The Problem of Social Cost - COVID Vaccine Edition

Externalities and COVID19

In the simplest way we might define negative externalities as an uncompensated harm to third parties. What does this mean in the context of COVID19? During the pandemic it was possible to unknowingly become infected and either pre-symptomatically or asymptomatically spread it to others. Any behavior you may exhibit going about your daily life could be posing unwanted and uncompensated risks on me and vice versa. These risks and harms could have potentially proliferated throughout the food and healthcare system (as we saw in our food supply chains and currently witnessing in India).

There are a number of remedies for negative externalities. Probably the most well known solution is related to the Coase Theorem named after economist Ronald Coase. In the typical example of environmental pollution, the assignment of property rights and bargaining internalized the externality. Either the polluter pays their neighbors for any harm done, or the neighbors pay the polluter to pollute less. As long as transactions costs are low and property rights are clearly defined both parties can reach an agreeable solution. 

Alternatives to the assignment of property rights and bargaining include taxing or regulating the behavior to get less of it. But without rapid and available COVID testing it was hard to know who to tax or regulate, at least on a person by person basis (and what would that even mean - fines/citations/house arrest?) Similarly, it's hard for two individuals to reach a solution from bargaining.

Unfortunately, this lead to controversial and blunt solutions including lockdowns/shutdowns/capacity restrictions and mask mandates. The genius of Coase was the recognition that externalities are reciprocal. While my pollution may harm you, polluting less harms me. Similarly, shutting down businesses may have reduced the spread of COVID, but it also imposed costs on owners and employees not to mention mental health and other costs. 

Based on field research and game theoretic reasoning, Elinor Ostrom concludes that in many cases social dilemmas like those recognized by Coase can be handled through cooperation:

“If one sees individuals as helpless, then the state is the essential external authority that must solve social dilemmas for everyone. If, however, one assumes individuals can draw on heuristics and norms to solve some problems and create new structural arrangements to solve others, then the image of what a national government might do is somewhat different…National governments are too small to govern the global commons and too big to handle smaller scale problems.”

In many cases we saw and continue to see businesses and other organizations adopting their own related practices to mitigate the risks of COVID. The formation of 'bubbles' and 'pods' are one example. It is an interesting question what social conventions and alternative arrangements to government interventions would have developed in absence of the response we saw from federal, state, and local governments. One silver lining was our system of federalism, that at least allowed different communities to experiment with different ways of dealing with COVID vs a one size fits all blunt federal solution. 

Technology Changes Everything - Vaccines 

Howard Demsetz holds that technology and knowledge play a crucial role in the development and adoption of property rights and the internalization of externalities and social dilemmas:

Changes in knowledge result in changes in production functions, market values, and aspirations. New techniques, new ways of doing the same things, and doing new things-all invoke harmful and beneficial effects to which society has not been accustomed. It is my thesis in this part of the paper that the emergence of new property rights takes place in response to the desires of the interacting persons for adjustment to new benefit-cost possibilities.

Vaccines absolutely change knowledge and tradeoffs about COVID risks and mandate new adjustments to the different cost-benefit possibilities they bring. Once the vaccine is readily available the externality mostly becomes internalized. 

***Once an individual is vaccinated the probability that they can become infected and risk infecting others is very small. They are practically no longer able to pose unwanted and uncompensated risks on others. Likewise, even if a large number of individuals choose to remain unvaccinated, they are no longer able to pose any significant unwanted or uncompensated risks on others if they become infected with COVID. All that is required is individuals are free to obtain the vaccine to protect themselves from those unwanted risks. And those that choose to remain unvaccinated are willingly accepting the risks that go along with that decision.***

Internalizing the externality of COVID does not require herd immunity or that we meet some aspirational goal of vaccinating 70% of the population. There is certainly an additional challenge related to those vaccinated that may be immunocompromised and may not mount the necessary immune response to be protected from the unvaccinated. This calls for a bit more thinking and maybe an additional requirement of a certain percentage of the population be vaccinated and continue mask mandates until that threshold is reached. I'm not sure that percentage is 70%.

