LAW, ECONOMICS AND BORK

PRESIDENT REAGAN'S nomination of Robert Bork to the vacant seat on the Supreme Court puts the American people face to face with a movement that, unbeknownst to all but a few of them, threatens to alter the very underpinnings of U.S. jurisprudence. Rather than focusing on Mr. Bork's role in the Watergate affair or his attitude on abortion, Congress needs to use the Bork nomination to focus on a very fundamental question: what is the role of economics in the courtroom?

Since his days in academia, Mr. Bork, a specialist in antitrust law, has been a prominent adherent of what has become known as the law and economics movement. Born at the University of Chicago School of Law at the time Mr. Bork studied there in the 1950s, this attempt to combine legal thinking with the principles of free market economic theory has gained a powerful influence over the federal courts.Essentially, the law and economics movement holds that the theory of economic behavior - more specifically, one particular theory of economic behavior - should be incorporated into the thinking of judges. As Federal Appeals Court Judge Richard Posner, a Reagan appointee to the court of appeals, told the American Economic Association last December, the common law is best understood as a pricing mechanism designed to bring about an efficient allocation of resources.

Superficially, the idea of using the law to make the economy more efficient sounds appealing. But the truth is that economists themselves rarely know what will make the economy more efficient. Instead, what the law and economics movement has done is to take a rigid model postulating a certain sort of economic behavior congenial to those opposed to activist government, and apply that model to the law.

This view of the world has sweeping implications for the judiciary. If, as the law and economics movement contends, the sole purpose of federal antitrust law is to make the economy more efficient, then antitrust cases are evaluated not according to whether they violate the law as it is written, but rather on whether the activity under suspicion promotes or harms economic efficiency.

In Mr. Bork's case, the results of that analysis are quite clear. If two industrial giants wish to merge, the merger must necessarily result in greater efficiency, or their combination would lose business to others. If a company selling computers wants to force customers to purchase its software as well, that tying arrangement must induce efficiency or it would fail in the marketplace. The only activities that should be barred by law, Mr. Bork wrote in 1978, are out-and-out price fixing, mergers that give one firm control of more than 60 percent or 70 percent of a market, and deliberate cases of predation.

The law and economics movement applies a similar analysis to securities markets. Insider trading is not harmful, because - according to strict free market principles - the price of a security or futures contract in the markets always incorporates all relevant information, including whatever insiders have not yet told the public. The price an investor gets for selling his stock reflects the stock's true value in the market, so if a corporate raider offers a higher price, it must be in a position to obtain efficiencies and thus increase the firm's earnings. In this world, which will not be familiar to any investor on Wall Street, the securities markets can get along fine with a minimum of regulation.

This rigid analysis imposes a questionable definition of economic efficiency. In fact, there are many definitions of efficiency. The law and economics model assumes that maximizing total economic output must be the goal, but there are valid reasons for congressmen and judges to be concerned with the distribution of income among individuals, over time, and among different groups within the economy. The assertion that people always act solely to maximize their economic welfare, the basic precept of the law and economics approach, is an assumption made more for mathematical convenience than for its applicability to the real world. And although economists are reluctant to admit the fact, it will be decades before empirical analysis reveals whether a given piece of legislation promotes or harms efficiency.

There is no doubt whatsoever about Mr. Bork's qualifications to be a Supreme Court justice. His strong academic credentials, his solid record of scholarly publications and his experience both as Solicitor General and as a federal appeals court judge make him as impressive a candidate as could be found.

Nonetheless, we have serious questions about his suitability for a place on the nation's highest court. Economics may well shed light on issues in the courtroom. But neither legislators nor judges have sufficient wisdom to subject matters of public policy to a simple economic test.

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