Posted by Kenneth Anderson:
Judge Posner Asks Where Are the Law Professors
http://volokh.com/archives/archive_2009_08_16-2009_08_22.shtml#1250829117
in helping to find our way through the economic crisis? The economists
are evident, even if in some kind of professional and ideological
disarray and angst. But where are the law professors? And what
expertise do they - should we - bring to the table of policy, law,
action, and reform? As Judge Posner says, the whole affair bristles
with legal questions. But they are ones requiring not just lawyers as
particularly clever scribes but, instead, legally trained academics
who are able to bring the skills of legal training together with
economic policy ... well, where are the legal academics? As he says,
[1]writing in July at his Atlantic blog, the training and orientation
of academic lawyers suffers from limitations in assisting in the
practical and policy work of reform:
[R]ecruitment of academics from practice has declined, as academic
law has become progressively "academified" and specialized.
Increasingly, in imitation of more conventional academic
disciplines, legal academics are expected to focus the research
component of their work (and this inevitably influences the
teaching component) on specialized research the results of which
are publishable in academic journals read mainly by other academics
in the author's specialized subfield. The preparatiion and
publication of such research are time-consuming endeavors and
therefore are ill adapted to responding constructively to rapidly
evolving current issues, especially ones that cross disciplinary
and subdisciplinary boundaries.
As a result, with a few notable exceptions, such as Lucian Bebchuk,
Edward Morrison, and Steven Schwarcz, academic lawyers (and Bebchuk
and Morrison have Ph.Ds in economics, as well as law degrees) have
not made a contribution to the understanding and resolution of the
current economic crisis, even though it bristles with legal
questions. And I don't mean only or primarily legal questions that
can be readily answered on the basis of orthodox legal materials;
for those questions can be answered adequately by the large,
sophisticated law firms engaged in a commercial or corporate
practice. I mean rather legal issues that cannot be resolved
intelligently without consideration of issues of policy--in the
present instance issues of economic, including macroeconomic,
policy. And not only legal issues, but issues of economic policy to
which legal knowledge is relevant, even if the issue itself is, for
example, legislative in character, rather than requiring the
application of existing law.
I think there actually are a lot of legal academics doing this kind of
policy work, and not merely as a new academic subspeciality (what
would we call it? A new Bepress journal, perhaps, Studies in
Armaggeddon?). Hal Scott, Todd Zywicki, Elizabeth Warren, my new WCL
colleague Anna Gelpern, Bill Bratton, Joe McCahery - I take Dick's
point, but think that there are more than meet the eye, particularly
in DC. HIs post then goes on to raise a number of specifically legal
issues, such as the authority of the Fed in its lending programs, and
whether it is genuinely authorized by its statute. But it seems to me
that these examples take too narrow an approach, and that both the
roles that the professors Dick names, and the role of the legal
academy, should be different. It is not simply the answering f a
question as to whether the law covers something or doesn't cover
something, or should or should not, and how you would draft it.
Rather, what legal academics presumably bring to the policy table is a
particular expertise in certain forms of behavior under incentives, an
understanding of how regulatory and legal structures actually, as
distinguished from theoretically, structure risk taking and risk
shifting. This differs, partly in principle but partly in just general
acculturation in my experience, from the economist's expertise. In my
experience, at least, academic lawyers, particularly if they do have
some practical experience, tend to be far more attuned to the nuances
of institutions, their internal incentives, disincentives, actual
behaviors, etc., than the economists tend to be. The economists in my
experience, for what it's worth, tend to be better at understanding
financial markets as systems - but it leads them to make many
simplifying assumptions about the internal behavior of institutions,
including the behaviors of agents in compensation arrangements, etc.
I think that legal academics will have much to contribute in the
reform of finance in the remaking of institutions and markets with
fewer panglossian assumptions about how they will find optimal
solutions on their own, and that they will do so as a matter of
natural necessity. But I also think, even more strongly, and will
raise it in some subsequent posts, that lawyers will bring to the
table an understanding of the unquantified risks and uncertainties
that are written into financial contracts - derivatives,
securitizations, etc. - that financial analysts, economists, many
other non-lawyer actors, took for granted as not having any effect.
Covenants and conditions with particular wording - how do you quantify
those contingencies?
Put another way, a certain fluidity in the analysis, and risk pricing,
across instruments in the financial markets depended upon an easy
assumption that certain instruments were economically or financially
'equivalent' to other instruments. And so to facilitate pricing ...
these preferred stock instruments are functionally equivalent to
certain kinds of debt instruments and so we can use them just as if
they were, or price other instruments as though they were, etc. But
from a strictly legal, doctrinal standpoint they might not be
equivalent, should it ever come to a legal fight over the terms, at
all. Or at least it raises a level of uncertainty that is not part of
the "equivalence" analysis.
I plan to do some posts here, and eventually perhaps write a short
paper, with the title, When Financial Equivalents Are Not Actually
Legal Equivalents ... and perhaps I'll be able to persuade Judge
Posner to comment, either here or at his Atlantic blog.
References
1.
http://correspondents.theatlantic.com/richard_posner/2009/07/the_role_of_the_law_schools_in_the_recovery_from_the_current_depression.php
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