Will This Be a Bull Market for Law and Economics?

Josh Wright —  5 November 2008

Larry Ribstein thinks so. The argument is that current economic conditions have exposed the costs of economic naivete and that now is the time for rational and serious discourse about the costs and benefits of specific regulations:

The last election has revealed clearly the costs of economic cluelessness. McCain’s floundering in the face of financial panic likely turned the election definitively against him. It was enough then for candidate Obama to look cool and collected. It won’t be enough for President Obama.

Business could still provide a strong headwind against a regulatory revolution. But not if it remains divided. The Business Roundtable often supports federal regulation, even the likes of SOX, to hold off public criticism and, not so incidentally, beat down potential competitors. Big business thinks it can control the feds, but that’s less clear than ever with powerful forces lined up in favor of a bigger federal role. The Chamber of Commerce may not be able to hold off these moves toward regulation without something affirmative to offer politicians eager for “change.”

The point is that this both politicians and business have to figure out what regulation is really important and necessary. There is still, therefore, a role for well-reasoned moderation that uses the tools of economic analysis.

I think at least one fork of that path leads toward state regulation – not the kind of regulation states force on any firm selling locally, but regulation that firms can choose and avoid. Fears of a “race to the bottom” can be met by a well-fashioned, precisely targeted, federal backstop. That’s the message of my and O’Hara’s The Law Market, which is hitting the shelves just in time for the federal onslaught of the Obama administration. Apart from the book’s specific recommendation, its discussion of the economics of jurisdictional competition should be must reading for would-be regulators of a global economy.

Anyway, there is now a generational opportunity for meaningful (if not necessarily wise) regulation that business and others will have to meet with coherent arguments. This could be a bull market for law and economics.