‘Shefot Hashoftim’? – How Competing Judges Can Work

Bargaining into Anarchic Order

A long time ago, my friend and colleague Gordon Tullock wrote a chapter for a book on anarchy in which he argued that it was impossible to bargain one’s way out of Hobbesian anarchy, the war of each against all. His argument was simple: Until you had a state, no contract, including that one, could be enforced, so making a contract had no effect. Reading it, I concluded that the argument was both obvious and wrong. As anyone who knew Gordon would understand, the opportunity to say so, if possible in print, was one I could not resist, so I wrote a review of the book. This chapter is based on the argument of that review.

Arnold and Bill are the only inhabitants of a small Hobbesian anarchy: no government, no customs, no pre-existing rules. It occurs to both of them that the situation has serious problems. Anything one of them gathers, the other might steal, and spending full time guarding things makes it hard to gather more. A possible solution is for one of them to kill the other; adequate precautions to prevent that will make it hard to do much else. There should be a better way.

Arnold proposes one. There is a stream running though the forest. He will take one side of it for his territory, Bill the other side for his. Each will agree not to trespass on the other’s territory without permission. The agreement will be enforced by the threat of violence; Arnold makes it clear that if he finds Bill on his side of the stream after they have agreed to the division, he will do his best to beat him up, and that he expects Bill to behave similarly. A fight to the death is likely to be a losing proposition even for the winner, so each has a clear incentive to abide by their agreement, provided that each believes the other is committed to enforcing it.

Arnold and Bill have just created private property in land. They have done so by reinventing territorial behavior, a survival strategy practiced by various species of animals, mostly birds and fishes. Territorial animals mark the territory they claim and enforce the claim to territory by a commitment strategy, by somehow turning a switch in their brain that makes them attack a trespasser of their own species more and more fiercely the further into the territory he comes. Unless the trespasser is much larger than the defender, a fight to the death is a loss for both, so once the trespasser realizes the defender is commited to fight, he retreats..

Time passes. Arnold locates, a grove of apple trees, clears out the surrounding undergrowth and harvests the fruit. Bill has found an outcropping flint, chipped himself an axe, and is using it to cut down some trees in order to build a hut—he is tired of being rained on. One day Bill notices Arnold, on his side of the creek, watching him work, and comes over to chat—politely leaving his axe behind.

Arnold has a deal to propose. If Bill will cut down several large trees currently shading the apple grove, Arnold will promise to give Bill a bushel of apples from each year’s harvest. Bill agrees to the deal and performs his part of the contract.

Arnold considers the possibility of reneging on his—picking a bushel of apples is a fair amount of work and, once picked, he would rather eat them himself than hand them over to Bill. It occurs to him, however, that Bill still has an axe and can use it, if he wants, against Arnold’s apple trees the next time Arnold is somewhere else. Or, if he prefers, against Arnold. He decides to deliver the apples as per contract.

The reason Bill gets the apples is not that he has cut down shade trees but that he can cut down apple trees—once the contract is agreed to, it is the threat, not the past performance, that makes Arnold deliver. Why couldn’t Bill have saved himself a considerable amount of work by starting with the threat, telling Arnold that he will cut down the apple trees unless Arnold pays him a bushel of apples not to? How, if at all, does making the initial agreement and performing Bill’s half of it change the strategic situation?

The answer requires a brief digression.

Schelling Points: The Idea

A professor calls a student into his Yale office and asks him to participate in an experiment with the possibility of a reward. The objective is to rendezvous with another student in New York city by both being at the same place at the same time. If they succeed, they will each get a hundred dollars. Neither knows the other’s name and, even if they know or guess it, they are not permitted to communicate before meeting.

To win the prize, each has to guess where and when the other will try to meet him. One way of doing so is to figure out what time and place each will see as unique, since if their criterion for choice yields more than one answer they might choose different answers and so miss each other. Time is pretty easy—given our system of time keeping, noon and midnight are the only times that appear unique. Which they choose will depend on how long it takes them to get from New Haven to New York and what hours they normally keep. If it does not take too long and they are not night owls, noon is the obvious choice.

