Tuesday, May 9, 2023

Guido Calabresi and the “Economic Style,” Part 2: On "Economic Methods" and "Social Democratic Values"

This post, by Karen Tani (University of Pennsylvania), is the third in a series of posts in which legal historians reflect on Outside In: The Oral History of Guido Calabresi (Oxford University Press), by Norman I. Silber.
In an earlier post in this series, I suggested the fruitfulness of placing Guido Calabresi's career alongside the rise of what sociologist Elizabeth Popp Berman has called “the economic style of reasoning”—an approach to governance that flourished in the later decades of the twentieth century and remains prominent. [All the Berman quotes in what follows are from Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy (Princeton University Press, 2022) ("TLE").] That first post described Calabresi’s education in economics and in law, as recounted in Outside In. This post turns to his scholarship and asks about how it fits (or doesn't) with “the economic style.” This question holds interest because the spread of “the economic style” had consequences—which I’ll address in more depth in a subsequent post.
As I noted in my last post, “the economic style of reasoning” is Berman’s term for “a distinctive way of thinking about policy” that became visible in Washington “as early as the 1950s, but really spread in policymaking between about 1965 and 1985” (TLE 3, 5). Berman’s account is nuanced, emphasizing that “the economic style” had multiple points of origin*, that various factors contributed to its spread within government, and that the economists at the core of her account “were neither monolithic nor monomaniacally committed to efficiency” (TLE  16). Nonetheless, she does identity two “stances” that are at the “core” of the “the economic style” (TLE 6). The first is “a deep appreciation of markets as efficient allocators of resources” (TLE 6). Importantly, this does not translate into a consistent preference for deregulation or minimal government, but it does mean the application of “a market lens” to all sorts of problems and “an affinity for introducing market-like elements . . . into areas, such as education or healthcare, that are not governed primarily or solely as markets” (TLE 6). The second is a tendency to “place[] a very high value on efficiency as the measure of good policy” (TLE 6). This value might come into play when deciding the best way to achieve a democratically chosen objective. It might also come into play earlier in the process, when deciding which objectives should be pursued. (For more on this argument, without reading the full book, check out Berman's September 2022 LPE blog post.)  
To what extent are these “core stances” apparent in Calabresi’s work? As a dilettante in the world of Law & Economics, I am not the best positioned to answer this question, but I can convey what Outside In suggests and hope to generate further conversation. (I can also point readers to more expert discussions of Calabresi's scholarly legacy, such as the contributions to this 2014 special issue of Law & Contemporary Problems.)  
There is no doubt that Calabresi’s writings, alongside those of Ronald Coase and others, brought economics precepts and insights into legal domains where they had not previously had much purchase. Here is Calabresi** in Outside In discussing the influence of Coase’s “The Problem of Social Cost” and his “Some Thoughts on Risk Distribution and the Law of Torts”: 

Of course, the interplay of law and economics was there before; but the relationship had focused on particular areas of law where economics had been directly relevant, like antitrust. What Coase’s article and mine did was to invite—indeed to require—people to look at areas of law that were not expressly focused on economics, like torts. In fact, to look at the legal system generally.” 

(OI, v.1, 228) (emphasis added). At this early stage of his career, Calabresi also encountered critics who seemed appalled by what he was doing—to which his general response was to concede that economic theory could not always supply an answer, but to insist that this “most dismal of theories” (as he jokingly put it in “Some Thoughts”) might still yield important insights.

Calabresi’s brand of Law & Economics gained more ground as he began writing about the idea of “the decision for accidents,” to borrow the title of one early article in this vein. The idea begins with a simple, if uncomfortable, observation: society implicitly tolerates a certain number of accidents, along with all the injuries and dislocations that flow from them. Our governing rules could signal a “zero tolerance” approach to injurious behavior, but they do not. What happens instead? One can get a sense of a society’s approach by looking at rules that set the outer bounds of permissible risk-taking (e.g. speed limits) and at rules that implicitly permit some amount of risk-taking, but might use a person’s risky behavior as a reason to attach responsible for any accidents that result. As for why all societies tolerate some amount of accidents, Calabresi observed that just as accidents have costs, so does accident avoidance. To borrow a helpful example from Outside In, this is why no society tells delivery trucker drivers that they may only drive at five miles per hour (OI, v.1, 294). The price of such an approach is clearly too high.