***With that exception, given sufficient access and availability, we no longer have uncompensated harms and no longer need the blunt makeshift regulatory solutions (restrictions and lockdowns) or social conventions (masks) we had before.  Sufficient availability means each individual in society has the opportunity to take or avoid the relevant risks of COVID without any need of further restrictions or new social conventions to be built around 'vaccine passports' or the like.***

Instead of putting energy into figuring out a vaccine passport scheme or maintaining excessive restrictions until some large number of people are actually vaccinated, our goal should be to focus that energy on simply making it available for those who want to get it (including children) and combating misinformation about it.

NOTE:  To be clear I am not saying that the unvaccinated pose ZERO risks to others or that they cannot infect other people that are unvaccinated. I'm not saying it is SAFE to be unvaccinated. There will continue to be people infected with COVID if they are unvaccinated and there could still be serious health consequences for some. I am only saying that these risks are becoming willingly accepted and those choosing to go unvaccinated are accepting these risks and the consequences in a way that was NOT POSSIBLE before the vaccine became widely available. The negative effects of COVID cases DO NOT GO AWAY but most of the uncompensated negative effects do go away because those that want to avoid  or at least drastically reduce the risks/costs can easily do so by getting vaccinated. I personally believe there continue to be POSITIVE externalities associated with the vaccine and the more people that get vaccinated the better. I personally received the J&J vaccine. I am in no way whatsoever making an antivax/anti-mask argument, or have intention here to undermine vaccination efforts. 

***UPDATE***  More recent data suggests the tradeoffs have changed. It is not true that those that want to easily avoid the externalities can do so by making the private choice of getting vaccinated. With the new variant and current low levels of vaccination, many more uncompensated harms will materialize.  In broad economic terms the positive externalities (public good aspects) of vaccines extend beyond herd immunity and slowing the spread of the virus to include dampening or reducing new variants. That’s the good news. The negative externalities generated by the unvaccinated extend beyond spreading the virus to selecting for more infectious variants (and of course all the negative health consequences that go with extending the pandemic to include virtual schooling and mental health). We’ve got a long way to go internalizing these externalities.

For example see:  COVID-19 vaccines dampen genomic diversity of SARS-CoV-2: Unvaccinated patients exhibit more antigenic mutational variance. Michiel J.M. Niesen, Praveen Anand, Eli Silvert, Rohit Suratekar, Colin Pawlowski, Pritha Ghosh, Patrick Lenehan, Travis Hughes, David Zemmour, John C. O’Horo, Joseph D. Yao, Bobbi S. Pritt, Andrew Norgan, Ryan T. Hurt, Andrew D. Badley, AJ Venkatakrishnan, Venky Soundararajan https://www.medrxiv.org/content/10.1101/2021.07.01.21259833v1 

References:

The above was a very broad brushed discussion of externalities and the Coase Theorem. For more details see: https://economicsprinciplesandapplications.blogspot.com/2013/03/externalities-coase-ostrom-demsetz.html 

 The Problem of Social Cost. R. H. Coase. Journal of Law and Economics, Vol. 3 (Oct., 1960), pp. 1-44

A Behavioral Approach to the Rational Choice Theory of Collective Action: Presidential Address,

American Political Science Association, 1997. Elinor Ostrom. The American Political Science Review

Vol. 92, No. 1 (Mar., 1998), pp. 1-22

Toward a Theory of Property Rights. Harold Demsetz

The American Economic Review, Vol. 57, No. 2, Papers and Proceedings of the Seventy-ninth

Annual Meeting of the American Economic Association. (May, 1967), pp. 347-359

The Knowledge Problem and Innovation Within Firms

In his podcast Vance Crowe has a discussion with Rick Holton about venture capital and why firms can't innovate. Vance uses a great analogy about the nature of firms and innovation: 

"you think of these large capitalist companies....but once you are inside the walls of a company there's a form of communism that goes on"

This remark is very similar to what Ronald Coase (who won the Nobel prize in economics in part because of his insights about the existence of large firms) said about firms in his famous article The Nature of the Firm. He effectively described firms as little islands of socialism:

"we find “islands of conscious power in this ocean of unconscious co‐operation like lumps of butter coagulating in a pail of buttermilk...Why are there these “islands of conscious power”? 

