Ross Davies

It is a commonplace that the relationship between baseball and the law is a long and close one. But, first, is it true? And, second, if it is, just how long and how close? Strangely, given the large amount of good work produced by able scholars of baseball and the law, concrete answers to these basic questions are not readily available. This article is a first step toward filling that gap. It is a sketch of the length, breadth, and depth of the relationship between baseball and the law. (In order to tell a less-than-interminable tale, this article mostly tilts back and forth between recent years - evidence of the vibrancy of the baseball-law relationship today - and the late 19th and early 20th centuries - evidence that it has been vibrant for a long time - and deals only sketchily even with those periods. This should not be taken to mean that the baseball-law relationship was any less interesting at other times, or that there isn't much more to be said about all times.) As should be clear by the end of this article, the answer to the first question is an emphatic and certain "Yes": baseball and the law are close and have been for a long time. The answer to the second question, however, is an equally emphatic but far less certain "Very": while there surely are both unrecognized extents and unmarked limits to the law-baseball relationship, we cannot define them without a fuller inventory and chronology - an old-fashioned digest - of the thousands upon thousands of events that make up the history of baseball and the law. Perhaps this article can serve as the kernel of such a project.

Nelson Lund

This short piece, part of a debate with Peter Shane, argues that presidential signing statements do not threaten the rule of law and the separation of powers. It discusses the theory and practice of signing statements, and concludes that President Obama rightly rejected the position taken by the American Bar Association when it denounced President Bush for his use of signing statements.

Joshua Wright

The Consumer Financial Protection Agency Act (“CFPA Act”), introduced by the U.S. Department of the Treasury in June 2009, proposes sweeping regulation of consumer lending and borrowing. As we showed in “The Effect of the CFPA on Consumer Credit” (hereinafter “Evans and Wright (2009)”):

     o The CFPA Act creates massive litigation exposure for lenders facing (a) potential lawsuits from state and municipal governments for violating more stringent financial protection regulations that those entities can adopt pursuant to the CFPA Act; and (b) litigation under the CFPA Act’s new and undefined standards for engaging in unfair, deceptive, abusive, or unreasonable practices.

     o The new Agency would impose significant costs on lenders who would be required to: (a) offer to consumers on a preferred basis plain-vanilla products designed by the Agency either before offering their own products or at the same time; (b) seek prior regulatory approval for new lending products which could be defined as minor variations on existing products; (c) face the risk of having lending products banned altogether; and (d) have to comply with various other rules and regulations.

This note responds to a recent paper by Professor Adam Levitin offered in response to Evans and Wright (2009). As a prefatory matter, his paper is filled with various ad hominem attacks which we will ignore. Instead, we focus on the substance of the issues in contention. Professor Levitin’s basic substantive objection is that he disagrees with our estimates that the Treasury Department’s bill would increase interest rates by at least 160 basis points and reduce net job creation by 4.3 percent under plausible assumptions. Professor Levitin’s criticisms are misguided and we stand by those numbers as lower bounds on the effect of the Treasury’s CFPA Act on the economy. We also note that Professor Levitin has disputed virtually none of our findings that the CFPA Act would impose high costs on lenders and ultimately result in denying borrowers choice.

We think it is impossible to read the CFPA Act without concluding that lenders will face higher costs as a result of, among other things, dealing with the new Agency, being forced to offer products designed by a governmental body rather than themselves, coordinating the sale and distribution of financial products across regulatory regimes varying across the fifty states, and facing the increased possibility of fines and litigation under a novel and ambiguous “abusive” practices standard. While we believe there is a debate to be had on the costs and benefits of the CFPA Act, it is difficult to fathom a claim that this particular Act will not impose significant costs on lenders and that those costs will not be passed on to borrowers. Sound public policy should be based on a careful analysis of the costs and benefits of the various proposals. We do not believe Professor Levitin has made a constructive contribution to that deliberation but encourage him and others to do so as Congress considers the CFPA Act of 2009.

