Monday, April 25, 2016

Antitrust Law and (not really) Economics

Some people are happy as can be that antitrust law has become the principal means by which neoclassical economics has wormed its way into our lives. Others long for the old days when the Supreme Court said efficiency is not all that counts.

As it turns out, efficiency is not everything or even anything to those who applaud the subordination of antitrust law to an ideology. The big problem is that conventional antitrust scholars talk a big game when it comes to efficiency but walk the walk, they do not.

There are many ways in which the intellectual hypocrisy reveals itself but let's take one example: externalities. Externalities is not just what law faculty do to each other as you might think if you ever read this blog. It is what businesses can do to all of us when they do not pay for all the resources they use.

For example, trucks speed down the road clogging the highway, causing stress and increasing the need for repairs. Smoke fills the air with one pollutant or another. Waste is dumped into lakes, rivers, and the seas. We all end up paying for it in terms of enforcing environment protection laws or by headaches, higher taxes, or lower property values. Yes, those business subject to the antitrust laws pay for some resources they use and we pay for some others.

But when it comes to deciding which ones are efficient, all the harm they heap on the rest of us is not part of the calculation.  Let's take one of my favorites, the Florida sugar industry. The are partially responsible for the destruction of the Everglades and manage to shift those costs to taxpayers. On the other hand, in the myopic world of antitrust economics, they may come out smelling like a rose. Ironically, it is because they are so good at shifting their costs to others.

Take some made up numbers. Two firms produce sugar. When they add up all their costs, production by Firm A is $1.00 a pound and by Firm B it is $1.25 a pound. Firm B just cannot compete at those numbers. But firm A is in Florida and damages the Everglades to the tune of $2 billion. Add those costs in and they are at $1.35 a pound. Firm B challenges the pricing of Firm A saying they are charging prices that are below cost (an antitrust violation if it means A will likely become a monopoly).  So is A more or less efficient than B? This is critical because many in the antitrust field worship at the toes of Mr. Efficiency. (Rhymes with Mr. T.)

 No economist or thinking person or beaver would say A is more efficient. What does antitrust law say? You guessed it. A is more efficient. And why is that? Because they actually paid less than B to produce. Did it cost less for them to produce? No. Did they use fewer resources than B to produce? No.

This is all because antitrust economists do not count the externalities. In the process they set up an interesting set of incentives. First is the race to the bottom as far as environmental ethics. Firm B can be more "efficient" if it too figures out how to shift its production costs to others. Second is the race to Florida or any other jurisdiction that makes a firm instantly more "efficient" and grants a form of antitrust "immunity."

Saturday, April 16, 2016

Selling the Deal in the Deal: Predatory Pricing and Antitrust

I recently wrote an article about modernizing antitrust that only one law review accepted and it may have been charity more than anything else. Part of the thesis was the the neoclassical model depends too much on low prices. A sense of fairness, what people often want and derive utility from, can be advanced in other ways.[More specifically, antitrust economics ignores externalities, most people do care whether prices reflect the exploitation of others, consumer surplus is only tenuously connected to actual welfare, etc.}

Over here in Italy I have discovered a new wrinkle that further puts neoclassical economics in the rear-view mirror of antitrust. There were two incidents.

Walking through a really big market I stopped to buy for 1 euro the cheesiest gift I could find for my friend Amy. For some reason I also picked up a necklace. 25 Euro the seller said. I shook my head. "No grazie," I replied indicating I did not want it. The reponse was "20 Euro." Again,   I said no wanting to buy that great gift for Amy and leave. (I will not disclose what her gift was except to say it includes a magnet which was demonstrated to me many times.) Now I hear 15 euro, and then 11 euro. 11 Euro was a sticking point. He said at 11 he only got 1 Euro profit. I showing him that I only had ten. Finally he said OK to the ten.

I realized the price of the necklace was irrelevant. In all conversations since then it has been known as the necklace that was reduced from 25 to 10. I felt pretty good about getting the lower price but I also felt uncomfortably knowing the vendor needed the money more than I do. Still, if you think about it, everyone came out ahead. I get to feel like I was a really good bargainer and the seller got 10 euro -- 1 euro was for the necklace and 9 were for letting me feel good about the deal. The low price in and of itself meant nothing. In fact, I was happier at 10 than I would have been at 1 Euro because the seller had bundled the necklace and an opportunity for me to feel like a successful bargainer.

Second incident. Walking back to our apartment, a woman is moving along in full out African garb selling bracelets. I see her actually sell one for 5 euro. She gets to me and I say "how much" and she says 10 euro and I looked shocked.  Then she says 5 and indicates that is what the other man paid. I say, "no" and in broken Italian add "I am not that man." Finally I pull out  2 euro from my pocket because that is all I have. She takes it and then makes the SHHH sign and points at the 5 euro buyer.

What I really liked about this was her follow through on the sale to the other man, She wanted me to help preserve his feeling-goodness from the bargain he thought he had made. She sold him a 1 euro bracelet and 4 Euros of feeling good about the deal. For me, there was a discount, I paid 1 Euro for the bracket and only 1 Euro to feel good.

