For those of you who read the “Law Graduate Overproduction” page on this blog, this is the update. I’ll revise the page later.
…But unlike last time, he’s clear about it now.
Joseph Stiglitz, “Student Debt and the Crushing of the American Dream,” New York Times‘ Opinionator.
Yesterday, Stiglitz argued that student debt is connected to inequality, and it’s “intertwined” with lack of housing demand. He writes:
It’s a vicious cycle: lack of demand for housing contributes to a lack of jobs, which contributes to weak household formation, which contributes to a lack of demand for housing.
I’m dead certain that student loans crowd out homeownership for individual debtors, but I don’t know to what extent that can be imputed to the whole economy. Stiglitz is arguing that but for student loans, people have the income to afford housing. I don’t think this is true. I think most student loan debtors lack the income period. Thus, the “lack of demand for housing” is caused by untaxed land rents, which isn’t related to student loans.
Stiglitz might be right, but I don’t think every student loan debtor is just a few hundred dollars away from homeownership. I do think, however, that he’s wrong about the value of higher education. Cue the Eloi lawyers and Morlock material movers who have law degrees:
Curbing student debt is tantamount to curbing social and economic opportunity … Our economy is increasingly reliant on knowledge-related industries. No matter what happens with currency wars and trade balances, the United States is not going to return to making textiles. Unemployment rates among college graduates are much lower than among those with only a high school diploma.
I have to credit Stiglitz for actually connecting the trade deficit to jobs to student loan debt. This connection is very real, but it’s not made often because economists know nothing about student loan debt, and student debt advocates know nothing about labor economics. Again, I disagree. If we flip the trade deficit, maybe the textile jobs won’t come back—I don’t see why they wouldn’t, the U.S. is still one of the world’s biggest cotton manufacturers—but the lump of labor fallacy doesn’t apply to individual industries. There’s only so much demand for lawyers, brain surgeons, advertisers, fashion designers, and other knowledge workers. At some point, technology will reduce the labor economy to trading simple services that can’t be automated, like haircuts, waiting tables, etc. These jobs will rarely pay well, which is one argument for taxing the land rent and redistributing it as a citizen’s dividend.
The other big problem with the article is that Stiglitz doesn’t believe that over-generous federal lending enables tuition increases. He makes passing mention to slashed government subsidies to public universities, which is correct, but he thinks the rest of tuition increases are due to “the banks’” and not higher educators trying to sell parents on multi-million dollar athletic facilities. Then, as expected, he attacks the for-profits as though nonprofits and public universities are guileless. He also doesn’t point out that for 85 percent of the debt, “the banks” are the federal government either directly or by guarantee.
As a result, Stiglitz’ policy prescriptions are a muddle. Yes, restoring bankruptcy protections is critical, but thanks to IBR, even for-profits won’t post very high default rates, unless they don’t tell dropouts how to fill out the forms. Consequently, they will likely have access to federal funding indefinitely no matter what federal judges say. Slashing interest rates to the Fed’s discount rate (that’s the rate it quotes for its direct lending to the banks) will reduce debt burdens, but it certainly won’t discourage people from taking out loans they don’t need for degrees that have little value.
Stiglitz supports adopting Australia’s income-contingent repayment system, but I think we should take the government out of higher education finance entirely.
Annie Lowrey, “Student Debt Slows Growth as Young Spend Less,” New York Times.
Do yourself a favor and don’t bother reading the piece. No that’s not reverse psychology; it really just rehashes stuff you already know, especially once you get to the bit of propaganda in the fourth-to-the-last paragraph:
On the other side of the equation, many college graduates now in their 20s and early 30s should eventually be able to make up for lost ground. Students who take on debt to pay for higher education commit themselves to paying off huge sums, but they usually lift their lifetime earnings by substantial amounts. And they are in a better position to insulate themselves against economic bad times, given the profound rewards the job market provides to the college-educated.
Four paragraphs earlier, the article states that the average (I think, the article doesn’t say) debt-to-income ratio for households under 35 has grown from 1:1 to 1.5:1 between 2001 and 2010. How lifetime earnings can rise while the young—which, I interject, are people whom society treated as full adults a few decades ago—are spending more on debt service is unexplained.
Okay, I can’t match the Times‘ non-reporting; here’s some value-added:
(1) More Americans have college educations than the past, so logically it’s harder to say that it provides an earnings premium. It could just be credential inflation.
(2) Young(ish) college-educated Americans make less money than they used to.
I included professional degrees, but the sample’s pretty small. It’s accurate but imprecise. Do not take it for the value of a juris doctor; those probably pull down professional degrees’ values.
To be fair, though, I’m going to give a little credit to the Times because people’s incomes would be higher if the economy were at full employment, and it’s not. In other words, it’s unlikely structural degree oversupply is the primary force depressing college graduates’ earnings. Thus, the 1.5:1 debt-to-income ratio should be lower than it is. But just when exactly will college graduates in their 20s and early 30s “make up for lost ground” after their prime earning years? The Times doesn’t say. You’re supposed to have faith that *it* can’t happen here, *it* being rule by the future-present aristocracy in a democracy-lite.