Indeed why? And how?!  Doesn't this conflict with Hayek? If the very idea of socialism is impossible due to the knowledge problem, then how can firms get away with it? Coase explains:

Outside the firm, price movements direct production, which is coordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur‐co‐ordinator, who directs production....the distinguishing mark of the firm is the supersession of the price mechanism.…“related to an outside network of relative prices and costs."

Innovation happens largely as part of the entrepreneur's (including venture capital) response to the uncertainty that firms face and their inability to 'calculate.' The role of the entrepreneur and profit and loss system (capitalism) is to maintain alignment with the 'outside network of relative prices and costs' or else firms could not exist, and we would have no innovation. 

It's the profit system that allows firms to thrive despite their internal struggle with the knowledge problem. The market, venture capital, and the entrepreneurial response to uncertainty represents a set of institutions for managing innovations that are not possible within the planned economies of individual firms. 

References:

The Vance Crowe Podcast. Rick Holton: Venture Capitalist on failed deals why corps can't innovate & helping the imprisoned. March 15, 2021. https://share.transistor.fm/s/0b9824be  (14:50)

Coase, R.H. (1937), The Nature of the Firm. Economica, 4: 386-405. https://doi.org/10.1111/j.1468-0335.1937.tb00002.

The Use of Knowledge in Society. F.A. Hayek. The American Economic Review Vol 35 No 4 (Sept 1945) p. 519-530

See also: The Knowledge Problem in Firms

What is Socialism?

One of history's most important economists, Ludwig von Mises, writes in In Human Action: A Treatise on Economics about two patterns of socialism:

"There are two patterns for the realization of socialism. The first pattern (we may call it the Lenin or the Russian pattern) is purely bureaucratic. All plants, shops, and farms are formally nationalized (verstaatlicht); they are departments of the government operated by civil servants. Every unit of the apparatus of production stands in the same relation to the superior central organization as does a local post office to the office of the postmaster general.

The second pattern (we may call it the Hindenburg or German pattern) nominally and seemingly preserves private ownership of the means of production and keeps the appearance of ordinary markets, prices, wages, and interest rates. There are, however, no longer entrepreneurs, but only shop managers (Betriebsführer in the terminology of the Nazi legislation). These shop managers are seemingly instrumental in the conduct of the enterprises entrusted to them; they buy and sell, hire and discharge workers and remunerate their services, contract debts and pay interest and amortization. But in all their activities they are bound to obey unconditionally the orders issued by the government's supreme office of production management. This office (The Reichswirtschaftsministerium in Nazi Germany) tells the shop managers what and how to produce, at what prices and from [p. 718] whom to buy, at what prices and to whom to sell. It assigns every worker to his job and fixes his wages. It decrees to whom and on what terms the capitalists must entrust their funds. Market exchange is merely a sham. All the wages, prices, and interest rates are fixed by the government; they are wages, prices, and interest rates in appearance only; in fact they are merely quantitative terms in the government's orders determining each citizen's job, income, consumption, and standard of living. The government directs all production activities. The shop managers are subject to the government, not the consumers' demand and the market's price structure. This is socialism under the outward guise of the terminology of capitalism. Some labels of the capitalistic market economy are retained, but they signify something entirely different from what they mean in the market economy.

It is necessary to point out this fact in order to prevent a confusion of socialism and interventionism."