Where is harder. When I first read about the problem, my suggestion was the top of the Empire State building. That was, at the time, the tallest building in the world, making it unique in a fairly obvious sense. It turned out, however, that there was no such place. The building had four observation decks spaced around the four sides, with no obvious way of deciding which one to meet at. I am told that in the real world experiment, proposed by Thomas Schelling some fifty years ago and later implemented by someone else, the students met under the clock at Grand Central Station, to them the obvious unique meeting place. At noon.

This is a story about coordination without communication. What makes it relevant to this chapter—and much else—is that  that describes not only situations where you are unable to speak to each other but also situations where you can speak but neither party has a good reason to believe what the other says.

For that version of Schelling’s idea, replace our two Yale students with two bank robbers. Having pulled off a successful heist they must decide how to split the loot before going their separate ways—and if they argue about it for too long the police may show up. Each played a different role in the robbery and each believes that his contribution was larger than that of his accomplice. I predict that they will split the money evenly, not because either thinks that fair but because that is the one division that both see as unique, hence as an alternative to interminable bargaining. They can talk to each other, but if one insists that he will not agree to any division that gives him less than 60% of the money the other has no reason to believe him. Fifty-fifty is different.

The analysis applies to a wide variety of bargaining situations. Both parties are better off reaching agreement, each would prefer to do it on terms more favorable to himself, and the longer they bargain the less the benefit to be shared between them. In the case of the bank robbers, that is represented by the risk that the cops will show up. In union/management bargaining, lost wages and revenue during a strike. In bargaining over a treaty to end a war, lives lost and property destroyed. The logic of all three situations is the same.

Schelling Points: The Application

The deal by which Arnold and Bill established their mutual property rights was a result of the Schelling point provided by the stream that they chose as their boundary. Bill could have tried to insist on getting everything on his side of the stream plus a strip on the other side. Arnold could have made a similar demand. They could have tried to divide the territory on some other basis, drawing an arbitrary line determining what each got. Any of those alternatives would have raised the same problem faced by the bank robbers haggling over their loot. For any offer Bill can make, Arnold can make a counter offer more favorable to himself. If they bargain too long, they may starve—or one of them may lose patience and take a convenient opportunity to brain the other. The stream provides a division that is simple, unique, already defined.

Before the Apple contract was made, Bill could have tried to extort apples from Arnold. Doing so would have created a bargaining situation, a mutual threat game. They have a common interest in Bill refraining from using his axe on either Arnold or Arnold’s orchard. They have a conflict of interest over how many apples Arnold pays Bill. The one Schelling point in that strategic situation is for Bill to respect the original division of the land, leaving Arnold with all his apples.

Once Bill has performed his half of the contract, there is a new Schelling point—for Arnold to pay Bill a bushel a year, as agreed. The agreement has changed the situation, not because either party considers himself morally bound to keep his word but because the agreement changes a fact that affects the outcome of their bargaining—the structure of the alternatives as both perceive it.

A different way of looking at the situation is to say that both Bill and Arnold have an incentive to establish a reputation for keeping their contracts, since that will permit further cooperation in the future—the discipline of constant dealings discussed back in Chapter 29 when I was explaining why firms would abide by their arbitration agreements. But we now have the tool to look into the question a little further.

Suppose Arnold renegs on his contract, pays no apples, and somehow gets away with it. Next year Arnold again wants Bill’s help. Bill’s response is proverbial: “Fooled me once, shame on you, fooled me twice, shame on me.” Arnold explains that he is wrong. It is true that Arnold broke his word once, but that was last year. Arnold explains that his policy, his consistent policy, is to break his word the first time, keep it forever after.

Why does Bill refuse to believe him? Because always keeping your word is a unique policy, a Schelling point. Keeping your word from the second year on is no more unique than keeping it on every other year, or every third year, or days when it doesn’t rain. No more unique than breaking it the first two years and then keeping it—and this is the second year. Schelling points help us understand why the discipline of constant dealings works: People perceive “always keep your word” as a unique policy, hence a Schelling point on which bargainers can converge.

