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Lee Epstein
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Lee Epsteing Ethan A.H. Shepley Distinguished University Professor
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THE POLITICAL ECONOMY OF JUDGING
Published in 2009. In the Minnesota Law Review, 93: 1503-1534 (Symposium)

Thomas Brennan
Lee Epstein
Nancy Staudt

The Introduction is below.
Click here for the article (.pdf)
Click here for the data (zip file containing Stata datasets) (posted on 3.15.09)

Introduction

When John G. Roberts took the oath of office as the 17th Chief Justice of the United States Supreme Court in September 2005, the unemployment rate stood at 5.1 percent.  Three years later, the Bureau of Labor Statistics estimates the unemployment rate is 6.1; in terms of raw data, the number of individuals aged 16 years or older and seeking employment has increased from roughly 7 to 9 million in thirty-six months.[1]  Various other business cycle facts also indicate the nation is in the midst of an economic downturn:  consumer prices rose 10% over the last three years;[2] the capacity utilization rate for total industry fell from 78% to 77%; and the budget deficit increased from 2.6 to 2.9 percent of the the GDP.  Indeed, even qualitative measures signal national economic problems.  Consumer confidence, as measured by the Michigan Consumer Sentiment Index, fell by more than 26 points between 2005 and 2008.  While macroeconomists have not officially declared the nation to be in a recession, nearly every available measure suggests the economy has moved from a state of prosperity to one of contraction and decline.

In light of these data, it is no surprise that economic issues have replaced foreign policy as the main concern of voters in the 2008 election.  It is equally unsurprising that elected politicians have sought to address the growing “economic crisis”[3] in an effort to stabilize markets.  The executive branch, for example, has taken a series of extreme measures, such as the rescue of Bear Stearns and the take-over of Fannie Mae, Freddie Mac, and the American International Group.  Members of Congress have also sought to ease the crisis with legislation that would infuse private markets with capital and at the same time increase federal agency power and discretion to assist individuals harmed by the current economic conditions.

In this essay, we investigate whether macroeconomic factors also affect decision makers in the unelected branch of government:  the justices on the U.S. Supreme Court.  At first cut, one might inquire why we should expect any such affects; after all, the justices have no authority whatsoever to adopt fiscal or monetary policy intended to relieve the economic pressures facing the nation—this power lies soley in the hands of the President and the Members of Congress.  The Court, however, routinely decides cases and controversies that implicate the national economy and for this reason the justices may be able to play a role, albeit minor, in the nation’s recovery.[4]  In fact, the bulk of the Court’s docket is comprised of legal disputes that are directly and indirectly associated with the financial well-being of the federal government, business entities, and private individuals.[5]  Moreover, litigants are not shy about bringing the state of the economy to the Court’s attention:  their briefs are replete with references to macroeconomic issues such as “economic crisis,” “banking crisis,” “housing crisis,” “high inflation,” “serious unemployment,” and so forth.[6]  The parties consistently refer to these issues and to national economic factors in presenting their legal arguments in the hopes of convincing the justices that they are well-positioned to ease existing economic problems—and should use their power for this purpose.

But do the justices pay heed?  Do they respond to the business cycles that regularly occur in the economy?  Existing theories of the Court lead to a range of different expectations and hypotheses.  If, on the one hand, the justices’ primary goal is to give correct responses to difficult legal questions (what some call a legal model) or if their aim is to advance their own political preferences (the political model), the answer is no:  the state of the economy—good, bad, or somewhere in between—will not play much of a role in the judges’ decisions.  If, on the other hand, the justices care as much about economic growth and stability as do the nation’s elected political officials (the economic model), the answer is yes.  More specifically, if the justices seek to advance, or at least avoid interference with, the programs and policies implemented to turn the economy around, they are likely to adopt a position of heightened deference to the federal government in recessionary periods.  The justices, in short, will shift away from factors that typically motivate decision making and will work as a team with the elected branches of government in the effort to advance national economic goals.

Understanding which, if any, of these three models characterizes the relationship between Supreme Court decision making and economic conditions is worthwhile for both scholars and policymakers.  First, students of the Court have long argued that legal, political, and institutional factors affect judicial outcomes, but few scholars have investigated the possible effects of economic issues on judicial decision-making.  If the economy affects federal courts in a systematic fashion, then our understanding of the judicial system and the means by which the justices reach their decisions is seriously incomplete.  Second, because the Court decides hundreds of cases involving important economic issues, it is possible that its decisions facilitate—or frustrate—the economic policies pursued by the other branches of government.  Understanding and adjusting for this possible impact is crucial if Congress and the President hope to implement successful macroeconomic policy.

This essay hopes to develop such an understanding by exploring the possible correlation between macroeconomic conditions and economic decisions of the U.S. Supreme Court in cases in which the United States or one of its agencies is a party.  Part I briefly describes how each of the three acounts—legal, political, and economic—answers the question of whether the Court responds to macro-level events.  Because we limit our analysis to cases involving the United States, we also consider how each account treats the solicitor general, the lawyer appointed to represent the U.S. government in the high Court.  As we explain below, the legal theory suggests a high level of judicial deference to the solicitor general, but this deference is constant and unchanging irrespective of national economic conditions.  The political theory argues that the the justices defer to the solicitor general but only when his views are aligned with those of the Court and, once again, economic cyles are irrelevant.  Finally, the economic model focuses on the business cycle and theorizes that in recessionary periods, the Court will adopt a position of heightened deference to the solicitor in the effort to work jointly with the other branches of government in order to promote growth and stability, irrespective of existing legal doctrine and individual policy preferences.

Part II explains our plan to assess these competing theories, and Part III describes the results of our empirical investigation.  In brief, we find that all three models fail to characterize fully or aptly the Court’s response to the macroeconomy.  In contrast to the predictions of the legal approach, judicial partisan preferences affect decision making, as does the state of the economy—a finding that also works against the political model.  But the economic account, at least as we have presented it here, fails too.  We find that as the economy contracts, deference to the solicitor general (and thus the federal government) decreases, it does not increase as we expected.

In Part IV, we attempt to account for this seemingly paradoxical finding with a simple conjecture:  the justices perceive recessions as a signal of the federal government’s incompetence in the context of economic policymaking and in response adopts a position of decreased deference to the government.  The idea that the economy operates as a signal with respect to policy competence is not a new idea, of course.  Numerous studies have documented voters’ propensity to view declining economic conditions as a cue of incompetence which, in turn, leads to more votes in favor of an incumbent’s competitor and an increased loss rate for incumbents generally.  Our findings suggest the Court acts in much the same way:  the justices use their decision power to punish the elected federal official in recessionary periods and to reward them it in times of prosperity.



[1] Data are from “FRED,” a public database made available by the Federal Reserve in St. Louis: http://research.stlouisfed.org/fred2/data/UNRATE.txt.

[2] Id. at . 

[3] Alan Greenspan, in an interview on This Week with George Stephanopoulos, September 14, 2008. Available at: http://blogs.abcnews.com/politicalradar/2008/09/greenspan-to-st.html.

[4]  See Spaeth Supreme Court Database available at

[5] See Spaeth Supreme Court Database (the majority of cases on the Court’s docket are economic in nature).

[6] See, e.g., Commissioner v. Mass. 333 U.S. 611 (1948), Petitioner’s Brief field Nov. 17, 1947, at 36; see (cite to lots of the briefs collected on this point).