Having examined these two books, we now turn to the question of Listokin`s “law and macroeconomics” framework in spring 2020. We use two interventions by the Fed as case studies to reflect on expansionary legal policy in action. We want to show how a more differentiated, cautious and conscious form of expansive legal policy could be developed that takes seriously the compromises of the approach. A story of 2020 is necessarily a story of crisis. The mapping of the crisis – or rather the series of interlocking crises – is at the heart of the Shutdown. In fact, one of the most important contributions of Shutdown is to jointly follow the health, economic, financial, political and geopolitical threads of the Covid crisis. This is done with the skill and insight of a very competent leader, even if it is also – almost necessarily – very incomplete and sometimes scattered. According to Listokin, these two traditional instruments should therefore be complemented by the use of the rest of the legal system to also promote macroeconomic objectives, in particular recession incentives.28×28. “I propose another instrument of macroeconomic policy: law. I will also argue about the benefits of the new legal instruments. to stimulate aggregate demand when monetary policy is ineffective. (p. 3).
He refers to this third option in the monetary policy toolbox as expansive legal policy, which refers to the use of courts, administration and regulation to further stimulate aggregate demand for goods and services during a recession (p. 3).29×29 The author describes the use of legal instruments to stimulate aggregate demand as an “expansive legal policy” (p. 3). Listokin`s book has been reviewed by many others, although no magazine known to us has brought its setting into a lasting conversation with events since the beginning of Covid. See, for example, Bruno Meyerhof Salama, Law and Macroeconomics as Mainstream, 71 U. Toronto L. Rev. 264 (2021) (book review). Indeed, the book suggests, all discretionary judicial officials should exercise them with macroeconomic objectives, particularly with the aim of encouraging recessions. When a judge decides on a contractual remedy or a regulator decides whether to approve a project, the ex ante state of the economy should play a role, favoring expansionary and demand-driven decisions in times of recession.
In this context, the law is another way to manage economic cycles. At least, Listokin supports it. Why does Tooze believe that the Covid year may have marked the beginning of a “death blow” (p. 13) for neoliberalism? For the health and economic shock “has broken down the compartmentalizations that were fundamental to the political economy of the last half century, the lines that separated the economy from nature, the economy from social policy and politics itself” (p. 17).75×75. “In extreme cases, the entire monetary and financial system could be geared towards supporting markets and livelihoods. which raises the question of who was supported and how” (p. 17). The year 2020 was therefore “a global crisis of the neoliberal era,” including its “environmental envelope, domestic, social, economic, and political foundations, and the international order” (p.
22). Acknowledging this, according to Tooze, highlights the place of the crisis in a history that goes from the economic and political orthodoxies of the 1970s to the coming era of the climate crisis (p. 22).76×76. Tooze also points out that Covid was “the first large-scale crisis of the Anthropocene era” (p. 22). To convert Treasuries into cash of this size and under these circumstances, bank-linked traders essentially had to store them on their balance sheets, which meant increasing the overall size and leverage of the largest banking institutions. In this sense, the rapid return of an unknown but significant amount of securities to the banking system has been a costly and disruptive undertaking. Combined with other demands about banks` meagre capital resources, this could have led to exactly what policymakers fought so hard for in 2008: forced and disorderly deleveraging of financial institutions.62×62. Jünger, op. cit. Cit.
Footnote 16. As the weight of these risks diminished, fears emerged that Treasuries would collapse completely, increasing the urgency of sales and accelerating the real run on the financial system. The financial economy is increasingly integrated into corporate and securities law, a trend that began decades before the 2008-2009 financial crisis. 1 1 The interaction between company law and finance began in earnest with Michael Jensen and William Meckling`s seminal paper on agency costs at the heart of public enterprises. Michael C. Jensen and William H. Zwischenrufe, Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, 3 J. Fin. Econ. 305 (1976); see also Henry Hansmann & Reinier Kraakman, Agency Problems and Legal Strategies, in The Anatomy of Corporate Law 21 (R.
Kraakman et al., eds. 2004) (deals with the centrality of agency theory to the structure of company law). A number of influential articles linking the legal system to corporate finance and the structure of capital markets further show how law and finance were linked. See, for example, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shliefer & Robert W. Vishny, Law and Finance, 106 J. Pol. Econ. 1113, 1114–16 (1998) (with cross-border study on the links between investor law and the development of sound capital markets).
For an example of current science shaped by the intersection of law and finance, see Ronald J.