There are many antitrust issues to consider here. There was clear price discrimination with respect to sale of the "feeling good" component of the deal. And sometimes the price of feeling good was cut so far that it seemed it could be predatory. But I have no idea what the seller's marginal cost was of selling the good feelings.

Thursday, April 14, 2016

Law Prof Advocacy, Entitlement, and I: A Really Good Example

One in a while my posts get reposted over on Paul Caron's Tax Prof blog and usually there are very few comments but this one caught me eye. The post it is commenting on is the one three down about law profs and their sense of entitlement. Here is the comment: [oh, it is good idea to have Toby Keith's "I Wanna Talk About Me" playing on your favorite country station.]

"For each of the past five years, I have taught an average of 20 semester units -- primarily to make possible new programs that I view as valuable to students. During the same period, I have developed and implemented new programs, helped my school negotiate financial rapids, chaired major committees, written a first and second edition of a casebook and 400+ page teacher's manual, presented and published multiple articles, and co-hosted our school's Tax Policy Colloquium. For this, I am paid a small fraction of what I could be earning as a partner in a major firm. My choice, and I'm happy with it. But I wish Prof. Harrison would speak for himself, and not for all of legal academia. I know that many of my colleagues, at Loyola and elsewhere, work their hearts out for their students and their schools."

Ok, so it's a tad defensive or maybe a lot defensive but I admit I am old fashion about self promotion. I think the author just needs a big group hug. [I'll bet the signature on his email mentions all of this like a colleague of mine whose below the signature  information includes everything from when he was potty trained (a record young age) to his last talk where the very top people sat spellbound.] Still it  reflects a high level of productivity which actually makes my point for me. I wonder how many other law teachers are teaching 20 credit hours, and writing casebooks and major articles. I do not think there are many and I know there are none on my faculty although some work just as hard.  So what the commentator tells us is that at full capacity law profs can be enormously productivity.

But it also includes more information about a sense of entitlement and advocacy [and, I might add, the lack of humility that seems to be a pathology associated with attending Harvard (think Ted Cruz)]

1. He is teaching what I think is 20 hours a year. That really is huge but notice it is for programs "I" think are important. What about any one else? Are they vanity courses? Suppose he were asked teach something that "he" did not think was important.

2. I'm not going to scoff at completing a huge casebook. It is hard work. On the other hand, to judge whether it was time well spent or just something "he" thinks is important, I'd like to know the market share or number of adoptions. That would give the reader something to evaluate in terms of using one's time productively. Advocates do not give out this information unless it favors them; scholars do. Of course one could just say "many adoptions." See below.

3. He says he has written multiple articles. There is not doubt that he is a productive scholar. In 25 years in the business, though, I could find but 2 judicial citations and 250 in secondary sources. I am sure I am missing some since I just put the name in westlaw and, in his field, I am sure there are other outlets. Let's put it this way. I'd be happy to argue that he has worked his butt off . . . .  but was he writing about what "he" thought was important? Does that account for the seemingly low reliance on his work but others even though he graduated from you know where? Somehow the law prof entitlement of "doing what I think is important seems to come through again and this is my entitlement point.

4. By the way, "many" people at his schools work their hearts out. Same at my school but the system still stinks as long an others can cruise,there is no accountability, and everyone does what he or she thinks is important.  And what about that word "many." It's a law professor favorite because it has no meaning.  It sounds like you are saying something but you have complete deniability. I have heard law professors invoke "many," "most," and "a bunch" typically when it is a handful but they need to make it sound, in the words of the Presidential candidate whose hair looks like an Afghan puppy fell asleep on his head, HUGE.

5. Finally there is the straw man. The writer must know better. I agree that I cannot opine on "all of legal academia." How could I?

So, as I have written so many times that I am really getting pissed off at me, we have a system in which people do exactly what they want to do. They teach what they deem to be "important" and write what they want to write regardless of of whether anyone listens.

Thanks for your support commentator!

Monday, April 11, 2016

Advocacy and Law Professors

I have noted prior to this that law professors tend to write advocacy as opposed to scholarship. The key distinction is whether  ahead of time you know what your conclusions are likely to be and whether subtly or with a hammer drive these points home.

In many respects there is  very little to separate law professor advocacy scholarship and expert witnesses who are called to testify on behalf of one client or another. When there are differences the expert witnesses come out ahead on the ethics scale. This may not surprise anyone but me. For years I ranked expert witnesses as the lowest of the low. Having been an expert witness, I observed testimony that only money could buy and the view of many experts that the function of the profession is to support the highest bidder regardless of the truth.

But why are they superior to law professors who write advocacy? Expert witnesses present their version of the truth but almost always face someone who will present the other side. In addition, they know they will be subject to cross examination which includes the possibility of exposing conflicts of interest. Although the truth does not always prevail, it at least has a chance. With the law professor advocate, that is less so.