I read Brian Tamanaha’s “The Failure of Crits and Leftist Law Professors to Defend Progressive Causes,” which castigates politically liberal law professors for participating in institutions that encourage both the class schism in the legal profession and law students to borrow unpayable debts. How could they not know what was going on? Tamanaha writes:
Seduced by the allure of prestige of material comforts, Crits and progressive law professors have become a part of the system they set out to reform. Watching market-thinking become pervasive and the gap between rich and poor in America steadily increase, knowing that on broader economic issues we had lost, we succumbed to the temptation to grab what we could for ourselves and our families. (35)
Ouch. It occurred to me while reading this passage that of all the topics I think or write about, legal education is the one where I think we need more “market-thinking,” so I end up sounding like a perfidious neoliberal. I’m not. Instead I think that what passes for “market-thinking” has largely shielded liberal law professors: Lawyers are regularly perceived as playing outside market rules. They chronically overcharge their clients—a belief that’s readily reinforced by actual instances of file-churning, etc.—and they don’t do enough for the poor given their awesome privilege. For the more conspiratorially minded, they file frivolous lawsuits against one another to drive up business, or they use their dominance in legislatures to enact laws that create yet more work for themselves. Even corporate America is powerless to negotiate lower rates against the almighty leveraged, billable hour.
The public’s uncharitable perceptions aren’t helped by economists who misunderstand the effects of professional licensing. Anyone who reads Dean Baker’s Beat the Press will regularly find the author complaining that free trade advocates are willing to subject manufacturing workers to competition with cheap foreign labor, but they hypocritically use professional licensing regulations as trade protectionism. Never mind that professional services aren’t as fungible as precision-made goods; that lawyers’ contributions to legal matters are usually more valuable than assembly line workers’ to their products; or that most states, including California, New York, D.C., Texas, Illinois, and Florida, allow foreign-trained lawyers to take their bar exams (subject to various other requirements, admittedly) with no evidence of lower lawyer incomes there as a result. For some inexplicable reason, foreign lawyers will be able to topple biglaw in a way that tens of thousands of unranked law school grads cannot.
An even better example is Clifford Winston’s, Robert W. Crandall’s, and Vikram Maheshri’s 2011 book, First Thing We Do, Let’s Deregulate All the Lawyers. The authors calculated that lawyers earned 50 percent more than people who had the same amount of education. They also found that over time lawyers’ incomes increased even though their GPA and LSAT scores did not, and that the number of lawyer jobs created each year is significantly less than the number of people who apply to law schools. Therefore lawyers must be creating a huge deadweight loss to society.
No one pointed out to them that (a) demand for legal services is income elastic, which means rich people and corporations spend more money on brand-name firms as they become wealthier (and they have become wealthier); (b) the wages of lawyers are determined by their marginal product, not their education; and it might just be the case that lawyers are more productive than people who drop out of English PhD programs; (c) incomes for high-test-scoring people have increased generally over the last few decades as credentials from elite universities have led to higher-paying jobs; and (d) demand for legal education is not the same thing as demand for legal services.
One need only read First Thing We Do‘s introduction (PDF) to understand the methodological problems with the authors’ argument:
As regulatory economists, we find it natural to reason that occupational licensing, like other regulations that restrict entry, benefits existing suppliers by limiting competition. Thus its primary effect is to generate earnings premiums to practitioners in a particular profession such as law—earnings premiums that could be inefficient.
In short, it’s an argument from incredulity nestled in a begging-the-question fallacy: We can’t believe the legal profession would allow more people to purchase legal education than there are jobs available for them because that would mean lawyers are bad at creating licensing restrictions, and they would be callously dumping over-indebted, underemployed law graduates onto the labor market and tolerating a massive wealth transfer to law professors that doesn’t directly benefit lawyers. Therefore, the licensing requirements must be restricting supply and raising incomes.
However, the fact is, applicants’ willingness to risk rejection, which indicates they would pay full freight if accepted, increases with tuition. Behold the number of rejected full-time applicants at private law schools (ex. Puerto Rico’s and Brigham Young) and public law schools whose tuition is higher than the average private law school’s.
Those of you who wanted an upward-sloping demand curve, here is your upward-sloping demand curve.
Even in my private life, I’ve encountered two economists (whom I respect) who thought “licensing = labor cartel” applied to lawyers ipso facto. In fairness, it’s not self-evidently untrue, but it shows the heuristics that go into analyzing who’s cheating society and who isn’t.
