 Richard Epstein is the Lawrence A. Tisch Professor of Law at New York University. He's previously been the Peter and Kirsten Senior Fellow at the Hoover Institution and the James Parker Hall Distinguished Service Professor Emeritus and currently a senior lecturer here at the University of Chicago. Richard has been a member of the American Academy of Arts and Sciences since 1985. He's served as the editor both of the Journal of Legal Studies and the Journal of Law and Economics here at the University. Richard's most recent book is The Classical Liberal Constitution, The Uncertain Quest for Limited Government, last year. By my count, this book is Richard's 14th, but I expect I've missed a few. He's taught courses in administrative law, antitrust, constitutional law, contracts for our mental law, and also medicine and health policy, including pharmaceutical issues. Richard has written extensively on this wide range of topics. He writes a regular column for defining ideas, publishes occasionally in the Wall Street Journal, a bid page, and frequently speaks on legal and social topics. Today, Richard will speak to us on the political obstacles towards developing a private market in organs. Political obstacles, Richard. Well, it's always a great pleasure to come back to the University of Chicago. And, you know, I'm never quite sure what I'm going to say, but you'll notice the slides are not there. They never are. But fortunately, I was blessed by hearing two talks before me which set up an essay in contrast. The first by Dr. Singer was an explanation of how it is that you do entrepreneurial innovation with extraordinarily high rates of return by going after low-hanging fruit. And essentially what he said is, what you do is you play, let's make a deal with anybody and everybody whom you can find, understanding full well that gains from trade are the only way in which you can take different people with different inclinations, different skills, and different expertise, and put them together. And the rate of return he gets from his investment is simply remarkable. Dr. Connick works on a different scale. He's a vet guy taking care of people who suffer from various kinds of synergies. And the research program and the collaboration turn out to do exactly the same kind of thing. I regard both of these peoples as an exemplar of what our good friend Adam Smith said a long time ago, which is that the way in which you secure social progress is to find gains from trade by willing partners one to another. I'm now talking about another market which can only be described as brain dead. And that turns out to be the market in organ transplants. And I won't read to you all of the grisly statistics about this, but I do want to show you that there's an enormous amount of low-hanging fruit which will never be captured so long as note that turns out to be in effect and so long as it turns out to control the distribution of organs amongst various individuals. But the current state I think is really quite striking as to what's going on. I follow the number of people on the organ transplant list now for over 30 years and I don't think there's ever been a day or a month where it's gone down from what it is before. The last time I looked at it, it was about 122,000 people needing transplants on the line. There are about 100,000 of those needing kidneys. Kidneys are by far the easiest organ to transplant. It is also the greatest need under these circumstances. And yet when you start looking at the rate of transplants, what you discover for the last 12 or 13 years, it's exactly the same number, notwithstanding the increase in population. You see roughly 17,000 people getting kidney transplants each year. About two-thirds of those are cadaveric transplants which are much less effective than live transplants. The live transplants are essentially those done within families of one kind or another. Probably we give you in terms of useful life twice the benefit that you get from a cadaveric kidney. We've had very ingenious schemes for organ swapping that have been developed by amongst others, Lainey Ross. And it turns out they net you about 15 transplants per year at enormous cost, proving once again another proposition that Adam Smith well understood that barter was always less efficient than a various kinds of arrangements associated with sale. And then you start figuring out what's happening. Well, about every 12 minutes somebody on the list starts to die because they can't take it. Somebody becomes too sick in order to be able to receive an organ, yet the number of people who come on exceed by a factor of two, those that get off. And we turn out to be in perfectly stable equilibrium. Nothing whatsoever has been done except you see every time you open up a unicycle, a smiling young boy on a tricycle, and what he does is he says, this organ has saved me. And what I want to do is to talk about the thousands of people who weren't on tricycles, who were and saved, and you want to save for want of an organ. How did this happen? So I'm going to do something which is extremely unfashionable, but I think totally provocative and correct, which I'm going to try to monetize the situation on both sides of the organ situation. What does it you get when you receive an organ, and what is it that you sacrifice when in a voluntary market you give a cadaveric situation in order to ask the very simple question of whether or not it turns out there can be gains from trade. And if you look on the benefits side, one of the few things in which we actually have some confidence about what we know is the kind of value that you attach to a human life. It's not because people are routinely selling their lives, but they do take risk into account in one way or another, and the basic estimates that you have vary from somewhere between $6 million for a life to $9 million of life. That's the kind of number that's used with respect to pollution and various kinds of environmental