David R. Henderson  

Lester Thurow, RIP

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On March 25, noted economist Lester Thurow died. Here's a good, if brief, obit in the New York Times. He and I had different views on many policy issues. He was a senior economist with Lyndon Johnson's Council of Economic Advisers, working under Chairman Walter Heller; I was a senior economist with Ronald Reagan's Council of Economic Advisers, working briefly under Chairman Murray Weidenbaum and for almost 2 years under Chairman Martin Feldstein.

Lester was a delight to work with. When I commissioned a piece on "Profits" for the Fortune Encyclopedia of Economics, he delivered it on time, at the right word length, and without a lot of editing required, but he graciously accepted my wife's and my edits. The Fortune Encyclopedia, of course, later became The Concise Encyclopedia of Economics, and his piece appeared in both editions (see here for the latest). Indeed, the experience was so positive that I asked him to do another piece for the first Encyclopedia: I told him that he was one of the few authors who had met the deadline. He explained that he couldn't because he had too many projects, adding words to the effect "That's why I make my deadlines."

I saw that we had different views on many policy issues, but they were not as different as you might think. I was blown away, in a positive way, by many sections of his book The Zero-Sum Society, which is actually why I thought of asking him to do the entry on Profits. Some excerpts from that book follow.

On protection (that is, barriers to imports):

As protection grows, there is no natural stopping point. The more protection we have, the more we need. Protected industries almost never reach the point where they can throw off their protection and reenter the competitive marketplace. Instead they drag others down with them.

On antitrust laws:
Finally, we now have historical experience demonstrating that the antitrust laws do not, in fact, produce competitive industries. At best the laws break one very large firm into two or three large firms after a very lengthy and costly legal battle, and the industry becomes slightly less oligopolistic. But slightly increasing the number of oligopolistic firms does not seem to make much difference in market behavior. The costs of enforcement are high and the benefits small. Antitrust laws have taken on a legal life of their own, but from the perspective of economics, they have little meaning or rationale.

On property rights:
While property rights of long historical lineage often seem intuitively obvious, they are not. If my neighbor throws his garbage on my lawn, I have the right to call the police to stop him and the right to seek damages. If my neighbor throws his garbage in the air (burns it), I typically do not have the right to call the police and collect damages. I haver property rights to land but not property rights to air. Yet clean air is probably more vital to my existence than clean space.

Each of us could give a good historical explanation as to why air property rights have not been developed. In a rural environment, air pollution is so unimportant that the ownership of air rights is simply not important enough to worry about. Clean air has a zero market price. But as society becomes more industrialized and heavily populated, clean air starts to have a positive market value, and its ownership becomes a real issue of concern. A similar change can be seen in the Law of the Sea conference. It meets to define property rights to the ocean floor. But this issue only becomes worth discussing when we have the technology to mine the ocean floor. We do not debate the ownership of the planet Pluto since no one has the ability to appropriate it.


This last reminded me of reasoning by my mentor Harold Demsetz in his classic article "Toward a Theory of Property Rights."

In the next day or two, I'll give some more excerpts from his book.


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COMMENTS (6 to date)
Jerry Dwyer writes:

I remember reading the book and being blown away by the solid economics of the arguments. I did not agree with his preferred solutions but many of his arguments were fine economics and fun to read.
I mentioned this to a colleague and he nearly threw up. How could I like something by Thurow? But it was good.

Benjamin Cole writes:

Property rights is a fascinating issue. The Supreme Court in 1926 upheld the rights of cities and states to zone land.

This was perhaps an erroneous decision; I think it was. In practice, property zoning prevents highest-and-best use of property, and strips property owners of the full benefits of their privately owned assets.

Should Pacific Grove simply un-zone?

Should Pacific Grove have a minimum wage?

David R. Henderson writes:

@Benjamin Cole,
In practice, property zoning prevents highest-and-best use of property, and strips property owners of the full benefits of their privately owned assets.
I agree. Although I’ve always thought that one of the adjectives “highest” and “best” is redundant.
Should Pacific Grove simply un-zone?
Yes. Although that would only be a step. Various other land-use restrictions would still be in a place.
Should Pacific Grove have a minimum wage?
I’m not sure why you ask in this context, but no.

Andrew_FL writes:

"This was perhaps an erroneous decision; I think it was."

Where was the error in the courts' legal reasoning about the powers reserved for the states under the Constitution, in your view? A decision is not "erroneous" because it finds a bad law (zoning) to be Constitutional.

David R. Henderson writes:

@Andrew_FL,
Where was the error in the courts' legal reasoning about the powers reserved for the states under the Constitution, in your view? A decision is not "erroneous" because it finds a bad law (zoning) to be Constitutional.
I was thinking the same thing, which is why I didn’t reply to his point. I have no basis for an opinion on the issue that Benjamin Cole raised, and didn’t want to spend my Saturday morning researching a 1926 Supreme Court case.

john cooper writes:

I had the pleasure of a brief meeting with Lester Thurow back in the eighties. I was thinking about grad schools and he was very kind in taking time to offer a stranger like me some advice. May he rest in peace.

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