Perhaps more important is that with expert witnesses the pretense of objectivity -- even though it may exist -- is dispensed with. Law professors can be advocates in their scholarship. In addition, many are on retainer or of counsel to law firms and write so call "friend of the court" (amici) briefs in which they purport to bring their wisdom to bear to one issue or another. Often this includes pleading with other law professors to sign those briefs.  In fact, does anyone actually believe they ever take a position without considering the position that most favors the firms paying them. Or does any think that many do not get their marching orders from their other employers? Finally, does anyone believe this advocacy is not done while on the payroll of tax and tuition payers? In effect, law schools end up subsiding one side of a case they may know nothing about.

Pretty clearly advocacy is not scholarship and no self-respecting institution would treat it as such. But the bigger question is whether law schools should continue to subsidize those who write advocacy and thus, indirectly, subsidize their clients or the firms retaining them. Might as well mail in a contribution to those benefiting.

I have another possibility drawing from ancient history of the regulation of broadcasting. All topics written on by law professors should be publicly announced. When it is advocacy, whether in the guise of scholarship or an amicus brief, those with the opposite position should be given a chance to respond, also on the law school's dime. It is called the "fairness doctrine."

Friday, April 08, 2016

You Say You Want a Revolution

Well we've got one and seems like now no one much wants a revolution. This revolution is unlike others. Those that were in power would hardly see it that way but they exercised their power  through a Dean who was paralyzed when it came to what made sense for those paying the bills. So for ten years the tyrants ruled. In that time there were many activities that seemed unreasonable except that someone wanted them. Like:

1. Hire your buddy as a adjunct.
2. Start a Center and Certificate so I can get time off from teaching to be a director even though neither helps students become more employable.
3. Fly me and my pals to South America every other year to make 10 minute talks and then chill out.
4. Teach a class with 5 students or fewer in it.
5. The side deal -- record a course and run it as summer teaching while also on a summer research grant.
6. Teach American law to Polish students in Poland because two or three whiners will be oh so sad if you do not.
7. Pimp out the students by paying faculty to find the students unpaid summer jobs for which the get law school credit and pay full tuition although no one is teaching anyone. 
8. Be of counsel for a law firm and but appear as an amicus brief writer and organizer for the issue the firm favors, 
9. Take 15 years off to raise your kids.
10. Teach your regular load which is supposed to constitute a full time job when joined with research but then add about 5 more hours for a  nice bump in salary and them brag about how many hours you teach. 
11. Badger your colleagues for contributions to establish a foundation or endowment and then pass out the money to rich kids.

I doubt this will appear in any Panama papers or that the President of Brazil had a hand in the corruption and oppression but it was the Law School equivalent.

And then the revolution came in the form of a 5 foot 6, 120 pound dean with great insight into who the generals should be. Kind of a Trojan horse of a dean because no one expected what was really inside. A sweet move; some refer to the dean as a stealth dean.  Think of Castro landing quietly in Cuba in the 1950s. There is resistance but all the former established has is a sense of entitlement, secret efforts to rile up students and alums (all of whom will be better off after the revolution), and office to office campaigning. 

I love a good revolution.

Thursday, April 07, 2016

A Pervasive Sense of Entitlement: Tom Waits

A sense of entitlement comes up quite often on this blog and, actually, in some of my writings. I think what is at the core of a sense of entitlement is a feeling you are an end and not a means. When that is combined with being successful at getting what you want just by demanding it,  the formula is complete.

It happens in legal scholarship where 8000, $30,000 each articles are written each year  without much thought going to into what difference it makes. In a way you may think this is hypocritical for law profs but it is not. In real life they do not actually care if any of it makes a difference as long as it gets their names out there.

Faculty at law schools have an Everest sized sense of entitlement when it  comes to teaching. They want to teach only certain courses, at certain time, and on certain days. In fact, and I am not making this up, they want to compress courses into the fewest number of days possible. One colleague wanted to teach his 3 hour contracts class and his 3 hours securities class on Monday from 11-2. Yes, concurrent teaching.

Someone else topped that. Next year he will teach a 4 credit contracts class which meets 4 times a week for 50 minutes for 14 weeks and that is a total of 2800 minutes. He has asked to teach those 2800 concurrently from 10:00 to 10:1 on Monday, September 15th.  He either will talk 2800 times faster than he does normally or somehow fiddle with the space/time continuum. I think the big the collider thing over in the Alps is somehow involved.

Ok, some of the details on that are made up a wee bit but  I am not making this one up. Once we approved a 3 credit course and a law prof asked why we did not label it a 4 credit course because that way we could get 4 hours instead of 3 hours of our 9 hours teaching loads taken care of. Yes, no change in the course, just the credit hours.

I love students. I love them HUGELY. And especially I love those that feel entitled to have classes with only 6 total students in them, not have classes on Friday, and are entitled to write way in excess of the word limit on the test. Where does this come from? First, you have come to believe that the world rotates around you and simply complaining without any reasoning -- it's not fair, why are you punishing me, you've declared war on the students-- means you get your way. And, second, you missed the idea of limited resources and not everyone (except you, of course) gets what he or she wants (I'll be so happy when the grammar gods make "they" equal to he or she.)

What does Tom Waits have to do with any of this? In a word, Everything. If you read this rambling ( I am hopeful that you have better things to do than make it this far) please imaging it all being sung by Tom Waits who then follows it up with a lively rendition of Volare.