Currently, decrying others’ profits as windfalls is popular among journalists, policy makers, law makers, industry participants, and the public at large. Once an economic gain is spotted that seems suspiciously large or too easily earned, then like the “pod people” in Invasion of the Body Snatchers, the observer must point and alert the public that this “windfall” gain deviates from an acceptable baseline. If laws are not in place to prevent this gain, then regulators should step in and correct this loophole by promulgating new laws tailored to the situation that produced the unlawful windfall. The law may prohibit the transaction altogether, constrain the terms of any future transaction, or tax the windfall gain so as to deprive the windfall recipient of all or part of the benefit and redistribute the benefit to the larger public. Currently, legislation has been introduced both to create a “Wall Street Windfall Profits Tax” to limit or create negative tax implications for executive compensation and to revive a windfall profits tax on crude oil, natural gas, and other products of the energy industry. This Article argues that this type of legislation finds its impetus not in sound economics, but in more base feelings of outrage, indignation and envy.

This Article employs both a theoretical framework to create a taxonomy of windfalls and an empirical study of the use of the word “windfall” in the New York Times, the Wall Street Journal, state law cases and congressional history to analyze the rhetorical power of the term in popular and legal discourse. Though the term “windfall” originally referred to fruits literally falling off trees due to the vagaries of the wind and no action on the part of the recipient, the term windfall is currently commonly used to refer to marketplace gains between freely negotiating parties. In addition, courts sparingly use the term “windfall” to refer to double recoveries and recoveries where no underlying loss has occurred. In popular discourse, however, speakers employ the term to convey a sense that a marketplace gain of another is undeserved somehow. This overuse of the term “windfall” reflects a misunderstanding not only of what a windfall is, but also a misunderstanding of the appropriateness of law to rewrite existing bargains and to limit private parties’ abilities to freely bargain without other considerations. Any defensible argument that redistributing luck by redistributing windfalls falls apart once the so-called windfall gains are the product of industry, innovation, ambition and bargaining. This Article argues against the temptation to label private gains as windfalls that are subject to recapture.


Contracts | Corporation and Enterprise Law | Law and Economics

Date of this Version

August 2009