive power of the state. It was voluntarily produced, voluntarily adjudicated, and voluntarily enforced. Indeed, he said it had to be. The law merchant's legitimacy rested on a complex network of reciprocal and voluntary relationships supported by reputations. Merchants formed their own courts in each urban center, market, and trade fair to adjudicate disputes in accordance with their own evolving laws. And this competition among courts that gave us over many, many years, what we think of as the common law, that goes back even to Roman times. Bruno Leone has shown that ancient Roman law was based more on a decentralized private law than on a comprehensive legislated statutory law. Again, from Rothbard, he said the role of freely competitive judiciaries has in fact been far more important in the history of the West than is often recognized. So, the common law is today the result of a decentralized entrepreneurial and competitive process. Ed Stringham and Todd Zawicki have said that much of what is still in the modern common law emerged from this dynamic competitive process in which the entrepreneurial competitors created new legal doctrines and copied the successful innovations of each other. And these judicial entrepreneurs, if you will, had to be responsive to their customers, to their clients, the people that came to them for basically judicial services. And so, unlike a regulator, a judge in this competitive common law environment had to consider the particular circumstances of time and place and it's constantly being reshaped. And so, what we got from this process reflects the marketplace for these judicial services. Rothbard says that the common law has often been a good guide to the law consonant with the free market. Now, this doesn't mean that Rothbard's giving carte blanche to whatever emerges from a common law process. This doesn't mean he's just like whatever the common law says, that's fine. No, there's still the importance of following just principles. He said, quote, certainly custom cannot always be relied upon to be consistent with liberty. But when the common law does err, and it does, as Jonathan Adler has pointed out, the consequences of such mistakes are rather confined. And there is an ability to learn and correct correct such mistakes in the future. Another important benefit of court-made law is that the victims are compensated. I was having a conversation with a couple of my students about a week and a half ago. I had just been through this segment in my environmental economics course at Wofford where I was talking about contemporary environmental policy. I was talking about command and control regulation, about tradable permit systems, about emissions taxes, all of those kinds of things that are kind of traditional policy. Well, I'll say traditional if you're looking at the last few decades. But the question I was starting to get from students was, okay, you've just trashed this, and you've trashed that, and permit systems are badly flawed, and of course regulation is problematic, so what are we left with? What do you suggest? I said, well, courts. And I said, none of these other systems compensate victims of pollution. Courts, however, can see to it that the damage to the victim is stopped with an injunction. They can see that the victim is compensated, and this is a huge advantage. I mean, what good does it do if a polluter is fined by regulatory authority for violating the law, but you've still suffered your loss? It takes the courts to make sure that compensation occurs. Gerald O'Driscoll and Mario Rizzo have said that this support of judicial remedy rests on a belief in principles of corrective justice. We would not pretend that social utility is being maximized by the use of common law remedies. We would be quite pleased, however, if the victim were made whole. Pursuit of the latter strikes us as a worthy enough goal, even if it falls short of an artificial welfare ideal that, in any case, is unattainable in principle. Now, when I talk to students at Mises U and other places about this approach to environmental disputes, I get questions about climate. Now, I don't get into it with students over climate science. They want to argue with me about global warming. I mean, whether it's happening or not happening, or good or bad, or caused by people or not caused by people. I'm not. I think there's plenty for me to discuss as an economist about property rights and justice without trying to become an armchair climatologist, which I'm not. So, I don't get into it over those kinds of technical questions of climate science. I mean, I've got my views, but I'm trying to keep the discussion with my students on the kind of political economy of what's going on. Now, there is a legitimate question of property rights and justice here, and yet it's very tempting for even libertarians to get into a kind of a cost-benefit assessment, and they'll say things like, well, you know, some warming might be just the price of progress, and we just have to put up with that, and so too bad for people who are maybe adversely affected. But the allegation of climate change could be thought of as simply a special case of nuisance, just with billions of people involved. There are billions of people who are emitting carbon carbon dioxide and methane, billions of people who conceivably might be affected in some way, positive or negative. And again, I'm not getting into those kinds of questions. I'm just saying that that is the allegation. Pretty much everyone's an emitter. Pretty much everyone's also either a beneficiary or a victim of those emissions, depending on which way you see the science. So some people treat this as kind of a gotcha for libertarians, like how is your court-based system going to handle this? And I'm dealing with some of this in my upcoming book, but I'll hit a few highlights here. Let's just assume for the time being that these emissions cause the global temperature to change and this is damaging to at least some people. But no single emitter of greenhouse gases emits enough to be responsible for a meaningful amount of them. And how would we link the damage to one person to the actions of another person? Even if you're looking at oil companies as the emitters and this is not just a kind of a theoretical exercise. The county of Boulder, Colorado has a case right now before the Supreme Court against an oil refinery company in Exxon Mobil for damages for climate change. Arguments were just heard earlier this month. Now, it's not clear to me that Exxon Mobil should be the responsible party here. I mean, they're