No Bubble, Just ROCK!!! Vol. 8: 1997 Edition

Mellow is the Bubble

Still working on that ABA task force report, but a few weeks ago when I reminded you all that back in 1997 you were listening to the likes of Barbra Streisand, LeAnn Rimes,Shania Twain, and Chumbawamba, you passionately denied me. One of you went so far as to write:

I’m waiting for the “No Bubble – Just Rock” post that graces us with Shania Twain. I suspect that has about as much chance happening as the admins have of getting 40,000 lemmings to sit for the LSAT again.

Taking this as a challenge, I listened to Come on Over the following Saturday morning. Yeah, 40,000 LSATs isn’t worth subjecting you lost souls to the Nice Guyism of,  “If You Wanna Touch Her, Ask!”

Instead, I looked through my meager collection of 1997 music and found that I already used many of the bands in earlier NBJRs. Strange coincidence, I guess. So, here’s what I came up with.

We have the Sea and Cake, which I only started listening to a month ago.

Then Sleater-Kinney

…And what I was listening to at the time, the Makers:

How Much Is the Land in America Worth? (Redux)

The land-taxers I know are pleased with Wonkblog’s decision to hand “land value taxation” its coveted “most worthwhile yet hopeless policy crusade of the year” award for 2013. I guess the land value taxation pilot program Connecticut approved last June isn’t good enough. However, Wonkblog courteously acknowledged Mason Gaffney’s work on the subject.

Aside from linking to the Slate post on the topic that I discussed back in October, Wonkblog linked to another one from December in which Matthew Yglesias informs us that his correspondents told him that the Federal Reserve’s Flow of Funds report contains enough data to calculate the value of privately held land in the U.S. The number? $14.488 trillion. He concludes:

So who cares? Well, you should care. This number is high enough that it tends to confirm that [sic] view that taxation of land and other natural resources, supplemented by pollution fees and things like congestion charges could replace all taxes on labor and investment and still fund an ample welfare state and public sector.

Lamentably, Yglesias doesn’t show his readers why $14.5 trillion in land value “tends to confirm that view that taxation of land and other natural resources … could replace all taxes on labor and investment.” Indeed, his statement implies that the only thing standing between handing every American a citizen’s dividend equivalent to median household income is a posse of mustachioed landowners.

Alas, this is not how land value taxes work, but Yglesias’ vague editorial provides an opportunity to discuss the difference between “land value” and “land rent.” Land rent is the annual amount one pays to use land. Land value is the purchase price of real estate absent improvements. Land rent is like annual income; land value is like lifetime income once you’ve accounted for your JD premium. The ratio of land rent to land value is the “capitalization rate,” a percentage that differs among cities. Basically, it’s the discount rate; the higher it is, the lower the land value.

When Georgists talk about taxing land rent, the calculation is easy: Just multiply the rental value by the percent to be taxed. Let’s say we have a parcel that rents at $100,000 annually. Divided by a capitalization rate of 5 percent, its land value is $2 million. If we want to tax 80 percent of the land rent, we get $80,000 in land rent tax. Easy-peasey.

Now, like the typical Slate reader you’re thinking, “Why not tax land values instead? Wouldn’t an 80 percent tax on that yield $1.6 million?” And it’d be a good question—two even. The reason is that the amount taxed gets subtracted from the rental value, so as the land rent tax goes up, the land value drops. The rental value, however, remains the same. Here’s the equation:

Land Value = (Rental Value ­– Tax Amount) / Capitalization Rate

So taxing $80,000 from our parcel leads to a net rental value of $20,000 divided by a 5 percent capitalization rate and we get a land value of $400,000, not $2 million. If we want to express the land value tax as a percentage, then we modify the equation:

Land Value = Rental Value / (Capitalization Rate + LVT Rate)

…And then solve for the land value tax rate. In our case, it’s a 20 percent land tax on a $400,000 parcel, not an 80 percent tax on a $2 million parcel. Got it? Good.

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So we have a $14.488 trillion chunk of land that Yglesias believes tends to confirm the view that land taxes can finance an ample welfare state and public sector. Unfortunately, he gives readers neither his estimate of the land’s rental value nor that of the capitalization rate he used to close the accounting identity detailed above.

I can help. I’ll assume a generously low capitalization rate, 3.88 percent, the same as the current yield on 30-year T-bills (the aforementioned Gaffney recently demonstrated that wealthy people get much lower discount rates than poor people). We get a mere $562.1 billion in taxable land rent, which isn’t even enough to cover the federal deficit.

Now’s the part where Slate readers might question why Yglesias thinks this is sufficient to finance an ample welfare state and public sector, but they wouldn’t realize that government at all levels collected about $4.3 trillion in taxes in 2012. Add that back to annual GDP and we have $21.1 trillion to work with. How much of that is land rent? Again, we’ll have to fill in the annual rental value because Yglesias does not. Let’s say it’s only 20 percent, and we get $4.2 trillion in taxable land rent and at our 3.88 percent capitalization rate, $108 trillion in pretax land value.

