80 Va. L. Rev. 2215 (1994)
Kissing Off Economics and Misunderstanding Murphy's Law: Carlson's on the Efficiency of Secured Lending

handle is hein.journals/valr80 and id is 2227 raw text is: KISSING OFF ECONOMICS AND
James W. Bowers*
N 1981, Alan Schwartz first insisted that, under certain assump-
tions, permitting creditors to contract for first-in-time priority
(the typical result of taking an Article 9 security interest) could not
be shown to be efficient.1 Schwartz' argument raised fundamental
issues that concern us in this Symposium. First, should Article 9
continue to foster personal property security? Second, should the
provisions of bankruptcy law hostile toward secured creditors be
stiffened, or should they be relaxed or repealed? Sad to say, our
Symposium itself is excellent evidence of the truth of the Barn-
Door-Closing-Time Corollary to Murphy's Law.2 Schwartz
relented, after all, in 1989;3 it is now 1994.
* Professor of Law, Louisiana State University Law Center. David Carlson, John
Church, Andy Kleit, Dean Lueck, Lucy McGough, Alan Schwartz, and Edwin West tried
to help me avert serious errors in this work. That they may not have been able to avoid the
inevitable force of Murphy's Law in these efforts cannot be held against them. Dealing
with Murphy was my responsibility alone.
1 See Alan Schwartz, Security Interests and Bankruptcy Priorities: A Review of Current
Theories, 10 J. Legal Stud. 1, 7-22 (1981). This conclusion was not based on the Murphian
Economic Theory of the Second Best, which holds that it is implausible that anything could
ever be shown to be efficient, although it certainly sounds as if it might have been. For a
critique of that Theory and its use by one exponent, see infra Part II.C.
2 For an introduction to some of the fundamentals of Murphy's First Law, a common
version of which states that whatever can go wrong, will, see James W. Bowers, Whither
What Hits the Fan?: Murphy's Law, Bankruptcy Theory, and The Elementary Economics
of Loss Distribution, 26 Ga. L. Rev. 27, 28 (1991). We only close the barn door after the
horse has already escaped is the first corollary deduced from the basic Law. This corollary
refers to the universal human tendency of beginning the attempt to solve a problem only
after the damage is done and it is too late to do anything about it. We owe the corollary to
Brendan Brannigan, the first Murphian Disciple.
3 See Alan Schwartz, A Theory of Loan Priorities, 18 J. Legal Stud. 209 (1989).
Although this article does not argue that security is necessarily efficient (and, indeed,
continues to question the wisdom of Article 9, see id. at 243-54), it does argue that allowing
early lending financers to contract for priority can, in fact, be efficient. See id. at 235-41.
This represents a change in view from Schwartz' earlier argument, which attempted to


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