I believe I have now shown why Gordon Tullock’s claim that, absent a government to enforce contracts, making a contract has no effect, hence individuals cannot bargain their way out of a Hobbesian anarchy. Making the contract changes the strategic situation by changing the pattern of Schelling points. Hence contracts are, to at least some degree, self-enforcing.

From David Friedman, here.

מיד עמדתי ונשקתיו על ראשו, אמרתי לו: בני כמוך ירבו נוזרי נזירות בישראל

הם: מה, איך אין לך וואטסאפ?!

הוא: גם אשתי מחזיקה סמארטפון עם וואטסאפ פעיל, וביקשה ממני להצטרף כדי להקל עליה ליצור אתי קשר. אבל אני אמרתי לה, מה תרויחי? אם אקנה סמארטפון, אני אמצא אשה אחרת! אני מכיר את עצמי…

שיחה ששמעתי.

BOLD CLAIM: Political Passion = Betrayal of Jewish Theocracy

Jews obsessing over politics (and watching sports)

Hesh writes in FrumSatire about “Jewishness of the Obama and McCain campaigns”. This Jewish obsession with politics very much annoys me.
Another example of this political [censored]:

A campaign button on her lapel says, in Hebrew, “Barack Obama ‘08” and Soifer explains the agenda this way: “We are here today to talk about Sen. Barack Obama and Joe Biden’s record, and to ensure that Baruch Obama is elected the next president of the United States.

Her use of the Hebrew name Baruch brings applause and laughter. The heavy turnout showed Democratic enthusiasm, but several of those on hand said they were former Hillary Clinton supporters and some of their friends were still slow to warm to Obama.

The first time I read this, I almost puked.

Many Jews don’t realize that we are primarily citizens of the Jewish State — no, not the modern Israel, but the Jewish theocratic state established by Yehoshua and then re-established after the first golus. Yes, it doesn’t exist today physically, but that merely means that we are a state in exile (ever heard of golus?), with government in exile (the rebbeim from the times of Mishna till now, who are spiritual and legal descendants of the Sanhedrin, the real Jewish government body) and still legally bound to obey its laws (ever heard of halacha?).

It is just like Poland during WWII: they too had people in exile and government in exile. While returning to Poland was impossible (since it was occupied by a hostile government — like Eretz Yosroel has been for the duration of the last golus), Poles in exile with their government-in-exile were residing in England. As a result, they had a situation of dual citizenship: Polish and British — which meant that while living in the UK they had to follow its laws (obviously) and have minimal level of participation in the society to repay UK for its hospitality (pay taxes, learn English, participate in local business, when possible contribute to overall welfare of the society). But why would a Pole in exile become emotionally invested into who gets elected to the UK Parliament and become really involved in the election campaign?

Hello, people? We are here temporarily, while our home is destroyed and we are waiting for it to be rebuilt. We appreciate the hospitality of this nation, we repay it by being minimally involved and contributing to the overall stability of society — but this is not our home!

This is just from a historical point of view. Obviously, from a yiddishkeit point of view, it is not a Jew’s business to be involved in the goyishe society’s affairs at all — except when minimally necessary: to support oneself and one’s family, for example. Our main goal and essence of existence is serving Hashem.
The possible exception to this is when Jewish lives (physical or spiritual) are clearly and obviously at stake and depend on a particular government being elected (or not elected). For example, today in Israel. Or in Russia during the election, in which Frierdiker Rebbe urged Jews to vote against Bolsheviks. Or when the Alter Rebbe supported Alexander I over Napoleon. Today, however, the election of the particular president — though it may be important for the economy, long-term stability of the country and the world, etc., will not have an immediate effect on Jews. So, unless one believes that Obama (or McCain — although, I am not sure, why) being elected will clearly increase the rate of assimilation or will lead to Jewish lives being lost in a direct way (G-d forbid), I don’t see how one can justify obsession with politics.
Also, if someone tells me: “I am actively supporting McCain because Obama being elected will increase chances of nuclear war [or international terrorism, major war against Israel, more Jews succumbing to liberalism, etc.]”, I will not have such a major problem. I also will not have a problem if people are interested in politics as an academic interest, in passing. Yet, most people who support Obama and McCain in the above example do so because they are emotionally involved in the American politics (“Baruch Obama”, [censored]), because they identify with the particular candidate not from Jewish point of view, or because they intellectually agree with him, but because they are emotionally invested. This is a major problem.

