New York Fed Discovers That We Are in Fact Turning Into Japan

That’s two NY Fed studies in a row that I approve of. This is good stuff. Now, Andreas Fuster, Basit Zafar, and Matthew Cocci furnish us with, “Why Aren’t More Renters Becoming Homeowners?

It’s a crucial question because it’s quite possible for land market failure to cause people’s incomes to be too low for them to move into houses, which depresses future expected land values, and hence future economic growth, like Japan. It certainly doesn’t help us that our intrepid authors admit that first-time homeowners amount to 30 to 50 percent of buyers, and that “in the time series, renter-to-owner transition flows tend to lead the business cycle and house price growth.”

So basically, under normal conditions young families think things are getting better, so they jump onto the land value train. I wrote about this as social reproduction a while back. The Fed economists turn to the Survey of Consumer Expectations to answer why this isn’t happening.

For one, they find that not even 45 percent of current renters expect to move and buy in the next three years. No idea how that compares to past years. Then they discuss the reasons renters who rate the likelihood of such a move at 60 percent or less gave.

Too much debt and too little income. Hope those debts aren’t those student loans I keep reading aren’t causing any economic damage ’cause that’d just makes the problem worse. The study doesn’t find much evidence of skittishness about future housing prices falling, which you can take as you will.

If you want to see how bad things are, here’s the number of households by age bracket and their respective homeownership rates from the Census Bureau’s Housing Vacancy Survey (Table 12).

Total Households by Age Bracket

Homeownership Rates by Age Bracket

Maybe we should rename the country the United States of Houses Owned Only by Old People. USHOOOP works for me.

Japan’s Law Schools Should Take Lessons From Their American Counterparts

Oh Yomiuri Shimbun, why must you blight the Internet with such nonsense in your editorials on legal education?

[T]he number of lawyers employed by local governments and business corporations has not increased as much as anticipated. A large number of people are unable to find jobs after passing the bar exam.

Some law schools have been increasingly inclined to withdraw from their field of education in recent months. The move has accelerated since last autumn, when the education ministry said it would curtail grants-in-aid to law schools whose graduates perform poorly on the bar exam.

There was a time when law schools bloomed, with their number peaking at 74. But the number of law schools accepting applications for admission next spring is expected to decrease to 54. It is only natural for law schools to quit if their students do badly on the exam.

Clearly Japan’s law schools’ mistakes aren’t emulating the U.S. system but not emulating it enough. Employing the strategies used by U.S. law schools could really make a difference at these institutions because over here, we’ve internalized the following lessons. When graduates don’t pass the bar or don’t find jobs, do the following:

(1) Capture the accreditation system and calibrate it so that if graduates from all schools fail the exam at about the same rate, the schools keep their accreditation. You’re not over-enrolled if you’re just average.

(2) Blame the magazine rankings. (Don’t worry if they blame you back, you both make your money on the (prospective) applicants. It’s just part of the business.)

(3) Shake down your alumni to finance a new, gratuitous, state-of-the-art law school building. That’ll show ‘em.

(4) Blame your graduates for being greedy, entitled, and unwilling to make the tough sacrifices, like opening practices in rural areas. Lots of people in Shikoku need lawyers.

(5) Alternatively, blame your graduates for moving too far from the school and trying to make money where the jobs are, like Osaka perhaps. After all, it’s not the school’s fault for enrolling too many students for the local market; rather it’s the students’ fault for wandering too far from where their degrees have any signaling value.

(6) Advertize your school’s discounted tuition thanks to senior students who are asked to pay full freight courtesy of unlimited government loans. (Japan has those, right?)

(7) Complain that the press and the blogs don’t use any facts—because they don’t.

(8) Use Pyrrhonian skepticism to dismiss government employment projections showing that there is no need for your graduates’ professional labor.

(9) Notwithstanding (8), point to the imminent wave of retiring lawyers whose positions will need to be filled.

(10) In case Abenomics fails, waive away any predicted productivity increases in legal services, low household incomes and formation rates, the apparent income elasticity of demand for legal services, and predictions that the economy is going to stagnate for many years to come. Do not waver: The backlog of graduates will clear!

(11) Claim that your graduates are easily finding jobs after the employment data are collected. Disregard the findings of longitudinal studies like After the JD in the U.S., which found that graduates who enter the profession in good years frequently leave law practice several years later due to massive attrition.

