Why Study Law and Economics? And Is the JD Really the Doctor of Social Engineering?

(Kenneth Anderson)

Tomorrow is the first class in my 1L elective class in Law and Economics.  The 1Ls at my school are allowed one spring elective course, and can choose among an array of courses for 1Ls, including Law and Economics, International Law, Intellectual Property, Women and the Law, Law and Literature, and some others.  Law and Economics is popular, particularly among the many students who studied economics, business, or management as undergraduates, but also among students who didn't but perceive that they need to learn about these disciplines in order to be effective lawyers.

Demand is high enough that we offer two sections of the 1L Law and Economics class; at our school it is taught as a truncated version of the standard course.  I use Polinsky's short Introduction to Law and Economics, and we walk through various efficiency and Coase Theorem approaches to common law topics found in the first year.  I supplement this book with materials on public choice, some institutional materials, and a tiny bit of strategic behavior and prisoners' dilemma material.  It's a once a week class for two hours, not much time.  The most unusual materials I use are Coase's original Problem of Social Cost article, and then, as a non-technical introduction to risk, Peter Bernstein's intellectual history of risk, Against the Gods.

I've noticed, however, as the financial crisis has gradually moved to envelop lawyers and legal education, students are starting to ask questions about what exactly Law and Economics as a topic is supposed to do for them as practicing lawyers.  I've found students asking this question midway through the term or, increasingly, in frustrated or downright nasty comments on course evaluations — how is this useful to me as a lawyer?  Part of the frustration comes because economics either seemed so obvious to business, or because what many undergraduates studied as "economics" just was practical management studies. One arrives at law school, thinking it is the same in law, but it's not.  They assumed they would like it because it would be "practical" — economics would "solve" legal problems — but then it isn't and it doesn't.

I want to take up this question with students in the first class, while people still can opt out.  I talked about this last year, midway through the course, when I sensed student irritation that this seemed so intellectual and pointy-headed.  I said two things.  First, this is the language of the law today — these are the framing intellectual concepts underlying an awful lot of practical things in the law, and not just business or finance law, either.  Lawyers breathe words like externalities or efficiency; it's part of the atmosphere of American law.

Second, today there is a keen awareness in the legal system, among all its parts, that consequences matter.  I gave the example of some appellate decision on some environmental matter where the court was specifically called upon to weigh anticipated costs and benefits.  That was cheating a little bit — I deliberately picked a case in which the law itself called for a cost-benefit analysis as part of the very law at issue.  Even so, law and economics is the study of anticipated consequences in the law, and, well, no federal judge wants to issue a ruling and wake up the next day to discover he or she has unilaterally but inadvertently dismantled the securities markets.  But didn't know it because the parties had argued the law and cases and regulations, etc., but hadn't briefed the judge on the likely consequences of a given ruling for the system as a whole.

I thought that sounded pretty good, but interestingly the students weren't impressed.  As one of them put it, that might be fine for students at the top ten schools, but students at my school are not going to become judges or people who create the rules.  They are going to become, if they are lucky, lawyers doing much more modest tasks that take the existence of the rules — including their efficiency or inefficiency, and their consequences — pretty much for granted.  They are, after all, the rules of the game.  Microecon is mostly  "internal" as a mode of explanation to business and management studies; Law and Economics is "external," not internal, to law, as a mode of explanation; it "explains" law using materials external to it.

I increasingly worry that, at least for most students at most law schools, this comment is correct.  Law and economics is often associated with as much as there is in legal academia of conservative or libertarian thought.  But it might be better understood as studies in social engineering.  The economics-driven focus on the design of rules toward efficient ends sometimes makes it seem that the JD stands for, not juris doctor, but doctor of social engineering.

There is some ideological irony in this, of course.  If there is, however, I'd say it's a result of the focus on the design of regulatory systems.  It tends to turn traditional interpretive, discursive methods of law into social engineering design –and this implicitly underlies even free-market orientations in law and economics because they, too, are implicitly social choices about design.  (I think Dick Posner recently made some similarly critical remarks about the prevalence of law and economics in the curriculum.)

Whether that is good or bad for students at the very top law schools, I am fairly sure that it not what my students will mostly do in their careers.  Some of them (we're a DC school, so maybe even many of them), will eventually be writers of regulations or regulatory guidance — in which the approach is law-creating, forward-looking, and consequentialist.  But I don't think it's true of the vast majority of students outside of the top twenty law schools.  Perhaps I am wrong.  And it might very well be true — indeed, I think so — that whether one spends one's career doing regulatory design or not, it is still valuable as an intellectual frame for the study of law, whatever and however one does it in practice. Still, the design emphasis is not that of the lawyer in practice most of the time — though studying a field of law through the lens of its efficient or inefficient design might be the best way to grasp the field as whole, in order to better practice it in its particulars.

Does this gap matter to the study of law?  Does it matter whether it was my students visiting at the University of Virginia or my own more modestly ranked school?  My unhappy students did not dispute that law and economics sought to teach them a particular way of understanding law and legal questions, a particular vocabulary and method — they instead questioned whether that vocabulary and method was very useful to lawyers who had to deal internally with legal materials and system and rules as they were, not as they might be designed hypothetically toward greater or lesser efficiency.  Their role in the legal system is not to play God.

So let me put it to you.  What should I tell my 1L students tomorrow as to why they should study law and economics — or not?  (Please give answers for the students who understand that implicit in this question is an opportunity cost and understand it in that jargon, and those who do not or at least do not already know the terminology.)