Thursday, September 11, 2014

Using Economics to Justify Being a Jerk

-- Posted by Neil H. Buchanan

My latest Verdict column, published today, uses the recent controversy over reclining seatbacks on airplanes to make a larger point about the misuses of economic theory.  One of the foundations of the "law & economics" movement is known as the Coase Theorem.  Two weeks ago, a business columnist for The New York Times, Josh Barro, wrote a short, snarky piece in which he tried to use the common, bastardized version of that theorem to rationalize his proud willingness to be a jerk.  Here, I want to explore in further detail how economics is so often wrongly used to justify anti-social behavior.

[Before continuing, however, I do think that it is important to take a moment to note that today is September 11.  Despite all of the horrible things happening in the world, it says something very good that today is a day on which most people will go about their lives as if it were any other day.  That does not dishonor the memory of what happened thirteen years ago, but rather shows that life goes on.  Indeed, the very fact that I can comfortably write today not just about a relatively frivolous topic, but about one that is airplane-related, is a good thing.  Readers who are interested might wish to read some personal reflections about 9/11 from Professor Dorf and me, which we wrote to commemorate the tenth anniversary in 2011, here and here.]

In his piece for the NYT, and in an earlier piece that he had written for National Review, Barro does not merely try to argue that there is a theoretical case to be made that would justify reclining one's seatback on an airplane.  He positively screams that he revels in being inconsiderate of other people's concerns.  He begins: "I fly a lot. When I fly, I recline. I don’t feel guilty about it. And I’m going to keep doing it, unless you pay me to stop."  And there is the key.  He wants to describe this problem as merely a misunderstood economic market, where behavior should be judged by the cold, hard logic of economic theory, in particular this magic mantra called The Coase Theorem.

As I explain in my column, the Coase Theorem is one of the great mistakes of modern economics.  It is not that Ronald Coase himself was wrong.  Indeed, Coase spent years trying to tell people that they misunderstood what he wrote.  Unfortunately, for many people (including a lot of first-year law students, many of whose Property Law professors think that the Coase Theorem is a Rosetta stone), the Coase Theorem says something like this: "If you ignore transaction costs, then it does not matter to whom a property right is given, because either way, the result will be efficient."

In this case, the "property right" that supposedly needs to be allocated is the ability to control the space that a reclined seat can occupy.  It can either be the "property" of the person who might recline his seat into that space, or it can belong to the person whose knees, laptop computer, head (if leaning forward), and so on might be occupying that space.  Barro simply asserts, without explanation, that the property right belongs to the passenger who might recline into that space.  As I describe in the column, that is at least contestable, for reasons that have everything to do with people's general misunderstanding of what property rights really mean, in the context of Coase's actual theorem.

One of the best papers critiquing the common misunderstanding of the Coase Theorem was written by an economist at Queens University in Canada, Dan Usher: "The Coase Theorem is Tautological, Incoherent, or Wrong."  As Usher explains, the only way that the pseudo-Coase approach works is to say that the property right does not need to be assigned at all.  If there truly were no transaction costs, then it would be possible for the parties to make a decision that maximizes their combined happiness.  Or, put differently, the absence of transaction costs is logically equivalent to having one decision-maker, not two.

To his minimal credit, Barro does not take the extreme no-transaction cost position.  Indeed, if he did, then he would have to admit that his aggressive defense of the right to recline is no more nor less defensible than the opposite argument.  In response to an argument by another economist, who at least implicitly understands that Coase's real concern was entirely about the interaction of real-world transaction costs, Barro dismisses the idea that there is anything difficult about buying and selling the right to recline a seat.  That is the only way that he can write, "If [a] passenger so badly wanted the passenger in front of him not to recline, he should have paid her to give up that right," rather than to acknowledge that we need to understand the relative sizes of the transaction costs before deciding whether it is the passenger sitting behind who must bear the consequences of another person's selfish actions.

But in the end, Barro's argument is not really about reclining seats.  It is, instead, yet another case in which someone with economics training takes a little bit of knowledge and tries to turn it into a justification for being a jerk.  He is not merely making the objective statement that people are sometimes willing to ignore other people's concerns, and that policy must be clear-eyed in assessing how such self-interested actions play out in real life.  His is a normative assertion that it is right and good that people are selfish.

