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Due to Jeff Bezos’ public accusations against the National Enquirer, the topic of blackmail is in the news. Tyler Cowen wrote an article for Bloomberg in which he largely took it for granted that blackmail was a bad practice, but he at least linked to a 1985 law review article by Walter Block and David Gordon arguing that the practice should be legalized (if not necessarily praised).

Continuing the discussion, over at the website EconLog, David R. Henderson chimed in on the side of Block and Gordon, and also linked to Robin Hanson , who thinks nobody has ever offered a good argument for keeping blackmail illegal. On the other hand, at the same EconLog website, Scott Sumner rejects these defenses and argues that blackmail is a socially harmful practice that the government rightfully outlaws.

In the present article, I’ll summarize and elaborate upon Block and Gordon’s case for legalizing blackmail, and I’ll point out some of the major problems with Sumner’s arguments in favor of its current prohibition.

Blackmail Is Not Extortion

Although people (even some of those linked above) often conflate the terms, blackmail and extortion are distinct. As Block and Gordon use the terms, extortion refers to demanding money (or other compensation) from a victim under the threat of doing something that violates rights—such as initiating physical assault or arson.

In contrast, merely blackmailing someone only involves “threatening” to do what the blackmailer has every right to do: namely, spreading gossip or embarrassing photos, etc. From a libertarian standpoint, this is a critical distinction. Consider: If nobody would object to the legal right of the National Enquirer to publish stories about Bezo’s infidelity, and the photos that go along with the gossip, and furthermore nobody denies the Enquirer’s legal right to refrain from publishing this material, then how in the world can it be a rights-violation for the Enquirer to ask Bezos for a financial contribution to determine which of these perfectly legal alternatives it will choose?

As with other defenses of unpopular characters, here too Block and Gordon are not necessarily saying we should admire the blackmailer. We may even go so far as to condemn him morally, and to denounce him as a bad person. But from the standpoint of libertarian theory, the activity of blackmail doesn’t violate anybody’s rights and therefore should be legal in a just society.

Possible Social Benefits of Institutional Blackmail

We can take the analysis further, using economics (rather than libertarian philosophy). Notwithstanding the popular revulsion against blackmail, there are actually potential social benefits that would flow from its legalization. In other words, the current policy of legally prohibiting blackmail might carry some significant unintended consequences.

First and foremost, allowing for legal blackmail contracts would probably bolster people’s privacy and reputations. Yes, it’s true that the prospect of a big payoff from a “blackmailee” would give an incentive for people to dig up dirt (especially on the rich and famous), but the whole point of digging up the dirt is to charge the blackmailee for silence.

Right now, tabloid magazines and websites have the incentive to dig up dirt on celebrities. But they monetize their gossip and embarrassing photos by selling papers (or motivating website clicks). If blackmail were legal, then they could also monetize their findings by offering to sell silence to a rich “target” in question.

For example, if a tabloid has a lurid photo of a famous musician cheating on his wife, maybe it can make $10,000 (all things considered) by publishing the photo on its front page and thereby sell more copies of that issue. (This possibility is why the tabloid would pay the amateur photographer who took the photo a sizeable amount of money for it.) But if the tabloid approaches the musician privately, maybe he would be willing to pay $12,000 for the photo. In a standard economic analysis, the “efficient” outcome is for the photo to go to the musician, rather than get published. And yet the government currently renders this “efficient” outcome illegal. In this example, far from hurting the privacy or reputation of the musician, the possibility of blackmail protects it, relative to the situation where blackmail is illegal.

Blackmail, Inc.

It’s important to keep in mind that right now, in the real world, blackmail still occurs—as the Jeff Bezos case makes clear. But because the practice is illegal, blackmail transactions occur in a murky black market. Consider: If someone approaches a famous actress with a dark secret from her past, and demands (say) $100,000 to keep quiet about it, then the immediate problem facing the actress is that even if she pays, the blackmailer might go ahead and publicize the secret anyway. Or—as so often happens in murder mysteries like Columbo—perhaps the blackmailer will keep coming back, demanding more and more money over the years.

In contrast, if the market for blackmail were fully legal, then we can imagine professional companies with name-brand recognition would emerge. They would offer bounties to the general public for bringing them “marketable” information, and then they would approach the affected parties and ask for payment. The targets of these offers would of course wish the situation never arose, but at least they could be assured by signing enforceable contracts.

For example, suppose The Truth Hurts Corp.—the companies would probably avoid unsavory names using the word “blackmail” itself—develops a reputation for impeccable accuracy in the material it publishes. Just like WikiLeaks in our world, the people in the community might disapprove of The Truth Hurts and wish it would disappear, but nobody had ever proven that it published something false. In order to maintain its reputation, the company would have serious vetting procedures in place before running with a story.

Given this track record, when The Truth Hurts approached a target, it would have more leverage than some other fly-by-night organization (like CNN). Consequently, it could demand more in payment to sit on a story—and this of course is why The Truth Hurts would be so careful in building and maintaining its reputation. Its targets would lament having to pay, of course, but they would be confident of success. Indeed, the standard contract might have a clause in which the target’s money was refunded if the secret ever came to light (whether from The Truth Hurts itself or some other organization).

Likewise, on the front end, The Truth Hurts might pay for juicy stories with a contract that said something like, “You will get $1,000 every year that the story remains silent, up to 10 years.” This would incentivize the original tipsters to keep their mouths shut, too.

Informal Norm Enforcement

The interesting aspect of this system is that it would provide an informal means of “fining” people for violating social taboos. Although this might strike some (such as Scott Sumner, whom we’ll discuss in the next section) as a horrifying means of puritanical social control, we could alternatively view it as a useful mechanism of minimizing socially undesirable behavior that augments more conventional law enforcement.