From these points of departure, Calabresi’s work on “the decision for accidents” suggested one more move: looking at the status quo, we might calculate the costs that flow from accidents and the costs that flow from avoiding accidents, and we might use those calculations to do a few useful things. We might ask whether our current legal regime is doing what we want (taking into account not only the sum of those two types of costs but also societal understandings of what justice requires). If the current legal regime is not working in the optimal way (a conclusion that we might draw if that sum I mentioned seems unnecessarily high), we might use cost calculations to help design a better legal response.
Calabresi’s most famous explanation of this idea, his 1970 book The Cost of Accidents, was “prize-winning, enduring, and by the standards of the legal academic world, bestselling,” according to Silber’s commentary in Outside In (OI, v.1, 303). Silber credits the book with “introduc[ing] a wide swath of the Academy and the legal profession to the value to be gained by considering rules from the vantage point of economics” (OI, v.1, 304).
Is this work an example of what Berman calls “the economic style”? Although far from single-minded in how it framed the ultimate goal, it does, I think, “place[] a very high value on efficiency as the measure of good policy” (one of the two “core stances” Berman identifies with “the economic style”). Richard Posner appeared to capture a similar point in his 1970 review of The Cost of Accidents, when he described Calabresi’s “debt to economic theory”:

That theory supplies the very structure as well as the details of analysis. The form of The Costs of Accidents is that of "cost-benefit" or "systems" analysis. These terms describe techniques of applied economics that involve (1) an initial specification of goals, (2) the arraying of alternative methods of achieving these goals, and (3) the costing out of each alternative.
(Posner, 643). Posner acknowledged that concerns “such as ‘justice’” also figured into The Cost of Accidents, but in Posner’s views, those concerns occupied a subordinate place in the analysis because they “are not susceptible of precise and objective description” (Posner, 643-44). 

Posner went on to praise the “powerful forensic and analytical machine” that Calabresi used economic theory to create (even as he found the book lacking in other regards):

Calabresi easily sweeps rival approaches, employing more conventional legal analytic methods, from the board. He demonstrates that these methods overlook important consequences of different accident control schemes, proceed on no coherent theory, and provide little useful guidance to policy makers; and that an approach grounded in the procedures and theorems of economics offers greater promise.

(Posner, 644). Assessments such as these make it hard to see how The Cost of Accidents did not advance “the economic style,” even though Calabresi’s own “style” was more nuanced.

Senator Gary Hart (1980). Credit: NARA.

Outside In suggests that in the years following The Cost of Accidents, Calabresi was aware of his work’s growing influence and that he felt a mix of pride and concern. I derive this from Chapter 14 of Volume 1, where Calabresi reflects on the “explosion of work combining conservative market-driven economics with this new progressive approach that explored the collective, but also incentive-based approaches to social reform” (OI, v.1, 331). Calabresi describes feeling an “impulse” to make sure that economics not “be used only by the conservatives” – leading him to teach his students how “economic methods” could “serve social democratic values” (OI, v.1, 331). He reports with apparent gratification that “all across the country, people began expressly working on building incentives into legal rules” (OI, v.1, 332). Such people included scholars interested in improving governance and administration, such as Jerry Mashaw. Calabresi also mentions his former Torts student Gary Hart, whom historian Lily Geismer has treated as emblematic (along with figures such as Bill Clinton) of the “New Democrats” who would soon rise to national prominence. (Silber also discusses Hart in his commentary, noting that some of Hart's initiatives as a Senator in the 1970s “were clearly modeled on Calabresian thinking” (OI, v.1, 339).)
Calabresi was not only concerned about conservatives “hav[ing] all the good music,” however (OI, v.1, 331).*** He was also concerned about an issue that is central to Berman’s account: would consumers of Law & Economics come away believing that all problems should be viewed through an economic lens, or that economic theory always supplied the answer?
Earlier in his career, such a concern might have seemed needless or self-important, for economics had a much more modest footprint in legal academia. But the picture looked different by the mid-1970s. Berman notes that “law and economics” scholarship in top law reviews “had increased from 6 percent in 1960 . . . to a full 28 percent in 1970” (TLE 84). Faculty composition at elite law schools told a similar story, as did “the spread of economic theory classes in law schools (“fifteen of the twenty-two national schools taught one” by 1973) (TLE 84).
I’ll pick up from here in my next post. Stay tuned!

-- Karen Tani

* Berman focuses on “systems analysts who came from the RAND Corporation” and “a loose network of industrial organizational economists” (TLE 4). But her account leaves room for other influences. 

** In this post, I include some quotes from Calabresi himself. These come from Silber's interviews. One note of caution is that, as Silber explains in a helpful Author's Note, the "fluid monologue" one finds in the book is not a verbatim transcript. The language attributed to Calabresi was no doubt his own (as I think people who know him would attest), but its presentation on the page was "craft[ed] out of [interview] transcripts." (OI, v.1, xiv) 

*** The full quote from Outside In is as follows: “The impulse that drove me, and which then influenced others, was, ‘Why should Milton Friedman have all the good music? Why should economics be used only by the conservatives?’ It was a metaphor that came from John Wesley’s supposed explanation for writing hymns: ‘Why should the Devil have all the good music?’”