harms. Kindie will not get you a full life under these circumstances. It will get you 20 years. Well, you have to discount that a little bit, so maybe you're talking about $4 to $6 million of potential gain under the current situation. Well, now you have to look at the cost on the other side, and it turns out that these costs are positive. And if you start with the risk of death, it roughly works out that the average transplant under current technology costs you about three deaths and 10,000 transfers, which on average works out to be a shortening of life by about 10 days compared to the gain of about 20 years on the other side of the line. There are collateral consequences associated with the cost of the operation, the loss of work time, distress to relatives, and so forth. You can really fiddle with these numbers whatever way you want, but you're something of a genius if you can get the sum to exceed $100,000. So what is the current political equilibrium given the fact that NODA is in place with its total prohibition? $100,000 is a very large sum of money to ask somebody to give to a random stranger to put it mildly, and so very few people will do that, and their families will often object. On the other hand, $10,000, $5 million is a very large sum to get, and so the question is, can you find a way in which you could compensate the losers in order to have the surplus transferred to the winners? And it turns out that the current systems of exhortation and so forth do absolutely nothing to change the dynamics of this by more than a couple of lives every year. If you could find a system of transfer, this would solve the problem. And so then the question is, why is it that we have the total prohibition on transfer? And what we do is we get a very long litany of excuses as to why markets don't work. And the first thing they don't work is because they sometimes fail, but that's exactly true with everything that Dr. Singer said, and if they fail the first time, you try to figure out how they're going to go. And in this situation, you have such huge gains from potential trades to take place that you could introduce all sorts of safeguards on a voluntary basis to make sure that the right people are chosen for these kinds of organs and the right recipients of the people who can get it. The only thing you have to do is to have a willingness to try, which you cannot do if it turns out that it's utterly impossible to develop an infrastructure which would allow these trades to be organized because these transactions are per se illegal under the current law. And so what we therefore do is we end up leaving about, you know, for every transplant that doesn't take place, four or five million dollars on the table. Well, how big a problem does this turn out to be? Again, I'm not an expert on this field, but there are about 600,000 people in the United States today who need dialysis in one form or another. The cost of running this particular system is over $70,000 a year, ignoring the pain and suffering with respect to the recipients and their families. And it turns out therefore that the end state renal disease program in the United States probably cost the United States north of $30 billion in order to maintain this moribund situation in its current status quo. So when you start looking at the situation, here's one very simple suggestion to make. If you're worried about whether or not people can pay in order to acquire an organ, what you do is you take some fraction of the $31 billion that's put there, give it outright to certain individuals, say, you go into the market and we're giving you enough money so that if you happen to get a good price for the organ, you could keep the change and spend it on everything else. So if the market rate would be around $100,000, double that, give it to people, tell them to go out there and to buy these organs and then develop intermediate institutions to solve it. Now people are going to say, well, you can't do this because we've never run an experiment on nothing that Dr. Singer ever did was run with an experiment before you have it. And it turns out you cannot create markets through experiments because in order for them to succeed, you have to have a long-term time horizon, which is the only way that people who are going to make fixed investments in acting in brokerage functions, knowledge functions of one kind or another can recoup their particular cost. If you tell them we're going to do it under lock and key, do it for a year, see what the results are like, nobody will invest in the kinds of institutions that are needed because the people who are running the program, in fact, are going to get it all wrong. So if this is the way in which the situation works, what then are the political obstacles to the particular program in question? And on this particular point, I'd like to refer to some work by a man named Bruce Randall, surely not a household word in this particular audience, but about 30 odd years ago this public choice economist started to tell the tall story of the Baptist and the bootlegger. Now, for those of you who are not economists or lawyers, which I guess is the majority of this particular room, let me sort of mention to you briefly what I mean when I use the phrase public choice, which is a well-established discipline. It turns out decisions are made in markets, and they are made typically by self-interested people. A little bit of benevolence thrown in here or there, but essentially self-interested most of the time. Public choice is what happens when you have a variety of political institutions in question where the same kind of self-interested people come together and make decisions by legislation and so forth. And essentially the basic story of the public choice literature is you can find cases where people rise above petty faction and conflict and do the right thing, but you can find a lot more cases where very bad outcomes come because the one thing about politics, which is not