Law and Economics

I’ve been waiting for this paper to drop, ever since Suresh told me about it last year. It’s groundbreaking. What it does is to take Steve Teles’ qualitative work on the conservative legal movement, and then ask a simple question: if we start with the qualitative evidence about the program’s intentions, then FOIA the hell out of George Mason University to find out which judges attended the Manne seminars, and then apply cutting edge econometrics and natural language processing to their decisions, what are we going to find out?

Some selected quotes (as well as one quote that isn’t in the current version, but will likely be in the next) under the fold, for those who are interested in the headline findings.

we find that, post Manne attendance, judges render conservative verdicts in economics-relevant cases. Further, using the 100% sample of machine-coded circuit cases, we find that Manne attendees subsequently are more likely to rule against regulatory agencies, for example the EPA and NLRB. Next we look at criminal sentencing in the district courts. We find that Manne attendance is associated with harsher prison sentences imposed. We show that the difference in sentencing harshness between Manne and non-Manne judges is highest after the 2005 Booker decision gave more discretion to judges in sentencing. We find that Manne attendance is associated with disparate sentencing. The results are consistent with judges learning a theories of simple deterrence and the use of stereotypes as being economically efficient … –that discrimination in prices and in punishment can be analyzed in terms of economic efficiency (documented in the Manne program archives). … Exploiting random panel composition, we document extensive spillovers consistent with both peer and learning effects. Having an economics trained judge on the authoring judge’s previous panel impacts the decision. There is no effect in a set of placebo cases … There are spillovers on rulings against regulatory agencies.

…

Law and economics’ key criticism of regulatory policies is that they have perverse, unintended economic consequences. In the domain of labor regulation, law and economics scholars (and judges) wrote extensively against New Deal labor law and union protections …. In EPA regulation, almost all environmental regulations can be construed as a form of government expropriation that limits how property owners can develop their property. Reliance on economic analysis in antitrust has attained nearly complete consensus. By the 1960s, the Supreme Court had read into previous statutes a variety of anti-competitive social and political goals, such as protecting small traders from their larger and more efficient rivals as well as curbing inequality in the distribution of income and undue influence of large business. The law-and-economics movement advanced the initially controversial view that the antitrust laws should promote economic efficiency and consumer welfare, rather than shield individuals from competitive market forces or redistribute income across groups of consumers. In the recent time period, judges who attended law-and-economics training were less likely to have their antitrust decisions appealed (Baye and Wright 2011). A more controversial branch of law and economics is the use of incentives reasoning in criminal law. In Becker’s (1968) analysis of crime and punishment, the notion of “rational criminals” works against the then-prevailing wisdom of crime as a product of mental illness. This change in perspective motivates deterrence (more police, more punishment) rather than rehabilitation (more social services and mental health treatment) as the preferred focus of crime policy.

…

The influence of economics on legal thought is, in part, due to a controversial economics training program for sitting judges, the Economics Institute for Federal Judges. … The course was founded and organized by Henry Manne, an influential conservative in the early law and economics movement. The institute was the the flagship program of the Law and Economics Center, the first academic research center devoted to law and economics. It was funded mainly by donations from conservative foundations and business interests. …By 1990, forty percent of federal judges had attended this program. … at least in principle, the program was billed as a non-partisan tool to help judges understand their decisions

…

In terms of the main lessons, the program strove for ideological balance. Both conservative and liberal economic thinkers were invited. Empirical panels could include both Orley Ashenfelter and John Lott, for example. … The instruction may have been more emphatically delivered by the conservative instructors. Manne himself (who taught part of the course) articulated the view that insider trading was economically efficient. Another instructor, Professor Goetz, defended “’Unequal’ Punishment for ’Equal’ Crime,” arguing that discrimination in punishment can be economically efficient. In more recent years, the annual reports include instructors with known conservative stances on immigration (George Borjas), crime (James Q. Wilson), and family law (Jennifer Roback Morse, founder of the anti-LGBT Ruth Institute). … In a Fortune magazine article (May 21, 1979), instructors quotes indicate how normative the economics instructors intended to be. Alchian said, “I’m trying to change your view of the world, to show you that what you thought was bad really may not be.” On damages and deterrence, Demsetz said motivated increase in sanctions as, “[an agent is] not likely to be caught, [so] the threat of simple damages may not be a tough enough deterrent” and the moral hazard associated with damages: “The plaintiffs may wait a long time before they complain, because they want damages to pile up.” On environmental law, Alchian stated, “Give me a capsule that will magically clean all the air in Los Angeles … Beg me to crush it. … I won’t crush the capsule. Because, if I do, poor blacks will have to pay $20 a month more for land rental. … the black in Watts, already used to living with bad air, loses his discount for doing that.” On equal opportunity and discrimination, Feldstein said, “you should be asking questions like, `Is it more likely to be this than that ?’ ”, but no empirical skepticism towards antitrust theory was articulated.

…

The program has a recognized conservative bias, yet the attending judges are effusive in their praise regardless of ideological standpoint. What is the impact on observed judge decisions? …We focus on two agencies the Law and Economics movement specifically criticized: the National Labor Relations Board and the Environmental Protection Agency. .. Manne judges exhibit a sharp and sudden increase in propensity to vote against federal labor and environmental regulatory agencies. … The differences-in-differences analysis … renders a consistent picture that Manne judges become more conservative after the training relative to their colleagues. … this indicates the Manne program accounts for 28-42% of the rise in judicial conservatism. If peers and precedent also impact the non-Manne judges, then the true Manne impact may … explain an even larger portion of the historical shift. … Judges increase sentence lengths by 7 percent and any sentence by 2 percentage points after Manne attendance. …United States v. Booker loosened the formerly mandatory U.S. Sentencing Guidelines and offers a policy experiment to analyze the effects of judicial discretion. … economics trained judges render more severe sentences in the fiscal years after Booker. …the racial disparity in sentencing between black and white defendants is larger for Manne-trained judges than their colleagues. In addition, the gender disparity in sentencing between make and female defendants is larger for Manne-trained judges than their colleagues. … Manne attendance increases use of economics language for Manne judges across both economics and non-economics cases. … Judges who sit with economics-trained judges start to use more economics language, consistent with a learning effect.

And not in the article – but highly relevant – is this quote from a reminiscence of Henry Manne’s influence:

Finally, Manne paid very careful attention to the content of the conference and to the approaches and positions of the attendees. None of the many Manne conferences that I attended were ideological directly. There was no clear or, to my mind, subterranean agenda. Nevertheless, while Manne, both in terms of content and attendees, provided for balance, he did not provide for too much balance. As befits a clever market-maker, Manne’s balance was ingenious. Commonly, extremely prominent liberal economists would attend– such as Paul Samuelson or Ken Arrow. Though both are irrepressible, their positions were often cabined by topics far from familiar to them. Similarly, Manne would typically invite liberal economists to teach at his Judges’ programs. His faculties uniformly showed political and ideological balance. But again, Manne was in charge of the curriculum. A liberal economist teaching supply and demand is hardly dangerous. A liberal economist becomes dangerous when addressing how to improve the world with unlimited spending of other citizens’ tax monies. That, Henry Manne would never allow.