Larry Ribstein has an interesting post responding to Professor Warren’s discussion of her own classroom experiences teaching Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-94 (1991). Professor Warren describes a discussion with her students involving the notion raised by Justice Blackmun that “passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys.” Specifically, the discussion was aimed at eliciting student reactions as to whether Blackmun’s line of reasoning was fact or mere theory.
Long story short: Given this choice Warren’s students answered “fact” and Warren worries about what this response says about what we are teaching our law students. She asks “is it all all about deduction, with nothing left over for reality?” Larry’s post makes the case that the students were correct:
Justice Blackmum was responding to the Court of Appeals conclusion that such clauses should never be enforced because theyâ€™re not negotiated. In other words, the availability of a market means that direct negotiation should not be an absolute prerequisite to enforcement. This paragraph contains Justice Blackmun’s reasoning against the Court of Appeals’ conclusion. Recall that, according to Professor Warren’s report, she asked the students whether this was “fact” or “law.” Given only that choice, the students responded that it was “fact,” which seems logical since it was reasoning in support of a legal conclusion, and not the legal conclusion itself.
But then Professor Warren appears, again from her post, to have changed the question: was it “fact” or “theory.” That’s a different and somewhat more difficult question. She was concerned that the students “resisted.” But even as an aged law professor, I’m not familiar with this distinction, so it’s not surprising the students were confused. Perhaps the professor means to distinguish between something that does, and something that does not, require additional proof. Is she referring to the distinctions discussed in Imre Lakatos’ Proofs and Refutations? Or what?
Professor Warren clearly wants to contrast some correct method of reasoning with the erroneous “deductions” of the economic model. But it’s not clear who exactly is engaging in this erroneous reasoning. Not Justice Blackmun, who as just noted was only suggesting reasons why bargaining should not be an absolute prerequisite to enforcement. Not the students, at least from Professor Warren’s description, because they were apparently making the fact-law distinction, and seemed quite willing to recognize the qualifications necessary to make the leap to economic proof of some sort.
Read both posts. While I agree with the spirit of Warren’s post that economic logic should be subjected to empirical testing and we ought to be teaching our students how to think critically (about economic arguments and otherwise), I want to take this discussion in a different direction. What are we teaching law students about economics in various law schools? My thoughts on this subject appear below the fold.
In short, I too worry about what we are teaching law students about economics but for different reasons than Professor Warren. Professor Warren appears concerned that students uncritically accept the “erroneous deductions” of the economic model. The fear is apparently (at least, from the description in the post) that the students clung to the economic logic that lower costs resulted in lower prices despite prodding that the assumptions underlying the “model” may not apply:
“Even as I pressed on the presumptions underlying the deductive model–fully informed parties, competitive markets, low transactions costs, etc–the students hung on to their model.”
As Larry suggests, it appears that Warren was seeking some “correct” form of reasoning to be contrasted with the economic model which must only be correct under some narrow set of conditions. The message is that markets are frail, and that economics can be dismissed as an analytical tool when real world conditions vary from economic textbooks or some version of one might find in an Econ 1-level description of markets. This message does not mesh well with reality. Nor does it serve our students well. I worry more about the impact of this lesson for our future policymakers.
In this specific case, the economic logic that lower costs result in lower prices is not nearly as fragile as Warren’s description suggests. It does not depend on fully informed parties. It does not depend on low transactions costs. And it does not depend on competitive markets though greater competition may generate different pass-through rates. Monopolists also pass-through cost reductions in the form of lower prices (which is all Blackmun’s argument requires). Nor does the economic logic depend on consumers “pricing” forum selection clauses. A commentor (“Jeff”) to Warren’s post who was apparently also a student in the class recognized this point:
I think it is quite obvious that most consumers do not consider forum selection clauses when valuing contracts (we could even do an empirical study that would likely say so). The question is whether the cruise line companies value forum selection clauses and if the savings / expense of the ticket reflects this.
This does not mean the argument requires zero assumptions, e.g., that the clauses lowered the cruise line’s costs at all. But this is a far cry from arguing that the economic logic of lower costs passed through to consumers only applies under some world approaching perfect competition. I don’t mean to make too much of this one example. After all, I wasn’t there for the discussion and don’t know the precise nature of the conversation. I’m quite sure there are other examples in the classroom. Drawing from my own experience as a law student, the Coase theorem was occasionally presented with a passing reference to a footnote in the casebook and the concept dismissed as irrelevant because it only applies a concept that only applies with zero transactions costs, a condition always missing from real world markets.
There is a lot to Warren’s post that I agree with. It is critical that we teach students to think critically about arguments (economic and otherwise), and to think about how the predictions of various models c
omport with empirical reality. We should be encouraging rigorous analysis of the conditions under which various arguments apply and when they do not. My primary point is that it is at least equally important that we avoid teaching our students straw man versions of economic theory or any other arguments for that matter. This approach is an invitation to students that hand waving around policy issues that deserve more rigorous treatment rather than developing a deeper understanding of the economics involved. Such an approach would not be doing our students any favors. Instead, it would encourage them not to develop analytical skills that might well help shape sensible public policy. Afterall, there is no shortage of policy issues where even a basic understanding of economic principles could do a world of good (e.g. price gouging regulation).