Against Medical Protectionism: ‘When They Tell Me I’m Terminal, I’ll Look for a Quack!’

Cancer Cells Don’t Have a Lobby in DC

By 

April 28, 2012

“When they tell me I’m terminal, I’ll look for a quack.” ~ Murray Rothbard

For over 250 years, economists — even before they were called economists — have struggled to solve a problem: how to persuade people that trade really is positive and that restrictions on trade really are negative. This is one more attempt.

Let us assume that your physician informs you that you have cancer. The type of cancer that you have is invariably fatal. He utters those words that estate planning lawyers thrive on: “You should get your affairs in order.”

You go home. After thinking about your situation, you go online in search of a solution. You come across an article on a proposed new cure. There is hope. But you find that the cure is experimental. It has not been approved by the Food and Drug Administration. The estimated cost of getting through the FDA’s legal hoops is $100 million. It will take seven years.

You do not have seven years.

Do you believe in free trade in proposed cancer cures? Now you do.

What if you could sign a legal waiver taking full responsibility for your actions? What if you are willing to let the discoverer off the hook legally for any negative outcome of the treatment? Sorry, no can do. That would be illegal.

Why would it be illegal?

There is a simple reason: “Because it would reduce the power of the Food and Drug Administration.” If every Tom, Dick, and Harry were willing to sign a waiver, then the FDA could not control drugs. This degree of open entry into the health care field would enable producers of health-care to get together with customers to arrange mutually agreeable solutions.

But wouldn’t this open the door to quacks? Yes. Wouldn’t this open the door to snake-oil salesmen? Yes. Wouldn’t this expose the public to scientifically unsubstantiated claims made by profit-seeking charlatans? Yes. Then why should the government allow it? Because this allows the free flow of ideas. By “free flow” I do not mean zero-cost. I mean legally unrestricted, as in “I get to think this. I also get to share my ideas. Someone else gets to think it, too.”

“Of course,” says the Congress of the United States. “You may think anything you want. Just don’t ask anyone to pay you for your idea. To get paid for your idea, you must be licensed by the federal government.”

At every level of civil government, there are politicians who pass laws and legally tenured bureaucrats to enforce them. One purpose of these laws is to restrict the free flow of ideas. Another is to create monopolies for large corporations with teams of lawyers. These firms have the money to get through the hoops established by the bureaucrats.

Some of the senior bureaucrats then retire with full pension benefits and go to work for the corporations that are the beneficiaries of the regulations written and enforced by the bureaucracy.

This is normal. We know it’s normal. We are told that this is the price the public must pay to secure safety.

Safety from what? Safety from the free flow of ideas.

Cancer cells do not have a lobby in Washington. They do not need one. But if they did have one, why would it promote laws different from what we now have?

I have presented here the basic case of free trade in ideas, which includes the implementation of these ideas in the form of products.

Am I speaking hypothetically? No. I am speaking from personal experience.

THE “BLACK BOX” (WHICH WAS GRAY)

My wife in 1987 began to suffer from an ailment. It had many names: Epstein-Barr, chronic fatigue syndrome (cfs), fibromyalgia. Whatever the name, it was widely dismissed by physicians as merely psychological. “It’s all in your head.” This is a code phrase for “You are desperately sick, but I have no clue as to why. Because we physicians can’t define whatever it is that you have, your insurance company does not insure it. Please pay by credit card or check before you leave.”

A 1987 book by a pair of husband and wife sufferers was titled Waiting to Live. It was a depressing book. My wife had many of the symptoms it described. She was in constant pain: headaches. She was constantly exhausted. She sometimes slept 16 hours a day. She could not recall anything she had just read. Driving over 15 miles an hour seemed like speeding to her. There was no relief.

