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Too Big to Fail From the Eyes of a Specialist

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Reprinted from neweconomicperspectives.org by William Black

Andrew Ross Sorkin has written a column lamenting that "For a Generalist, 'Too Big to Fail' May Be Too Tricky to Judge" about the district court opinion finding in favor of MetLife on the question of whether it would pose a system risk were it to fail. Sorkin runs the NYT's "Deal Book," which is supposed to represent the paper's specialized expertise with regard to Wall Street. His column demonstrates that one of the areas of expertise required to understand Wall Street is legal, and that it is beyond his understanding despite having "read hundreds of pages of legal briefs from both sides, and talked to company and government officials and outside experts"."

I will start with his description of the judge, Rosemary M. Collyer, which ignores vital information and misinterprets other information.

She's also a member of the United States Foreign Intelligence Surveillance Court and once worked as the general counsel of the National Labor Relations Board. In other words, she's a legal rock star.

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Well, no. It does mean her specialty is employment law. Her appointment to the FISC by Chief Justice Roberts means (1) she was appointed to the federal judiciary by a Republican president (Roberts appointed only Republicans to the FISC, which is outrageous) and (2) Roberts thinks she is disposed to vote to allow the mass surveillance of Americans by the NSA. Republican appointees to the judiciary are materially more hostile to government actions -- except in the case of supposed national security.

Similarly, Sorkin gives a naïve description of a scholar who claims that specialized economic courts are desirable.

Joshua D. Wright, a former commissioner of the Federal Trade Commission, co-wrote a 2011 study that determined in antitrust cases, a judge's expertise had a significant impact on the validity of the ruling. "Decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts," the study says. "Our analysis supports the hypothesis that some antitrust cases are too complicated for generalist judges."

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Perhaps, but a reader should be informed that Wright is a professor at the ultra-right wing George Mason University School of Law. More importantly, a judge who has been "trained in basic economics" is likely to have been trained that market power is of trivial importance. This point should be particularly clear to Wright because George Mason University (GMU) ran the leading propaganda program for the federal judiciary in economics, which focused on hostility to government regulation and antitrust enforcement by purporting to teach "basic economics." Wright and his co-author not only admit this point -- they cite the hostility of the modern judiciary to antitrust actions as evidence of the wondrous role that economics has played in changing the law and allowing the modern economy in which market power is celebrated.

The domination of the judiciary, particularly in the appellate courts, means that the district courts who rule against antitrust cases are more likely to be upheld on appeal. Appeals are expensive, so plaintiffs and the government are less likely to appeal such cases, which makes Wright's empirical study circular (and demonstrates how poor empirical work is passed off as science).. Even Wright admits that GMU's programs are "controvers[ial]."

Judges also perceive economic training to be beneficial; as discussed below, hundreds of judges have already sought out basic economic training. One reason judges might take time away from heavy dockets to receive such training is because doing so improves their decisions, thereby reducing appeals, reversals, or other potentially deleterious effects of economic complexity that could damage their reputations. Training judges in antitrust economics is not without controversy, however. Some have even criticized educational programs designed to teach judges basic economics. The George Mason University Law and Economics Center (LEC) has been the focus of much of the criticism, at least in some part because it is the largest of the judicial training organizations. The LEC began training judges in 1976 and has trained hundreds of federal judges currently on the bench. Teles (2008) notes that, by its height in 1990, the LEC Economic Institute for federal judges had trained 40 percent of the federal judiciary, including two Supreme Court Justices and 67 members of the federal courts of appeals.4

Critics claim that the programs amount to junkets designed to influence judicial decision-making, and are a thinly disguised attempt at indoctrinating judges with a particularly conservative, free-market oriented style of economics. Opposition to these programs recently led to proposed legislation that would effectively prohibit privately funded training programs for federal judges (Teles 2008).

4 The George Mason Law and Economics Center claims that more than 50 percent of the current federal Article III bench has attended LEC programs".

The largest financial sponsor of judicial propaganda programs is the Koch brothers, and the other major sponsors are also ultra-right wing entities dedicated to their hostility to government regulation and effective antitrust law. Note that in the quoted passage Wright and his co-author inadvertently admit the key problem with their empirical study.

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One reason judges might take time away from heavy dockets to receive such training is because doing so improves their decisions, thereby reducing appeals, reversals, or other potentially deleterious effects of economic complexity that could damage their reputations.

Another reason for a district court to both take the GMU propaganda course and rule in accordance with its ideology is not to "improve" their decisions, but to "conform" their decisions to the dominant beliefs of the appellate judges -- "thereby reducing appeals, reversals, or other [results] that could damage their reputations." That is outrageous -- and specialized economic courts would make it even worse, but Sorkin spots none of the empirical errors, biases, or dangers with Wright's proposals.

The greatest problem with the GMU propaganda, however, is that it has long been falsified by reality. That, however, never penetrates the ideological barriers. Naturally, the firms with massive market power love the results of the ideology.

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http://neweconomicperspectives.org/
William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
 

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