Nelson Lund

What we call “judicial review” was not established in Marbury v. Madison, or by American courts. It had existed in English and then American law for centuries, not as some kind of peculiar power but rather as a corollary of the judicial duty to decide cases according to the law of the land. While that duty sometimes required judicial courage in the face of political threats, this was not its most difficult or pervasive demand. The real challenge was the requirement that judges purge their decision-making of the influence of their own wills, which required them to set aside their own views about natural law, God’s will, sound policy, and even justice itself.

Phillip Hamburger’s Law and Judicial Duty advances and defends these claims with subtlety and detailed evidence. He carries his historical study up through the end of the eighteenth century, and thus has little to say about subsequent changes in the understanding of judicial review and judicial duty. But there are obvious implications for our contemporary debates about the proper role of judges and about the distinction between law and politics. This review touches on those debates, and suggests that a broadened political role for the federal judiciary may have been more clearly foreseeable than the leading proponents of our Constitution thought it wise to acknowledge during the ratification debates.

Joshua Wright

This paper offers an opportunity to reflect on Frank Easterbrook’s seminal work on the Limits of Antitrust and to discuss its particular relevance to the problem of antitrust enforcement in the face of innovation. The error-cost framework in antitrust originates with Easterbrook’s analysis, itself built on twin premises: first, that false positives are more costly than false negatives because self-correction mechanisms mitigate the latter but not the former, and second, that errors of both types are inevitable because distinguishing pro-competitive conduct from anti-competitive conduct is an inherently difficult task in a single-firm context.

While economists have applied this framework fruitfully to several business practices that have attracted antitrust scrutiny, our goal in this paper is to harness the power of this framework to take an Easterbrookian, error-cost minimizing approach to antitrust intervention in markets where innovation is a critical part of the competitive landscape. While much has been said about the relationship between innovation and antitrust, often in the way of broad pronouncements that innovation either renders antitrust essential to economic growth or entirely unnecessary, the error-cost framework allows for greater precision in policy prescriptions and a more nuanced approach. Some of the implications are well understood in the current body of literature and others have been frequently ignored or remain entirely unrecognized.

Both product and business innovations involve novel practices, and such practices generally result in monopoly explanations from the economics profession followed by hostility from the courts (though sometimes in reverse order) and then a subsequent, more nuanced economic understanding of the business practice usually recognizing its pro-competitive virtues. This sequence and outcome is exactly what one might expect in a world where economists’ career incentives skew in favor of generating models that demonstrate inefficiencies and debunk the Chicago School status quo, while defendants engaged in business practices that have evolved over time through trial and error have a difficult time articulating a justification that fits one of a court’s checklist of acceptable answers. From an error-cost perspective, the critical point is that antitrust scrutiny of innovation and innovative business practices is likely to be biased in the direction of assigning higher likelihood that a given practice is anticompetitive than the subsequent literature and evidence will ultimately suggest is reasonable or accurate.

Given recent activities in the antitrust enforcement landscape - identifying innovating firms in high-tech markets as likely antitrust targets combined with recent discussions of error costs from leading enforcers, at the Section 2 Hearings and elsewhere - we hope to begin a more rigorous discussion of the relationships between innovation, antitrust error, and optimal liability rules that goes beyond merely selecting economic models that fit regulator’s prior beliefs.

We begin by discussing some principles for application of the error cost framework in the innovation context in Part II before discussing the historical relationship between antitrust error and innovation in Part III. Part IV concludes by challenging the conventional wisdom that the error cost approach implies that the rule of reason should apply to most forms of business conduct rather than per se rules. While we agree that per se rules should not apply to cases involving product or business innovation, broadly defined, we argue that the error cost approach should not require generalist judges to evaluate state of the art economic theory and evidence on a case by case basis. Instead, we favor an approach that is consistent with the spirit of Easterbrook’s original analysis, identifying simple filters aiming to harness the best existing economic knowledge to design simple rules that minimize error costs. We conclude with five such proposals for simple rules based on existing economic theory, empirical evidence, and acknowledgment of the institutional biases toward false positives discussed above.

