Law & Economics and Political Theory

First of all, a caveat: I'm not talking about all law & economics. Not necessarily. The central concept of economics is optimization under constraint, and in principle those techniques can be used under any value scheme that tells you what to optimize (although it does get tricky when you have non-quantifiable values). You can do a law & econ-style analysis, therefore, under any value scheme. But I am talking about most of the field of law & economics, as I have encountered it so far. Not just the Richard Posner-style law & econ, the problems with which are obvious, but also with kinder, gentler, Guido Calabresi-style law & econ. Okay, caveat over; actual piece after the break.



There's a problem with the field of law and economics: it lacks, in large part, understanding of political theory. And I mean something quite particular by that. Law and econ is all about economic analysis of the function of law. There's a substantive portion of this, where the field tries to give some advice on what the correct legal rules are, and therefore what the law should be. This is, arguably, where the divide between the Chicago, Posner, right-wing law & econ and the Yale, Calabresi, left-wing law & econ mostly situates itself. Posner's side is very committed to the standard "freshwater" microeconomic view of the world, which sees people as "Homo economicus," interested only in the rational pursuit of their material self-interest, and accordingly holds that the goal of social policy should be the promotion of economic efficiency, which in practice means maximizing GDP. Calabresi's side is more willing to admit that things other than "efficiency" can matter, and that sometimes the "efficient" rule is not the right one. Good for them.

But in my admittedly limited experience, there's less disagreement on the procedural side: law and economics tends to see the purpose of the legal system, as distinct from the legal rules it enforces and/or creates, as dispute resolution. Substantively we need to craft rules which allocate property and legal rights that take proper account of economic incentives and that lead to efficient outcomes, on some level at least. But once we craft those rules, the goal is to resolve disputes efficiently, i.e. with as low costs as possible. That means balancing the costs of administering the system with the costs of making incorrect decisions. These are costly because they interfere with the proper operation of our legal rules, which are supposed to be efficient. If, for instance, there's some form of improper conduct with substantial externality costs to society but that creates $900 of benefits to the perpetrator. A $1000 fine will deter the behavior, but only if we impose it with perfect accuracy. If, say, 15% of wrongdoers are acquitted, that fine won't be enough. And if the externality costs are only, say, $1200, then once our error rate goes about 25% we won't be able to impose penalties that are sufficient to deter but aren't more costly than the conduct itself. Or something like that.

Against this desire to get the right result so that people have the right incentives is the fact that justice is costly. We don't have that many judges, and to get more we'd need to pay more of them. Actual days in court are, therefore, scarce resources, so we should try to take up as few of them settling any given dispute as possible. Of course, making dispute resolution simpler and lower-cost should also, all else being equal, make it more error-prone, at least once we've picked any low-hanging fruit of actually counterproductive judicial institutions. So the question is, what's the most "efficient" amount of justice? How much procedure should we allow? Under this framework, the fact that almost every single civil suit is settled or dismissed before trial is awesome. Trials are expensive! More than that, they're harrowing, stressful experiences for everyone involved. Any time parties can have their legal positions clarified by the court and then settle their dispute themselves, everyone wins. (The question of how much justice is the right amount bleeds back into the substantive rule-making portion, since more complicated rules require more judicial effort to apply.)

So here's my problem with all of this. There's no conception, anywhere, of political legitimacy. There's no account of what makes it okay for this system to just go around telling people what to do, on pain of, ultimately, violence and/or imprisonment. I'm not saying, obviously, that such an account can't be made; obviously I think it can. But the law & econ people pretty much assume away the problem of political legitimacy, and the whole host of related sub-issues from political theory. The conventional answer in our society is that the government is legitimate because we, the people get to participate in it. It is, you might say, government of the people, by the people, for the people. If it weren't, there's some pretty venerable precedent saying we'd be well-justified in resisting it quite thoroughly. The American political theory, which is now so widely accepted that even ruthless dictators feel a genuine need to pay lip-service to it, rejects the "benign despot" ideal of government, where the lack of citizen participation is made up for by the simple fact that the laws are good. Not just because we don't believe despots can be counted on to remain benign, although we don't. No, simply because it is illegitimate for anyone, no matter how benign, to impose their will on us through the threat of coercive force. The only legitimate solution to the problems of anarchy, this theory holds, is for people to govern themselves collectively, and that requires participation.

And the legal system is a crucial part of the way the people govern themselves. The only way a single individual with a grievance can be guaranteed to get the government to listen to that grievance is by walking in the front door of a courtroom. Courts aren't institutions of majoritarian governance, but this accessibility makes them deeply egalitarian, deeply participatory. Courts are the way we get our own voices heard, not necessarily as part of a larger social movement. And it's important that such an opportunity exist. And, arguably, the rise of settlement, though cost-effective, is a form of declining political participation. Yes, when existing law is clear it will often benefit plaintiffs, defendants, and the public fisc to settle and avoid trial. But the norm of settlement makes it a lot harder to use the legal system for something more than just dispute resolution. The point of Brown v. Board of Education was not just to settle the dispute between Linda Brown and the Topeka Board of Education. It was to challenge existing law, to declare a radical new way of understanding the fundamental social compact. Court cases are disputes, yes, but they are not mere private disputes; even a simple tort, contract, or property action involves a claim of public right under public law, and a request for support from the might of the state. Settling one case after another takes these disputes over the content of public rights under our constitutional system and turns them back into private disputes. The parties save expense, perhaps, but at the cost of a public declaration of legal rights which might be invaluable to someone else in a similar position.

One of the most striking findings from my Law & Society class at Brown was the massive psychological effect participation has upon those who come into court. Obviously the winners of any court case come away feeling much better than the losers. It turns out, however, that if you give parties an opportunity to make their voice heard, to tell their side of the story to the court, they feel better about the process, regardless of whether the outcome favored them. Actually, the improvement is more substantial for the losers. And the funny thing is, that's true even if they know at the time that having their voices heard won't impact the decision, because the judge has already written his judgment down and sealed it in an envelope. People still feel better if they get to tell their story to a judge who has literally already made up his mind. There's value in that, and I don't just mean the psychological benefits of "they feel better," although those are significant. It helps create the understanding of legitimacy, an invaluable asset for any government. When the government has to at least make an effort to demonstrate to the losing party the reasons why it lost, it demonstrates respect for that party; it conveys that it recognizes that it can't just run rough-shod over that person, that they didn't lose just because the government was on the other party's side. And, crucially, it gives the losing side the opportunity to critique those reasons going forward. If the state's explanation for why you lost isn't good enough, if it doesn't satisfy you, then other people in your situation will have further chances to tell the government why it was wrong. Sometimes they win.

The narrow view of the legal system as a mechanism for dispute resolution misses much of this. It misses the idea that the simple sense that the government is there, and will listen, and is capable of being persuaded, even by the lowliest of individuals, might actually make people more inclined to follow the law. It misses something in the very concept of a "right," so crucial to our political philosophy, which says that it's just not okay to get rights wrong some of the time just to save costs. It misses, fundamentally, the idea that a world where everyone settles for something a little better than their expected net damages minus legal costs is a world where somebody is necessarily settling, for less than we, the people think they deserve, and where we are as a collective settling, for something less than full justice. None of that is to say that the desire to keep the legal system's administrative costs to a reasonable minimum should play no role in the discussion, only that there might be some value to legal procedure that's worth paying for other than simply its ability to reach the right result in a given case. And that, I keep feeling, is something that the law and economics types tend to overlook.