14 Likewise, there are important reasons why societies should take into account how the benefits of growth—namely, incomes and wealth—are distributed across groups and individuals. Distributional or equity concerns are important considerations for their own moral and political reasons. Efforts to improve equi- ty may or may not hurt growth. For example, when government uses tax revenue to improve education and health of the poor, it can lead both to more equitable outcomes and enhance growth by providing more educated, healthy workers and potentially entre- preneurs. Likewise, too much inequality can trigger populist backlashes that may result in growth-penalizing regulatory, trade, and tax policies. 15 Indeed, progressive income taxes, how- ever much they make (after-tax) incomes more equal, also can penalize work and entrepreneurship and thus diminish growth. R ULES F OR G ROWTH 10 13 Robert D. Cooter and Aaron Edlin, “Maximizing Growth vs. Static Efficiency or Redistribution” (working paper, University of California at Berkeley, 2010). 14 The central assumption underlying Coase’s famous theorem—that assignment of property rules has no impact on the allocation of resources—is that transactions costs are essentially zero so that the parties can costlessly rearrange rights to achieve the most welfare-enhancing outcome. In the typical pollution case, however, there may be only one or a few polluters and many harmed par- ties who cannot costly negotiate with the polluter to quit. In that event, taxes or regulation may be the preferred solution. 15 See William Russell Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin Group, 2006).
The magnitudes of these effects on growth, both positive and neg- ative, will vary and likely be subjects of continuing dispute. Citizens and policymakers must bring their own value judgments to policy questions and weigh the trade-offs between equity and growth, if there are any. Nonetheless, while addressing externalities and distributional equity are important objectives, they are not the central focus of this book, which is about growth and how legal systems can best foster it, primarily through boosting innovation. The book also concentrates on the legal system we collectively know best—that of the United States—although many of the suggestions and themes we advance here should be relevant to many other coun- tries at all stages of economic development. C AN G ROWTH C ONTINUE ? At various times, critics have questioned whether growth can continue indefinitely—though, importantly, not during and after the 2008–9 recession that has highlighted the importance of growth by its absence. After all, it is argued, the world has only a finite amount of resources (energy-producing sources in particu- lar), and thus, once those are exhausted, must not growth come to a halt? If this is the case, then there would be no point to this book or attempts to design laws and institutions to promote growth.
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