Mises goes on to elaborate on this confusion:

"The system of interventionism or of the hampered market economy differs from the German pattern of socialism by the very fact that it is still a market economy....these are isolated acts of intervention. It is not the aim of the government to combine them into an integrated system which determines all prices, wages and interest rates and thus places full control of production and consumption into the hands of the authorities."

Politicians among the right and the left will often obfuscate policy debates by confusing or modifying these terms.

Vaccines and the Knowledge Problem

 Below is an excerpt from the blog Marginal Revolution:

"Northam’s health department has also forbidden people from crossing county lines to get the vaccine. If the county next to you has an abundance of the vaccine, you can’t get it. Only residents of that county may get their vaccine.These new rules will result in many people either having their vaccination appointment canceled or delayed for months." 

https://marginalrevolution.com/marginalrevolution/2021/01/our-virginia-regulatory-state-is-failing-us.html 

Vaccination clearly represents a public good and arguably falls within one of the legitimate roles of government. That means socially planned vaccine distribution. Chic-fil-A knows how to distribute chicken sandwiches efficiently through their drive through during a once in a hundred year pandemic, but government bureaucrats do not (and fundamentally can not! ) know how to distribute vaccines during a once in a hundred year pandemic.

Socially planned vaccination will demonstrate all of the key characteristics of social planning and socially planned economies: delays, shortages, excess, waste, abuse, arbitrary rules etc. This is NOT a partisan anti-government rant, or even a subjective personal point of view. It is an objective quality of bureaucratic decision making that no economist can deny. It's as much the nature of social planning as it is the nature of dogs to bark.

Socialism Can't Calculate

At the root of these unfortunate consequences is what economist Frederick Hayek characterized as the knowledge problem. Governments allocate resources in a fundamentally different way than individuals do in through the price system. The result is a well coordinated spontaneous order guided by prices that reflect tradeoffs based on the knowledge and preferences of millions of individual decision makers. Governments (via democratic processes and social planning) allocate resources based on the limited knowledge and preferences of a few voters, elected officials, or appointed bureaucrats. The fundamental problem facing all forms of government including democracies is that centralized decision makers never have enough information or proper incentives to act on the information at hand. That's the knowledge problem. Its not just a problem for governments, its also one of the biggest challenges faced by firms too.

Socially planned economies could never achieve the level of knowledge coordination required to give us things we take for granted today like smart phones:

   

 Or even something as simple and basic as pencils:

   

So What is the Answer? Federalism.

The fact remains that vaccination is still a public good and falls squarely and solidly within the scope of government decision making. Operation Warp Speed is a great example of how the national government can achieve some success in this space. By incentivizing production and largely getting out of the way from a regulatory perspective the national government was actually able to facilitate ways for private firms to step in and solve the knowledge problem related to vaccine discovery and production. These kinds of public private partnerships are a model for at least reducing the information loss associated with social planning writ large.

So we are forced into a socially planned vaccination effort. The good news, in the United States at least, instead of putting everything at risk with a single national plan, we get 50 chances to get it right, one in each state. While no one state will be able to necessarily avoid the knowledge problem, some may do better than others and we can learn from successes and failures getting closer to an approximation of the feedback mechanisms provided by the price system. This is one of the strongest arguments for our constitutional republic and federalism that our founders envisioned. 

By flirting with the nirvana fallacy and we might claim that a single national plan would be better than 50 different inconsistent plans - especially if some states prove incompetent. While we might argue that one set of planners (or administration) at the national level could get better results than another (enter political partisanship) that doesn't change the fundamental nature of the knowledge problem. Maybe there are economies of scale that the national government can realize, or maybe it has access to better resources or leadership with more expertise. Would these gains make up for what is lost in the local knowledge that states and counties have that the federal government could never grasp? Devolve as much decision making as possible to the most local level possible. Cooperation between national government, private enterprise, and local initiatives is probably the better answer. In fact, the current approach of the federal government incentivizing the development and purchasing a large supply of vaccines while allowing the states to distribute according to their own plans is consistent with this federalist approach.

