Sunday, October 20, 2013

a teachable moment on property rights

One of the first ideas economics students learn about long run growth and a stable economy (say, in an introductory micro or macro class) is the necessity for protecting property rights.

Protecting property rights is important, they learn, because you need incentives to invest and grow. If you are always worried about the state coming in and confiscating your property, or taking it without just compensation, then you will never invest resources and develop. Students are provided with tons of examples of corrupt governments (usually in Africa, or ancient parts of the world that were slow to develop) as empirical evidence "in support" of this claim - these countries do not respect property rights, which is (apparently) why they are poor.

Interestingly enough, many developed countries today did not take this path toward prosperity. There is a kind of "kicking away the ladder" story going on here, as there is with trade protection in Ha Joon Chang's work, and it's very teachable. Because in fact, even in liberal democracies such as the U.S., property rights have routinely been compromised in the name of economic growth or efficiency. These are not just "rent seeking" cases by the way, but are fundamental traditions in property and contract law.

Perhaps most strikingly, you can find, hidden deep within the court records, judges who actually argue that looser protection of property rights is what promotes the incentives to develop! Which provides an excellent thought piece for students, to consider the political bias underlying the protected property rights view (which, if anything, was rhetoric that has its roots more in the institutions slave south, which needed to establish the master's "dominion" over his slave, than in the industrial north).

Here is Judge Livingston in a classic U.S. water rights case from 1805 (Palmer v. Mulligan, you can find a discussion of the case and others here:
defendants had the same right opposite their ground. . . must be restrained within reasonable bounds so as not to deprive a man of the enjoyment of his property, merely because of some trifling inconvenience or damage to others . . . Were the law to regard little inconveniences of this nature, he who could first build a dam or mill on any public or navigable river, would acquire an exclusive right, at least for some distance, whether he owned the contiguous banks or not. . . . the public, whose advantage is always to be regarded, would be deprived of the benefit which always attends competition and rivalry.
In the italicized section of this opinion, you can clearly see Livingston arguing that an infringement of property rights could be justified because it breaks up monopoly ownership, thereby promoting competition in land use. This is certainly a "teachable" moment for anyone looking for an accessible, fun, intuitive way of breaking down biased ideas of property rights in mainstream economics teaching.