Law and Economics, Essay Question?
I have a 2000 word essay to write for Law and Economics. I neither understand the question nor know where to find sources.
“Analyse the following statement: economic and legal institutions have evolved to produce
efficient coordinated activity despite the self-centered preferences of individuals.”
[You may choose any approach – e.g. historical, or contemporary, broad or particular subjects
– but within this context it would be advisable to have some focus.]
This is an interesting question.
A good topic would be whether the economic institutions (you could interpret that as banks and other financial institutions) and the legal infrastructure within which they work (you could include the actual law e.g. securities laws and bank regulatory laws and those meant to enforce it e.g. regulators-SEC,FSA etc) have been effective in their coordinated activity -despite the self centred preference of individuals.
Given the financial collapse starting in the US financial system, the dire straits of many economies and the global contagion, the failure of regulators to see it coming, legal challenges to dodgy financial structures which were brushed under the carpet or delayed – and the enormous wealth earned by a priveleged and corrupt few- the answer would be a resounding “NO” (i.e. they have not evolved…etc etc). At least in the short term- but there’s always hope in the long term.
The first thing I would say (or maybe the last lol) is that any institution is only as good as the people running it. It is wrong when newspaper reports say things like “the banks need to be brought under control” when what it should say is “the people in banks need to be brought under control”. The whole point is individual responsibility. If there is wrong doing, the current system is to fine the institution-further exacerbating the losses for shareholders. A good point to consider is a more robust deterrent for individuals who have personally enriched themselves not only at the expense of shareholders but the economy as a whole. It is notoriously difficult to prove (and there are legal disclaimers -currently shielding the execs at Goldman for instance, what is a mistake and what is deliberate or “shut eye”) and there also has to be the political will to do so. Another point worthy of discussion would be how much of the current crisis could have been avoided if there had been more independent economic/legal interference rather than laissez faire government.
I would start an essay like this (which is very topical) with an intro on the 1929 crash, the Glass Steagall act which followed (legal infrastructure-changed economic institutions) then a bit about its repeal under Clinton (Gramm Leach)-so the protection was all undone largely by pressure from banks-then the financial collapse -then Obama’s current financial reform bill to put Glass Steagall provisions back in place again. Full circle. As for deterrents, you could look into the criminal and civil litigation (class action lawsuits) against Enron execs who used financial structures identical to those that brought the whole thing down. That would have been a cue for regulators to examine other global corporations- but they didn’t. So the coordination wasn’t there.
Condensing all this into 2000 words won’t be easy- a good research source is the Financial Times-read Willem Buiter’s articles/blogs. Hope that helps.