The Chronicles of a Capitalist Lawyer

One of my favorite legal issues is the existence of victimless crime, usually defined as non-forceful actions whose participants are not complaining for their participation and no direct injuries are inflicted to non-participants of such actions.

Victimless crimes are traditionally associated with actions performed by consenting adults which harm the society's moral foundations but not the society directly. These include drugs use, prostitution or non-marital sex and gambling, to name a few.

Some economists would argue that rather than criminalizing the above acts, it would be better to instead legalize them. Not only that those acts can provide additional income to the government in the form of tax, it can also minimize the costs of legal enforcement. A good example would be the war on drugs which has caused a significant costs in the form of money and lives.

Contrary to the above opinion, I, on the other hand, argue that victimless crime does not exist. If we are calculating the general welfare of the society, the costs imposed to each member of the society, even if they don't directly affect other members, would still matter.

There are costs involved associated with drugs usage, health costs of the user. There are also costs associated with prostitution, costs related to sexually transmitted disease and possible costs to marriage relationship because yes, marriage too is a form of investment between the parties.

And how about gambling? It is a form of property transfer which may easily fall into an inefficient form of resources allocation. Why? Because the game is usually designed to ensure that the bookie will always win.

A simple example: most gamblers' chance of winning is very slim in many types of games, while the winning chance of the bookie depends on the probability of the gamblers losing the game, i.e. 1 – whatever the probability of the gambler to win. If the gambler only has a chance of 1 percent or 0.01, the bookie will have 99 percent chance to win the game. A really easy way to gain money.

Sure, we always have the usual argument: those adults have already given their consent and they must take the responsibility for themselves. And it is also true that the regulations are not always consistent.

Take the cigarette industry as an example. The business is legal and they pay a considerable amount of taxes to the government each year in order to maintain the business.

So why don't we do the same for other type of "victimless crimes"? Let us view this not from moral point of view, but from economics point of view. Usually most people forget that when we legalize certain acts, it does not necessarily mean that the enforcement costs will disappear into thin air.

You still need to spend money to ensure that the "legalized" business will comply with the rules set out by the government.

As an example. If you criminalize drugs sale, you will need to allocate funds to enforce the law and punish the violators. If you legalize drugs sale, you will spend funds to also supervise the business, ensuring that these "business men" will play in accordance with the rules on drug sale. And if they don't? You will simply penalize them again.

How about income from tax? Well, you don’t need to legalize an act in order to gain additional income via tax, you can simply change the rule so that instead spending times in the prison, the criminals are required to pay all of their profits to the government. The effect will be similar to a tax and the government will receive money too.

How about prostitution? Legalizing the prostitution might reduce the costs of supervision because legalizing the business is usually associated with its localization. This will reduce the possibility of sexual diseases transmission and improve the protection of the sex workers.

But it is also not without additional costs. Localization may also increase the costs of the prostitution business. The procurer will need to pay taxes and the building lease fee, not to mention that there will be additional costs for moving the business place. With increasing costs, the service fee will also increase.

Who will guarantee that it will not create incentives for a black market with cheaper services for consumers who don't have enough money to go to the valid prostitution area? This will again impose another costs for legal enforcement, i.e., eradicating the illegal prostitution outside the legalized area.

Through these examples, I would like to show that thinking about victimless crime is not as easy as imposing tax and reducing legal enforcement costs. Instead, for every action, there would be economic consequences and if we want to make a proper policy, we need to carefully calculate the costs and benefits of such policy.

Recently, I found an excellent paper from Ronald Coase which summarizes the basic concept of Adam Smith on human nature. I would urge my readers to read the whole paper (first published in The University of Chicago's Journal of Law and Economics) as I think it provides a correct summary and a strong insight on how economists and also lawyers should think about human nature.

The final paragraph of Coase's paper is very important that I will just copy it here for ease of reading. Enjoy!

