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The Social Cost of Freedom (Free, Pt. 1)

— September 12, 2017

The social cost of freedom, according to economist Ronald Coase, is symmetrical. One man’s freedom is another’s burden. Law is one attempt at fairness.

Back in the 1950s, economist Ronald Coase was thinking about the problem of the social cost of freedom.

Coase won a Nobel in Economics in part for his 1960 work “The Problem of Social Cost.” In this highly-cited paper, Coase used a thought experiment to illustrate that the social cost of freedom is symmetrical. Imagine two neighbors, a farmer and a rancher. Without a fence to separate them, the rancher’s cattle would trample and eat the farmer’s crops. No matter how this dispute is settled, someone’s going to have to pay for the fence. If the rancher is held responsible, building a fence to keep his cattle out of the field means that he’s paying to keep the farmer prosperous. Or, if the law holds that the farmer is responsible for keeping the cows out of his field, the cost of building a fence is all on him. Either way, the cost of freedom falls more on one party than the other, reducing that person’s freedom.

Sometimes, this literally happens, and the question is how to handle that cost. The State of Indiana has a law (Indiana Code 32-26-9) regarding splitting the cost of border fences between property owners who benefit from the presence of the fence. In 2016, Belork v. Latimer worked its way through the Indiana Court of Appeals. John Belork rebuilt lengths of a fence in order to keep his cattle on his property. Pursuant to Indiana law, Belork then tried to get his neighbor to rebuild the remaining portions of the fence. However, his farming neighbor, DMK&H, refused to do so, claiming that they did not benefit from the fence in question and didn’t use the fence at all, despite a history of Belork’s cattle escaping onto their property without it. Originally, the court decided that DMK&H didn’t use the fence, but the appeals court decided to grant Belork a rehearing.

Ronald Coase profile photo in 2003.
Ronald Coase profile photo in 2003. Photo taken at and by the Coase-Sandor Institute for Law and Economics, University of Chicago Law School. Courtesy of Wikimedia Commons.

However, Coase’s insight regarding the social cost of freedom can be applied more broadly. For example, prior to the Affordable Care Act, there was no individual mandate compelling people to buy health insurance. If you had a terrible accident, you could show up at emergency rooms and be stabilized and treated, regardless of your ability to pay, thanks to the Emergency Medical Treatment and Active Labor Act (EMTALA), signed into law by President Ronald Reagan in 1986 as part of the same legislation that created COBRA benefits. Unfortunately, emergency room treatment isn’t free. The cost of treatment, when the indigent couldn’t or wouldn’t pay (or were rendered bankrupt by trying to pay), was passed on to the public.

The individual mandate was originally a Republican effort geared towards putting the cost of medical care back where they thought it belonged: on the backs of the people using it. The alternative, after all, was for everyone else to pay for that care indirectly, in the form of higher medical bills and insurance premiums. (To be honest, though, that’s what insurance does, too. The difference is whether or not care would be provided even to those who do not bear at least the cost of their own insurance.) The social cost of freedom applies. Someone has to pay for medical care, just like someone has to pay for the fence. The difference is how we decide who benefits, and how that cost should be divvied up.

Tomorrow, in Part 2, we’ll look at times when the social cost of freedom is a little more opaque.


What a Nobel Prize-Winning Economist Can Teach Us About Obamacare
Appeals court reverses its decision on partition fences
Indiana Code Title 32. Property § 32-26-9-3
Belork v. Latimer (PDF)
Emergency Medical Treatment and Active Labor Act (EMTALA)
Original 1989 document where Heritage Foundation created Obamacare’s individual mandate
Americans Are Putting Off Medical Treatments Because They Can’t Pay

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