Simple Rules of a Complex World.

Boudreaux, Donald J.

Despite a title that might lead readers only vaguely aware of Richard Epstein's scholarship to expect a law-and-economics version of Robert Fulghum's All I Really Need to Know I Learned in Kindergarten, Epstein's Simple Rules for a Complex Worm is no simple book content to dispense truisms that warm the hearts of Chicago-oriented economists and legal scholars. Instead, it is a magnificent book. Nearly every page bursts with profound insights, all pointing plainly in the direction of limited government. Quite sincerely, I cannot imagine any careful reader coming away from this book unconvinced that at least his larger theme is correct. (Being already sympathetic to arguments for limited government no doubt enfeebles my imagination on this score. In fact, Epstein's book has not enlisted every reader to the cause of limited government (see, for example, Feldman [2]). But I think that were I a fan of active government before reading Simple Rules, I would not now be.)

The title of the book reveals Epstein's Big Theme: the greater the complexity of society, the greater the need for simple legal rules. Recognizing that this theme is counter-intuitive, Epstein argues his case masterfully. He argues it from the "top-down" - making a theoretical case for the virtues of simple legal rules in societies marked by an extensive division of labor - and from the "bottom-up" - using one specific example after another of how simpler rules would improve upon the operation of complex modern American regulations that almost certainly have gone awry by any plausible social calculus. Employment law, corporate law, products-liability law, and environmental law are only some of the specific bodies of law - each treated in its own chapter - used by Epstein to make his case for simple rules.

What are simple rules? Answering this question occasions one of the few instances in which Epstein is unnecessarily opaque. He says, straightforwardly enough, that a rule is simpler "the cheaper the cost of compliance" [p. 25]. But further reading reveals that low compliance cost is only half of the story. The other half of the full definition of simple rules is that courts and government agencies not encounter overly high costs of administering these rules [pp. 30-36]. Simplicity of rules may not be sufficient for a free and prosperous society (a simple rule can be sinister) but simplicity certainly is necessary (a complex rule is almost sure to be harmful).

An example of a beneficial simple rule is "Employers can hire whatever adults they wish, on whatever terms are mutually agreeable." This rule, endorsed by Epstein [pp. 151-93], has low compliance costs and low administration costs. Employers and employees can voluntarily contract and make mutual adjustments to provide the combination of salary and benefits that different employees desire. For instance, some employees might want a higher salary and fewer benefits; others might want the opposite. This simple rule expands choice for all employees, making each better off than each would be under a government rule specifying in detail the exact combination of benefits and salary that each employee may receive.

Of course, this simple rule also no longer describes American employment law. Late 20th-century employment law is a hydra-headed monster of complexity, mandating minimum-wage rates, the provision of fringe benefits and workplace safety, and hiring practices based on employee identity. Employers are assumed to be powerful fiends; workers are assumed to be powerless fools.

Were it true that employers generally are fiends with unbreakable monopsony power in labor markets, then a case could be made for the mind-numbing complexity of existing employment law. After all, detailed and pervasive government regulation of fiendish and incurable monopsonists might provide the only hope of ensuring that employers will behave appropriately. But employers are not fiends. More importantly, labor markets are reasonably competitive (and would be more so in the absence of today's complex regulations). As a result, the regulations now thickly encrusted around and within employment contracts are little more than sand in the gears, throttling the mutually beneficial adjustments that employers and employees would otherwise make. Because of the government's complex and pervasive limitations on bargaining between employers and employees, the current regime inflicts needless suffering on workers. Readers of this Journal need not be told how minimum-wage legislation steals jobs from the lowest-skilled workers, or how so-called "family leave" regulations reduce wages and employment opportunities, especially for women.

The multitudes of mutual adjustments that must daily be made by each of us to the demands of others and to resource scarcities are best revealed and promoted by that relatively simple system of rules forming the core of Anglo-American common law. The six simple rules Epstein identifies [p. 53] are (1) self-ownership; (2) first possession as a means of establishing ownership of things; (3) voluntary exchange; (4) protection against aggression; (5) just compensation for property taken by government for public use; and (6) allowance in certain limited and readily identifiable circumstances of exceptions to the rule of voluntary exchange. (Lawyers classify the exceptions carved out by this last rule under the heading "cases of necessity" - such as when a boat caught in a savage storm is allowed to dock on private property even if the dock owner withholds consent.) These six simple rules - along with their complementary and rich body of rules of application - have evolved over the centuries in common-law courts in response to countless people seeking settlements of their specific disputes. The jurisdictional competition that for much of history characterized Anglo-American legal institutions [1; 3] justifies a strong presumption that the rules that emerged from this long history of competitive adjudication and governance are efficient (or just). (Epstein [p. 319] rightly points out that our sense of justice reflects pretty closely the efficiency properties of various rules and behaviors.) Formed in a vacuum filled only by special-interest groups and lacking specific factual dispute and context, legislative attempts to replace these common-law rules with newly created rules will, therefore, almost inevitably unleash greater injury than improvement.

Simple legal rules do not imply simple social arrangements. In fact, the opposite is true. Individuals allowed to adjust to each other and to the physical world as each sees fit, constrained only by these basic common-law rules that bound but do not specify individual behavior, over time create awesome social institutions that in very complex ways promote prosperity and human happiness. But when individuals are not trusted to act on their own - some people because they are thought too iniquitous, other people because they are thought too inept - then central direction of human affairs replaces the decentralized adjustments that take place within the broad boundaries enforced by the simple rules. Central planners, however, can no more divine and implement the precisely correct set of human behaviors than they can divine and implement the correct set of prices for commodities and capital goods. Attempts at central direction inevitably, then, beget all manner of maladjustments and tensions. Centrally directed people react by circumventing or sabotaging the centrally imposed rules. These rules grow ever more byzantine as government tries to prevent rule avoidance. One result is a behemoth-like, intrusive, and arrogant state operating according to rules so complex as to be beyond the grasp of ordinary citizens. Another result is a sclerotic society, one in which people's abilities and urges to behave creatively and dynamically are crushed under the weight of complex regulations. As government rules grow more complex, society shrinks further and further into docility and simplicity.

Before concluding this review, I must single out Epstein's closing chapter, "The Challenge to Simple Rules." It is a gem among gems. Economists can learn much from his justification of the self-interest assumption, and legal scholars much from his remarks on the nature of justice. And though it takes only five pages, Epstein's expose of what he calls "the communitarian impulse" [pp. 320-25] is the most effective response to self-styled communitarians that I've ever read. For reasons revealed throughout the entire book, Epstein is surely correct to point out that "the strong governments envisioned by communitarians tend to destroy these voluntary associations" [p. 323] for which communitarians loudly clamor.

Buy a hardcover edition of Simple Rules for a Complex World. You'll want to keep it for a long time.

Donald J. Boudreaux Clemson University

References

1. Berman, Harold J., Law and Revolution. Cambridge, Mass.: Harvard University Press, 1983.

2. Feldman, Heidi Li, "Libertarianism with a Twist." Michigan Law Review, May 1996, Vol. 94: 1883-1897.

3. Weingast, Barry R., "The Economic Role of Political Institutions." Journal of Law, Economics, and Organization, April 1995, Vol. 11: 1-31.