(12) Throw out marginal product theory, the law of diminishing marginal returns, and the sheepskin effect and argue that your school’s degrees are “versatile,” ensuring that graduates will get an earnings premium in any occupation besides law practice because all schooling increases earnings for all positions regardless of the skill required.

(13) Ask rhetorically, “What else will intelligent young people do?” Obviously law is the answer.

(14) Plead that your school is virtuous because it enrolls minority students who do poorly on exams. It doesn’t matter if they never enter the profession or can’t service their debts. (They have IBR in Japan, right?)

(15) Use the crash in applicants to encourage people to apply. After all, it’s not like everyone will seriously heed this advice and make it self-defeating.

(16) U.S. law schools haven’t tried this yet, but yous should: Insist that the profession’s licensing rules are so restrictive that they prop up prices for lawyers’ services, which is why so many of the highest earners in the country are lawyers. Therefore, anyone who graduates from your law school is a lucky ducky. If anything, the country should allow foreign-trained lawyers to practice as it will drive costs down.

(17) And if all else fails, compare the number of attorneys per capita in your country or region to others because that’s an obvious measure of lawyer shortages. Duh.

So Yomiuri Shimbun and all Japanese law schools, the problem wasn’t adopting the American model; it’s not adopting it all the way.

Because Russia Is Known for Its High Productivity

A week after I sarcastically told you you to trust your east coast media elite about higher education, the NYT’s Eduardo Porter takes the bait in, “A Simple Equation: More Education = More Income.” Porter wails:

Barely 30 percent of American adults have achieved a higher level of education than their parents did. Only Austria, Germany and the Czech Republic do worse. In Finland more than 50 percent of adults are more educated than their parents.

Here’s his chart showing the international education arms race (at all levels, not just college):

Loook Who's No. 1The number one country is Russia, which is known for its healthy, long-lived population and very little national income from locational advantages such as oil and gas deposits. Second to last is Germany, a country with very few manufacturing exports and unspeakable squalor, which is why you never hear about it.

Porter continues:

This pattern of stagnant mobility and rising inequality of education adds up to a dumbfounding paradox. American workers with a college degree are paid 74 percent more than those with only a high school degree, on average, nearly the biggest premium in the O.E.C.D.

Can you believe this a week after New York Fed economists report that college doesn’t pay off for everyone? Like seriously, read your own damn chart.

New York Fed Endorses Credential Fraud

Yes, I’m lying, but the New York Fed’s promised analysis of five-year and six-year college degrees calls the college premium into question, not that the authors understand why. They calculate that adding a fifth or even a sixth year of college costs workers ~$65,000 or ~$130,000 over their lifetimes, respectively. Thus, I wonder, “Why not graduate in just three years then to get on that wage-premium track earlier?” Maybe people could do it in two, or one, or just say they went to college even if they didn’t. It reminds me of the “seven-minute abs” scene from There’s Something About Mary, which for some reason YouTube doesn’t have a clean copy of. Feel free to explore on your own, but if you disagree with the zero-year bachelor’s degree, then you’re dreaming about Gorgonzola cheese when it’s clearly Bree time, baby.

The lesson is: Never reason from a college premium, which apparently even college graduates can’t figure out.

The more entertaining adventure is the New York Fed’s subsequent post in which it dares to question if a world outside the average college graduate exists. It’s titled, “College May Not Pay Off for Everyone.” Heretical, I know.

Here’s the authors’ chart, which unlike any research I’ve been able to do, goes back to the 1970s.

I guess The Graduate was art imitating life after all…

I’ve just received word that the authors’ security clearance has been revoked.

Don’t worry, though, they hedged themselves:

While we can’t be sure that the wages of this group wouldn’t have been lower if they had never gone to college, this pattern strongly suggests that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree.

Yeah, in college-premium land it’s obvious that those grads are so stupid that if they hadn’t gone to college they would’ve been unemployed—and if they hadn’t finished high school, they would’ve sold themselves into slavery.

The obvious thing to ask is what kind of occupations these workers are in. If they aren’t in positions that require much college education, then that might imply that too many people go to college, that many college grads in highish-paying jobs benefit more from the signal their degree sends than the human capital developed through coursework, that the public is filled with endless garbage about the need for more college graduates (often at the behest of student lenders), and that a lot of these low-earners who have significant student loan debts will be unable to repay them, possibly culminating in a government write-down in the future.

Or they could just be really stupid and college qualifies them to be retail salespersons. And you shouldn’t worry, all those stories are just scaremongering and you should trust your east-coast media elite.