Allison Hayward

Matthew Hindman, a professor of political science at Arizona State University, contends in this book “that the beliefs that the Internet is democratizing politics are simply wrong.” He sets his sights on twin myths; first, that the Internet has extended political “voice” to previously voiceless precincts, and that it has facilitated deliberation among these new speakers. Instead, Hindman asserts that online politics remains “politics as usual.”

In support, he has marshaled an impressive body of empirical work. No doubt Hindman’s research is correct, search engines consolidate Web traffic, and some nontrivial number of users are generating bad search results. But to observe that “digital democracy” isn’t always and everywhere the rule is not the same thing as saying that the Internet hasn’t “democratized” politics.

Making politics easier, safer, and freer for those souls who find it worth their time can’t be anything BUT democratizing.

Harry Hutchison

While elegant arguments may be available arguing the economic efficiency of at-will employment or castigating such relationships as anachronistic, the focus of this article is not whether at-will employment deserves to be assailed or safeguarded in some normative sense, but whether the post-Civil War anti-discrimination statute, section 1981 applies to or should apply to at-will relationships grounded in the notion of a contract. A related question is whether employment at-will, if a contract, embodies satisfactory contractual sufficiency to sustain section 1981 claims. This issue is most poignantly drawn in the context of a contested discharge. For example, can termination be characterized as a term of the contract (assuming one exists) or is it merely a default rule which cannot logically be sustained as a term of the employment agreement by individuals and courts that are committed to the notion of a contract established on grounds of consent. More specifically, do workers possess adequate knowledge about this asserted default rule and if not, will the absence of knowledge negate the assertion that the term of employment is within the contract and thus alterable by section 1981? Answers to those questions raise ineffably ornery and potentially unresolvable doctrinal issues that may paralyze the application of section 1981 in some at-will situations.

Recently, by virtue of its decision in Gonzalez v. Ingersoll, the Seventh Circuit entered this doctrinal fray with dicta that confronts but did not decide these related questions. While an incipient dispute has developed about the reach and application of section 1981 to at-will employment, the operation of section 1981 should conceptually turn on state law. Accordingly, federal courts will have to decide whether section 1981 applies or should apply within the context of a given jurisdiction. Significantly, Gonzalez v. Ingersoll accepts that, in order to bring a section 1981 claim "there must at least be a contract." And yet, while an at-will relationship can be a contract under pertinent state law, it may nonetheless provide an insufficient contractual relationship to support a section 1981 claim. Since Gonzalez, several other circuits have taken up the gauntlet. Three federal circuits have issued decisions which confirm that at-will employment provides an adequate basis to sustain a section 1981 action.

I hope to show that while the 1991 Civil Rights Statue broadens the reach of section 1981, an important predicate remains-there must be both a contract and a contractual relationship sufficient to support a claim. Without an underlying contract and without a sufficient contractual relationship, section 1981 remains impotent in the face of alleged discriminatory misconduct. Employers thus have one pertinent and potentially devastating defense to employee claims-the absence of a contract or the absence of a contract term that can be altered by section 1981. Despite the incipient debate among the federal courts and despite lingering doctrinal issues concerning the nature and content of employment at-will, I hope to demonstrate that section 1981 applies and should apply to at-will relationships.

As part of its overhaul of financial services regulation the Obama Administration has proposed stronger protection of consumers of financial products and services. The Consumer Financial Protection Agency Act of 2009 (CFPA Act), which the Administration submitted to the U.S. Congress on June 30, 2009, would result in a sweeping overhaul of consumer financial protection. The CFPA Act would create a Consumer Financial Protection Agency (CFPA) which would assume the responsibility for enforcing most existing consumer financial protection laws from other federal banking regulators as well as the Federal Trade Commission. The CFPA would have significant additional powers to regulate consumer financial products, mandate disclosures, and require covered businesses to offer consumers "plain vanilla" products that the CFPA would design. The legislation would limit federal preemption of nationally chartered financial institutions by allowing states and localities to have stronger restrictions than those adopted by the CFPA and would add a new prohibition against "abusive" practices while allowing new interpretations of existing liability for unfair and deceptive practices. This article details how the CFPA Act would change consumer financial regulation, explores the policy rationale for these changes, and examines how the legislation, if enacted in its current form, would affect providers and consumers of financial products and services.