"It is wrong to believe, as is commonly done, that Adam Smith had as his view of man an abstraction, an “economic man,” rationally pursuing his self-interest in a single-minded way. Adam Smith would not have thought it sensible to treat man as a rational utility-maximizer. He thinks of man as he actually is-dominated, it is true, by self-love but not without some concern for others, able to reason but not necessarily in such a way as to reach the right conclusion, seeing the outcomes of his actions but through a veil of self-delusion. No doubt modern psychologists have added a great deal, some of it correct, to this eighteenth century view of human nature. But if one is willing to accept Adam Smith’s view of man as containing, if not the whole truth, at least a large part of it, realization that his thought has a much broader foundation than is commonly assumed makes his argument for economic freedom more powerful and his conclusions more persuasive"

As the title says, this article is a reply to a very interesting post from Imam Nasima on Legal Positivism Trend in Indonesian Legal System. As interesting as it may be, personally, the article raised a fundamental question, i.e. did Imam and the people he mentioned in his article discuss Legal Positivism as a legal theory or as a method of legal interpretation? If they talked about the second, I'm afraid that there is a misunderstanding here and my gut feeling says that this is a mistake similarly made by the majority of Indonesian legal scholars who deal with progressive legal theory.

Legal Positivism as explained by HLA Hart does not specifically deal with method of legal interpretation. After all, it is a theory about the law, on why law exists and has authority upon the people. In Hart's view, a rule existing in the society shall be treated as a law when the majority of the people in such society accept the authority of such rule from an internal point of view and the legal officers in such society treat such law as an authoritative source in rendering their decision.

Hans Kelsen, the father of Legal Positivism in the Civil Law tradition, also holds a similar position, albeit in a more normative way, i.e. that the validity of the laws is based on power conferring norms existing in a hierarchical system until we reach the basic norm where we presuppose the authority of such basic norm. Upon reaching the basic norm, Kelsen believes that the acceptance of the community of such basic norm is basically a social fact, something that cannot be explained by legal theory anymore.

Thus, in short, under Legal Positivism, law is a social fact, and to certain extent, it might be just a matter of head count. If most people believe and treat a rule as a law, such rule will eventually be considered as a valid law (of course this is a super simplified version of the theory). This however, brings us to the next question i.e., what's the relationship between Legal Positivism and legal interpretation?

A book titled: "Between Authority and Interpretation" written by Joseph Raz, one of Hart's best students, can give a good hint that a theory on legal authority does not automatically deals with theory on legal interpretation. In fact, to the best of my knowledge, I do not think that legal positivism endorses certain kind of legal interpretation method over another method.

This is the crucial point when we deal with Imam's post. From my reading, the critics to Legal Positivism made by the people in his post seem to be confused because they mix up Legal Positivism with rigid textualism. The idea that judges and lawyers should see beyond the text of the law is not an idea rejected by Legal Positivism.

Hart, which was also a master of the linguistic philosophy, acknowledges that there is a limitation for languages in delivering meaning, namely, there is a penumbra, a condition where confident speaker of the language will have different interpretation of a term. In other words, languages might not be able to convey the full intention of the speaker. And in such case, interpretation would be necessary.

Granted, in Hart's view, legal cases should be divided into two types, the easy cases and the hard cases whereas in easy cases, legal interpretation should be minimum since the judges will only need to apply the relevant law to the particular facts while in hard cases, judges will have more discretion. But even in easy cases, Hart believes that there are instances where judges do not have to apply the rules due to reasons such as justice and morality.

Regarding the above division of easy and hard cases, rather than making a normative argument, I think that Hart is making a practical argument, namely, the division is made based on his assessment of judges practices in the real world.

Most modern legal positivists believe that there is no prima facie moral obligation to obey the law, i.e. that the law does not have the highest power to exchange any moral reasoning that can be used by someone as a reason for action. The authority of the law simply lies in the fact that most of us accept such law as an authoritative source but it does not necessarily mean that we have a primary moral duty to obey the law and disregard any other moral reasoning.

This is consistent, I believe, with Hart's theory that law is a social fact. It is the fact in the real world that will determine how the law will be accepted, implemented and interpreted. Hart's theory of Legal Positivism therefore cannot be expected to endorse certain moral values or method of legal interpretation.

So what is the real problem here? If legal positivism can accept interpretation of legal texts, why are we still seeing people blaming Legal Positivism for the lack of progressive movements in Indonesia legal community?