supplying the retailer. The retailers supply people who put gas in their car and people who drive around with the gas in their car, they emit something out of their tailpipe. I mean, why are we going after? Oh, well, maybe it has something to do with the deep pockets and the matter of convenience in going after a few big firms rather than a lot of other, a lot of other actual emitters. But, you know, Rothbard's going to say, well, look, why we can't let this kind of expediency consideration trump principles of justice and privity, which he talks about in his 1982 paper. What we're not going to do is throw up our hands and surrender here and say, well, you got me. This is too big for courts. So we'll just turn Mises' picture to the wall and we'll make those interpersonal utility comparisons and we'll just invite government to have massive power over every aspect of our lives that might emit carbon dioxide or methane or anything else. And we're just, okay, fine, you got us. Bring on the Leviathan state. We're not going to do that. What we're also not going to do is trample on the rights of some people in order to repair the trampling on the rights of others. Now, Rothbard in his 1982 paper was opposed to class action lawsuits because, you know, that that's a common way of dealing with large numbers of possible plaintiffs. And he said, well, people might be bound by the decision of a court that they didn't, they didn't agree to that. You know, they were just lumped in with the class. Another, I think, useful case in thinking about kind of worldwide levels of pollution of some, some substance would, some of you may remember the 1987 Montreal protocol that ended the production of chlorofluorocarbons or CFCs that were used in aerosols and things like that. And they were implicated in the hole in the ozone layer. And the treaty replaced these possible aggressions, again, depending on how you see the science on this, but possible aggressions of people who are emitting the substance into the air that did some kind of damage to some people, which is a, again, a difficult kind of connection to make. But nevertheless, what the regulation did is replace this alleged aggression with another aggression, which is to absolutely ban any production of this particular chemical. Now, if we try to use costs and benefits to assess this ban, we would have to know that the benefits of reducing CFC emissions were greater than the costs of reducing CFC emissions. And how do we know? How would we even begin to do that? And Mises' socialist calculation problem says that the government planners who are behind the Montreal Protocol did not have access to the information necessary to make those costs and benefits. Of course, that was after Mises' time, but I think that's a consistent application. So in place of a court-based approach that doesn't measure up to some kind of ideal where every possible aggression is being conveniently and easily addressed. It's proposed that we accept as a realistic alternative textbook theories in which government can calculate the cost of emissions, identify their sources, allocate proportionality or responsibility proportionally, penalize them appropriately, and then not get diverted by pressures from interest groups along the way. Now, you know, we can admit that the Rothbardian framework for handling air pollution is maybe better suited to handling some forms of air pollution than others, but that does not mean that just because there are some problems with negotiating and carrying out court cases and some of these issues that therefore we must just relent and go with regulation. Now, just because courts are harder for special interest groups to influence does not mean that they're not trying. About three weeks ago, the Wall Street Journal pointed out that the National Academies of Sciences, Engineering, and Medicine engaged in what "looks like an organized, stealthy effort to influence how judges rule on cases on climate". The National Academies worked with the Federal Judicial Center to produce a scientific reference manual for federal judges. They asked an environmental law professor to author the climate chapter. This is a guide for federal judges, but there was a conflict of interest. The law professor worked for a law firm that was actively engaged in climate litigation against fossil fuel companies, and yet he's going to be writing guidance for neutral guidance for how these courts should see climate change and fossil fuels. Well, the Federal Judicial Center found out, asked that he be cut out of the process of writing this chapter, but his colleagues continued, and they were assured by this law professor that he would "contribute behind the scenes". Now, this is ghost authorship, which is a violation of science publication standards, and it's a particular standard that the National Academies should have known about because they helped write those standards. Roger Pielke has argued that this is a pattern of science organizations shifting from scientific advice to political advocacy. He says, "Taken as a whole, it's difficult to come to any other conclusion than that the National Academies, across several of its projects, have sought systematically to manufacture a particular expert consensus in support of climate litigation". So, to wrap up here, courts may face extremely difficult problems in cases where there are large numbers of people on both sides of the dispute, they may cross international boundaries, the impact of emissions may be different on everybody, and the courts can be influenced as well by these different interest groups. But what's the alternative? I mean, do we weaken the principles of causation in order to make court cases sail through? Rothbard would say no. Do we extend government's coercive power further into society where it's inadequate information and appetite for power are going to create damage? Environmental regulation, we know, fails the conventional method of dealing with environmental problems. It fails because there's bad information and bad incentives of regulators. It fails because it deprives people of property when they were not doing anything that actually hurt others, kind of a pre-crime condemnation of behavior. And it fails because it does not compensate victims for damage. And it may not even force the perpetrator to stop the trespass or the nuisance. So whatever the kind of environmental problem we're considering, Rothbard's laid out a convenient free market path forward. Property rights and competitive courts operating with sound principles of justice. Thank you.