Overlapping Interest in Systemic Risk and Economic Opportunity

In an earlier post, I proposed two readings of David Driesen’s Economic Analysis of Law. One was an ambitious reading, which evaluates Driesen’s “economic dynamic theory” as a critique of, and alternative to, the mainstream economic perspective. The second reading viewed economic dynamic analysis from within the economics tradition. I offered the view that the book made a more substantial contribution on that second reading than the first.

Here, I offer a third interpretation, which might not be at all what Driesen intended, but which I find attractive. “Avoiding systemic risk” and “providing economic opportunity” (the normative goals/commitments that Driesen defends in his book) are not ends unto themselves. They are, instead, intermediary goals that serve some other morally important purpose. And, indeed, there are a variety of moral frameworks in which “avoiding systemic risk” and “providing economic opportunities” might be seen as valuable. Brett mentions Sen’s capabilities approach; that certainly could be one. The prioritarianism defended by Matt Adler is another. I would offer that standard economic efficiency considerations would favor avoiding systemic risk and providing economic opportunity. The subjective well-being standard proposed by Jonathan Masur and others would also value these goals.

This framing allows Driesen’s economic dynamic theory, and the normative conceptions it embraces, to serve as a kind of “incompletely theorized agreement.” We don’t need to agree on first-order moral principles to agree that these are valuable social goals. Rather than attempting to critique or supplant alternative moral priorities, economic dynamic theory exists at a point of overlap. I don’t believe that this is how Driesen describes his project, but I think there is something appealing about it.

Similarly, under this reading, Economic Dynamic Analysis (EDA) allows us to proceed with analysis, without coming to agreement on whether economic efficiency, capabilities, welfare, happiness, or something else is the goal of policy. We make a general “commitment” to reducing systemic risks and   improving economic opportunities and evaluate policy in terms of how well it forwards those goals, recognizing uncertainty, the fact that policy change occurs over time, and the existence of “collateral negative consequences.”

From my perspective, I would see EDA as a useful piece of a more complete cost-benefit analysis. For the folks who think that CBA is a terrible idea, we can agree on the EDA part and disagree on the rest. On this reading, Driesen’s criticisms of “neoclassical economics,” law and economics, and cost-benefit analysis are beside the point, and in fact reduce the force of his argument. The point would not be “whether avoidance of systemic risk and keeping open a reasonably robust set of economic opportunities constitutes a more important goal for society than allocative efficiency.” Rather, the emphasis would be on the ways in which efficiency considerations (along with many other forms of moral reasoning) counsel in favor of avoiding systemic risks and maintaining economic opportunities, and then working together from there. This is not the argument that Driesen makes, but perhaps that was a missed opportunity.

In a similar vein, I think it is a serious mistake to downplay the extent to which mainstream economic analysis counsels for aggressive efforts to address problems such as climate change. Outka notes that “if the dominant approach to policy analysis [CBA] suggests climate action is not economically justified . . .  something is dangerously wrong.” Indeed, there would be, but in fact, there is broad consensus within the economics community that action on climate change is needed. Today, Nature published a Comment that I coauthored with economists Ken Arrow and Larry Goulder and several others, noting that a variety of mainstream economic models show that climate risk needs to be addressed. While the social cost of carbon adopted by the Obama Administration does not incorporate a number of important risks, it is certainly enough to justify a lot more than we’re doing right now.

Just as areas of agreement between environmentalists and economists create opportunities for political progress, Driesen’s economic dynamic theory (as interpreted here) can create opportunities for intellectual and analytic progress—not as an alternative to other approaches, but as a set of recommendations that can be endorsed both from within the law and economics tradition and from many other perspectives, as well.

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