Tuesday, January 30, 2007

A Lawyer's tale of Two ideas

The connection between two ideas sometimes leads to a double error. Trial lawyers, of the business speciality are particularly admirable – at least the three lawyers I have come across, two in the US and one in the UK (admittedly I have worked with some pretty awful business lawyers in the UK, who knew a lot about the law and little about business negotiation, but that’s another story).

Lawyers also tend to be bright and articulate, so I enjoy reading their Blogs – Bruce MacEwan at: Adam Smith, Esq. http://www.bmacewen.com/blog- is particularly entertaining and informative should you wish to sample one of the best.

Today, I came across a new Blog, Blawgletter, (‘business trial law with a sense of humour’), written by Barry Barnett, a partner in a Dallas law firm, which you will find at: http://blawgletter.typepad.com/bbarnett/

His posting shows evidence of classes in economics of the Chicago variety (he went to Yale and Harvard, so he is what we call ‘top drawer’) that spread slightly off-the-page ideas about the history of economic ideas.

Does that matter? Probably not, though you never know what you may have to formulate questions to test the credibility of someone claiming to be an ‘expert witness’ in a trial (I have watched television court room scenes, including Judge Judy, and know what leads to the ‘collapse of stout party’ as my theatre friends put it).

Here is what Barry Barnett writes under the heading: ‘Does Politics Improve Regulation?’:

At least since college, Blawgletter has admired the exquisite contradictions of government regulation, which business trial lawyers encounter all the time. Economic theory, on the one hand, teaches that any meddling with market forces -- whether by bureaucrats or private monopolists -- hurts overall "consumer welfare", the Holy Grail of economics ever since Adam Smith published The Wealth of Nations (1776).

A problem with the theory, on the other hand, results from the sad fact that we don't live in perfect world, in which perfect competition holds sway. No, things like the sugar tariff on imports of sweet, sweet sucrose; congressional subsidies for ethanol; and, yes, licensing requirements for lawyers assure that we pay more than we should for all kinds of stuff

There is a large gap between the Wealth of Nations and modern economic theory, especially that theory that alludes to the mathematics of ‘perfect competition’ and ‘general equilibrium’. On one level, neoclassical perfect competition does not replicate the real world; on the other level its exponents often pontificate in courts, and elsewhere, about policies for the real world that treat their limited mathematic models as if they have relevance for the real world, to the confusion of those involved in court cases, politics and running businesses (though the latter group are less naïve about these pretensions than the former).

Smith was not against ‘meddling with market forces’. His book critiqued such interventions when they were in support of Mercantile policies that he considered ‘absurd’, such as monopoly, protection, and conspiracies against consumers to raise prices. He also wrote in favour of extensive interventions in market forces in terms of the justice and laws protecting people’s rights and in its administration, staffing of courts, prisons and the carrying out of sentences – it was a feature of justice that a ‘public hangman’ was paid to do his duty.

It was not wise to leave to businesses such things as hallamrking, assaying bullion, stamping of cloth to guarantee the quality of its composition, etc. He favoured public interventions to secure public works in such expensive activities as the construction and maintenance of roads, harbours, canals, bridges, street lighting, paving, garbage disposal, and ‘police’, which in his day meant ensuring that adequate provisions were available in towns. He allowed for the possibility on pragmatic grounds – what worked best – that these tasks could be funded publicly and maintained by raising revenues from those who benefited. To which, of course, you can add the defence of the realm – the first duty of government, and the most expensive duty too.

In practical polices of intervention in market forces, he explicitly argued in favour of the notorious Navigation Acts that required British cargoes to be carried in British built and British manned ships, while explicitly acknowledging that this was detrimental commercially, but necessary for an island group’s defence (‘defence is more important than opulence’). I should also mention his advocacy of a publicly funded post office and a publicly funded Mint.

Perhaps his most ambitious scheme was for public education with a school in every parish, as was already common in Scotland and had been for a century, to ensure that every boy, regardless of income, (girls were not educated in this manner in those days) learned to ‘read, write and account’, and do ‘a little mechanicks and geometry’. These schools were to be funded by a mixture of public money, private subscription and charity, and parental contributions, and the teachers were not to be paid entirely from public funds or endowments, because that made them lazy and disinterested in their teaching (which is why US teachers’ unions are often disingenuous when quoting Smith’s support for ‘public schools’).

From this sketch of what Smith’s expressed views were, which does not fit the neoclassical perfect competition theory that might be presented by an opposing advocate in a trial, Barry Barnett might wish to take note of this point, and the detailed point that follow, just in case it is he who is arguing as if the Kirkcaldy Smith was akin to the Chicago Smith, so religiously taught in US colleges – ‘Holy Grail’, indeed!

If the other lawyer knows the difference between the two versions of Adam Smith, he might be delighted for Barry to carry on speaking along the lines of his Blog and await his opportunity to put up an expert witness who does know the difference.

Just a piece of friendly advice, for which I would not dream of charging Barry a fee on this occasion…


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