Barro's tone gives away the game.  In the National Review piece, he announces: "The property rights in reclining a seat belong to the person who is sitting in it. I will recline if I please."  Because I can, I shall!  And if people complain?  From his NYT piece: "[P]eople like to complain about all sorts of things; if they really cared that much, someone would have opened his wallet and paid me by now.”  He even disparages the people who have used the "Knee Defender," a device the locks seatbacks in place, for "steal[ing] from their fellow passengers.”  He describes another writer's effort to use pre-printed cards to ask people to consider other people's feelings as "inane," calling the cards "stupid."  (His attempt, at the end of his NYT piece, to turn the argument into a short-versus-tall fairness question is a transparent sham.)

The argument that "you could just pay me not to be a jerk" is, in the end, merely an attempt to hijack Ronald Coase, pretending that his theorem is a magical phrase that somehow converts selfish, anti-social behavior into market activity that can be traded for cash.  As one of my research assistants asked, why not invoke Coase to say: "You don't like me catcalling women on the street? I have a First Amendment property right to how I use my voice, so you're going to have to pay me to stop -- that's the only way to sort out whether someone values not being demeaned more than I value demeaning people."  Of course, there are other ways to get people to stop being jerks.  Saying, "Pay me or I'll offend again" sounds like it is somehow objective, because it invokes economic theory (incorrectly).  But it is nothing more than an emotional defense of a childishly simplistic worldview.

In the late 1990's or early 2000's, some economists surveyed graduate students in the top Ph.D. programs in the U.S., trying to determine whether economists are already jerks when they sign up for a Ph.D. program, or instead that they become jerks by studying economics.  The premise of the study was backed up by other surveys that showed that people with economics training were much more likely to exhibit anti-social behaviors and to rationalize narrow-minded selfishness.  The results suggested that there was a huge self-selection element, with anti-social types flocking into graduate economics study.  Of course, it is possible that the "nurturing" of jerkiness had happened at the undergraduate level, too.

In any event, it is remarkable how often economists -- who claim merely to be explaining the world -- fiercely defend selfishness as a good thing, and ridicule people who act selflessly.  It is not merely, it seems, that the non-selfish people are "leaving money on the table."  They are seen as chumps, or worse.  "You want to help children by working at a charity?  Stop being such an economic waste!"  This defensiveness and sense of grievance coming from so many economists is, perhaps, unsurprising.  But the real Coasean analysis does not change the fact that they are losing a fight with their mental demons.

Finally, let me note a further point regarding seatbacks.  In addition to defining property rights and letting the passengers fight it out -- a fight that, as I describe in my Verdict column, will not be any more "economically efficient" than the current squabbling -- another possibility exists (even outside of government regulation).  The airlines could simply install non-reclining seats.  And honestly, I do not know why that has not happened yet.  The in-flight nastiness is certainly costly to the airlines, not just in the occasional diverted flight, but in time wasted by flight attendants, damage to seats that are kicked in retaliation against rude passengers, and so on.  The real Coasean question is not always limited to: "Which of these two parties should be able to sell their property right to the other?"  Sometimes, after taking account of all transaction costs, the answer is: "None of the above."

9 comments:

Paul Scott said...

I call shenanigans. If he flies as often as he claims, then his reclining does not effect anyone anyway.

Jcrobertson said...

The real problem is unclear right to the space the reclined seat would occupy. If that right was clear then a discussion about buying/selling that space would be relevant.

darrowret said...

This is an astonishingly silly argument. In years of flying, and reclining and being reclined on, I never thought about it in terms of property law, and I don''t think that framework is much help to either side of this petty squabble.
The fundamental point is that the extent to which seats recline is a matter determined by the airline. Someone who is in a reclining seat is clearly entitled to recline as far as it goes. If the reclinee is thereby made uncomfortable, his complaint is with the airline (to whom he can also mention that the seats could be wider and the food edible.) In no case is he entitled to attach his own device to interfere with the reclining seat. And should he do so, it is he who is the "jerk."

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