WSJ Op-Ed Reaches Acceptable Conclusion on False Premises

Distantly following the op-ed published by Clifford Winston and Robert W. Crandall that called for deregulating legal services entirely, the Wall Street Journal has now published an op-ed by a law professor and a lawyer, John O. McGinnis (Northwestern) and Russell D. Mangas (Kirkland & Ellis, Chicago), advocating allowing undergrads to sit for bar exams. This is a much better argument than Winston’s and Crandall’s, and certainly better than law school gimmicks of offering refunds or changing the law school tuition structure, but it’s still due a few criticisms. A more complete copy of the editorial, “First Thing We Do, Let’s Kill All the Law Schools,” can be at TaxProf Blog.

McGinnis and Mangas write:

“The high cost of graduate legal education limits the supply of lawyers and leads to higher legal fees … States should permit undergraduate colleges to offer majors in law that will entitle graduates to take the bar exam. If they want to add a practical requirement, states could also ask graduates to serve one-year apprenticeships before becoming eligible for admission to the bar … This option would reduce the law school tuition to zero. And the three years of students going without income would be replaced by a year of paid apprenticeship and two years earning a living as a lawyer.”

What’s this? A proposal I get to agree with? Ya~y! Instead of “pushing the string” of having people pay for graduate education and then letting the market decide if they get to use it, McGinnis and Mangas let the market make the first move (whether law as a college degree is still worth pursuing is obviously debatable). Good job. The problem, though, is that in a few important respects their plan has already been implemented in California, and the alleged benefit of cheaper lawyers hasn’t been documented.

First, the op-ed’s tagline, that the high cost of legal education is somehow limiting the number of attorneys is utterly false. There is no direct financial barrier to attending an ABA law school. Law students can take out student loans to pay the exorbitant tuition. That’s the problem. Indeed, the ABA collects data on the number of lawyers in the U.S., and it actually released this in the form of a spreadsheet on its Web site recently. By comparing its national lawyer count to the population, we find that there are more lawyers per capita than ever before, so high tuition has not created a shortage of able-bodied lawyers.

I have a lot more to say on how accurate this is, but that's for a different post.

Second, McGinnis and Mangas adopt the persistent, widespread belief that lawyers are passing their student loan payments onto their clients in the form of higher fees. This belief is untested and there’s good reason to believe that the opposite is in fact true, that the “incidence” of student debt falls on student debtors and not clients. To make things more confusing, towards the end McGinnis and Mangas abruptly change course:

“[T]he great benefit of the undergraduate option would be lowering the cost of legal education, thus increasing the supply of lawyers willing to charge lower fees.” [Emphasis LSTB]

The emphasized qualifier materially changes the argument, and the authors should have been more specific about what they were talking about from the beginning. Now it appears that McGinnis and Mangas believe that there are enough attorneys, but student debt is stymieing them from charging less. One wonders why they aren’t demanding the end of the Direct Loan program, restoring bankruptcy protections to student debtors, expanding income-based repayment programs for lawyers, or supporting a mass student debt write-down, as those would increase the “effective” number of lawyers far more quickly than their proposal would.

The issue, though, isn’t one of willingness to charge less but of incentive. If law graduates can make more money doing non-legal work, they typically will, irrespective of student loans. This is how labor markets work. It should not surprise anyone that lawyers would rather make more money than less, any more than plumbers, electricians, etc. The only question is whether those high-paying jobs are plentiful enough for people to be able to choose them. Ultimately, if lawyers can’t make a living serving the poor and have higher paying options, then we need to subsidize legal services, not legal education.

Returning to the problem, in principle, the incidence of student debt is much like that of a tax, which rests on the relative elasticities of demand and supply for the product. For legal services, this boils down to an empirical question: do clients have alternatives to lawyers with excessive student debt? Answer: Certainly. For the incidence of lawyers’ student debt to fall on clients, (nearly) all lawyers would have to be making the same payments on their student loans. Thus, the more unevenly distributed student debt is among lawyers, the more lawyers will have to eat their student loan payments to compete with those who have less debt. Here’s what we know about law school debt’s distribution.

(1)  About 15 percent of all ABA grads finish with zero law school debt.

(2)  Some law schools are cheaper than others, especially public law schools and those in Puerto Rico, so those who graduate with debt have varying amounts. (Notice that Professor McGinnis voices no concern that Northwestern’s graduates will be unemployable when Mr. Mangas’ firm decides to switch to hiring NIU or SIU grads to cut costs.)

(3)  Older lawyers often have less student debt than more recent grads, so their loan payments are smaller.

(4)  Some states allow graduates of cheaper, non-ABA schools to sit for their bar exams, or they allow people to forgo the legal education requirement altogether.

(4), here, is critical. California has scores of dirt-cheap state accredited, unaccredited, correspondence, and online law schools. This system is not new, either, yet no one has compared the cost structures of California’s legal sector to “ABA-only” states’. Surely by now there are more than enough non-ABA attorneys licensed in California to have made a qualitative difference in the cost of legal services as McGinnis and Mangas argue, yet California’s ABA law schools (including public ones) aren’t competing with the non-ABA ones in terms of price. They charge about $40,000 per year in tuition, and they increase it each year over inflation.

Why aren’t California’s more price sensitive firms hiring grads directly from the People’s College of Law in Los Angeles rather than from UCLA? Better yet, given non-ABA graduates’ higher bar failure rates, why aren’t firms sending associates to stand around outside LSAT test centers, handing people their business cards and saying, “Send us your LSAT score and your undergraduate transcript, and if we like you, we’ll give you a clerk position. If you like the work, we’ll pay half of your tuition for a correspondence degree, you’ll take the bar, and we’ll give you an associate position afterwards. The benefits: You get paid and trained now, and save money and time. We get to charge our clients less; and the only loser is the overpriced, middleman ABA law school.”

Better yet, they could simply hire people straight out of college (California doesn’t even require that much) and have them qualify for the bar by “reading the law,” which California allows. Firms could do this, but instead, they hire Stanford’s top5%mootcourtlawreviewrequired. Either California’s lawyers are all monumentally bad businesspeople, or student debt isn’t their problem.

On the contrary, debt is a fantastic, time-honored motivator, probably only a notch below holding a person’s loved ones hostage. The threat of financial ruin greatly benefits employers, providing them with willing debt peons who will eagerly overwork themselves to escape their condition. This is why student debt as a political issue is brought up by folks who identify with Occupy Wall Street and not Citizens United.

I don’t mean to close so critically; McGinnis’ and Mangas’ plan would save would-be lawyers’ time and money while probably providing better practical training for lawyers, which are good reasons for states to adopt it, but that’s all it does. The fact that the McGinnises and Mangases (to say nothing of the Winstons and Crandalls, etc.) of the world aren’t saying, “Let’s adopt the California model because it’s proven to make legal services cheaper,” leads me to conclude that they’re arguing from false premises. It will take a lot of courage for the profession to admit that noblesse oblige and low-cost education won’t entice lawyers to serve the destitute and student debt just reduces the standards of living of law school graduates, who have to work harder and pay more overhead to banks or ED to stay afloat, especially if they don’t work as lawyers.

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