Hofstra Law Review Volume 20 | Issue 4 Article 2 1992 The rT oubles with Law and Economics Leonard R. Jaffee Follow this and additional works at: http://scholarlycommons.law.hofstra.edu/hlr Part of the Law Commons Recommended Citation Jaffee, Leonard R. (1992) "The rT oubles with Law and Economics," Hofstra Law Review: Vol. 20: Iss. 4, Article 2. Available at: http://scholarlycommons.law.hofstra.edu/hlr/vol20/iss4/2 This document is brought to you for free and open access by Scholarly Commons at Hofstra Law. It has been accepted for inclusion in Hofstra Law Review by an authorized administrator of Scholarly Commons at Hofstra Law. For more information, please contact [email protected]. Jaffee: The Troubles with Law and Economics THE TROUBLES WITH LAW AND ECONOMICS Leonard 1? Jaffee* In this Article's first Part, the author sets Law and Economics' own devices against its fundamental proposition: In free contractual pursuit of personal wealth, we find the best means of serving nearly all of our legitimate interpersonaland social interests. Using the classic "efficient breach" case as paradigm, Profes- sor Jaffee argues that all contracts cases defy judgment of whether agreement or breach is efficient-that every such case is intractably ambiguous and threatens inefficient or vagrant costs, profits, or demoralization. He offers instead specific performance as the pre- ferred remedy for breach of contract. He argues that neither ex ante nor ex post contractual adjustments-whether toward an agreed remedy like liquidated damages or modification of obliga- tion-sufficiently resolve such cases or stay their threats, since we cannot ever know what is needed to compensate properly. He con- cludes that no formal, allocative agreement, in any case (commer- cial, tort, domestic relations, or any other), can be adequate to manage reliably or determinatively the interests we would have it serve or protect, and therefore, that Law and Economics' fundamen- tal proposition is unsound and we are foolish to rely on such agreements. In Parts II and III, the author demonstrates-throughthe pro- tagonist of a dialogue-thatLaw and Economics has an even deeper flaw, a mentality that Professor Jaffee sees as both causing and following grave psychological ills. The protagonist observes that Law and Economics infatuates itself in a preoccupation with allocative efficiency-to the virtual exclusion of critical considerations like vast under-utilization, and the consequent dire waste of our resources (including our health and psychic lives, even life itself). He argues that Law and Economics does not merely * Professor of Law, University of Louisville School of Law. Thanks to Tony D'Amato, Northwestern University Law School, for invaluable criticisms of two drafts. In a few instances, I've caused citation form to deviate from what The Bluebook prescribes. I alone-not this law journal's editors-am responsible for these deviations. The deviations are just formal-mostly use of parallel citations to state court cases, citations that give the reader security-reference always to official reports (which, sometimes, regional reports don't accurately copy). Published by Scholarly Commons at Hofstra Law, 1992 1 Hofstra Law Review, Vol. 20, Iss. 4 [1992], Art. 2 HOFSTRA LAW REVIEW [Vol. 20.777 promote a measure of wealth and welfare which entrenches the existing, harsh wealth distribution, but it propagates a vital miscon- ception of what constitute wealth and welfare, their substance, sources, and meanings-a misconception that vitally diminishes humanity, and life. These faults owe themselves to a belief that greed best advances social wealth and welfare. In Part VI, the author offers paths toward solutions that are implicit in the critical implications of Parts II and III. Paths that lead to simplicity, feeling, instinct, intuition, and empathy; away from money, efficiency, and greed. FOREWORD What follows is mostly the work of the late P.J. (Phillip Joseph) Anachronis [Ah nah KRO nees], my dearest friend and near alter ego. Mostly I'm just editor. The body's first part is much an unpublished paper he delivered at a symposium on Economics in Law. I combed and filled it out a bit, as Mozart's student completed the Master's Requiem. The rest is mostly a record of his chat with Modemo Conoscenzo, who attended the original paper's delivery. There I contributed turns of phrase or idea, and little briefs to make ties you may need. Some footnotes are mine, but most his. He didn't care whether I distinguished them; and, since my computer program won't let me run two footnote streams at once, I ran them together, as if all Anachronis's, or mine. The Preface, too, is near-all Anachronis's (my work there, as elsewhere, mostly editorial). It handles the body's four parts as if they were the same, in order and circumstance. Anachronis's mind worked that way-saw his whole past a single, unifying source, its contents indiscrete in motivation, even (save as in dreams) in time. In the first part (or point, as Anachronis put it), the talk is with you, in the second through fourth, Moderno. For Anachronis, all communicants became the same-universal others to whom he offered up his sight, though none might apprehend. He never offered sparing- ly, in resignation or ware, as (Camus notwithstanding) Sisyphus pre- sented rock to heaven, but with animal faith, as Kierkegaard's wight postman carried mail. He often read Kierkegaard. LRJ. http://scholarlycommons.law.hofstra.edu/hlr/vol20/iss4/2 2 Jaffee: The Troubles with Law and Economics 1992] TROUBLES WITH LA WAND ECONOMICS PREFACE Law and Economics says we ought to make our welfare with efficiency. Sometimes it defines "efficiency" in high terms, with names like Pareto Optimum: 'A state is optimum if any change would hurt at least one person, help no one.' Or Pareto Superior: 'A move is more efficient if it makes at least one better fixed, and no- body worse off.' But its everyday words worship greed: "A rule is efficient if it maximizes profits from market transactions." To avoid silly, sidetracking dispute, I'll confess one might define "efficiency" in ways that make Law and Economics scholars happier, or less annoyed. I'll admit that the third definition must account for lack or fault of information, for transaction costs (which include the costs of getting and judging facts), and for externalities; and I'll account for these problems more than Law and Economics won't. I'll concede that, as Law and Economics understands it, "greed" is not essentially bad-includes "a dynamic desire for improvement of per- sonal welfare." But such smoother meanings' cool rococo music belies the nor- mal-real-emotions. And I won't concede I ought to substitute another word, like "eagerness," or that I ought to call the greedy "enterprising." At Law and Economics's heart is defense of gluttony. It says we're hopelessly avaricious, but apologizes that our manifest greed incidentally reaps arrays of benefits more valuable than passionate work, joy in life, love and giving, the resonance of empathy. And that's trouble. Oh, greed and gluttony aren't bad. But each is sick. Sick, not bad. Each is hunger out of incompletions of self-frailties of ego, if you wish-a damning compensation in craving woven into character. But that's not my only point. The social effects make sickness-even inefficiencies, impediments to welfare. Now I read my last sentence, and I think that, despite its raking, it's dishonestly genteel. I ought to have said: These hungers come of hurt and deprivation, parent hard- ship, longing, pain. So, I have two big gripes against Law and Economics. One is that it's sick and spreads sickness. The other's that it doesn't work in ways it claims, or do what it pretends. The second gripe is lesser, except in its bearing on the hard costs-the costs to feeling creatures-in the consequences of the Published by Scholarly Commons at Hofstra Law, 1992 3 Hofstra Law Review, Vol. 20, Iss. 4 [1992], Art. 2 HOFSTRA LAW REVIEW [Vol. 20:777 pretense and cheat. I'll give it a little less space. Here's my plan. With a simple case, I'll uncover Law and Economics's illusion, defaults, their harvest. I'll speak to you as if we had the law that lawyers think we have, and as if the law were what- ever one wants. I'll bare Law and Economics's root flaws, misfocuses, deep lacks-get down into honest talk about its sickness and harm. I'll offer alternative, for lawyers and for all. Before I start, I need to make a disclaimer, a statement of what I suppose you'll call politics. And I need to explain my style. Politics: I'm not a Marxist, or Socialist-anything of that left. Libertarians are too formal, too often ignorant, of hard fact or sound sense, the casts of feeling. I'm an anarchist of a sort like Kropotkin.1 I believe, without hope, that we, and the world, need us to live in empathic order, with the justice of empathic adjustment If I know anything, I know only this: We defraud ourselves with intellect and its words, know nothing but what we feel, don't feel enough, and too often bad or not good. Those are my most pertinent biases and be- liefs. Style: In my first point, you may find my style just a little infor- mal, sometimes a little too personal, especially for the topic and exercise involved. You'll notice a dearth of authority (except Where object of criticism). Ideas are sound because they're sound; or they're not.