Means and Ends in Law and Economics

Is law and economics about means, ends, or both? This question, which lies at the heart of Guido Calabresi’s intriguing new book, turns out to have no easy answer.  Law and economics is by turns imperialistic and indifferent, a dominating know-it-all and a deferential technician.  Often law and economics seems like a means-focused enterprise:  Give us a social goal, its practitioners offer, and we will find the best way there—the efficient way.  This accords with the lay definition of efficiency, which, according to Merriam-Webster, means “the ability to do something or produce something without wasting materials, time, or energy.” But what is that something that we wish to do or produce?  Here, as Calabresi observes, law and economics oscillates between open-minded acceptance of varying tastes and values and the reflexive dismissal of some tastes and values as unworthy of consideration—including, notably, many tastes and values relating to redistributive practices undertaken by society, and to altruistic practices undertaken by individuals.

Why should this be the case? A clue can be found in Calabresi’s observation that altruism “is a collection of goods that can substitute for each other as means, but also that are each wanted as different ends in themselves.”  It is entirely possible to rank and evaluate charitable efforts based on the effects that they produce in the world.  But many, if not most, charitable donors care less about the net impact of their donations than they do about helping particular others with whom they can identify, through particular means that seem intrinsically worthy.  The means, in short, are also ends in themselves.  And where ends are not shared, advice about means will fall short.

The same might be said about different methods of redistribution. Legal rules and the tax-and-transfer system can both redistribute income.  This makes them look like competing means to achieve the end of greater (or lesser) economic equality.  And conventional law and economics holds that one of these means, tax-and-transfer, plainly dominates.  But it dominates, if it does, only as a means to that broad end of increasing or decreasing overall economic equality. It does not, and could not, dominate as a means to achieve the very different sets of ends that are suggested by and actually embedded in other redistributive routes.  If many people are what Aanund Hylland and Richard Zeckhauser call “goods egalitarians,” rather than “income egalitarians,” then a move in the direction of equalizing income does not simply represent a speedier path to the same destination as could be reached by, say, subsidizing housing and medical care; rather, it involves substituting different ends for the ones originally chosen.

This point connects to Calabresi’s discussion of “merit goods,” one of the central ideas in the book. According to Calabresi, a merit good is one that many members of society believe should be allocated on some basis other than conventional market transactions.  As examples, Calabresi discusses kidneys, education, and avoidance of military service.  A significant part of the population holds such goods to be “pearls beyond price” that should not be commodified, or, accepting commodification in principle, abhors a market allocation that allows the rich to outbid the poor, given existing inequality. In this arena, Calabresi explains, law and economics tends to violate its own commitment not to judge preferences.  The most important aspect of preferences surrounding merit goods, as Calabresi describes it, is this: only some goods are merit goods; most are not. Many people can accept a certain level of general inequality in society, indifferent to the fact that the rich outbid the poor for run-of-the-mill goods, but feel a moral pain at the same kind of allocation for the subset of merit goods.

Significantly, this pain does not come from a generalized maldistribution but rather from its appearance in particular realms. Accordingly, addressing it through generalized redistribution would be cumbersome and ultimately infeasible; to redistribute at a level sufficient to remove painful inequities from these particular pockets of concern would conflict with other widely held preferences about maintaining market incentives in most domains. Thus, even if using legal rules to allocate merit goods in a way that benefits the poor seems inferior to tax-and-transfer as a means to address the general problem of maldistribution, it may be very well suited to serve a far more specific and widely shared end: avoiding the pain of allocating merit goods through the market.

What is more, as we have recently argued, such an approach may also turn out to be a more politically viable path for improving distribution overall, precisely because it accords with the preferences that many people hold.  There is no set quantum of redistribution that people are categorically prepared to engage in, regardless of its form; the shape that redistribution takes determines the ends that it is capable of serving, and hence the political support it will enjoy.  Likewise, charities that appeal to the human desire to help identifiable victims are not necessarily channeling money away from more effective causes, because the act of giving is itself endogenous to one’s selected ends.  Perhaps people should have different ends than they do—and perhaps law and economics can even help in that enterprise—but their existing sets of preferences cannot be dismissed.

Law and economics is, fundamentally, a method, a means, a way of thinking systematically about rules, policies, and institutions, but it is also an activity of engagement between disciplines, an end in itself. When we are in the true realm of law and economics, which Calabresi distinguishes from the economic analysis of law by the former’s sense of mutual engagement, the method operates not only to assess means, but also to ask questions about ends.  If law and economics can become more curious about why people and societies address questions of distribution in the way that they do, Calabresi’s optimism about the future of law and economics will prove well founded.

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