true with respect to markets, in markets you bind yourself and your trading partner, in politics you bind whatever minority you could happen to overrule by the legislative process that you put into place. So if a majority doesn't want something and it passes a prohibition, the minority is no longer free to innovate in any way, shape, or form. Well, how do you put these majorities together when you're dealing with this situation? And the basic theorem of the bootleger and the Baptist is there are strange bedfellows who come together in order to achieve the same objective for very different motivations. And so the original story of the Baptist and the bootleger had to do with the question of whether there's a prohibition with respect to the sale of alcohols. And it turns out we know why the Baptist wants it. They are people who believe that everything should be kept dry, that it's good for the soul, it's good for the moral being of the nation, and all the rest of that stuff. But they probably are not going to be sufficient in strength to be able to carry the day themselves unless they get a little bit more organized clout behind it. And that's where the bootlegers come in. These are individuals who will be able to make money only if there is an illegal market, which means that they have to invest in a prohibition that the stake had put into place so they can develop the wherewithal in order to beat it by the same tactics that were used during the course of the Depression. And the alliance that takes place is that the bootleger is essentially the source of money and the Baptist is the public moral statement of what's going on in the particular way so that you can basically give a high moral tone to what is chiefly an anti-competitive activity. Now, when we start to talk about organs, they may not be Baptists and they may not be bootlegers, but there are moral philosophers who are sitting in universities whom I regard as extraordinarily dangerous people. Thank you, Laney. And there will also turn out to be large numbers, to you too, my dear, and there are large numbers of people on the other hand who make huge profits from keeping the dialysis industry exactly the way in which it works. So if you're getting $30 billion in sales from one thing to another, who knows who the vendors are who essentially would find that if you could have an organ mark point to get basically $5 billion a year, spend it, knock the cues out, all of a sudden the need for dialysis implementation stops being a mainline growth industry, and it becomes essentially a transitional mechanism before people can get themselves their way. Well, if you're getting the kinds of profits from those sorts of situations, somewhere or another you will find a way to support political activities by people on high moral grounds who announce that the particular results that you're trying to achieve in any given case are in fact the kinds of result that the public ought to embrace. Now, this is a very large indictment that I'm making, and I want to make it perfectly clear that it's not simply an indictment that one wants to do with respect to the organ transplants. It carries over to virtually every aspect of medical care in the United States today. And what I want to do is essentially say that the biggest problem with respect to the intelligent reform of medical care is the healthcare profession itself and the politicians who work with it. Why is that? Because I'm looking at a group of individuals who are inherently, intuitively, and deeply statused with respect to everything they say or do. And so whenever somebody proposes a market solution, the only thing they can think about are negative externalities on the one hand and human exploitation on the other. So if you want to find yet another example of the kind of folly, I am now having the painful experience of teaching in detail, of course, concerned with how the FDA decides to allocate new drugs and so forth. And basically the organization is one giant barrier to entry with respect to treatments that might turn out to be prosperous. If you look in the Wall Street Journal from yesterday, Paul Howard of the Manhattan Institute has a review on that particular book by somebody trying to knock the thing down and it's exactly the same notion, which is there's somebody in government who knows so much about the way in which voluntary markets turn that they'll shut those things down without a chair. And then when it turns out, you see exactly the things that you would predict from these kinds of interventions, namely systematic shortages, no ability to adopt it, to work your way around it. There's never going to be a black market and organ transplants. Everybody knows that. You can go overseas for certain things, but not for many things. What you're going to do is to have yourself a recipe for stagnation and drift. And that's exactly the way in which we start to work in this particular country today. People have said to me, oh, you're just a fanatic. You're an extremist. You believe in voluntary markets. So I do. But there's nothing extreme or fanatic about it. It turns out you can't run voluntary markets unless you have a state that enforces contracts. Make sure that various agreements are on in a systematic fashion. Protects against various kinds of fraud and misrepresentation. Deals with the problem associated with respect to monopoly. Make sure that negative externalities like pollution don't take place. Deals with infrastructural liabilities and so forth. All of which I'm prepared to talk about on another day. But on today, what we are talking about is a subject that can you have a system of independent suppliers handling this situation so as to get rid of the particular problem they have now, which is an acute and blinding shortage of organs? And the answer is every gimmick that has been applied since Al Gore, that noted free market expert, decided to introduce Notaback in 1984 has been a resounding, total and