I heard of a man who had a machine that seemed to cure people of numerous diseases. Her disease was one of them. He had a clinic. Officially, it was a pain clinic. Unofficially, it was a miracle clinic. As a pain clinic, it was legal. The way it reduced pain was to cure the diseases that caused the pain.

In the summer of 1988, I sent her to this clinic in California. She took three treatments, each lasting 8 hours a day. The symptoms disappeared at the end of the third treatment. They have never returned.

The man who invented the machine told me that this was the most rapid recovery from chronic fatigue syndrome that he had ever seen.

Another patient was the actor James Coburn. He had lost his career as a movie action hero. As he told me when I interviewed him, it is hard to be an action hero when it hurts too much to comb your hair…

In 1991, the U.S. government impounded the machines temporarily in his new clinic in Nevada. My wife then loaned him $10,000 to hire a lawyer. (She never got her money back.) But the Feds made a very big mistake. The impoundment order lapsed on day 30. The government’s agents showed up at the clinic on day 31 to remove the machines, only to find an empty clinic. The machines wound up in England. (They are no longer in England.) I have written about all this before.

The government is hostile to any arrangement based on money transfers between a caregiver and a sufferer.

The medical establishment is equally hostile. Its above-market income has been based on government restrictions on entry by non-licensed practitioners. This 100-year arrangement is about to backfire. The government has lured the doctors into the trap. Now it is about to spring it.

Every year, the Medicare bureaucracy cuts payments to physicians and hospitals. Every year, Congress delays the implementation of these new regulations. Sometime, possibly on January 1, 2013, the new regulations will go into operation. Having made the medical establishment dependent on government regulations and Medicare money, the government will slowly take the medical establishment off life-support: government money. “Gotcha!”

I saw this coming in 1978. Now it’s almost here.

ACROSS THE BORDER

Let us assume that you want to get that experimental treatment, despite the fact that the Food and Drug Administration has not yet authorized its sale to the American public. You continue to research the matter.

Lo and behold, a clinic in Mexico is offering it. So, you call the clinic and schedule an appointment. You fly there and get the treatment.

Let us say that it works. You go to your oncologist. He gives you a clean bill of health. He says it is a case of spontaneous remission. What is spontaneous remission? It’s just one of those things, just one of those crazy things.

You have a choice. You can say nothing. This is the safest course of inaction. You can say you got treated in Mexico. He will think “quack.” He will still attribute it to spontaneous remission. Or maybe he will decide to invest part of his pension money in the Mexican firm that produces the product. It’s hard to say what he will do.

Let’s go the whole nine yards. What if it’s a pill? You can administer treatment yourself. Anyone can.

What if someone could buy the pills online? They would be shipped by Federal Express to his door.

What if the Food and Drug Administration finds out?

It can take remedial action. It can impose heavy penalties on anyone who buys the pills. Or maybe the FDA can say that the supplier is a Mexican drug lord. Any FedEx packages from the address will therefore be confiscated.

By whom? How? Where? How will the FDA enforce this restriction?

Can the FDA impose sanctions on the seller? No. Can it somehow block the money transfer? Maybe, but at what cost? Can it follow the money when the seller shifts banks?

The FDA could then contact some international regulatory agency. It could go to the World Health Organization, the source of the Codex Almentarius. This code regulates the sale of health supplements across borders. But these agencies cannot enforce anything that respective nations refuse to enforce. They have no meaningful sanctions of their own.

As the cost of communication falls due to the World Wide Web, the ability of the U.S. government to control the flow of information is collapsing.

As the cost of package delivery across borders falls, the U.S. government finds it increasingly expensive to stop the flow of goods. At some price, it can reduce the flow of products, but this price keeps rising.

Why is the price rising? Because of increased trade. The more goods that cross borders, by way of Federal Express and UPS, the more costly it is for the government to identify and intercept a single package. The haystack keeps growing. It gets easier to conceal the delivery of individual needles.

