When Judges Break Their Own Rules

I have a new article online about the ordeal that law students go through if they want to be hired as clerks for federal judges.

The recruiting process is competitive for both students and judges, who are all trying to leapfrog each other to snatch up the best talent before their peers do. That means judges are motivated to make job offers earlier and earlier, extending offers several years before a job’s actual start date, even before students have a full year of grades.

Alex Kozinski, the chief judge of the Ninth Circuit Court of Appeals, joked that he begins recruiting students “at birth.”

CATHERINE RAMPELL

Dollars to doughnuts.

Meanwhile, students know about how early and how quickly the slots go, so they are always pressuring judges to give them the earliest interview slots possible, which effectively moves the entire system even earlier.

Dollars to doughnuts.

It’s basically a collective action problem, like curbing grade inflation (also a problem at law schools): Everybody individually would benefit from offering a position a little early, but when judges all do this at the same time they cancel out one anothers’ efforts. The problem can be solved only if everyone comes together and agrees to a system that forces everyone to do what no one would do unilaterally — that is, to wait to make job offers until a later date when everyone can make informed, thoughtful decisions.

And in the last three decades there have indeed been several attempts — by federal judges — to devise a rule system that is intended to essentially protect judges from themselves.

The problem is that there’s no external enforcement mechanism for this system. Judges have lifetime appointments, and breaking a clerkship recruiting rule doesn’t come with any sanctions the way breaking an N.C.A.A. recruiting rule does. So once one person starts cheating, there’s a strong temptation for others to cheat, too.

“It kind of goes in waves, like financial regulation,” said David Lat, a former clerk and now managing editor of Above The Law, a Web site on legal affairs that has followed the ebbs and flows of the clerkship hiring plan over the years. “The judges try to tighten up the process with some strict rules. In the early years people adhere to it, and then as time goes on fewer and fewer people follow it, since there’s more incentive to cheat, and the whole thing descends into chaos. Then there’s a renewed attempt to tighten things up, until it all descends into chaos all over again.”

Right now, we seem to be in the chaos part of the cycle.

It’s not clear that there’s a better design out there, though, that would fix the system and end the cycle. Any ideas?

Eurobonds: beware of splitting the bill

When German central bankers and economists warn of the “moral hazard” of a debt union, and talk of the importance of market interest rates in providing “incentives to fiscal discipline” in individual member states, that might seem rather abstract compared with the here-and-now crisis in Eurozone sovereign debt markets. Let’s make it a bit more concrete by considering something we’re all familiar with: splitting the bill.

When we each pay for our own dinner at a restaurant, we decide what we want to eat, bearing in mind the cost to us of our choices.  Similarly, when the government of an individual member state of the Eurozone pays interest on its own debts, it decides how much to spend and borrow (and how much to bear the political costs involved in reforming labour markets and other parts of the economy in ways that promote growth), bearing in mind the cost to it of its choices. But when diners split the food bill in a restaurant, or the governments of the Eurozone split the interest cost bill in a debt union, those incentives change. Instead of bearing in mind how our choices impact on our own costs, we consider how our choices impact on the total cost across all diners or governments. That will tend to mean that we eat/spend-and-borrow more, because others bear the costs.

OK, so the point is perhaps clear. But is it really significant? Are we talking a lot more, or just a little? This question was addressed in a well known academic study in the Economic Journal in 2004 – “The inefficiency of splitting the bill“, by Gneezy, Haruvy and Yafe. These authors conducted experiments with diners (strangers to one another), some of whom paid individually whilst others split the bill. Those that split the bill spent about 36 percent more than those that paid individually. That’s right: splitting the bill with strangers adds more than one third to the cost of lunch.

That’s what the Germans, Austrians, Dutch, Slovakians, Finns can expect if they agree to split the bill with the Spanish, Portuguese, Greeks, Irish, etc. in a Eurobond debt union. It’s human nature.

Conspiracy Theories About Republicans and the Economy

In the last few days, several readers, economists and radio hosts have asked me whether I buy the most cynical interpretation of the debt crisis stalemate: maybe Republicans are reluctant to raise the debt ceiling, or are calling for austerity measures that could slow the recovery, because they actually want the economy to do badly. That way voters will demand a change in political leadership, and vote more Republicans into office in 2012.

CATHERINE RAMPELL

Dollars to doughnuts.

I’m no political scientist, but that sounds a little too Machiavellian even for the most hardhearted of politicians.

Dollars to doughnuts.

But more important, I’m also reluctant to believe this conspiracy theory because the conspiracy isn’t necessary. That is, the economy is likely to be in bad shape in November 2012 no matter what happens with the debt talks.

As of January, the Congressional Budget Office projected that unemployment in the fourth quarter of 2012 would be 8.2 percent. Macroeconomic Advisers, another respected forecaster, recently published a similar outlook.

Of course, there are many outcomes to these debt negotiations that would make the economy even worse off than the current projections show. But really, there’s no need to paint the lily.