Against the Economic Pie: How Economic “Maximizing” Skews Legal Analysis

Martha T. McCluskey –

Should law maximize or divide the “economic pie”? Law students learn that smart thinking begins by asking this question. But this question skews legal analysis against a political economy perspective. It implicitly presumes a hierarchy where an abstract idea of economic gain normally stands above and beyond political and moral concerns, bigger in size and first in order.

Economic-Pie.jpgA recent New York Times commentary by pundit Thomas L. Friedman exemplifies the ideological work of this binary. Friedman contrasts the “redivide-the-pie” political left with various “grow-the-pie” political visions grounded in what he presents as the more realistic understanding that private economic power, not egalitarian democracy, is the foundation of good jobs and general prosperity. Similarly, legal academics often use terms like “economic efficiency” or “economic welfare” to define the optimal legal order as a matter of maximizing economic gain aside from fairness or the well-being of particular persons. For example, students learn to use efficiency to rationalize tort law limits on corporate liability for consumers’ injuries from risky products, or to justify contract law rules upholding agreements that produce harsh or exploitative results.

This first of two posts on this framing question challenges the implicit spatial metaphor embedded in the distinction between maximizing and dividing the economic pie. By definition, the whole is always greater than any particular part. We skip over many hard and important questions when we imagine the societal “whole” as a maximum “pie,” that can then be sliced and distributed for particular interests. The efficiency-distribution binary distorts legal analysis in three ways. First, the image of “maximizing” emphasizes quantity, rather than quality; second, it presumes economic gains normally and objectively expand rather than tightens the boundaries of prosperity and well-being; and third, it represents gain as a sum of separable parts, rather than as an interdependent system.

Turning first to misleading emphasis on quantity over quality, the idea of an overall societal “maximum” offers appealing but superficial inclusiveness and objectivity. To replace regulators’ subjective judgments of the public interest, Eric Posner and Cass Sunstein advocate a cost-benefit maximizing standard that includes monetized moral commitments to health, life, and the environment. Regulators would measure the aggregate amount individuals are willing to pay for any particular moral goal in the existing market. Posner and Sunstein give the example of Justice Department regulations that determined the net benefits of reducing prison rape based on a survey asking people how much they would pay to avoid rape. They also suggest regulators could calculate moral values based on individual donations to organizations advocating for moral causes like protecting dolphins.

The apparent capaciousness of this proposal masks how it directs law to reinforce existing power to limit societal well-being. Regulators must temper statutory goals for public well-being with a calculation of the value of competing private interests in a zero-sum contest for a piece of a “pie” deemed necessarily scarce and unequal. Consider the question of how the Environmental Protection Agency should interpret federal right-to-know legislation, or its obligations under civil rights law, to address concerns about toxic emissions from large-scale animal waste lagoons from industrialized agriculture operations located disproportionately in low-income communities of color. Following Posner and Sunstein’s proposal, regulators might use opinion surveys or records of charitable donations to determine how much individuals are willing to spend on improved environmental data, industry accountability, or environmental justice.

Posner and Sunstein acknowledge that lack of personal wealth will mean many people prefer to save for other interests: perhaps food, health care, or school supplies, or the chance to move away from polluted neighborhoods. In addition, presumably regulators would also use surveys or studies of industry advocacy group spending on competing interests in values like corporate “free speech,” cheaper pork prices, agricultural privacy rights, or states’ rights to control agricultural development.

The problem is not merely how to quantify moral values. The maximizing standard evades scrutiny of how we “count to one” on the legal economic scale. Even for the most routinely quantified market commodities, we need to judge what qualifies as more rather than less “economic pie.”

Does an increase in reported annual net worth for private banks count as a gain to economic growth? Or does it represent more asset bubbles ready to burst, more dubious accounting strategies, more monopolizing bank mergers, or more bank fees collected from falsified bank accounts or from fraudulent and discriminatory subprime loans? More fundamentally, is the current public and private structure of the banking industry a beneficial means of generating capital for real economic production, compared to other alternative systems?

These questions help reveal the second way the maximizing-distributing binary obscures clear analysis. To know whether an individual gain adds or extracts from society’s “pie,” we must make contested moral and political judgments about the particular qualities of the actual systems producing those gains. These crucial judgments tend to be hidden by conclusory assumptions that some particular gains – such as bank profits – normally reflect an impartial and efficient market, while some particular gains – such as legal protections from home foreclosures, prison rape, or dolphins – tend to represented political or moral redistribution.

The seemingly neutral maximizing approach tends to take the gains of some of the most powerful winners in the existing political economic system as largely the result of a benign process or given baseline facts beyond legal or political control. It then narrows analysis to how to achieve more in a political economic system of largely unquestioned legitimacy and direction. From that baseline, efforts to change these outcomes become presumptively costly deviations, so that reasonable policy appears limited to tweaking rather than transforming existing political economic power. If existing violent prison conditions enable the private prison industry to advance profits and political power, then regulatory restraints on those private gains will appear as societal harms to be weighed against the harm of being raped. In a similar false equivalency, if multinational agricultural conglomerates expand their market share by suppressing evidence of emissions from massive uncontained waste on communities historically excluded from political economic power, then the ideal of impartial maximizing will guide regulators to weigh the loss of that industry advantage against the loss of citizens’ power to know the risks and damage to their local environment.

The third way the maximizing-dividing binary distorts legal analysis is its definition of the public good as the sum of discrete outcomes. The maximizing concept assumes an atomized rather than an organic vision, obscuring the analysis of how the value of the societal whole can be dramatically more or less than the sum of its component parts. Law should not assume the economy operates through neutral, omniscient aggregation of individualized voluntary preferences that can be summed up as objective gains. Instead, the economy pervasively and necessarily operates through the collective power of human institutions governed by contingent rules and processes favoring particular values and interests over others. Existing systems of money, corporations, government, civil and criminal justice, constitutional law, property rights, voting, media, family, universities, international trade are just a few examples of institutions that generate and mediate interests and values with contested processes and powers.

Posner and Sunstein’s maximizing approach, closes off this systemic view by explicitly excluding what they call generalized moral commitments to the quality and nature of the existing political economy. Should we go beyond calculating individual willingness to pay for their moral concerns about dolphins or prison rape, to similarly calculate individual willingness to pay for the moral value of government regulation in general? Posner and Sunstein answer no, explaining that such general values represent abstract philosophical differences that are not only hard to measure, but inconsequential because opposing general ideologies will likely cancel each other out. But these broader moral or political ideals may be precisely what matters the most, both for individuals and for society overall. Consider, as examples, the preference for a legal and political system not rigged to favor the wealthiest or the most immoral; or for government regulation that is more responsive to independent science and broad public participation than to the public relations firms of the highest private bidders; or a preference for public policy focused on improving people’s economic options, rather than on codifying and solidifying existing constraints on those preferences.

In short, the problem with the distinct goal of “maximizing” is not its focus on economic growth or its utilitarian emphasis on the whole. Legal analysis should indeed aim to expand economic capacity and the public good. The problem is that societal well-being and economic prosperity are undermined by an analysis that starts by professing to separate “maximizing” gain from the inevitable judgments of what particular gains, and what interests and values, should qualify as contributions to the whole.

Martha T. McCluskey (@MarthaMcCluskey) is Professor of Law and William J. Magavern Scholar at the University at Buffalo School of Law.

A modified version of this post was published as part of the article, Defining the Economic Pie, Not Dividing or Maximizing It, 5 Critical Analysis of Law 77 (2018) (special issue on New Economic Analysis of Law, Frank Pasquale, ed.).