Two possible explanations can be given here. First, the majority of Indonesian judges might actually believe that the law should be interpreted rigidly. Second, rigid interpretation is only being used to justify judges prior belief on certain moral and social issues. For both cases, further research should be done to know what the judges really think. In the United States, such type of research is common because their legal scholars really want to understand how judges will decide cases and what factors will be considered by them. I don't know though about Indonesia or whether our researchers will walk on the same path.

In any case, given the above explanations, I do not think that Legal Positivism can be blamed for the rigidity of the judges (assuming that is correct). Again, we return to the concept of law as a social fact. Legal Positivism will just say that descriptively, the majority of Indonesian judges adhere to strict textualism. Therefore, we can say that in Indonesia, the use of strict textualism will be considered as an authoritative way of reading the law. That's it. As simple as that.

Whether having strict textualist judges is good or not is a completely different question and I don't think that Legal Positivism would have the answer because it is not in the scope of a descriptive/positive theory to say about something normative such as, whether we ought to have judges who are not strict textualists and who will consider other norms and values in rendering their decision.

For me, the fact that Indonesian judges are strict textualists (again, if the assumption is correct since we need more data) does not have any correlation with Legal Positivism. I mean, I am a supporter of Law and Economics movement, who believe that legal rules should be interpreted in a way that maximize efficiency and the welfare of the society, and at the same time, I am also a Legal Positivist.

Can that actually happen? Being a Legal Positivist and at the same time becoming a supporter of Law and Economics? Why not? The problem is, Law and Economics is not yet a mainstream thought in Indonesian legal community and therefore, I would safely assume that most Indonesian judges would not taking it seriously, or even consider it as a part of valid consideration in deciding cases.

But should I blame Legal Positivism for such problem? Of course not. The only reason why strict textualism can become an authoritative method of interpretation is because most of the judges adhere to such method, not because Legal Positivism imposes a normative criteria that good judges should only use strict textualism in order to become authoritative.

If say, I would be able to convince most Indonesian judges in the future that Law and Economics is the best method of legal interpretation and most of them accept such theory and apply it in their cases, would not it be that from Legal Positivism point of view, Law and Economics becomes an authoritative method of legal interpretation that should be followed by the judges? This shows that any method of legal interpretation can live side by side with Legal Positivism.

I think that blaming Legal Positivism for Indonesian judges behavior is misleading. At the highest level, we are dealing with social facts, not normative issues. Prior to 1970s, Law and Economics was not a mainstream thought in the United States, but after the work of many people including scholars, law schools, and NGOs, it became a mainstream thought and currently holds a strong position in antitrust and corporate law cases (though weaker in the field of contracts and torts). The same thing might happen with the legal progressive movements in Indonesia. The question is, do they have a strong basis to convince our judges and lawyers to convert their belief or they simply don't have what it takes to survive in the field of legal theory? Time will tell.

I attended a national conference on the rule of law last week. At the conference, I presented my paper on the application of public choice theory into legislation system in Indonesia.

(Those interested to learn more about the subject can go to my website and search for the 'public choice' tags by clicking here)

It was a nice experience and a good chance to see how Indonesian legal scholars perceive the law and its normative values. Having a quick reading on various papers, it seemed that abstract normative analysis still conquers the Indonesian legal scholarship, at least from the conference attendees. In this context, abstract means vague principles or values that are difficult, if not impossible, to quantify.

For instance: the idea that law should promote the interests and happiness of the people, that law should promote justice and national interest etc. There is nothing wrong with promoting such ideas in terms of freedom of expression, but the problem is that abstract values usually stay vague in practice.

In one discussion, a participant raised a question that is addressed to me: "Should we quantify the law?"

I replied, "To some extent, of course, we should."

If we want to speak about normative legal issues, about what should be done through the law for the betterment of the society, quantifying the law is absolutely necessary. This is, after all, the essence of all of my law and economics discussion in this blog.

Normative law and economics uses terms like efficiency, costs and benefits analysis, and welfare maximization as tools to analyze quantitatively whether a law can really make a society better off after the enactment of such law, and whether a law will improve the welfare of the society or only imposing another unnecessary burden.

