Law and Macro: What Took So Long?

Why has the development of law and macroeconomics lagged so far behind law and microeconomics? In this Article, I consider three hypotheses: 1. Microeconomics fits better with law and legal reasoning than macroeconomics. 2. The Great Moderation of 1980–2007, in which western economies mostly avoided the twin perils of high unemployment and high inflation, lowered the stakes of macroeconomics relative to microeconomics, which encouraged the spread of law and microeconomics. The failure of price controls to thwart the high inflation rates of the 1970s, by contrast, discouraged the development of law and macroeconomics. 3. Law and economics’ intellectual origins at the University of Chicago, a place of libertarian leanings and hostility to Keynesian macroeconomics, encouraged the development of law and microeconomics rather than macroeconomics. I mostly reject the first hypothesis. Hypotheses two and three, by contrast, prove more compelling. There are some areas of law, such as contract law, that are seemingly welltailored to microeconomic analyses of incentives without focus on economy-wide general equilibrium effects. However, there are many other areas of law and regulation inextricably intertwined with macroeconomics, contradicting hypothesis one. The key constitutional question of the early U.S. republic—the establishment of a national bank—was fundamentally a question of macroeconomics. Today, it is (or should be) impossible to analyze such fundamental areas of law as financial regulation, central banking, bankruptcy