Tuition Cuts Beyond Thunderdome

Observing some law schools gaining 1Ls as they cut tuition, The Wall Street Journal chants, “Two applicants enter! One applicant enrolls! Two applicants enter! One applicant enrolls!”

I don’t think I’ve ever seen Mad Max Beyond Thunderdome without commercials. I don’t think there’s another way either.

Back on topic, the WSJ article appears quite well researched. I’ve never been big on tuition cuts drawing the crowds, but I’m willing to disagree with some of the quoted deans—in their favor, even—and say that the tuition cuts helped their enrollments. The real question, though, is whether tuition cuts can draw applicants who otherwise wouldn’t bother taking the LSAT. I ask that because it appears that the applicants are sending their materials to multiple schools and taking whatever they consider the best deal. In that sense the nominal tuition cuts are little different from the discounts the law schools have been touting. It’s when they can convince new applicants to step out of the ether that we can really say the tuition cuts are working.

We’ll also have to see whether the schools with high LSAT profiles are cutting their nominal costs. I bet plenty of 2Ls would love to transfer into Columbia and pay more than $55,000 per year.

In other news, the New York Fed people have started a series titled, “The Value of a College Degree,” which rehashes everything you’ve already heard repeatedly about the average college graduate. However, its authors promise to look at wage dispersions, which tell them that “college actually does not appear to have paid off for a sizable fraction of those who made the investment.” They said it’s hard to see whether the premium is due to innate abilities but then said they were going to explore what happens to five- and six-year graduates. Hint: If the five- and six-year graduates don’t make more than the four-year graduates, there’s a good reason to suspect that there are problems with the human capital hypothesis.

Here’s my spoiler version of the wage dispersion from a while back:

Dispersal of Earnings by Education (25 -34) (Thousands, 2012)

(Vertical lines are medians.)

Yeah, so not everyone who went to college makes the median income. (Mind = blown)

I gotta run. Take care, folks.

Don’t Go to Law School: International Edition

Usually I write about legal education in Japan, whose decision to ape the U.S. legal education model has failed brilliantly, but today I have good news! Other countries do it badly too.

In the United Kingdom of all places, The Times furnishes us with, “What law school doesn’t tell you: 17,500 graduates; only 5,000 jobs.” Alas, subscription is required for the specifics, but the headline sure made me do a double-take. Being ignorant of such things, I have no idea what The Times‘ slant is, but superficially I’m pretty impressed that the U.K. has managed to out-do the U.S. in law graduate overproduction. Come on, Britons! Mimic our nondischargeable Grad PLUS loans—I dare you.

The other disaster du jour is … Korea! Korea JoongAng Daily informs us that adopting an American-style law school system has led to immiserating tuition hikes. It’s much more expensive to go to the new law schools than just taking the country’s damned bar exam old-school style.

The kicker is that Korea is phasing out the bar exam process in 2017, meaning it’s expensive legal education for all!

1,014.20 Korean won equal $1.00, so yes, law school costs, like, twice as much in Korea as it does here (even with living expenses). (I’ve heard hearsay that Korea is a higher education disaster where everyone goes to college but people in menial jobs still earn more than the typical college job.) Here’s the math:

[A] research team led by business administration professors Cheon Do-jeong, from Chonbuk National University, and Hwang In-tae, from Chung-Ang University, presented their dissertation analyzing the lawyers produced under each system.

According to Cheon and Hwang’s data, it costs an average of 22.17 million won annually over 4.77 years [$21,859], from entering law school until becoming a lawyer. The law school system costs a total of 105.79 million won [$104,309].

By contrast, the old system of taking the national bar exam cost an average of 9.32 million won annually over the course of 6.79 years [$9,190], including completing training at the Judicial Institute. The whole process amounts to 63.33 million won in total [$62,443].

My favorite quote from the article: “Furthermore, tuition increased by 9.8 percent this year.” Don’t worry, though, without government loans, the universities are going to shut down the law schools, according to a former dean. Imagine a dean saying something like that in the U.S.A.!

That’s all for now. Hope you enjoyed your Labor Day.

No Bubble, Just Rock!!! Vol. 10

Mellow is the Bubble

I really don’t do these nearly enough.

Here’s Lambchop’s “The Militant,” which I was obliquely reminded of with the Ferguson, Mo. news.

And here’s something a little more fun that I discovered to start off your week, The Shirts’ “The Tiger Must Jump.”

I regret not seeing this show.

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