Diversification is our best hedge against the the many risks of socially planned decision making. And it's probably the greatest reason our system of government has been able to tolerate a mixed economy as well as it has the last 50 years or so. 

Milton Friedman said: 

"the ballot box produces conformity without unanimity, the marketplace produces unanimity without conformity."

Our experience with a socially planned vaccination effort should provide teachable moments we can point back to in the future when politicians propose planning other aspects of our economy that aren't necessarily national emergencies or public goods. We don't want to introduce unnecessary fragility into our lives by creating unnecessary dependencies on plans whose relative failure or success has to rely on who's in charge. 

Note: In no way should any point above be used as an argument to undermine the effort to vaccinate the public at large.  This is not intended to be a criticism of the current vaccine effort or government. In fact the current approach is largely consistent with the ideals of federalism discussed above. This essay is meant to be totally descriptive and comparative. Getting to 70% + herd immunity is vital to fighting the pandemic. It's a huge public good and every effort by state, federal, and local government agencies and private institutions and individuals deserve great applause. We cannot expect to hold the performance of socially planned efforts against the standards of the price system in terms of their relative ability to solve the knowledge problem. The above is not an attempt to do so, but to illustrate the fundamental differences in resource allocation under a system of social planning compared to the price system. The distribution of vaccines provides a palpable illustration. Neither should this in any way imply that government employees and bureaucrats are incompetent. Everyone responds to incentives. The issue is incentive alignment.

Reference:

The Use of Knowledge in Society. F.A. Hayek. The American Economic Review Vol 35 No 4 (Sept 1945) p. 519-530

More about markets and the knowledge problem:

Models and Assumptions: Efficient Markets, Imperfect Information, Rationality, and Prices 

Economics, Evidence, and High Causal Density

 

 Related:

The use of knowledge in disaster relief: http://www.independent.org/publications/tir/article.asp?a=628

The Government's Response to Hurricane Katrina- A Public Choice Analysis: http://www.peterleeson.com/hurricane_katrina.pdf

Does the Median Voter Theorem Hold Up in the Current Political Climate?

If anything, divisiveness and polarization would describe recent politics (2016-2020). This has made me question my understanding of what's known in public choice as the median voter theorem (MVT). In a post a few years back I wrote the following about the MVT:

"....the median point of the preference distribution will elicit the most votes. Only those laws or candidates with a centrist twist will get the majority of the votes. Only those voters with centrist views will be happy, and it makes it very difficult for candidates to be elected if they want to bring about major reforms. This phenomenon is referred to as the ‘median voter theorem."

Similarly, in his primer article on public choice theory, Pierre Lemieux describes the MVT:

"a simple majority vote will be the ideal (or most favored) alternative that is at the median point of the preference distribution....This explains why, especially in two-party systems, political platforms are so similar"

This was probably my first reading about the MVT, and given the politics of the early 2000s it made sense and led me to believe American politics would most always produce 'moderate' candidates. Others seem to have made similar interpretations about the MVT producing moderates as winners of elections. Economist David Henderson writes in 2017:

"If the Democrats go far to the left of the median voter, what’s the Republicans’ best response if their goal is to win? It’s to go further left themselves"

Economist Tyler Cowen writes in the NYT a few years earlier in 2010:

"Any politician who strays too far from voters at the philosophical center will soon be out of office....In fact, there is a dynamic that pushes politicians to embrace the preferences of the typical or “median” voter, who sits squarely in the middle of public opinion. A significant move to either the left or the right would open the door for a rival to take a more moderate stance, win the next election and change the agenda."

In 2011 when I wrote my post, this all made sense. But recent events leave me with a number of questions about the MVT. Can the MVT explain political candidates as different as Donald Trump and Bernie Sanders? Or even Joe Biden for that matter? How different are voter preferences from the preferences of citizens in general? Are preference distributions bimodal? Maybe within each party the MVT holds but it breaks down at a national level if distributions are bimodal? 

