For my second blog posting, I thought I would get into a bit of what I am working on in my research.

As Anne said in her intro, my work is interdisciplinary. The other discipline in which I work is moral philosophy and the branch of it that has to do with institutions, political philosophy. I believe that moral and political philosophy can help a great deal in our understanding of the law on banking, finance, and corporate governance, adding insights that often get overlooked in the dominant interdisciplinary approaches related to these areas of law. I have only a subsidiary interest in legal philosophy and to this end I would direct your attention to “Analytical Jurisprudence and the Concept of Commercial Law,” published in the Penn State Law Review in 2009, in which I developed a concept of a transnational commercial law on legal positivist grounds.

Some questions of interest to me are:

• What is the moral responsibility of individual agents in mitigating collective harm associated with the financial system? “Individual agent” refer to any person with moral capacity, from homeowner to senior bank manager. Once we get clear on how to allocate moral responsibility, we can then decide whether regulation by law is required or preferred or whether ethics alone is enough.  
• What is a fair or just distribution of systemic financial risk? How shall we structure institutions to get this distribution right?
• Issues of egalitarian justice associated with debt and access to credit. Debt has a disproportionately greater adverse effect on the less well off, who tend to rely on it more to buy things necessary for a decent life in their society, such as housing, education, cars to get to work, health care (in the USA) etc.

See my article, “Luck, Justice and Systemic Financial Risk,” published in the Journal of Applied Philosophy. (email to request a copy). I am also working on another piece more for the law audience entitled “Debt in Just Societies”.  The abstract follows:

A post-Great Recession consensus has emerged that persons, firms, banks, and governments have too much debt. The article deals with legal solutions to the dilemma that debt presents to societies: successful societies benefit from a substantial

infrastructure of consumer, commercial, and sovereign debt but debt can cause substantial private and social harm. Pre- and post-crisis solutions have seesawed between subsidising and restricting debt, between leveraging and deleveraging. Unsophisticated solutions restrict debt without accounting for the risk of harm to persons least able to bear the risk, worsen pre-existing inequalities, destroy or impair the net worth of households, and impose unfavourable distributive consequences. This article offers normative tools to assist policymakers in developing institutions to take criteria other than economic stability into account, but which do not undermine the aim of economic stability. I argue for an institutional architecture for debt that: (1) incentivizes the development of hybrid instruments to relax the rigidity of debt contracts. Debt is dangerous because debt contracts are rigid; (2) is responsive to equality concerns. I advocate a luck egalitarian approach, a responsibility-catering form of egalitarianism offering policymakers options to take the debtor’s choice and desert into account while still accounting for cognitive mistakes people often make in in debt decision making; (3) discourages, on moral grounds, policy relying primarily on private debt to finance public goods. The state should not require persons to take out significant debt to further a policy aim, unless that policy aim has no role other than to benefit the debtor and the debt is unlikely to substantially impair the debtor’s life prospects. I offer case studies to illustrate how governments can put these normative prescriptions into action.

It can get tricky doing so-called “applied” philosophical work. Philosophical writing about the law but not in analytical jurisprudence tends to be on criminal law, tort, and constitutional law. Interdisciplinary work on credit and banking law overwhelmingly relies on the disciplines of economics and finance. Writing philosophically about credit and banking is demanding if one wants the work to be both economically and philosophically sound. Moreover, the discipline of philosophy has its biases against “applied” work. I recall a blog post by a philosopher suggesting that all of the interesting work in global justice has been done. For a legal scholar, this claim is puzzling. From a legal perspective, the work on global justice has hardly begun. Just working out who owes what to whom and why in a hypothetical or abstract sense is insufficient for the lawyer. Rights and duties have to be operationalised in institutions.

Something of a historical antecedent exists for my work. Some of you may remember the old battles in the bankruptcy literature of the late 1980s and early 1990s between the law and economics scholars and what Lynn LoPucki tells us were a group of scholars referring to themselves as the “law and law” group. The main protagonists were Alan Schwartz, Richard Scott, Thomas Jackson, and Douglas Baird on the law and economics side and Elizabeth Warren and Jay Westbrook on the “law and law” side. Apologies if I have left anyone out. (I also want to put Vern Countryman on the law and law side but I think he was a generation before. What an excellent scholar he was.) Warren, Westbrook and others put forth a compelling case for fairness in bankruptcy law. Their work was very important but was very different from mine. Wearing my philosophical hat, their work might be described as “pre-theoretical” though I have never embraced that characterisation because methods in the moral philosophy I embrace aim only to get clear on what humans ought to accept if we really only thought hard enough about the issues at hand. The literature on constructivism and Rawlsian reflective equilibrium so inform us.

That’s all for now. Until next week… 

Professor John Linarelli,

Chair in Commercial Law  

Durham Law School