The gatekeepers cannot control the flow of ideas, goods, and digital money. The gatekeepers stand at the gates, but the walls have collapsed, like Jericho’s walls.

The wife of an old friend of mine suffers from a lot of pain. He has a friend who occasionally would drive to Mexico. The person would buy the pills, bring them back, and send them to him by mail. This is no longer necessary. They buy the pills online. Bottles are delivered to their door.

Meanwhile, if you cross the Alabama border and buy a bottle of Sudafed, you can go to prison for eight years.

Here, we see political insanity in action. The idea that legislation securing a border can somehow protect people from charlatans is itself one of the most important ideas in the history of charlatanism. Politicians are the charlatans. When it comes to snake oil, can any private manufacturer rival the U.S. Congress?

DIAGNOSTICS AT WAL-MART

A computer program available to veterinarians allows them to diagnose the health of animals by doing a simple blood test. The program costs $1,000. It probably costs a lot less from some “pirate” site in China.

It is illegal for the vet to run a test on anyone in his family.

Let me write some science fiction. In a decade, you will be able to walk into a clinic at Wal-Mart and get the test for (say) $50. A licensed para-nurse will administer the test. She will make $20 an hour. This will take at most 10 minutes, most of which will be devoted to filling out a form. The digital data will be sent to a specialized diagnostic firm in India. There, a licensed physician will look at the program’s analysis and offer his assessment. This will be sent to your email address.

Obviously, this is implausible. With the Federal Reserve running things, it will cost more than $50.

What is to prevent this, other than the AMA, the FDA, the FTC, the FBI, the CIA, or whatever agency or agencies assert primary jurisdiction? Take the government out of the picture, and what do we get? Better health. Cheaper health. Innovative health.

If we are talking about digits, things get cheap, fast. Things also get fast, cheap.

Why would this be bad for consumers? It wouldn’t. Why would this be bad for American physicians’ incomes? I don’t have enough time to list the ways. I can say this: the number of medical school applications will fall. Anyway, applications to American medical schools. Tuition rates will fall due to a hundred online medical schools training people in digital medicine. Most of these schools will be located outside the USA in a room with a computer. The faculty will be all over the world.

CONCLUSION

Medical care is about to receive a shot in the arm. It will be driven by price competition. It will be available to people in clinics that will serve people too poor to buy medical care today.

Will there be quacks? Of course. Will there be genius innovators — the equivalent of Salman Khan and his Khan Academy? Of course.

Will there be concierge doctors for the rich? Yes. The price will fall, as today’s licensed physicians get out of Medicare delivery and start serving only non-Medicare patients.

Will there be better living through chemistry? Count on it.

Will there be long waits in local doctors’ offices — doctors who still serve Medicare patients? Yes.

Will thousands of physicians cease to take new patients because too many new patients will be on Medicare? Yes.

Start making plans to shift to the medicine of the future. It will be cross-border medicine. That is where the savings will be. That is where the innovation will be. That is where the FDA won’t be.

April 28, 2012

From Lewrockwell.com, here.

‘Vayoel Moshe’ and the Israeli Left Are BOSOM BUDDIES

Here’s a quote from a recent speech by Ehud Barak:

“Israeli control over from the [Mediterranean] Sea to the Jordan River will definitely either end Israel as a democracy or as a Jewish state. That’s the essence of what we are seeing. We support a Jewish, Zionist, democratic, enlightened, liberal state.”

“The path of “Herzl, Ben-Gurion, and Rabin and Peres and everyone else – Netanyahu has strayed from that. The extreme right has pushed Israel towards the directions which the Talmud has already warned against, with two catastrophes that happened in history as a result of this kind of politics, with false messianism which tries to hasten the End [of Days] and give God a schedule for bringing the Messiah, which amounts to ‘storming the wall’, ‘provoking the nations of the world’ and spreads ‘baseless hatred’.”

“These three Talmudic prohibitions are violated every single day by people wearing kippot and priding themselves on their title of rabbis, but in fact, they falsify and distort Judaism, Zionism and Israelism.”

See the speech context on Arutz Sheva.

We have written about this before.