In his piece, Tyler Cowen definitely helps remind us that the MVT has its limitations, and maybe recent politics are testing those limitations:

"Of course, the median voter theorem is far from a complete explanation of politics. Sometimes politicians lead public opinion and talk voters into accepting new ideas, as when President Bill Clinton promoted Nafta. And voters often favor conflicting or contradictory policies, like wanting to pull troops out of Iraq but also not wanting Iraq to explode into chaos."

I have not taken any deep dives in the recent literature, but I found a very insightful post on the London School of Economics blog post written by Richard Bronk. It seems to get to some of the questions I have had recently.

Why have moderate candidates been losing support (and elections)?

"When the financialised version of global capitalism enabled by this consensus ended in the financial crash of 2008 and long years of rising inequality and insecurity, voters were primed to look for radical alternatives to the status quo. Parties pursuing a median-voter strategy – along with the main institutions of the state and most market participants – were locked into what Wade Jacoby and I have called an ‘analytical monoculture’ that left them blind to problems that are not articulated in the language of standard economics and risk management."

How or why might the median voter strategy have failed?

"Only when all elements of the political centre had failed to address their concerns did electors risk voting for ‘anti-system’ alternatives"...[the MVT] assumed that political preferences could be placed on a single continuum (and that disparate underlying values could be converted to a single scale), so that governments could satisfy the preferences of a simple majority of the people and calculate the optimum set of policy trade-offs....[the MVT] underestimated how contested and unstable are the trade-offs between different goals – such as freedom and security, efficiency and equality, medical health and economic growth. There is no one right and rational set of trade-offs for an individual or society"

Is all lost in American (and global) politics? Not necessarily. We could see a return to moderation:

"it may follow that, as anti-system (and often populist) governments are in turn seen to flounder in their management of crises, anti-incumbency may work against the new players themselves.....Voters have noticed that what works to win electoral campaigns does not necessarily solve practical policy problems..."

If any economist might have ideas about how to handle social dilemmas, it would be Elinor Ostrom:

"crisis fatigue may cause voters to shun grand solutions with unknowable consequences and prefer the sort of incremental reform traditionally associated with moderate political parties of left and right. Uncertainty may also increase the voter appeal of the decentralised and ‘polycentric’ approach that Elinor Ostrom argued has the best chance of tackling urgent shared problems – by encouraging diverse experiments in living that engage and involve ordinary voters."

Additional References:

While they do not discuss the median voter theorem, David Beckworth discusses the possibilities of federalism for healing the nations divisive politics with David French: https://macromusings.libsyn.com/david-french-on-political-polarization-in-america-and-its-impact-on-the-2020-elections

Externalities, Coase, Ostrom & Demsetz http://economicsprinciplesandapplications.blogspot.com/2013/03/externalities-coase-ostrom-demsetz.html 

Public Choice Theory. http://economicsprinciplesandapplications.blogspot.com/2011/05/public-choice-theory.html 

Lemieux, Pierre, The Public Choice Revolution. Available at SSRN: https://ssrn.com/abstract=604046 

The Knowledge Problem in Firms

Micromanagement and many of the coordination and alignment problems within firms are actually manifestations of what Hayek characterized as the knowledge problem and was his major and most damning criticism of socialism. It's a limitation of planning and bureaucracy in general and applies to both profit and non-profit organizations. You could characterize Hayek's concept of firms as being 'little islands of socialism in a sea of markets.' The only saving grace for firms is that because bureaucracy and management don't scale so well in the long run the limits of irrationally are eventually tested by the external pressures of the price system which in a capitalist economy results in profit and loss, reorganizations, mergers, or bankruptcies. Creative destruction. Non-profits and government institutions have to rely on other kinds of institutional arrangements to work through these frictions. Better leadership and institutional arrangements can make things better but will ever only go so far solving the knowledge problem. 

