Well someone had to say it...

In law school we learn about a term: damnum absque injuria, which is essentially a fancy sounding way for a judge to say "sorry plaintiff...I can't help you here." The idea is that some damages do not correspond to legal wrongs in a civil (torts) sense, and thus no recovery can be had. An opposing principle is known as res ipsa loquitor, which is a fancy way for a judge to say "wow...someone MUST have been negligent if X happened." The idea is that in certain cases, 'the thing speaks for itself'. The classic example is a loose barrel rolling down a public street and striking an innocent pedestrian. Common sense would lead us to believe that barrels do not typically roll down streets and injure innocent bystanders, and thus someone must have negligently caused or allowed that particular barrel to roll down that particular street and hit that particular pedestrian. The pedestrian may be in no position to say who acted negligently to cause the barrel to injure them, or even if they have some idea who (the owner of the barrel factory up the street for example), they may have no way of knowing how they acted negligently, thus they would have no way of proving it.
Now to my main point. Well, someone had to say it... I would argue that our current financial crisis falls on the res ipsa side rather than the damnum side of the spectrum. It would be hard to imagine that the world financial system could become precariously balanced on the edge of complete disaster without someone lying, misleading, taking unauthorized risks, or otherwise acting in an illegal fashion. Which brings us to one of the core issues of the financial crisis: credit ratings. If all these CDSs and NINJA loans and MBSs were so risky, why in the world were they rated AAA+? Why would municipal investments and 'safe' mutual fund managers gorge on these new financial assets if they were risky? Well in a sense this is res ipsa loquitor. We can say with hindsight that the assets were actually VERY risky, and thus the AAA+ ratings were WRONG. So who is to blame? Well look who is up on the chopping block now...Moody's

Big U vs. Little e

The following is an e-mail that I sent my torts professor concerning our use of economic terminology in class:

Professor Olsen,

I had noted a few weeks ago issues with some of the economic terminology that gets thrown around in class. My specific issue is with the term ‘Utilitarian’ and it’s relation to concepts of ‘efficiency’. I have my degree in economics and it is one of my favorite subjects. One of the reasons that I enjoy it so much is because of its depth; no matter how many classes I take and different approaches I study, I always find myself learning new things. My last semester at Wash U I had a great professor for Urban Economics, and, even though it was an advanced class, I found myself re-learning the basic Microeconomic framework that I had learned when I was a freshmen. One of the things that stood out to me was my professor’s rigorous approach to basic economic terminology, which brings me to my issue here. There is a fundamental and important difference between a ‘Utilitarian’ concept of an optimal allocation of resources and an ‘Efficient’ allocation. I didn’t want to bring this up in class because it is not necessarily on point and I didn’t want to confuse people with jargon, but I do think that the distinction is important in regards to the issues and policy arguments that we make in class. Also I think that the distinction between U and E reflects many of the core distinctions in our Torts policy arguments and materials. Specifically, I take issue with the state of things as presented by Ames in the supplement excerpt that you gave us:

o Here as Ames says it in "Law and Morals" [22 Harvard Law Review 97, 110-113 (1908)]

· "The law is utilitarian. It exists for the realization of the reasonable needs of the community. If the interest of a individual runs counter to this chief object of the law, it must be sacrificed. That is why, in the cases just considered and others that will occur to you, the innocent suffer and the wicked go unpunished…”

I think that a bare statement that “the law is utilitarian” is pretty absurd when it is not justified, but instead passed off as a given to make a later point about legal injustices. One of the reasons I think the distinction between U and E is so important is because the two concepts are not value neutral. Also from an economic-defending standpoint I recognize that there are many scathing criticisms of ‘Utilitarianism’ out there, and I would be loathe to hear someone bash Economics because of a false sense that E and U are ‘all the same stuff’. Anyways I just wanted to share some of my notes on this distinction with you. I am interested to hear your thoughts/points on any potential implications of this distinction on issues of tort law. The notes I’ve compiled are:

Utilitarianism is the idea that the moral worth of an action is solely determined by its contribution to overall utility, that is, its contribution to happiness or pleasure as summed among all persons.