complete failure. And that's exactly the way it will turn out to be. The economics are very clear. I'm going to repeat it to you again. It caused somebody about $100,000 or less to give an organ. The gains on the other side are about four to six million under current calculation. There are gains from trade of about $4 million for every single additional organ you can induce into the market. And the only thing that we're prepared to do as a nation right now is to sing ditties on television to people's moral conscience. But if you put a little bit of cash on the barrel, no matter where it comes from, you could have innovation and then you'll see the way in which that market starts to develop. There'll be generations and iterations that's tremendous rapidity, decentralize knowledge, we've central controlling, and it's actually on this particular issue healthcare is too important to be left to healthcare providers. Thank you. I have three minutes left, right? You're leaving. Why am I surprised and disappointed? Be fair, you mentioned my name twice and in the Republican debate it means I get to talk twice. I'm not a Republican, those statuses, come on, give me a break. Richard, what you failed to mention was who will be the sellers in this market and I think that would bring us back to the two speakers and to talk about sustainability, so why don't you comment on that? I think the answer to that question is anybody who's vulnerable doesn't have an organ that anybody else wants to acquire, so that the market will become pretty clear on how it organizes. First of all people will not come forward as sellers independently, there will be brokers and intermediates who will come forward and they will try to look to those people for whom the physical damage is the one which is going to be transplanted and remember it's only one organ transplant per person and so forth will go from a person who suffers less harm than anybody else so if today the family transplant involves somebody who say 50 years of age and maybe a little bit dicey you're running an organ market it's going to be people in their early 20s who are going to give it. And then on the other side what happens is that you're going to have a far greater, higher rate of organ cadabric and it can be transferred above the ground, what you'll do is you'll get maximum likelihood, you will change the sequence in which the organs are used, no longer will you have to be near death doorsteps in order to get to the top of the list, the highest bids will probably come from people who could get the greatest benefit, those people are just on the cusp from what's happening. So the way you deal with vulnerability is you create major transactions when they know by definition they're doing it only one time because they don't have a second organ in which to give. So actually they have more than one organ to give. I'm sorry. I don't think there's going to be a strong market for life, heart transplant and so forth. The reason I start with kidneys is you could solve five, six of the problem in a perfectly responsible way, save budgets and in effect what you're going to do just in the next half year that you add you're going to basically cost somebody else a day, that's a great trade if you can make it and you should be able to make it. Okay, so Richard you didn't attend yesterday where we talked about the health risks of being a living donor and in fact the group that is at highest risk of being a living donor are young people, African-Americans and males and those are going to be your sellers. No they're not, if what you say is correct then somebody will target those populations and people like you will get up there and say you know if you are in a high risk group don't do it and that information will come out there as well. Those are the same people. The thought that systematic ignorance is going to remain in a market when you have multiple commentaries is another one of the fantasies of people who believe that rigidity in the academics would translate into the world. Richard I just described the demographics of the people who are also the poorest in the world who have the highest use for the money if the health. Look the selection factor can be dealt with. The problem is you always think of worst case hypothesis and never ask the question is there somebody out there who can improve the way the situation works and the answer is Peter figured out how to do these things. When they go to Nepal they figure out counteract transplants that take five minutes to do and where do you can't introduce them in the United States because of all the things that are so rigidly status that it's time for me to get off the stage. I do want one clarification. Only one? Just one for the moment. Are you espousing and I thought I heard it at the end that the value of the organ might change depending on who is bidding for it. Are you advocating an entirely free market or sort of a controlled government market? I hesitate to ask you. You should not hesitate Mark. The moment you introduce government control it becomes government suffocation. If you need control there will be third party voluntary organization. Let me give you one example. You want to get information about what drugs are safe and not safe. The last thing you look to is an FDA warning. What you do is you find the voluntary warnings that are generated by organizations like the FDA. They will take into account the information you know. Which to see when should you use drugs, what about drug interactions, how long can you do it, what uses are appropriate. The government essentially can't have a monopoly over information. And recently with the First Amendment cases it can't have it at all. And what we know systematically is the information that is put out by the FDA warnings is far worse than that which is generated by the FDA. The only thing that is not that that prediction is not that markets will fail, it's that intermediates will flourish. Thank you.