Going to Bat for the Constitution

 In the Feb 4, 2013 EconTalk podcast Russ Roberts discusses the constitution with Louis Michael Seidman. Both agree on a really important observation about how we approach the constitution and originalism in practice in the United States:

"if you look at how the Supreme Court settles disputes about political morality in our country today, there's very little that ties that, or nothing that ties that to the Constitution. So, really, the important decisions, like the decision outlawing segregated schools or creating an abortion right or limiting affirmative action or protecting the rights of gay men and lesbians, those decisions have basically no grounding in the Constitution. They are some combination of the Justices' views of political morality, their views of our traditions, their interpretation of their own prior precedents; and if we are going to have a body act like that, I think we need to be honest with the American people and come clean and make clear that that's what it's doing."

That is a good point. Originalism in general is based on the idea that the constitution sets a floor or boundary around the powers of the government. Laws should be interpreted and applied under this view based on the the meaning of the text, as understood by the authors when discernible. Seidman argues in so many ways that this is moot, we aren't doing this now and never strictly did so from the very beginning, so why should we begin to do so today? Why should we pretend to hold ourselves to limits set by our founders some 250 years ago who would have known little about the world we live in today?

At risk of oversimplifying both an originalist view and Siedman's position I'll propose a fable. Suppose in a simple world a government writes a constitution and they only a few clauses. One clause relates to a single law. It states that they will have a speed limit set at 25 miles per hour. The second clause states that this law can be changed with a 4/5 majority of the legislative body or something like that. Now suppose over time it was largely ignored and was never really enforced, no fines no penalties etc.  People just drove at their own whim as fast or slow as they wanted. This seems to parallel loosely the world both Russ Roberts and Seidman agree exists today. 

Now suppose the day comes when a new regime starts a new initiative clocking speeders. A law enforcement officer tickets someone at 70 mph and they end up in court. The textual originalists might argue that according to our written law, this was a clear violation and the speeder should pay the fine. 

However, the legal advocates for the speeder argue that when that law was written few people owned automobiles and most cars were not capable of such excessive speeds on a normal basis especially given the state of the roads at the time. Their argument is that the case should be dismissed based on the view that laws should be interpreted with a more expansive, dynamic, evolving perspective and interpreted in light of changing social and political circumstances. The originalists push back in their opinion, recognizing that society has changed, and maybe 25 mph is no longer a reasonable standard, but it is the role of policy makers, not the court to update this law through the appropriate governing channels (the 2nd clause in our fictional constitution). 

Suppose the defendant wins and in its ruling the court states that speeds up to 70 mph are okay. The government could then post new signs with new speed limits. Citizens and law enforcement can be confident about the laws new meaning and the penalties involved.

Suppose the prosecution wins, and maintains the 25 mph speed limit. After much debate and pressure from voters policy makers go through the channels necessary to vote to change the law so that the new speed limit is 70 mph. 

One might argue, what's the difference if we get the same result? Critics of originalism might argue that its much more pragmatic and expedient to change outdated laws through the court system, because going through the necessary channels may be too time consuming and intensive. Going through the proper channels creates a sluggish and nonreactive government artificially constrained by ideals that may be outdated and irrelevant to current circumstances. 

But this oversimplified fable illustrates perfectly that focusing on the policy outcome completely misses  a much more important question. The most important question is not about policy, or about how time consuming or difficult it is to make policy. Or how much society has or has not changed. And while it is absolutely important to think about the incentives created by decisions and the consequences, there is still a more important question. The most important question is about who makes these decisions. Who is in the better position to recognize that society has changed and we need new laws? Is it the role of unelected judges to make these decisions? Do we send our judges to the bench to go to bat for the policies we like and pitch against the policies we find appalling? Do we really want to leave such important decisions up to an elite bench of unelected jurors that will always have a much more limited pool of knowledge and preferences than the population at large? Or do we send judges to the bench to go to bat for the constitution? 