Pasted from <http://en.wikipedia.org/wiki/Utilitarianism>

o This is an important distinction that is being ignored in Torts when talking about utilitarian as well as efficiency arguments, which are referred to as 'utilitarian calculus'.

o Efficiency:

· A system can be called economically efficient if:

· No one can be made better off without making someone else worse off.

Pasted from <http://en.wikipedia.org/wiki/Economic_efficiency>

· Pareto Efficiency (most widely used sense of the term)

§ a movement from one allocation to another that can make at least one individual better off without making any other individual worse off is called a Pareto improvement. An allocation is Pareto efficient or Pareto optimal when no further Pareto improvements can be made.

Pasted from <http://en.wikipedia.org/wiki/Pareto_efficiency>

o This is a fundamental error of the Tort-law understanding of efficiency as I have seen it so far

· There is a fundamental difference between a utilitarian system and a pareto-efficient one, and it hinges on the issue of individual rights and freedoms. As the general definition of utilitarianism above outlines, a utilitarian solution will seek the greatest possible allocation for society as a whole, even to the detriment of individuals in that society. This means that if one person or corporation or group of people is, for example, strongly disliked or otherwise causing a majority of society to be unhappy, resentful, or otherwise 'worse off' then it is possible that eliminating particular rights or freedoms of said party would be optimal in a utilitarian sense. This scenario would seem perverse and offensive to a system that idealizes individual rights and freedoms.

· A pareto-efficient outcome, on the other hand, can not (by definition) violate such individual freedoms or property rights. An efficient system seeks the best possible allocation of resources given that no individual person should be deprived of what they legally have. It seeks to make everyone as well of as possible without making anyone less well off within an established system of laws and property rights.

· In such a system property rights would be established such that, individuals or companies that cause harm to others (through negligence, intentionality, or otherwise) would either be liable for such damages, and thus weigh the costs and benefits of protecting those others from harm (B

Hopefully this e-mail isn’t long, boring, and burdensome. Please let me know if my little rant makes any sense or if this seems like an unimportant distinction.

Sincerely,

--Alan Butler

Butler2011@lawnet.ucla.edu

The Departure of the Mayberry Machiavellis

In the last month so much has changed politically and financially. We now see daily references to the end of the Regan era, and the rise of the new Obamanation. McCain seems more desperate by the day, and has made many attempts to lash out at the 'media favoritism' that seems to portray his opponent as, well, the presumptive winner. Unfortunately for McCain the E-Day is quickly approaching, and it isn't all that unreasonable for newspapers and political blogs alike to speak their minds. If they all seem to gush over Obama and talk about the various ways that he is beating McCain on the campaign trail and in the debates then maybe that is because...Obama is beating McCain on the campaign trail and in the debates. I guess George Bush is sort of a 'celebrity' too. I mean, they made a movie about him already...
What I find interesting about the recent change in political tide is that praise for Obama is no longer limited to so-called 'liberal' media sources. This is not your average Daily Show audience cheering their obvious Presidential pick on. American's seem to be largely reacting to the economic turmoil that has reared its ugly head, but I'm willing to accept victory in whatever form it presents itself. I think that Frank Rich's recent NYTimes article, "He Just Can't Quit W," was really able to cut through the mayhem to one of the core issues that's been plaguing McCain's campaign since day 1: George W. Bush.
McCain may have had a nice soundbite during the final debate, but the polls tend to show that's about all he got. The idea that the old Obama standby is more than a superficial stab at McCain's credibility is something that I think most voters will not pick up on. For me, this was an implicit criticism of Hillary as well: the drive for Presidential authority. The expansion of power in the executive branch over the past 8 years has been appaling, and I believe that out of the three options as of January (McCain, Hillary, Obama), Obama was the only one that brought a chance of slowing down the power-grab. This country does not need more 'gut' decisions, and it does not need an overbearing executive branch to put it's foot down on congress and the electorate. I support open consideration and evaluation of ideas on their merits, and decisive but well considered decisions based on common sense as well as expert oversight. This is not how our country has been run for the past 8 years, so I have to hope for change on November 4th.
I am voting for the end of the reign of the Mayberry Machiavellies, as Rich put it.