Reality-Based Law and Economics

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Written by Angela Harris

What might “law and economics” look like if its economics were based on the actually-existing economy? On Monday and Tuesday of this week, the University at Buffalo Law School moved to answer this question with a workshop entitled “Rethinking Economics and Law After the Great Recession.”

The workshop was organized by the “class-crits,” a small group of American legal scholars (I count myself as one) who bring the insights of critical legal scholarship to the study of the interrelationships among market and state institutions. Sponsored by the Baldy Center for Law and Social Policy, an internationally recognized institute at the University at Buffalo that supports the interdisciplinary study of law and social institutions, this year’s class-crits meeting brought legal scholars together with “heterodox” economists. The results were inspiring, exciting — and subversive.

In a recent article, economist James K. Galbraith concludes: “It is . . . pointless to continue with conversations centered on conventional economics. The urgent need is instead to expand the academic space and the public visibility of ongoing work that is of actual value when faced with the many deep problems of economic life in our time.” Galbraith’s conclusion that conventional economics should be abandoned rests in large part on the extraordinary intellectual impoverishment of mainstream economics departments. These departments have largely jettisoned the teaching of history, politics, social theory, and culture in order to pursue what Paul Krugman, in a recent lament titled “How Did Economists Get It So Wrong?” calls their “desire for an all-encompassing, intellectually elegant approach that also [gives them] a chance to show off their mathematical prowess.” This blinkered approach to economics was enthusiastically adopted by the legal academy’s “law and economics” movement, which — thanks to lavish funding by the Olin Foundation and others — produced a generation of Smart White Guys wielding terms like “Pareto optimality” who were uninterested in history, culture, subordination, sociology, psychology, and anything having to do with “distribution.”

Yet it’s not the case, as Krugman implies, that the entire discipline of economics somehow marched itself off a cliff. There were, in fact, a lot of economists who weren’t surprised by the 2008 financial meltdown. It’s just that the scholars who got it right have been systematically shut out. They don’t teach in the “top” departments or publish in the most prestigious journals, they don’t get the “important” government appointments, and they aren’t invited to the “best” conferences. Even Krugman, busy apologizing for his entire profession, barely mentions their existence. The economists who anticipated the crisis, says Galbraith, thus remain “unpersons,” despite “having been right on the greatest economic question of a generation.”

For the class-crits, the 2008 crisis offered an opportunity to take Galbraith’s advice and abandon the crumbling edifice of neoclassical economics, along with the rickety shed in its back yard that is “law and economics.” “Rethinking Economics and Law After the Great Recession” invited heterodox economists to sit down with progressive law professors, and the result was a dramatically different conversation. To begin with, the group decided, economics is not “the science of the allocation of scarce resources.” It is the study of social provisioning. Economic activity, therefore, doesn’t take place only in formal markets, but also in families and informal arrangements. Economic activity can’t be made sense of without an understanding of organizations, culture, history, and the state. Our discussion of the financial crisis moved from TARP to massive mortgage fraud to the financial sector’s culture of entitlement to the history of racial discrimination in housing, to the global history of colonialism. And our discussion of the law encompassed a range of state projects, from the regulation of property and corporate personhood to the workings of the administrative state, the economic significance of mass incarceration, the law of the family, immigration law, and questions of access to justice.

The participants by no means reached consensus. We debated the philosophical foundations of economic analysis and wondered whether heterodox economics has a distinctive method. We argued about how to move our insights from the margins to the center: Is it about getting it right, or getting power? We disagreed on other questions as well. Is there a future for capitalism? Is something like the solidarity economy a realistic and scalable blueprint for the future? And what should we call our alliance anyway? Law and economics 2.0? Law and socioeconomics? Law and political economy? Law and heterodox economics?

We did agree on a few things, however. We live in a global oligarchy in which market power, especially the power of financial markets, is thoroughly entangled with state institutions. In this environment, no one unwilling to constantly chant “markets are good, government is bad” can expect to be invited to the party. Not even the recession in which the United States continues to be mired, and the threat of impending crisis in the Euro Zone, have opened space thus far for anything more than the timidest attempts at reining in the financial sector. Wealth continues its upward flow. Nevertheless, events have a way of disrupting ideology. The 2008 recession and the processes that caused it have not gone away, and things will get worse before they get better. The time has come to give up on traditional economics and start basing policy, theory, and public debate on reality.

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