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The Coase theorem demonstrates that these transaction costs detract from overall wealth and efficient economic behavior.  Legal impediments to private contracting for medical services should be removed, as such interference frustrates the ability to reach economically optimal results.  The best that government can do in controlling medical costs is simply to remove the transaction costs and get out of the way so that the parties, patients and physicians can negotiate optimal arrangements.

The Coase theorem demonstrates that these transaction costs detract from overall wealth and efficient economic behavior.  Legal impediments to private contracting for medical services should be removed, as such interference frustrates the ability to reach economically optimal results.  The best that government can do in controlling medical costs is simply to remove the transaction costs and get out of the way so that the parties, patients and physicians can negotiate optimal arrangements.

The Coase theorem also provides economic justification for adhering to Rule of Law, and rejecting an “evolving” Constitution.  As Judge Shadur observed above, as long as there is a rule of law it does not matter to prosperity where that rule assigns the rights.  Legal theorists or litigants cannot devise a new allocation of rights or entitlements that would increase prosperity.  Often the best courts can do is embrace the Rule of Law, and then get out of the way.  Changing rules midstream, as in arbitrarily taking one’s property,  is economically harmful.

The Coase theorem also provides economic justification for adhering to Rule of Law, and rejecting an “evolving” Constitution.  As Judge Shadur observed above, as long as there is a clear Rule of Law it does not matter to prosperity where that rule assigns the rights.  Often the best courts can do is embrace the Rule of Law, and then get out of the way.  Changing rules midstream, as in arbitrarily taking one’s property,  is economically harmful.

There are mind-bending implications of the Coase theorem.  Money itself is a property right, and that property will also be allocated to its most efficient uses regardless of who controls it, assuming rational behavior and no transaction costs.  Judge Shadur explained above that the Coase theorem means “the ultimate economic result is the same no matter which way the law has resolved the issue,” and likewise the economic result is the same no matter which rational person has the property right to the wealth.  Bill Gates may control $200 billion or so, but his only rational influence over investing that capital is the same as that of a rational homeless man:  allocate it towards the greatest demand in the market.  Of course, Gates could choose to dispose of his wealth wastefully, but that would be even less meaningful.  Simply put, the annual list of the richest people is no more meaningful to economics than an annual list of the poorest people would be, though a story about the latter would not spark the readers’ envy as much!

There are mind-bending implications of the Coase theorem.  Money itself is a property right, and that property will also be allocated to its most efficient uses regardless of who controls it, assuming rational behavior and no transaction costs.  Judge Shadur explained above that the Coase theorem means “the ultimate economic result is the same no matter which way the law has resolved the issue,” and likewise the economic result is the same no matter which rational person has the property right to the wealth.  Bill Gates may control $100 billion or so, but the best use of that money is dictated by demand in the free market.  If Gates decides to spend the money in a way contrary to its most efficient uses in the free market, then he is wasting his own money and it is his loss.

The Coase theorem even justifies the famous observation by Jesus that we “will always have the poor among” us.  Misguided governmental attempts to reduce the gap between the rich and the poor require injecting transaction costs into the system to restrain the successful and help the unsuccessful.  These transaction costs include higher and higher taxes.  But the more transaction costs are injected into the system, the more inefficient it becomes.

The Coase theorem even justifies the famous observation by Jesus that we “will always have the poor among” us.  Attempts by government to reduce the gap between the rich and the poor result in more transaction costs, which prevent future success.  These transaction costs include higher taxes and greater regulation.  The more transaction costs are injected into the system, the more inefficient it becomes, and society is worse off overall.  The only way government can eliminate the poor (relative to the rich) is by imposing transaction costs that make everyone poorer.  Redistributing wealth is like using a leaky bucket to transfer water from one place to another.

Government cannot reduce the gap between rich and poor without detracting from overall efficiency and prosperity.  In other words, the only way government can eliminate the poor (relative to the rich) is by imposing transaction costs that make everyone poorer.  Redistributing wealth is like redistributing water with a leaky bucket.

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