In Judicial Activism Reconsidered, Economist Thomas Sowell describes our Constitution this way:

“The federal Constitution is "the supreme law of the land," not because it is more moral than state constitutions or state or federal legislative enactments, but because it represents a larger and more enduring majority.Minorities receive their constitutional rights from that enduring majority to which transient majorities bow, not from whatever abstract moral rights are imagined to exist as a brooding omnipresence in the sky.”

Letting judges decide policy represents a transfer of power away from the people. It is undeniably undemocratic. It may certainly seem more expedient to bring about change through the courts but this does not come without serous tradeoffs. Once we start making heroic interpretations of the meanings of words in the constitution it is weakened, and minorities are forced to give up their liberties to whatever transient majority takes power (either in the legislature or as appointed to the court). The short term gain from being able to bypass the amendment process (and shunning consent of the governed) in order to pass some much needed legislation to help some worthy cause comes at a long term cost to our liberty and national well being. This increases the incentives and opens the door for large corporations and special interests to influence our lawmakers, and provides the means for ever more concentration of power and the entrenchment of social classes. While the incentives created by an individual decision are important, we must think more globally about the incentives created when the courts are governed by a philosophy that favors policy making. Elections and politics become more divisive as more and more social norms are being set  by policy at the federal level by both 'conservatives' and 'progressives.' As Pierre Lemieux states in his article The Public Choice Revolution:

“The entire federal budget,” writes Mueller, “can be viewed as a gigantic rent up for grabs for those who can exert the most political muscle.”

Letting judges 'decide' also makes supreme court nominations the circus they have become. Hearings become opportunities to score political points as each party sends their nominees to bat for the policies most aligned with their base. Letting judges decide based on the whims of an ever changing political climate can further lead to bad precedent challenging the doctrine of stare decisis when questions of constitutionality would require overturning previous decisions.

Reforming the Way We View the Courts

We may hear a lot about judicial reform but just as important is reforming the way the public actually views the courts. One of the greatest mistakes by the left and the right is attempting to set social norms at the national level instead of local levels of government where consent is more easily ascertained. The constitution represents the social compact that we as a society agree to live by until it is changed. Until we are able to give it proper deference with regard to policy and our view of the role of the courts, we will not be able to achieve any meaningful reform and the courts as well as the judicial nomination process itself will remain in chaos subject to the changing whims of political climate.

Viewing the constitution as a 'living' document makes supreme court nominations and elections much more contentious and contributes to the increasingly divisive climate we have seen in society over the years. When circumstances arise, we can always escalate policy decisions to the federal level via the amendment process. This allows ultimate flexibility and breathes new life into the constitution. In this sense, it can be viewed as a living document. 

Perhaps there is an argument to be made about having justices on the benches with a diversity of philosophies. Doug Linder makes the point that a court without dissenters is a Court that will not adequately inform us of the costs of and consequences of different rulings. This would certainly be an argument against extreme measures like court packing. If there is an argument for expanding the number of seats on the court, then we should do it in a way that in a worst case achieves some sort of balance of judicial philosophies and possibly a larger pool of justices that rotate on and off the bench in a way to maintain balance.

Finally, we should stop referring to justices as either 'conservative' or 'liberal.' While used in their proper context these terms are meant to refer to an originalist or non-originalist judicial philosophy. But more commonly they give the impression that a justice will decide cases based on the political philosophy closely related to that of the president that may have nominated her. Continuing to refer to justices as 'conservative' or 'liberal' perpetuates the misunderstanding that judges are in a position to make policy decisions and not interpret statute or apply the constitution.

References:

Regulation, vol. 27, no. 3, The Public Choice Revolution. Pierre Lemieux.

Judicial Activism Reconsidered. Thomas Sowell. 1989