Fred S. McChesney on Intersection of Economics and Law


The audience attending the investiture on Thursday evening of Fred S. McChesney, JD '78, as the de la Cruz-Mentschikoff Endowed Chair in Law and Economics was treated to remarks not only by Prof. McChesney himself but by University of Miami President Donna E. Shalala, Miami Law Dean Patricia D. White, Carlos M. de la Cruz Sr., JD '79, and Timothy J. Muris, a George Mason University School Foundation Professor of Law.

These are the remarks of the honoree:

Hello. My name is Fred McChesney, and I am very proud to be here today. Thank you all for coming. It is of course a great honor to be the first holder of the de la Cruz/Mentschikoff Chair in Law and Economics. And as befits the title, I want to talk, for most of the time allotted, about what this chair is about, the intersection of economics and law. But first, it is not just appropriate, but essential, to acknowledge Carlos de la Cruz, a remarkable entrepreneur and thinker. Meeting Carlos, chatting with him at lunch, has given me much pleasure since my return to UM Law School. Without Carlos, I would not be standing here. And you would not be sitting there, hoping that my remarks will be brief so we can get to the reception.

It is equally appropriate to remember here Soia Mentschikoff, a truly remarkable figure in legal education. It was under Soia's deanship that Henry Manne established the Law and Economics Center here at the University of Miami, the reason for my coming to UM after I was a student at Columbia Law School. An article about Soia has described her as "brilliant, passionate, [and] optimistic," though "not a warm and fuzzy person." I concur with all those descriptions. I was a student in her Elements of Law class – an unforgettable experience, as any Soia student would attest. We were all terrified. But she was not there to sell warmth and fuzziness, nor to boost our self-esteem. She wanted us to learn. In my office hangs my University of Miami Law School degree, signed by Soia Mentschikoff. I still hear her voice as I stand here this afternoon.

I think it speaks volumes of both Carlos de la Cruz and of Soia Mentschikoff that Carlos insisted that the chair he endowed, after Soia's death, share her name with his. He was urged to have it named for himself alone, but would not have it. That fact says much about Carlos de la Cruz.

Quickly, let me mention two other major figures at UM who have been essential to my being here. When I needed someone on my team, President Donna Shalala went to bat for me. I use the phrase "went to bat" advisedly. At a lunch at the Riviera Country Club, she told me that if I would leave my chair at Northwestern to come here, she would give me two season tickets to the Hurricanes baseball games. Having routinely, during my first year of law school, skipped my afternoon Constitutional Law class for games at Mark Light Field, I was sold. Thanks, Donna. And thanks also for the UM hat.

Trish White held my hand through the process required to get me here. She made it clear she was on my side, and that, as we say in the South, we could "git 'er done." And we did. Thanks, Trish.

Finally, I would be remiss if I did not recognize the extraordinary contributions of my law students, who made it clear that they wanted me to stay at my alma mater, and moved mountains to make it happen. Let me recognize in particular two students, Amy Araya and Craig Applebaum. Thanks, Craig and Amy.

Speaking of students, I am exceptionally proud that one James Edward McChesney is here today. Eddie is a Cane, a junior in the business program here at UM. A finer son a father could not have.

I should also acknowledge the presence of Provost LeBlanc, Associate Dean Gudridge – who joined the UM faculty while I was a student here – and members of the board of trustees. As an alum, I am delighted to be working for you. Thank you for having me.

Let me now turn to the subject of my remarks, the intersection between economics and law. That is the scope of the de la Cruz/Mentschikoff chair. It is also the gist of what I have done my whole life, as a teacher and an academic researcher. The title of my presentation is what lawyers and economists can learn from one another. By "learn" I refer to ways in which the two disciplines, in analyzing and evaluating similar phenomena, sometimes do not see things the same way. Or do not understand differences in perspective between the two fields. I include in the group "lawyers" both practicing attorneys and legislators, most of which tend to be lawyers. So, here are a few of the things that the two disciplines can learn from one another.

1. What Economists Can Learn from Lawyers

A. Law is not Legislation

Economists are social scientists. They want to know what the impact of various societal measures are on human behavior. Societal measures such as laws. But economists too often assume that "the law" is something that is just "out there," a statute or a regulation that can be read and then included in an economic model as changing human behavior according to how it is written, and analyzing human behavior on the basis of that interpretation. But as lawyers, we know that the world is a much more complicated place. One must fully appreciate how "the law" actually affects human behavior, and then analyze it accordingly.