We all know that the law should be made by the people, of the people and for the people. Not the other way around. But how can we really know that a law is made for the sake of the people if we do not have any standard for measuring a successful law?

Therefore, how can we say that a law is good or bad if we are simply relying on abstract standards? Even worse, have any of you realize that politicians love those abstract standards because they can abuse them as a way of gaining votes or distracting public attention?

Anti-corruption law is a good example. Politicians play with people's moral values when they toss the idea of whether death penalty should be abolished for corruptors. The debates range from the protection of human rights, the moral cruelty of corruption, to deterrence effect of the death penalty (on the basis that death penalty is the ultimate punishment).

The notion of law and economics would criticize the above abstract discussion because frankly there is no way that we can resolve a conflict between those basic principles until the end of time. Some people still think from morality point of view that death penalty against human rights, while others think that it is fine if it is used to punish such a morally reprehensible act.

Instead, law and economics will ask the following questions:

1. Are there sufficient data supporting the claim that death penalty really reduces the rate of crime?

2. Is death penalty an efficient sanction for corruption? Or should we instead focus on something else, such as taking away the corruptors assets and preventing them to take any other official positions?

3. What would be the cost and benefits of having death penalty from procedural perspective? Is our criminal justice system ready to implement the higher standards of imposing death penalty?)

By proposing the above questions, we are, in a sense, quantifying the issues that need to be tackled in order to formulating a good law. We think how the current procedural problems in administering death penalty will affect the people, the innocent and the villains (the costs that will be imposed to them); the impact of solving such problem to our state budget; the incentives that we will create for current and future corruptors, etc.

Of course, quantifying the law might not be a perfect standard, but it would be better to have some concrete measures of success than none at all. And the above is just a really simple explanation. The same way of thinking can be used for analyzing any area of law, from criminal law to family law, and will be effective in analyzing controversial laws such as laws dealing with people's clothes.

Quick question, have we ever heard any of our politicians ask similar questions with the questions presented by law and economics? Most likely no.

Why bother asking the public to think critically about very important issues if nice rhetoric is enough to make the public confused or to vote for the most dramatic act of politicians?

The National Police Deputy Chief Nanan Sukarna on Thursday admits that there are corruption practices in his organization, as quoted by tempo.co. One of the many factors he cited was inadequate salary for police officers.

"How should we ask them to not stay clear of corruption if their salary is not enough to pay for their children's school?" he said.

From an economics perspective, this is an interesting topic. It is widely known by the public that being a police officer who only depends on salary will not make them rich or even survive day-to-day living. But despite such truth, why are there still many people apply to be one? If the job and payment are that bad, why do they pursue such career?

A case like this offers several explanations. First, it might be possible that the majority of people who apply to become a police officer put more value on the authority attached to their position. This means that for these people, the fact that they gain such position is more valuable than getting a civilian job — even with higher salary. Thus, there is a trade-off between authority and money.

Second, it might also be possible that the applicants believe their comparative advantage is to become a police officer and they will not be able to compete with other people in doing their jobs. As a result, receiving low payment is a risk they must bear due to their own limitation.

Third, worst case scenario, the applicants might see a possibility of becoming rich in the future, provided they can use their power for their own benefits. Being underpaid can be considered as an investment that must be sacrificed in order to gain more money in the future.

Last but not least, it is always possible that there are some people out there who pick the career as a temporary job until they find a better job offering. These people might be clueless about their choice of life or simply see the police badge as a stepping stone into something bigger.

Based on the possibilities above, we have two complex issues to be solved if we want to reduce the level of corruption in the police body.

First of all, we don't know to what extent the trade-off between salary and authority will remain useful to control the behavior of the police. Will eventually the basic needs of life defeat the need to obtain power and respect in the society? I'd say yes.

Then, how does one control authority? Without any proper check and balance mechanism, the ability to abuse the authority would increase significantly. Thus, the fact that they can't get much money from their salary would be meaningless since they can get more money from abusing their authority anyway.

In solving the above issues, although its effect is limited, increasing the overall compensation of police officers might be a good start. It must be combined with good indoctrination on the intrinsic value of becoming a police officer and strict sanctions for violation of code of conduct.

