No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Ten: It’s all About the Institutions! 240 road just to gain passage. This lowers the cost of business in the U.S. and expands the goods and services that are offered to consumers. The next time you are on the interstate, take a look around and try to count the number of tractor trailers you see. Then imagine what it might be like in your local store if these weren’t moving goods because of oppressive “highway robbery.” We cannot take for granted the importance of this institution—and the fourth amendment is just one enabling example. For an example of abuse of institutions, consider how our rights to seek legal redress can be corrupted by certain lawyers. Every year the American Tort Reform Association puts out a report on “ judicial hellholes” which describes the worst civil courts of that past year. Many of these courts are notoriously plaintiff friendly and trial lawyers file lawsuits in these areas to extort money from “deep pocket” corporations. Many large businesses try to avoid doing business in these areas if possible. If they are not able to avoid it, they work to get lawsuits tried at the federal level to avoid the local threat, which they view as extortion. One state judge was unusually candid in describing how this works. “As long as I am allowed to redistribute wealth from out-of-state companies to in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone else’s money away, but so is my job security, because the in-state plaintiffs, their families and their friends will re-elect me. ” – Richard Neely, Justice, West Virginia Supreme Court, The Product Liability Mess So while our court system is a very important institution for effective markets, if it is abused the results can be negative. Of course, if judges make decisions knowing that there is a God in heaven who will hold them to account, then we will have more effective courts. Likewise, most nations have a central bank as an institution. Ostensibly central banks are supposed to keep the currency’s value stable and ensure a smooth economy; in practice, the central bank usually does just the opposite. Our Federal Reserve is usually cited as the source of much of the problem during the Great Depression, and is currently blamed for at least enabling the housing bubble by setting interest rates far too low for far too long. Oh, by the way, the dollar has lost 96% of its purchasing power s ince the Fed was established in 1913 to keep its value stable! And the Fed is considered a good central bank…God help us if we had a bad one! HIGHWAY ROBBERY OR PUBLIC SAFETY ENFORCEMENT? While in college, my daughter went on a study abroad trip in South America where her bus was pulled over for “violations.” Once a suitable bribe was negotiated by the driver, they were allowed to proceed on. It is easy for many of us who live in nations that do not allow this type of corruption to take for granted how our superior institutional arrangements lead to better economic results and increased wealth.