The strange ideology of "law and economics"

This is a nice description of a problem but it leaves the most important and interesting questions unanswered. How did this ideology spread ? Why was it so successful ? Perhaps most importantly of all, why has it been able to spread in some regions but not in others ?

Where does economic power come from? Does it exist independently of the law? It seems obvious, even undeniable, that the answer is no. Law creates, defines and enforces property rights. Law enforces private contracts. It charters corporations and shields investors from liability. Law declares illegal certain contracts of economic cooperation between separate individuals – which it calls ‘price-fixing’ – but declares economically equivalent activity legal when it takes place within a business firm or is controlled by one. 

Each one of these is a choice made by the law, on behalf of the public as a whole. Each of them creates or maintains someone’s economic power, and often undermines someone else’s. Each also plays a role in maintaining a particular distribution of economic power across society. Yet generations of lawyers and judges educated at law schools in the United States have been taught to ignore this essential role of law in creating and sustaining economic power. Instead, we are taught that the social process of economic competition results in certain outcomes that are ‘efficient’ – and that anything the law does to alter those outcomes is its only intervention.

It seems to me that this expresses two key ideas : 1) the idea that "freedom from" is an equally important definition of freedom as "freedom to"; and closely related 2) that freedom under law is therefore not incompatible with freedom, but indeed that freedom without the law is not freedom at all. Such ideas go back at least as far as Plato, though here expressed in more modern legal and economic terms. The article terms the opposite ideology - the idea that only "freedom to" is a real sort of freedom, and that the law must seek to meddle as little as possible and let pseudo-market forces sort everything out, "law and economics". Surely a better term is needed, this being far too easy to confuse with, well, law and economics.

The ideology of law and economics revolves around the concept of competition – suggesting to the world that this is the main value it seeks to promote, thus also seeking to limit governmental intervention with that process. But competition does not take place in a vacuum: it always requires rules, from property to contract to antitrust, that are themselves, logically speaking, limits upon competition. All of these rules in essence authorise economic coordination that is necessary to make competition work. For example, property rights authorise control over economic activity to the extent of their bounds. A contract too is a form of economic coordination.

And competition law itself authorises all kinds of in-firm economic coordination that it prohibits out-of-firm. In short, it’s governmental intervention all the way down. The law from the outset makes choices about where and how it will limit competition, and those choices can either balance economic power or create imbalances. The ideology of law and economics is that only interventions that help to balance power in society are in fact government interventions – but this is not true.

Defenders of the status quo regularly point to ‘economics’ as a defence. They suggest that only the reformers have a moral and political vision. But of course this isn’t true. Just as law and economics does generally, the current framework for antitrust law chooses certain legal rules over others, and takes them to define ‘the market’...  Again, we find ourselves with a choice that is necessarily moral and political: we can allocate coordination rights in a way that exacerbates imbalances in economic power, or in a way that ameliorates them. What we cannot do is pretend not to make the choice.

Well exactly. Choosing not to intervene when you're aware of a situation and know that you could alter the outcome is basically equivalent to choosing the outcome that then results. I mean "basically equivalent" in quite a literal way. It's not a direct, exact equality, because you can't know for sure what the effect of your intervention would be. But it's undeniably making a choice, and arguably a form of intervention.

Personally I find the whole notion of this "law and economics" offensive. Yes, the law makes mistakes. But how delusional does one have to be to think that market forces never make mistakes, or that competition always produces the best outcome ? As Charlie Chaplin put it in that speech, "dictators free themselves, but they enslave the people". Taking away laws to prevent exploitation removes far more freedom than it ever bestows. Far better to seek Plato's moderate balance between freedom and servitude than seek the extreme of either on its own. Such an approach requires constant adaptation - circumstances change, so the law must change with them.

A radical legal ideology nurtured our era of economic inequality - Sanjukta Paul | Aeon Ideas

Where does economic power come from? Does it exist independently of the law? It seems obvious, even undeniable, that the answer is no. Law creates, defines and enforces property rights. Law enforces private contracts. It charters corporations and shields investors from liability.