Otherwise, increasing the salary would be useless since they can get higher income from doing side jobs and abusing their authority — and they have a lot of incentives to choose that way. In such case, we will end up wasting more money for paying higher compensation, but with worse results.

If we do choose to increase the overall compensation, there is a budgetary problem. Asking the government to simply increase their salary might be problematic if the government does not have enough fund. So, what if we sell certain services of the police to private parties but with different price tag?

Although this might be a good way to raise funds, it will also create discrimination of service. I fear that the costs of such discrimination might outweigh the intended benefits.

Once the police service can be legally bought by certain party with higher price, the police will have more incentives to act for a certain group instead of the society and thus they will no longer be different from private security officers or troops.

It would be nice if they have enough officers to satisfy the entire need of the society and the higher price for special services can be considered as a subsidy from the rich to the poor. But if the supply of police officers is limited, it will be counterproductive.

Another thing to be considered is to let criminals, especially those that are involved in financial crimes and corruption cases, to bear the costs of legal enforcement. This can be in the form of giving a portion of the recovered assets or fines for such crime to the police officers who successfully solve the criminal case.

Of course, the case must be legitimate and any abuse of authority in getting the additional benefits must be strictly punished (including taking back all of the profits made by the officers from such illegitimate case) to avoid any incentives to bring false claim to innocent people.

My final suggestion is to make the resignation process easier within the police corps. Considering the fact that the compensation is not high enough, it might be better to let officers leave as soon as possible once they feel that this is not the right job for them.

This might save a lot of money and reduce the incentives to corrupt from the very beginning. If you realize that being a police is not the right job for you and yet you have no way out, what would you do? Could you stay sane or would you succumb to the temptation of corruption?

Men are weak, so we should not put too much burden on them.

Suppose you believe in Religion X and A is your God, and someone comes to tell you that your belief is false — A is a mere human and therefore he is not worthy to be worshiped. Would you call the scenario as a blasphemy to your religion?

If the answer is yes, then we have a problem because in reality, most religions — if not all — claim other religions are false or misleading. As you can probably tell, the above scenario is about Jesus. In Christianity, Jesus is God. In Islam, Jesus is not God: He is a human, one of the prophets sent by the almighty God.

In my previous post, 'The Law and Economics of 'Innocence of Muslims,' I argued that defining religious blasphemy is very difficult from the perspective of freedom of speech. Now I would like to emphasize the logical problem of having anti-blasphemy laws when we have so many religions in this planet. Thus, another reason why we should not support the existence of such law.

Why do we have so many religions? If it is true that all religions are the same, surely we have already converged all of them into a single faith a long time ago. But no, we know that will never happen because each religion claims the truth for itself.

Even in case where a religion accepts the possibility of having truth from other religions, it does not change the fact that such religion still claims the truth of its own teaching. I dare say that the policy of recognizing the truth of other religions is just a way to maintain stability rather than an actual confession of faith.

Why? Because it is simply illogical. A Christian can't say Jesus is God and at the same time accept the possibility that Muslim's claim that Jesus is not a god is true.

Or you may want to say that at the basic level, all religions teach the same things despite the differences of gods. But that would be another problem. Why bother having religion if the concept of God no longer matters?

The most important thing I want to show here is that there will always be a friction between different religions. It might be slight, but it might also be very sharp. Combine that with religion followers who have low tolerance level and we would have a great recipe for disaster.

Would anti-blasphemy law help? It depends. If we are talking about a law that will punish people who are considered as blasphemers, such law will not help at all. Even worse, it might be counterproductive.

An easy example would be the story of early Islam development. Prophet Muhammad must had spent years of his life in Mecca teaching Islam in the underground because his teaching was considered as a blasphemy among the Arabs at that time.

If not, why bother migrated from Mecca to Medina? Because Medina's citizen was more tolerant? Because it did not have the crazy people who will kill you because you are considered as a blasphemer?

How many early Muslims were killed arbitrarily in Mecca? How many of the killers were judged and deemed criminal for killing the early Muslims? We are quite lucky that the history changed and later on Islam became the religion of the majority in the Middle East.

Nowadays, Muslims can easily claim that those Arabs who worshiped stone gods are stupid and irrational. But the main reason why we can safely make that claim is because we are in the majority, not because we are absolutely correct or because those stone worshippers were indeed really stupid. That's the harsh truth.