For example, consider the infamous case of the comedian Louis C.K. According to him, he always officially got consent from women before engaging in his wildly inappropriate behavior. So assuming that he is telling the truth, he didn’t engage in officially criminal behavior.

Even so, most observers agree that what he did was WRONG and should be actively discouraged by social pressure, including economic incentives. In a society with a mature, legal blackmail industry, as soon as Louis C.K. started earning some real money, the women involved could have told their stories to a company like The Truth Hurts. After its internal investigators verified the allegations and were confident “something was there,” they would approach Louis and ask (say) $200,000 for every year that they sat on the story. Out of that payment, perhaps the company would transfer half to the women complainants, likewise ensuring their annual payments so long as the public never learned of the allegations.

Now it’s true, some observers might think the outcome I just sketched is a woeful miscarriage of justice, where the rich and powerful can do whatever they want and just write checks to buy off their victims. But isn’t it better than the alternative? Right now, in the real world, Louis C.K. continued for years with his aberrant behavior, until finally some of the women from his past came forward. They were promptly vilified on social media (being called all sorts of horrible names), and didn’t receive any compensation. For his part, Louis suffered a huge hit to his income and reputation, for which he will never be able to recover.

In contrast, in my hypothetical world with legalized blackmail, the women complainants could have come forward much sooner, knowing that their stories would be kept quiet. They would have gotten a healthy portion of the payment flowing from Louis. And, perhaps most significantly, Louis would have paid a hefty “fine” for his early actions, and presumably would have stopped behaving like that, if for no other reason than because it was so expensive. He could have learned from his mistakes, and then moved on with his life, without a significant portion of the public forever branding him a monster and accusing him of far worse things than he actually did.

More generally, there are aspects in which a legalized blackmail industry can effectively “internalize negative externalities.” For example, in standard libertarian theory, it’s not a crime to cheat on one’s wife, but most people think that it is a destructive social behavior that should be strongly discouraged. Well, a legalized blackmail industry would effectively “fine” people for cheating on their spouses, and it would do so in a relatively swift yet discreet fashion. It’s not a perfect system, to be sure, but it has a lot going for it that barely anybody ever considers.

Sumner’s Objections

In this section, I’ll address some of the arguments economist Scott Sumner deployed in favor of the prohibition on blackmail. As we’ll see, they are quite weak.

For example, Sumner writes:

Consider that privacy and good reputations are widely viewed as being desirable. Most of us would like a bit of privacy and also a good reputation with the general public. That’s why libel and slander are illegal. Legalizing blackmail is effectively creating an industry that devotes resources to destroying privacy and destroying reputations.

Here Sumner has things backwards. Blackmail devotes resources to maintaining privacy and sparing reputations. When the tabloids get their hands on a naughty photo, the possibility of legalized blackmail lets them first offer it to the “victim.” By making blackmail illegal, the government currently makes it far more difficult for people to maintain their privacy and reputations.

At face value, Sumner’s claim would be akin to saying, “Legalizing automobiles is effectively creating an industry that devotes resources to destroying mobility and destroying transportation.”

Now in fairness, what Sumner is getting at is that with the option of legalized blackmail on the table, people will have an incentive to dig up dirt, who otherwise might not bother to do so. But as I explained in the previous section, to the extent that the “targeted” behaviors are actually socially destructive, then it’s good that society is devoting more resources to discouraging them.

In response, Sumner claims that “most blackmail involves issues of sex, gender and drugs..[L]et me just say that I believe that our society is unable to think rationally in these areas.” That may be true, but bringing in economic calculation is a way of helping to rationalize social norms. For example, hypocritical social attitudes would at least be made transparently obvious in the type of society I’m describing. Right now, with blackmail illegal as Sumner desires, people in polite society can claim to be shocked, shocked when some high-profile celebrity or politician gets caught doing something that a majority of them do as well, behind closed doors. But in a world of legalized blackmail, it would be harder for philanderers to denounce Bill Clinton (or Donald Trump) when they were currently paying monthly hush money to a company which had proof of their own infidelities.

What’s very interesting is that Sumner is a utilitarian, and yet in this case he doesn’t even attempt to justify the prohibition of blackmail on utilitarian grounds. Instead, he merely dismisses the preferences of most Americans as wrong:

I don’t want to legalize an industry that will draw in thousands of people who then devote enormous resources toward digging up dirt that destroys reputations because our sad, sick, gossip-obsessed society views those activities as naughty.

This omission is all the more striking, because in a different post on his own blog , Sumner advocates marginal tax rates on the super rich in the range of 70 or 80 percent (on consumption though, not income or wealth). Well when it comes to a legalized blackmail industry, one obvious outcome would be a redistribution of income away from rich celebrities and into the pockets of the relatively powerless people they trample over, as well as the relatively low-paid photographers and other snoopers who dig up dirt. And if the whole thing driving this process is the preferences of the majority, it’s really hard to oppose the outcome on utilitarian grounds. It seems Sumner is a utilitarian except when he finds the outcome yucky.

Conclusion

The recent controversy over Jeff Bezos has spawned an interesting debate among free-market economists on whether blackmail should be legalized. Although we might find blackmail to be an odious activity from a moral perspective, in terms of libertarian theory it doesn’t violate rights and so should be legal. Furthermore, by augmenting the actual legal code, a mature blackmail industry could enact “fines” for socially inappropriate behavior that steer people in a desirable direction in a relatively efficient and discreet manner, as well as compensating those who suffer from inappropriate but legal behavior, or who are victims of an actual crime but do not want the matter publicized. The quick dismissal of blackmail as an activity that should “obviously” be illegal often rests on a very shallow analysis.