Supreme Court: Ideology Affects Decisions about Financial Markets
It is fairly easy to intuit that, when a judge has to take a decision concerning sensitive and divisive issues (such as civil rights, abortion or freedom of speech), and different interpretations are possible, her decision-making might be influenced by her own social, economic, cultural and political background: in one word, by her "ideology" or "policy believes". Marco Ventoruzzo, (Department of Legal Studies and Pennsylvania State University Law School), and Johannes W. Fedderke (Penn State School of International Affairs), tackled the question whether the "ideology" of U.S. Supreme Court justices can influence also their decisions in the highly-technical field of financial markets regulation, finding a correlation between their "political positions" (defined and measured in different ways), and their voting patterns.
In a recent article entitled "Do Conservative Justices Favor Wall Street? Ideology and the Supreme Court's Securities Regulation Decisions," (forthcoming in the Florida Law Review and recently discussed in the Harvard Law School Forum on Corporate Governance), Ventoruzzo and Fedderke carried out an empirical legal study that stirred a lively discussion in the U.S. and Europe.
The Article belongs to a line of scholarship quite established especially in common law systems, where judges and justices are often appointed through a somehow political process, rather than selected through a purely technical examination. This is obviously the case also with respect to Supreme Court justices, who are nominated by the President and confirmed by the Senate. Ventoruzzo and Fedderke's article is, however, the first work that focuses the analysis on the area of financial markets regulation.
To put it more provocatively, Ventoruzzo and Fedderke test the hypothesis that "conservative" justices are more skeptical of government intervention and regulation, and believe in market efficiency, and are therefore inclined to decide cases in a way more favorable to defendants (are more "pro-business"). "Liberal" justices, on the other hand, tend to emphasize possible market failures and the need for stronger protections of investors and the need of strong regulating and enforcing powers of the Securities and Exchange Commission (are more "pro-investors").
The Authors collected and coded all the leading Supreme Court decisions in the field of securities law from the 1930s through 2011, classifying each or them as "pro-business" or "pro-investors". Then, applying different measures of the ideology of the justices developed by political scientists and economists, and other measures developed by them, they considered the correlation between the Supreme Court justices' position on the political spectrum and their voting.
The Article discusses several interesting methodological and legal issues, and offers also an historical overview of over 80 years of jurisprudence of the Supreme Court in the area of securities regulation.
The conclusions of the research – which includes also other empirical results, for example on the possible influence of the general economic conditions over the Court's decisions – confirms the initial intuition: there is, in fact, evidence that also as regards the US Supreme Court's securities regulation decisions, at least in some cases, "politics" and "policy preferences" do matter.
Two caveats are important. First, no negative implication is associated with the idea that "ideology" might play a role. It does not in any way mean that the justices distort the law in order to achieve pre-determined outcomes. It simply means that when different and legitimate interpretations are possible, different "views of the world" might inform the decision making of the justices. As long as diversity is ensured in the composition of the Court, this can actually foster a more complete legal analysis. Second, while the Article finds a meaningful correlation, the correlation does not entirely explain the behavior of the justices: there are several "outliers" that confirm, if necessary, the great independence and prestige of the U.S. Supreme Court and its members.