Okay, I didn’t write this post to rehash First Thing We Do—not that I didn’t savor the empty calories and hope you did too—rather, I brought it up to show that “positions, not interests” explain conventional views about lawyers and law schools:
- Lawyers = cheaters, thieves
- Law students = greedy turds who refuse to serve the poor at lower pay and are whining because they’re bitter they didn’t get to be cheating thieves
- Law professors = tragic figures because despite their liberal agendas, their students still refuse to serve the poor and aspire to be cheating thieves
- Student debt for education = good because education = “upward mobility” = good
Once this framework for the law school debate sets in, it’s no wonder that Tamanaha’s peers call him an outrageous elitist conservative. It takes the ideological equivalent of a spontaneous reversal in the earth’s magnetic field to recognize that law schools have more in common with Bain Capital than they do with Legal Services NYC, which has been working without a contract since July 2012 and might go on strike soon. The dominant liberal story over the last thirty years is that rich conservatives and neoliberals (including cheating thieving lawyers) captured the government to crush labor and redirect incomes from the poor to themselves. Thus, liberal law professors are the types of people we’d least expect to support too-big-to-failist institutions. The fact that conservatives tend to hold anti-higher education and anti-student lending views further warps the discussion along ideological lines.
That law schools were caught fighting on the wrong side of the class war at the same time the banksters wrecked the economy is only a coincidence, but it doesn’t appear that way to the students, who are increasingly seeing a generational war between entrenched, entitled boomers and themselves. Law schools’ legacy will be a severely cynical generation—not something supposedly labor-loving liberal academics see themselves as promoting.
Filed under: Uncategorized | Tagged: Boomers/Generational Non-Warfare, Brian Tamanaha, Higher Education, J.D. Oversupply, Legal Education, Legal Education ROI, Legal Sector, student loans | 3 Comments »
I used a good part of my latest Am Law Daily article criticizing the ABA’s bar passage requirements in its accreditation standards, so I would disserve readers by not bringing up the recently proposed standard that would overhaul and standardize the bar passage requirement. (By “standardize” I’m pointing out that the current bar passage requirement (PDF) is just an interpretation deep in the general requirement that law schools prepare people for the bar.) Here’s what the proposed standard says (PDF):
Standard 315. BAR PASSAGE
(a) No later than the end of the second calendar year following their graduation, 80% of the graduates who took a bar examination must have passed a bar examination.
(b) A fully approved law school must demonstrate compliance with this Standard in three of the most recently completed five calendar years.
In some ways this is an improvement over the current interpretation. Now, law schools have to track down graduates from as many as five years into the past to find out if they passed the bar, which, as some deans reported to the ABA Journal, is a difficult, tedious task.
The key difference, though, is that the proposed standard requires 80 percent of graduates who take a bar exam to pass it. This means that law schools that admit applicants who have little hope of ever passing a bar exam might instead discourage them from trying to take one at all. Then again, this might be an awkward conversation, especially if it’s accompanied by a cash payment. “Hi graduate. You put a lot of effort into becoming a lawyer, but if you stop to think about it, maybe the bar exam would be a little too hard for you. Here’s $2,000 to consider an ‘alternative’ career for using your JD. You get cash; we get to keep enrolling students who can’t pass the bar. Deal?”
However, the proposed standard does away with the 15-percent-first-time-passage-rate-within-the-state’s-mean-rate requirement, which allows the schools in Puerto Rico to almost certainly maintain their accreditation.
Here’s an apples-to-oranges comparison from the Official Guide:
First-time bar passage isn’t the same as two-calendar-year bar passage, but my guess is that under the proposed standard Pontifical Catholic would lose its accreditation, maybe Inter American too.
A question that needed to be asked.
Here’s some Felt:
Editorial, “Reviewing Legal Education Reform,” Japan Times.
In the last decade, Japan went on a 74-law-school binge (!!) because too many people were failing its bar exam. The belief was that American-style law schools would better-train people to pass the test. Instead, the result is more law school graduates who’ve wasted a lot of money on a legal education that opens no doors to them. It’s an old, old story that I’ve written on before here and here.
So the Japan Times is back with another editorial on the topic. Now it appears that people have wised up to the Failing-Law-Schools-Japan-Edition, and they’re not applying. The result is that one law school shuttered its doors in March. The government’s current solutions are to drop its 3,000 annual bar passage rate target and consolidate some of the law schools. Kill the metric, not the messenger.
The Times believes the problem is that some law schools are just bad at teaching to the test, not the licensing system itself, so it argues:
The government, bar associations and law schools should redesign the system for nurturing legal professionals. They should think about how to increase [rural] job opportunities for novice lawyers and how to improve legal services for people even if the pace of reform slows.
Although the editorial may be right that the government isn’t willing to analyze “what went wrong,” it too still seems unwilling to admit that American-style legal education doesn’t in any way increase access to legal services or create jobs (except in the law schools). That’s the lesson that’s slowly being learned in the United States with no thanks to resistance from law schools and indifference by licensing authorities. Can someone direct me to the first Japanese law school scamblog?