Teddy: You’ve had quite the journey. You started out in private practice in São Paulo, then New York City. You then pivoted into academia and teaching, landing at Berkeley Law.
Prof. Salama: Yes. At first, I was a law professor for 10 years in Brazil.
Teddy: Yes. You taught at FGV Law School in São Paulo.
Prof. Salama: Yes, from 2006 to 2016.
Teddy: You also did visiting stints at Columbia and in Beijing, and served on Brazil’s Financial Systems Appeals Council for a couple of years. If I’ve read your CV correctly, you’re now juggling teaching at Berkeley, running your own firm, consulting for the World Bank, and serving as an expert witness for major international arbitration and litigation. That’s all very impressive. Oh, and you also speak English, Portuguese, Spanish, French, and some German.
Prof. Salama: That’s right.
Teddy: What inspired you to embark on this global exploration of law as a practice, but also as an instrument for economic policy?
Prof. Salama: I think there was a decisive experience in my life, which was hyperinflation in Brazil as a child. I thought that economics had to provide better answers because the economic situation was terrible. Brazil was failing to deliver the promise that it had given to its citizens previously; things stopped working. In the ’50s, ’60s, and ’70s, the country was progressing tremendously. At some point, the country hit a dead end, the model in place stopped working, and the country has been trying to find a way out of stagnation for 40 years.
So that naturally drew me to economics. But you could ask yourself, why did I not study economics originally? Why did I start as a lawyer? The answer is circumstantial. Law, as a field of study, is an undergraduate degree almost everywhere in the world except the United States. When I was 17 or 18, I had to decide which university I wanted to attend. I remember discussing it with my uncle, with whom I was very close. He said, “Later on, you can do whatever you want. But now, Bruno, you’re going to do one of these three things: You’re either going to be a doctor, an engineer, or a lawyer. Everything else is not a good idea for you.”
Teddy: Because that’s what pays.
Prof. Salama: That’s what pays, exactly. You make sure you pay your bills, and then, if you’re smart enough and lucky enough, maybe you can do other things.
Teddy: And so, “other things” for you were pursuing economics and academics.
Prof. Salama: I think I was always an economist at heart; the science always made sense for me on an intuitive level, and I was naturally drawn to it. Nowadays, I see myself as both a lawyer and an economist. I still pay my bills by being a lawyer—I teach in the Legal Studies program, not the Econ department. I have a practice; I am a lecturer here at Berkeley, not a full-time faculty member. That was a big change in my life where research is no longer the crux of my day-to-day. I still do it, but I publish papers much more slowly than I used to. My practice is as a lawyer: I’m an arbitrator, I write legal opinions, and I have a law firm in Brazil. But I still publish, I just publish relatively slowly.
Teddy: You publish in both English and Portuguese, and you have taught in China, the United States, and Brazil. You’ve also handled cross-border arbitrations. How does legal thinking differ across these contexts? Do Brazilians and Americans think about law and economics fundamentally differently?
Prof. Salama: There are two sides to your question. One is the relationship with economics. Incentives matter everywhere, but they are contextual. The same policies can produce different results in different places.
The other side has to do with the way the law is practiced or operates. The law on the books is increasingly converging, but the operation of the law is fundamentally different. The degree to which legality controls people’s lives is different; legality is stronger in the United States. When the government passes a law here, it’s costly not to comply with it for the most part. In other places, it is less so. Which means the law on the books can be very similar, but the ways in which the law actually operates in different countries can be very different. This is really the heart of one of the courses I teach here at Berkeley called “Law and Development”.
Teddy: So, when you think about Brazil, in what ways is it a challenge to enforce law, and how does that affect how law creates incentives?
Prof. Salama: I’ll give you an example. In the 1930s, President Roosevelt decided that all Americans should compulsorily sell their gold bullion to the government for $20.67 per ounce. Not everybody complied; a lot of people complied. If the Brazilian government had done exactly the same thing, which they considered in the ’30s, the degree of compliance would have been much smaller. This is one of the reasons the Brazilian government didn’t even bother doing that, because it anticipated people wouldn’t comply with it.
We’re used to thinking about government and legality in terms of whether the government is intrusive, whether it intervenes a lot. And we love to think about government in terms of small government versus big government. But my experience in different contexts is that, while the size of government is important, the quality of government is just as important. Some governments are perceived as more legitimate than others and have the means to enforce laws differently from others.
Teddy: Did you view teaching in Brazil as an opportunity to help build a brighter future for the country?
Prof. Salama: That was my original dream. Obviously, in life, you have to juggle the practicality of being the father of three children, so bills have to be paid. But at the same time, I did have this dream that my scholarship could be impactful. I’m not sure that it was. When I look back, it might have been a little naive, but I did nurture this ambition.
Teddy: I’d like to transition to your recent paper, Macroeconomics and the Tradition of Law and Economics. For those who haven’t read the paper, would you briefly describe the distinction between LawEcon and LawMacro?
Prof. Salama: I have been educated in a tradition referred to as Law and Economics—in the paper, I call it “LawEcon”. It basically deals with the application of price theory and, therefore, microeconomics (partial equilibrium, supply and demand) analysis to legal problems. So, you’re going to think about the tort system as a system for internalization of externalities, and bankruptcy as a mechanism to maximize asset value for creditors, and corporate law as a mechanism to reduce agency costs between shareholders and managers. And so, this is all an application of microeconomics.
Because of my background in banking regulation and having lived through macroeconomic turmoil in Brazil, I got interested in connecting law and macroeconomics. And so that’s how I arrived at Macroeconomics and the Tradition of Law and Economics paper.
Teddy: Having taken your class on Law and Economics, I am very familiar with Richard Posner, as his papers show up quite a few times throughout the syllabus. Can you briefly explain his significance to the field of economics?