To take an example, consider laws concerning drug use, or possession of firearms. Most states have rules governing both drugs and guns. Economists have relied on these statutes in investigating their effect on behavior. But economists' attempts to measure the impact of laws concerning drugs or guns on things like crime constantly run into a problem: the laws are vigorously enforced in some jurisdictions, and hardly enforced in others. A wonderful example of this phenomenon occurred in August in Miami Gardens, where the city announced that while it was not repealing its gun-control laws, it would no longer enforce them. The law is there, but it might as well not be. Effectively, despite what is written on the books, there is no real law. Which gets to my next point.

B. People Are not Robotic Utility or Efficiency Maximizers

Art Buchwald once wrote that an economist is "a man who knows 1,000 ways to make love but doesn't know any women." The human side of things sometimes escapes economists. Their disciplinary training results in many economists evaluating the benefits and costs of various things in purely monetary, or at least quantitative, terms. This can be a good thing: quantifiable claims can be verified, whereas many claims that lawyers make cannot be. But not everything that people care about in life can be quantified. We see this, for example, with family behavior in capital criminal cases. The damage – murder of a loved one, let's say – has been done. That loss is history. But families feel, and testify, passionately, as to whether they want the defendant executed. Or not executed. And their testimony seems to affect the ultimate meting out of punishment. If it didn't, why would they testify, and why would courts take the time to listen?

Their testimony reflects values – such as religion – that lie outside the realm of standard economic analysis. Economists have studied the impact of capital punishment in deterring crime. But what it means to families to have capital punishment imposed, or withheld, has gone unappreciated. And so the economists' take on whether society should or should not have capital punishment is very incomplete.

Likewise, economists like to prescribe various rules – legal or regulatory rules – based on how different rules influence the overall amount of social wealth. Many times, the value-increasing rule – protection of private property, for example – largely accords with what citizens would vote for. But not always, as is shown in various legal contexts, where rules voted on and urged upon courts depend more on "equitable" sharing of the wealth. It is generally accepted that juries are influenced by the relative wealth positions of the plaintiff and the defendant. While the law could undertake various measures to keep such information from a jury, it often does not. It accords a role toward sharing of the wealth that is largely absent from economists' reckoning of what is best for society. So these are some areas in which economists can learn about how to deal with legal issues.

So what can lawyers do to increase the quality of discourse with economists?

2. What Lawyers Can Learn from Economists

A. First: What Lawyers Don't Need to Learn

One of the great advances in my time in legal education has been the growing economic sophistication of the legal profession. My students here at UM are vastly more conversant with economics than was the case during my time at Columbia and here. The entire bar is more economically literate. This is due, in no small measure, to the work of Henry Manne and Henry Butler (UM Class of '82), who have for decades taught courses in economics to judges and practicing lawyers, here at the University of Miami and now at George Mason University. When judges like Stephen Breyer start drawing supply and demand curves in their opinions, it is clear that we lawyers have come a long way, baby. This is a great advance. Economics is not a body of doctrine. It is a tool-kit, a way of thinking about things. A way of approaching problems. And, I submit, a very useful way.

Another thing that lawyers no longer need to learn is the importance of empirical information to resolve legal issues. Be it antitrust, corporate law or tort cases, legal outcomes increasingly depend on the ability to demonstrate in empirical ways what the relevant costs and benefits are. For example, in the recent federal case involving restrictions in Florida on doctors asking patients about use of firearms, the court held against the State of Florida because the state had provided only anecdotal evidence that such restrictions on speech were justified.

Too much of law and legislation depends on undemonstrated beliefs about how the world works. But increasingly, sophisticated empirical evidence is available in various disputes, and lawyers are increasingly sophisticated in understanding it. Not all lawyers, however. My friend and classmate Brian Spector wrote to me that if I went into any of this subject, "please use pictures as much as possible." Sorry, Brian, I have no pictures. Most lawyers today don't need them.

Let me turn to one last point about lawyers and economists. And that is...

B. The Law of Unintended Consequences

Lawyers are sometimes prone to think in two-dimensional terms. As legislators, they will argue for and vote for legislation on the basis that if we alter Factor A, we will get less of Thing B, which we would like to reduce. If we raise the tax on cigarettes, we will get less smoking. Practicing lawyers make arguments of the same sort. A prosecutor will argue for heavy penalties for under-age drinking, on the seemingly obvious basis that heavier penalties will reduce drinking. But is this really true, overall? Not necessarily, because in focusing on Factor A's influence on Behavior B, we forget that the world is a many-splendored place. Factor A not only influences Behavior B, but also Behaviors C, D and E.

Instituting a welfare system for indigent families will indeed reduce indigence, as the law defines it, at least for a while. But it will also – and has – increased the extent that one parent leaves the family to make the family eligible for welfare. The result is often more money but increased amounts of other problems in families. And possibly lower incomes for the next generation of children raised with one parent absent.

