The Permission Society. Timothy Sandefur

       THE FREE SOCIETY VERSUS THE PERMISSION SOCIETY

      THERE ARE essentially two ways for the government to regulate the things people do: the nuisance system or the permit system. These two approaches are based on the two different conceptions of freedom: right versus permission. The nuisance model rests on the premise that people have a right to act freely unless they harm someone else, while the permit system – as the word implies – assumes that people may not act unless the government allows them.

      Nuisance law embodies an old legal principle, typically phrased in Latin: sic utere tuo ut alienum non laedas, or “do what you will with your property, so long as you do not harm another.” This ancient slogan, well over 1,000 years old,¹ allows a person to use his property as he wishes, but if he harms his neighbor – say, causes too much noise or invites traffic that blocks the roads – his neighbor can sue for damages or for an injunction that will stop such abuses.

      The permit system works in the opposite direction. It holds that a person may not do anything with his property that has not been approved by the authorities. This system – sometimes called “prior restraint” – bars the person from acting until he meets whatever criteria are set down as the requirements for obtaining permission to use his property as he wishes.

      Each model has costs and benefits. One major drawback to the nuisance system is that it is essentially reactive: the neighbor typically cannot seek damages or an injunction until after he has suffered harm from some noxious act (or immediately before he does). This means that if the behavior in question is especially dangerous, the nuisance system might be ill-suited to preventing the neighbor’s injury. A property owner, for instance, who discovers that a dynamite factory is being built next door would probably not be reassured by being told that he can sue if the factory blows up. A nuisance system also seems poorly designed for regulating activities that inflict small but cumulative harms – as with some kinds of environmental contamination. If a factory emits tiny amounts of pollution over long periods of time, and problems only become obvious much later, neighbors might not be in a position to seek damages or an injunction afterward. The factory may have gone out of business by that time, or the harm may turn out so much greater than expected that the factory owners cannot afford to pay.

      The permit system, by contrast, is proactive. It forbids the owner from opening the factory at all unless he first takes steps to prevent pollution or other harms. Neighboring property owners can, in theory, rest assured that the new factory has met certain safety standards before it is allowed to operate. Yet the permit system has severe drawbacks as well.

      First, when a permit is valuable – for example, a business permit in a market where the government otherwise blocks people from doing business – those seeking permits will invest valuable time and energy trying to obtain one. This gives rise to the phenomenon economists call “rent-seeking.” When the government can redistribute wealth or opportunities – either by transferring money from some people to others or by granting licenses to do profitable things that are otherwise illegal – lobbyists will expend a proportional amount of effort to gain control of those opportunities. So if the government declares that only 13,000 taxicabs may operate in New York City – essentially the law today² – then the value of a taxi medallion will be quite high, and businesses will invest heavily in their efforts to obtain a medallion and prevent others from getting one. That’s why New York City taxi medallions now sell for about $1 million.

      Alongside this rent-seeking problem is the “knowledge problem” identified by Nobel Prize–winning economist Friedrich Hayek. Economic behavior is extremely complex, involving innumerable factors and information dispersed all over the globe. It is simply not possible for any individual or group to gather that information and organize it in ways that will enable them to plan an economy from the top down.

      Another economist, Leonard Read, illustrated this point with a simple example.³ Nobody in the world, Read pointed out, can actually make a pencil. Although a pencil is a simple device, made of wood, graphite, and a few other materials, actually building a pencil from scratch involves too many factors for any central intelligence to actually manage. The wood comes from trees, which must be felled by lumberjacks. But the lumberjacks must be fed, which requires a restaurant to serve them lunch. The restaurant, in turn, needs bread and beef to serve, and that comes from wheat and cattle, which means the economic planner must also arrange for farms and ranches, as well as threshing machines, slaughterhouses, and trains. A few simple steps along this sort of “old lady who swallowed the fly” reasoning, and it is easy to see that all of the planet’s economic factors are somehow involved in making even a simple pencil. And if the manufacture of a pencil is too complicated for any person or group to organize, then there can be no hope that government can properly organize the taxicab business in New York City. There are simply too many details involved.

      Permit systems run into the knowledge problem because they are based on the assumption that the officials charged with granting permits have the information necessary to make the “right” choices about what things should or should not be permitted. But bureaucrats rarely have that information, and they are often unable to consult the one factor – prices on a free market – that might help them decide. Even if such information were available, it would generally be drowned out by private interests, who (as we will see in chapter 5) often try to influence officials for their own benefit, or activist groups who exercise political influence but do not reflect the actual desires of consumers.

      Meanwhile, bureaucrats’ own incentives cause further confusion. They face few consequences if they make the wrong choice because they are government employees, paid with tax dollars, and will probably not be penalized if they deny a permit to a much-needed business or give one to a business that does not satisfy consumers. Ordinarily, the forces of supply and demand on the free market would gauge public needs in an objectively measurable way, enabling business owners to determine what consumers want. If the demand for taxi services goes up, prices will increase, creating an incentive for companies to add more taxis to meet the new demand. The relative costs of wood, graphite, and rubber will help pencil manufacturers judge how many pencils to produce and when. But the permit system short-circuits this process, so that prices, the only reliable indicator of public preferences, are ignored. Officials instead base decisions on political considerations – popularity, influence, sound bites, personal favors – rather than the forces of supply and demand that reveal what consumers actually want.

      This knowledge problem gets worse when laws that impose permit requirements try to specify the conditions people must meet in order to qualify for permits. Such conditions are often set forth in ambiguous and confusing terms. Vague laws are essentially a way of delegating power to administrators or judges to do as they see fit, with little oversight and virtually no accountability to voters.

      Consider the New Jersey law that regulates when and where banks can open new branches. One section of that law, now repealed, blocked any national bank from opening a new office in a city with a population of less than 10,000 if there was already another bank