Joshua Wright

The U.S. Department of the Treasury has submitted the Consumer Financial Protection Agency Act of 2009 to Congress for the purpose of overhauling consumer financial regulation. This study has examined the likely effect of the Act on the availability of credit to American consumers. To do so we have examined the legislation in detail to assess how it would alter current consumer protection regulation, reviewed the rationales provided for the new legislation by those who designed its key features, considered why consumers borrow money and benefit from doing so, and reviewed the factors behind the expansion of credit availability over the last thirty years. Based on our analysis we have concluded that the CFPA Act of 2009 would make it harder and more expensive for consumers to borrow. Under plausible yet conservative assumptions the CFPA would:

• increase the interest rates consumers pay by at least 160 basis points;

• reduce consumer borrowing by at least 2.1 percent; and,

• reduce the net new jobs created in the economy by 4.3 percent.

By reducing borrowing the Act would also reduce consumer spending that further drives job creation and economic growth. In addition to restricting the availability of credit over the long term, the CFPA Act of 2009 would also slow the recovery from the deep recession the economy is now in by reducing borrowing, spending, and business formation.

The financial crisis has surfaced a number of serious consumer financial protection problems that were not dealt with adequately by federal regulators. Rather than proposing expeditious and practical reforms that can deal with those problems, the Treasury Department has put forward a proposal that would disrupt current regulatory agency efforts to deal with these issues.

This paper focuses on the CFPA Act that the Administration introduced in July 2009. House Finance Committee Chairman Frank has proposed changes to this Act which the Treasury Secretary Geithner appears to be willing to accept. However, given that these changes could be reversed or other changes could be made as the legislation works its way through Congress, we focus on the Administration’s original bill rather than a moving target. Chairman Frank’s proposed changes do not significantly alter any of our conclusions.

D. Bruce Johnsen

Mutual funds stand ready at all times to sell and redeem common stock to the investing public for the net value of their assets under management. In the language of transaction cost economics, they are open-access common pools subject to virtually free investor entry and exit. The Investment Company Act (1940) requires mutual funds to be managed by an outside advisory firm pursuant to a written contract, which normally pays the adviser a small share of net asset value, say, one-half of one percent per year. Following 1970 amendments to the Investment Company Act imposing a fiduciary duty on advisers with respect to their receipt of compensation, a large number of private civil suits attempting to recover excessive fees have been filed against advisory firms. By failing to account for the transaction costs inherent in mutual fund organization, Congress, securities regulators, financial scholars, and even courts have misidentified a conflict of interest with respect to fund advisory fees, encouraging these frivolous suits. With free investor entry and exit and rational expectations, fund flows endogenize investor returns. Regardless of the level of the advisory fee, any expected abnormal return to a manager’s superior stock-picking skill will be competed away by investors chasing the prospect of capturing the associated rents. With shareholders having a common claim to fund assets, all expected rents will be either transferred to the manager in the form of higher total fee payments on a larger asset base or dissipated by added administrative costs. As a first approximation, the level of advisory fees is therefore irrelevant to fund shareholders. The best they can expect from placing their money in a managed fund is a normal competitive return after adjusting for risk and other factors. With the U.S. Supreme Court having recently granted certiorari in an excessive fee case appealing an arguably maverick opinion by Judge Frank Easterbrook of the Court of Appeals for the Seventh Circuit, it is essential that various myths about mutual fund fees be exposed to careful economic analysis.