Many other examples could be cited. Increasing unemployment payments creates more money for the unemployed. But it also increases the incentive not to work and so increases the number of unemployed. Similar problems abound. The test for receipt of federal food stamps is based on one's income – low income makes one eligible for food stamps. Makes sense, right? Well, it might until one discovers that millionaires, without annual incomes but living off their assets, are now in droves receiving food stamps. This on top of the generally acknowledged fact that food-stamp recipients sell them at a discount to retailers for cash – not food – well below 100 cents on the dollar, allowing the retailers to cash them in for those 100 cents on the food-stamp dollar. Food-stamp recipients also sell their cards on Craigslist.

This is the so-called "law of unintended consequences." Some use this term as the equivalent of "Murphy's Law" – if something can go wrong, it will. But to economists, it has a narrower meaning, perhaps better – it is the "domino effect." In the social order, many things depend on many other things. And if one thing changes – if one domino is toppled – many other dominoes start to fall.

One more example may help to make the point. There are legal restrictions on where convicted sex offenders can live. Residency within certain distances of schools, day-care facilities and even school bus-stops are prohibited. Makes sense, right? Keep convicted sex offenders away from children and the defenseless. But where are these persons – who have served their time – supposed to live? Most residences are off limits. And so, as we know, for a time many of them lived under a causeway. Or have infiltrated trailer parks, that, as The Miami Herald reports, are inhabited by very poor immigrant families "teeming with children," but are far from the nice neighborhoods where schools are located. The very people supposedly protected by the law are thus victimized by it.

To claim therefore, in the state house or the courtroom, that the effects of changing a legal rule will be limited to the two variables under consideration – one as the cause, the other as the effect – is untenable. Demonstrably so. Changes have many effects, only some of which can we imperfect humans foresee.

A final thing to consider:

C. Intentions Are Not Results... And May Not Even Be Truthful

I have always been dismayed how glib lawyers are – and here I very much include academic lawyers – in discussing laws in terms of why they were passed, and what they were going to achieve. To preach to a judge, jury or the press about what a law was intended to do is to claim knowledge that we as lawyers do not have, ordinarily. We do not know why laws are passed, what they are supposed to accomplish. The reasons are clear.

Law is produced out of a political process. What a legislator claims to be doing and what she is really trying to accomplish are not necessarily the same thing. Certainly they are not always the same thing. The old adage applies – words are cheap. In the political process, there are deals cut, there is log-rolling among legislators. What legislators vote for and what they really care about are not necessarily the same things.

Passing legislation requires majority assent. But members of legislatures typically have different reasons for voting as they do. To say that they voted in favor of Proposition X is to state the obvious. To claim that they did so for a particular reason is humbug. We on the outside cannot know, at least frequently, what motivated legislators' votes. What we can know with reasonable certainty is that, being elected officials with very different constituencies with very different interests of their own, the majority was not voting for a single, identifiable ideal.

This is a point that economists of the so-called public choice school have emphasized for some time. Politicians are like you and me. What motivates most – I didn't say all – of what they do is what is good for them, in terms of votes, campaign contributions and so forth.

Which leads to a dire conclusion: What laws were really intended for is, in most instances, unknowable. But the law operates as if we can know it. It is standard in constitutional law cases, for example, to read court opinions based on why a particular statute was passed. Honestly, we don't know most of the time.

Well, I have used my allotted time.

If I may, though, I would like to close on a personal note. I have been forever grateful that I came to UM. Much more than Columbia was able to do, the University of Miami made me "think like a lawyer," although one imbued with a bit of economics in addition. But just as important, UM Law was a fun academic experience, in the good sense of the word fun. I learned so much from my teachers. They were young – then – and so aspirants for academic glory. I took antitrust from a young whippersnapper who was younger than me, one Timothy Muris. They were excited, engaged, and so great guides.

And I learned so much from my classmates, all of whom were also excited about learning law. With economics, I had a different background from theirs academically. But they also had done different things, about which I could learn. And there is no better substitute for learning than being with others having an excitement to learn.

I have found the same phenomenon endures at UM as I have come back to teach. When I hold my office hours out on the bricks, the students are engaged, inquisitive and, frankly, fun to spend time chatting with. Just as I found it fun to chat with my fellow UM students those many years ago – not on the bricks, but on the slab, in the shadow of the Dairy Queen.

I am pleased that now, thanks to the de la Cruz/Mentschikoff Chair in Law and Economics, that experience can continue.

So here I am, the lucky beneficiary of the benevolence of one UM alumnus, in a chair co-named for a UM dean, and a proud member of the UM Class of '78. My UM pedigree is pure, and I am proud of it.

Thank you.