Pur Autre Vie

I'm not wrong, I'm just an asshole

Monday, July 04, 2011

The Surplus(age) of Lawyers

The first law school I was admitted to was Washington University in St. Louis, an excellent institution in a tastefully named building. When I visited, the dean gave a brief talk to prospective students. He argued that what is unique about the law is that it is concerned with justice, that lawyers are essentially creators of justice in the world.

I have more sympathy for this point now than I did then, but I still think it misses the mark. What is remarkable and valuable about law is that it is basically the way that our society allocates surplus. A well-functioning legal system provides clear, predictable allocation of wealth and thus facilitates markets and cooperation. This, in turn, facilitates the creation of "surplus" from exchange and from investments in technology, cultivation, etc.

What I think people often miss is the pervasiveness and the difficulty of the surplus-allocation question. Practically all social activity (defined broadly to include market interactions) creates, or seeks to create, some kind of surplus, and unless you have good mechanisms to allocate that surplus, much of it will be squandered in various forms of rent-seeking. By rent-seeking I mean activity that tends to redistribute wealth but not to create it, such as stealing.

The law is not strictly necessary (or even relevant) where people interact frequently, because non-legal social mechanisms control behavior (the central point made by Robert Ellickson's Order Without Law). But many interactions are anonymous or sporadic, and often there is enough at stake that the normal non-legal "punishment" (loss of access to the market) is not strong enough to control behavior. The law can also provide a framework (such as spectrum licensing) to create a market where none would likely emerge from decentralized behavior.

And even pedestrian law (all law is pedestrian law) plays an important role. Contracts, obviously, but also torts, wills, tax, bankruptcy, maritime law, etc. etc. Lawyers are engaged in the allocation of resources, whether before- or after-the-fact. Quite often it is sordid, and it is far from an exact science (the extent of both legal certainty and legal uncertainty is greatly exaggerated - if this makes any sense). But lawyers, great and small, have a vital role to play in building a good, prosperous society.

And this is notwithstanding that many lawyers are engaged in what is essentially rent-seeking. First, what is rent-seeking from the individual's perspective may be surplus-creating from the social perspective (as when a plaintiff sues a tortfeasor and puts the fear of God into other potential tortfeasors).

But there is such a thing as pure, indefensible rent-seeking by lawyers. This is the challenge of the legal system, to provide the benefit of the law in facilitating surplus-creation, while minimizing the cost of the law in the form of rent-seeking and diversion of resources (primarily the diversion of smart people into the law). It is emphatically not a waste to send smart people to do this job, but it is a shame when the law induces legal arms-races to no good end, and at great cost.

And this is what I think the deans of law schools should be telling law students. We are engaged in an ancient and noble profession, one that is fundamental to a good society. But the dark side of law is its potential for surplus-destroying, rent-seeking behavior. System-designers are responsible for the overall incentives in this regard, but any system will depend to some extent on being implemented by well-trained lawyers who understand the difference.


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