This is why I don't support anti-blasphemy laws, because it brings us back precisely to the jahiliyyah era or pre-Islamic period. As long as you are in the majority, you will be fine. But not when you are in the minority.

Furthermore, there is no guarantee that we will always be in the majority nor that we will always be able to protect our minority brothers and sisters out there in case the other majority group decides to retaliate against them.

My suggestion is still the same. Don't waste our time fighting due to badmouthing. We can simply avoid conflicts by letting people choose what they want to believe and what they want to share with everyone else, provided that no elements of violence is involved during the process.

If in the end you are still suggesting people to fight back all bad mouthing using violence, then I'm afraid we have not evolved to be better men during the last 1,500 years.

I'll admit it: I have not watched "Innocence of Muslims," the anti-Islam film that has been blamed for causing ruckus around the world. Why? Well, I have more important things to do, one of them involves an amateur cooking competition with my friends.

Personally, in terms of importance, such movie sits in the category of "absolutely not important that even staring at the wall for 2 hours would still be better." The problem is, not everyone shares the same view. But before we discuss why Muslims are against the film, we should first study why some people are still trying to make a movie like this.

From economics perspective, the reason might be very simple: because with such a minimum cost, the movie can maximize the damages caused to the world, which I assume will also maximize the makers' own pleasure or benefit.

Why are the costs so low? Based on the comments of those who have seen it, "Innocence of Muslims" was a low-budget movie (bad editing, amateur actors, etc). And it is unlikely that the filmmaker - who, according to Wikipedia, resides in California - will face legal penalty in the United States.

The first reason might be the protection of free speech, though this is debatable. The second reason might be the fact that the United States does not want to show any weaknesses toward the demand of the Muslim worlds, including the terror they received in Libya which caused the death of the US ambassador and three other Americans.

On the first reason, the protection of free speech is indeed complicated. People may argue the movie is a hate speech. But what would be the correct standard? I mean, I've seen a lot of movies and jokes harassing Jesus in such a really bad way and yet, I have not heard any case in the United States sanctioning the makers. Should we measure hate speech from objective or subjective requirements?

The second reason is even more problematic. The movie undoubtedly triggers heavy protests from Muslim communities around the world. And within the protesters, some of them may use the event to promote their own idea of violence and war. Perfect timing indeed.

If the United States penalizes the filmmaker, it can be assumed by terrorists and war mongers that the United States is bowing down to their threat and thus, in the future, it would be easier for them to demand things from the United States as long as they kill certain US citizens.

In other words, the United States would also have difficulties in punishing the stupid filmmaker based on political reasons. I borrow this analysis from Prof. Eugene Volokh, a law professor from UCLA, and I agree with the basic premise.

If the filmmaker realizes the above facts (and I assume he was not stupid enough to bring the video online without thinking the consequences), it would be rational for him to actually publish the video since his own personal benefits outweigh his costs.

Unfortunately, this is inefficient and bad to the overall welfare of the society. Currently, triggering protests from the Muslim world using cheap tactics (such as this movie) has a success rate of almost 100 percent - if not 100 percent. And it is most likely that the protest can turn into a riot.

This is completely different if the movie is directed to, say, Christians. As I've said above, there are so many jokes and movies depicting Jesus in such a bad way that I am certain if you change the character into Muhammad, the makers will not live long enough to see another day. Heck, we even have a Jesus parody in Twitter.

Why do Muslims and Christians have such a different approach in handling these kind of issues? Could it be that it has something to do with education and living standards?

But as long as most Muslims continue to retaliate, I believe the cycle would never end. The supply of people similar to the above filmmaker might be endless and they will definitely take the advantages they currently have, i.e. free speech protection and political reasons.

The most efficient solution is of course ignoring these buffoons. After all an ant can't cause harm to a blue whale. The problem is, it will take a long time to reach that stage (if ever).

I can only hope the majority of Muslims will follow the Prophet basic rule in dealing with bad mouthing: Just ignore those people. Good for your health, good for your image, and less trouble for all of us. We still have many urgent matters which are more important than a stupid movie.