Tuesday, May 26, 2020

A New Buchanan/Dorf Paper Explains Why We Don't See More Conflict Between Law & Economics and Originalism/Textualism

by Michael C. Dorf

In my Memorial Day essay yesterday, I approvingly referred to two recent criticisms of economists by Professor Buchanan (here and here). Readers may be wondering whether we're done criticizing mainstream economics. If so, wonder no more. We're not. Professor Buchanan (who is himself an economist by training) and I have an article forthcoming in the Cornell Law Review that explains why Law & Economics (L&E) is bunk even when it is not being invoked to promote policies that will kill tens of thousands of people.

In A Tale of Two Formalisms: How Law and Economics Mirrors Originalism and Textualism, we look at L&E alongside the other leading conservative approach to law: originalism in constitutional interpretation and textualism in statutory interpretation (collectively O&T). We address a puzzle: Given that L&E and O&T are grounded in different frameworks and prescribe different methodologies, why do they so rarely result in open conflict? The answer: Because they're both so open-ended as to work as a mask for whatever ideological priors a judge holds, and the particular people with those priors are on the political right.

That's the extremely short version. Here's the merely very short version, that is, the abstract:
Two leading schools of thought among U.S. conservative legal elites— Law and Economics (L&E) and Originalism and Textualism (O&T) —both purport to use their formalist structures to guide analysis in ways that are objective, substantially determinate, and apolitical. Because they rest on very different theoretical underpinnings, L&E and O&T should only randomly reach similar policy or legal conclusions. After all, L&E implements neoclassical economics, a theory of utility maximization, whereas O&T is a theory of semantics. Yet as practiced, L&E and O&T rarely result in conflict. What explains the missing intra-conservative clash? Despite their respective pretenses to objectivity, determinacy, and political neutrality, neither theory delivers on its promises. Economic efficiency, the linchpin of L&E, is incoherent because it relies on typically hidden but ultimately normative assumptions about preferences that would exist in an impossible world without law. O&T as it has been refined in response to devastating criticisms of earlier versions is indistinguishable from ostensibly less determinate rivals like Living Constitutionalism and purposivism. Accordingly, conservatives use L&E and O&T to obscure the role of normative priors, perhaps even from themselves. Liberals could use the same techniques for different results but heretofore generally have not, instead mostly settling for counterpunching against charges of result-orientation.
As we explain in the paper, the under-determinacy of O&T should be familiar to law-literate audiences from over a century of legal realism, but our particular critique of L&E will likely be unfamiliar to most readers. Our critique goes at neoclassical economics, which is the economics that L&E applies, and in particular at the notion of economic efficiency when used as a prescriptive standard of evaluation. We do not argue (although we agree with the objection) that neoclassical economics undervalues distributional concerns. Rather, our critique aims at efficiency itself.

As we explain at length in Part II of the article, to call some state of the world "efficient" means that supply and demand are in equilibrium (at the point at which the supply and demand curves intersect in any given market). The normative move is then to regard governmental measures that change that equilibrium as "distortions" that create waste. Our key point in Part II is that supply and demand could be in equilibrium at multiple points, depending on what one takes for granted and what one treats as a distortion. Here's a crucial piece of the analysis:
If the efficient quantity in each market is determined by where supply and demand curves cross, then it becomes rather important to know what determines the position of those curves. Demanders have money to buy things, preferences about what they like and dislike, and so on. Suppliers have access to technology, machinery, labor, and so on. Where do those underlying determinants of demand and supply come from?

If Jane currently has one million dollars in wealth, a salary of $100,000 per year, and access to many alternatives to any given good, she will decide how much of each good to buy. But why do we take those facts to be the natural baseline? If it turns out that Jane stole her wealth from Calvin, we are left with two options: first, we can say that however Jane came to possess a million dollars, she does possess it, so her demand curve is correctly measured using that baseline; or second, we could say that the correct baseline is to return the million dollars to Calvin, the rightful owner, changing both Jane’s and Calvin’s demands (in ways that cannot be presumed to offset each other).

Crucially, the quantity sold in those two situations will differ (except in the truly fortuitous case where the market demand curve changes in perfectly offsetting ways after proper ownership is restored). Which one is efficient? Both are equilibria based on supply and demand curves, but the equilibrium quantities are not the same.
Meanwhile, as we go on to argue, there is no equilibrium that reflects government inaction because economic transactions only occur against a background of laws governing contracts, property, crime, etc. Furthermore, as we explain with numerous examples,
there is no single set of laws that constitutes the bare minimum, laissez-faire approach to governing. Given that there is no bare minimum, different sets of seemingly minimalist laws are defensible as the baseline, and each set will generate its own unique supply-and-demand curves for goods and services. A society with no inheritance tax will produce more yachts than one with a substantial such tax; a society with slavery will produce more manacles than one without it; etc. Every baseline looks inefficient from the perspective of any other baseline, and every set of laws can be a baseline that tautologically determines that it is efficient. 
Accordingly, to say that a state of the world is "efficient" is essentially empty. Yet such declarations underlie nearly every conservative prescription offered in the name of L&E.

I won't attempt to summarize the balance of the article, except to say that we note both interesting parallels between L&E and O&T and at least one important difference. The difference is that while indeterminacy is baked into the efficiency concept and thus L&E, O&T are only contingently under-determinate. We are not linguistic nihilists. We acknowledge that law has constraining force. Our core point regarding O&T is that legal texts lack anything like the force that formalists claim in contested cases in courts of last resort like the US Supreme Court. Thus, as a practical matter, L&E and O&T are sufficiently indeterminate to give cover to a jurist who wants to justify any of a wide range of results in seemingly neutral and apolitical terms.

The last part of our article explores the question why liberals and progressives have for the most part not tried to play the same game. We note that the various efforts to use L&E or O&T for liberal or progressive ends typically include an acknowledgment of the substantial role of values in the process. We float a number of hypotheses for the asymmetry, including that our side is simply more honest (a claim we don't consider ourselves well positioned to evaluate) and the possibility that both L&E and O&T have at this point taken on an almost tribal significance, so that even if they can be used for liberal and progressive ends, liberals and progressives find them too distasteful to employ.

So much for the summary. Prof Buchanan will have a follow-up essay here on Thursday addressing an issue that arose in one of the workshops at which we presented a draft of the article.