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Zingers from Ronald Coase

Summary:
When I was an intern with President Nixon’s Council of Economic Advisers in the summer of 1973, the Law of the Sea was a hot issue and my immediate boss, Robert Tollison, took me to a number of interagency meetings. At one such meeting I received a copy of a piece (I think unpublished) by Ronald H. Coase. It was done for the Department of the Treasury under Purchase Order No. 268-73. I came across it while cleaning out my office. (A search of his papers at the University of Chicago shows that they have a copy.) In the piece, Coase argues that letting various governments claim jurisdiction over the minerals at the bottom of the ocean would be more efficient than having one U.N.-type body. He has some good lines. On House bill H.R. 9: In this bill, the ocean is

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Zingers from Ronald Coase

When I was an intern with President Nixon’s Council of Economic Advisers in the summer of 1973, the Law of the Sea was a hot issue and my immediate boss, Robert Tollison, took me to a number of interagency meetings. At one such meeting I received a copy of a piece (I think unpublished) by Ronald H. Coase. It was done for the Department of the Treasury under Purchase Order No. 268-73. I came across it while cleaning out my office. (A search of his papers at the University of Chicago shows that they have a copy.)

In the piece, Coase argues that letting various governments claim jurisdiction over the minerals at the bottom of the ocean would be more efficient than having one U.N.-type body.

He has some good lines.

On House bill H.R. 9:

In this bill, the ocean is divided up into blocks. A license to exploit a block is to be issued by the Secretary of the Interior “to the first qualified person who makes written application and tenders a fee of $5,000 for the block . . .” Such a provision seems designed to provide opportunities for corruption and will certainly produce inefficiency. Since people will not pay a $5,000 fee for a block unless its value to them is at least $5,000, it follows that almost all, or all, blocks which are licensed by the Secretary will be worth more than $5,000. For all I know some blocks may be worth $5,000,000–or more. At any rate they will be worth more than $5,000 and possibly a good deal more. Who will get these bonanzas? The bill gives us the answer–the first qualified persons who apply. But how anyone becomes the first (apart from the obvious precaution of not using the United States Postal Service) or what has to be done in order to be qualified is left unclear . . .”

I vaguely remember someone at one of these meetings who was hostile to Coase’s view reading the USPS passage aloud with disapproval and no one laughing. Well, almost no one. There was one guy who laughed–a 22-year- old Canadian with an almost Afro who had just finished his first year at UCLA econ. The thought that I had at the time is that when you go into government, the first thing to go is your sense of humor.

Another funny line (although here I think his bitter humor probably badly hurt his chances of having an effect) was in his closing part about how the U.S. government could extricate itself from Nixon’s ill-thought- out plan for a large international body controlling things:

Since the chances for a meaningful international agreement of the kind advocated by the United States Government do not appear great, particularly if the United States Government moderates its support, opportunities for a graceful change in policy “which takes account of the realities of the world situation” will not be lacking. To those who find such subterfuges distasteful (if there are any such in Washington), it should be pointed out that there is a degree of hypocrisy in the present policy which reserves the least valuable part of the ocean floor “for the benefit of mankind” and then puts it in the charge of the kind of organization least likely to use it productively. The policy I advocate not only serves the economic interests of the United States but, by increasing the production of wealth from ocean resources, will really benefit mankind.

I wonder if he meant, in the above quote, not “least valuable part” but “most valuable part.”

By the way, one of the concerns I remember various people at that meeting having was whether the U.S. Navy would be able to go anywhere it wanted if other countries’ governments made an increasing number of parts of the ocean into territorial waters. Coase dealt briefly with that: he thought that whatever the rules were, U.S. Navy ships would be free to go anywhere. I’m not sure everyone at the meeting was convinced. But at that first meeting, I said that that might not be bad because countries’ governments that kept the U.S. Navy would also have a good probability of keeping the Soviet Navy out, and so the result would be an unintended bit of arms control. That was a hard sell, made even harder by what Tollison said to the group immediately after my comment: he pointed out that I was Canadian. I wish he hadn’t done that. I think he knew me well enough by that point that he knew that that was not even a consideration in my mind.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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