Prof. Salama: He was the main driving force in Law and Economics. The waves within the field in many ways mirror the waves in his scholarship. He is a genius, a man of admirable intelligence who really shaped the field. A scientific field sustains its energy, its impetus, its importance, not because of agreements, but because of disputes. And so, a lot of the energy in Law & Econ was people trying to contest Posner; in that respect, he was also the driving force in Law and Econ.
Teddy: So, thinking of Posner as the trendsetter that he is, I find it interesting that you discuss instances where he pivoted from one way of thinking to another. In the late 1980s, he distanced himself from the wealth maximization principle.
Prof. Salama: Which he had defended for a long time.
Teddy: Then, after the 2008 financial crisis, he transitioned from a Law Econ way of thinking to a Keynesian philosophy. What does his journey tell us about the deeper tensions within the discipline?
Prof. Salama: Let me put it this way: I am 48 years old. So, I’m probably in the middle of my career, maybe the middle of my life if I am lucky. And one of the nice things about getting a little older is seeing that for every generation, what was true for the previous generation becomes untrue for the next. And it’s very common to think about these things in terms of societal values. The youth listen to this music, then they listen to another music, and those kinds of things.
But there are also such waves and trends in academic thinking. For example, in Development Economics, in the ’50s, the idea was that the government should champion development in developing countries. In the ’70s, it flipped, and all of a sudden, the government became the problem. Now, it’s flipping again, and people are falling in love with government once again.
Law and Economics are fundamentally tributary to economics. Law and Economics can also be described as economic analysis of law; when the economics profession changes, Law and Economics changes as well. It’s possible to think about Posner embracing Keynesianism in 2009 as him capturing these changes in the field of economics.
Teddy: This reminds me of Richard Thaler, who talks about how economics is inseparable from psychology. Do you see similarities there?
Prof. Salama: One way to think about economics is that it is a combination of psychology and mathematics. So, changes in psychology impact economics. But there is perhaps a more relevant change currently: the turn to data. There is a decline in theoretical economics and a surge in applied economics. That is reflected in the papers written in Law & Econ nowadays—new tools and much larger availability of data.
Teddy: In your paper, you distinguish between the second-best and first-best preferences of Law & Macro and Law & Econ. Why is it that when addressing inefficiencies, proponents of Law & Econ don’t consider cross-market effects? Is this limited analysis a feature or a bug?
Prof. Salama: It’s a feature. It’s the way microeconomics operates, which is mostly discussions of partial equilibrium. It’s okay to just discuss this narrow market and think about the general implications later on.
Teddy: You have discussed the potential implications of Bitcoin and digital currencies. I’m sure they present a real challenge to Buchanan and Tideman’s 1975 call for a monetary constitution. Do you think cryptocurrencies validate the Law & Economics skepticism of centralized monetary authority?
Prof. Salama: The key point addressed by the idea of a “monetary constitution” is deficit spending. Deficit spending matters because of direct economic implications, like inflation, and because it carries a political implication—inflation is essentially an unauthorized, illegitimate tax.
How this relates to Bitcoin and stablecoins is not obvious; it is subtle. The question Bitcoin raises is whether it’s feasible to have a non-state, decentralized currency. Bitcoin is not such a solution because of transaction costs, volatility, and lack of scalability. Stablecoins are a different animal. They can be made scalable and are, by definition, non-volatile. However, they are centralized, so you don’t get rid of the intermediary problem.
Something I do not discuss in my paper, but is connected to your question of a monetary constitution, and therefore, the legal discipline of money, is the ways in which the American government is approaching stablecoins as a mechanism to reinforce the spread of the dollar as an international reserve currency. If everybody adopts stablecoins, everybody is implicitly adopting dollars. The alternative would be Central Bank Digital Currencies (CBDCs), but since they are directly issued by the government, the allocation of money becomes increasingly political.
Teddy: I saw that you’ve done some work regarding intellectual property in the post-WTO era, but now we’re in the post-GPT era. I have a passion for the entertainment industry, and Hollywood writers and actors recently went on strike, partly over AI concerns. They are terrified studios will use AI to replace them or recreate their likenesses. From a law and economics perspective, is their fear justified, or are they just delaying the inevitable?
Prof. Salama: I can give you an answer that is perhaps more abstract than what you’re calling for, but hopefully useful. The tradition of Law & Econ is strongly geared towards solutions based on private property. Unless you create private property, you have a tragedy of the commons—this applies to ideas and Intellectual Property.
Law and Economics, on the other hand, also understands the weight of transaction costs. Transaction costs impose a limit to what can be attained through private property. Your scenario suggests that if it becomes so cheap and easy for people to appropriate likenesses, the transaction costs for enforcing private property over one’s image might become so large that we need to think about frameworks beyond propertization.
Teddy: So, thinking about it from the perspective of transaction costs.
Prof. Salama: Yes.
Teddy: What do you see as the most important trends in the study of economics that students like myself should be paying close attention to?
Prof. Salama: The big change is the turn to empirics, data collection, and the use of LLM models. It’s increasingly less of a theoretical and more of an applied statistical field.
Teddy: I can see that in the courses we’re required to take, in data analytics, we have to learn multiple coding languages.
Prof. Salama: Yes, that’s where the field is at this point.
Teddy: So, what’s next for you? Are you working on any research currently, or are there any questions that you are considering?
Prof. Salama: I’m still interested in the subfield of Law and Macroeconomics. But I’m also doing a lot of arbitrations, so I am juggling both activities.
Teddy: Well, thanks so much for taking the time to speak with me today. I’ve had a tremendous time in your class this semester; you’ve changed the way I think about law and how it creates incentives, and I hope you will do the same for readers of the Review. Thank you very much.
Prof. Salama: My pleasure.