You can tweak the capitalization rate and the percent of land rent as a share of GDP, but I think 20 percent is too low, if only because by the time you tax the land value down to $14.5 trillion as we do now, governments get less revenue than under the current tax system. This is implausible. Raise the percentage of GDP that goes to land rent to 30 percent, and you have well over the $5.7 trillion U.S. governments currently spend. Anything more is Hanukkah.

Of course, none of these calculations account for the increases to national income by recovering the deadweight losses imposed by our current tax system or the costs of administering it. Nor do we know if the Fed’s assessments undervalue land, which I—as does Gaffney—bet they do because hiding wealth in land is a time-honored practice. So yes, we should be confident that there’s enough land value (plus other rents, like spectrum rights, mineral rights, IP rights, etc.) to finance government and the welfare state, but a $14.488 trillion land value assessment alone is insufficient to prove it.

‘Accreditation Reform Unlikely to Change Legal Education’ on the Am Law Daily

Accreditation Reform Unlikely to Change Legal Education

I chose not to comment on the renewed attack on law professors’ scholarship in The New York Times as it wasn’t germane to my article. Sure, a few statements from judges and lawyers isn’t a scientific analysis of journal articles’ value, but as I see it, the law of diminishing returns should tell us that adding 30%+ more full-time, non-clinical, journal-article-writing instructors to law schools over 15 years can’t really add much social utility if the graduates can’t get jobs.

So… How many people are dressing up as Sister Ray for Halloween?

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The Night Disco Died

Disco Demolition Night, Comiskey Park, Chicago, July 12, 1979.

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Here are some primary sources for additional research.

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Carmen Sandiego Was Killed in a Drone Strike

…And a generation of Americans lost its innocence.

Procrastination is dangerous, but productive procrastination is deadly. Last week, I started killing time by testing my knowledge of geography because I was embarrassed that I didn’t know all the countries in Europe. Now I do, and so I started working on Africa, something I never thought I’d know.

Naturally I should’ve realized where all this studying would lead me: Throwing the original Where in the World Is Carmen Sandiego? disk images into an Apple II emulator.

I quickly found that the game, published in 1985, is charmingly anachronistic:

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…So anachronistic, in fact, that it’s been lapped by history, given that the workers recently placed the spire on top of the new World Trade Center.

02

03

Then there are little facts of monetary policy that have changed.

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…And a bunch of countries that aren’t around anymore for various reasons.

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So blinded was I by nostalgia that it didn’t occur to me that the game wouldn’t be timeless like other Brøderbund classics like Lode Runner. Ironically, Carmen Sandiego‘s world had been largely unchanged since World War II. More changes occurred in the few decades after the game appeared than before. Perhaps its liberal internationalism captured the tone of the waning years of the Cold War.

In retrospect, Where in the World Is Carmen Sandiego? is not a particularly good pedagogical tool for teaching geography. Testing knowledge, yes; teaching, no. Either you know factoids like like borders, flags, and currencies, or you don’t. A video game like Carmen Sandiego, which is structured as a multiple-choice test, isn’t the most efficient way to transmit that kind of information. Brute-force fill-in-the-blank tests are probably better. Maybe Carmen Sandiego was also a bellwether for the NCLB-style education system that would appear 15 years later: Fill-in-the-blank memorization is sterile and boring, but Carmen Sandiego is not.

All of which is disappointing because it’s a very fun game. The titular character’s Latin name hints at the exotic, like, you hear “Carmen Sandiego” and South America instantly pops into your mind. No one would ever think she was from Utica.

I didn’t play the original that much, but I did have its sequels Where in the U.S.A. and Where in Time. I recall them both being very hard because, as I said, you either know a lot about the 50 states and world history or you don’t, and as a 10-year-old I needed the aid of family members or the massive encyclopedias that weighed down the games’ boxes to make sense of where Narrangasett was. I certainly wouldn’t’ve known that “Henry the Navigator” means 15th century Portugal. History on top of geography is really hard when you haven’t even been through a middle school World Studies course.

The one thing the series did teach me had nothing whatsoever to do with geography or history: due process. If you failed to obtain a warrant before apprehending the criminal, or you obtained one for the wrong person, you lost, leaving me to yell at the screen, But she stole the Grand Canyon! The Grand Canyon!!

Of course, nowadays warrants are anachronistic too, so the next title in the series should be Where in the War on Terror Is Carmen Sandiego? which makes sense given that she and her gang have always been non-state actors (perhaps the original was prescient and not liberal internationalist?). The new version would include the following updates:

  • No warrants
  • Enemy combatants instead of criminals
  • Drone strikes in lieu of arrests
  • Extrajudicial killing of citizens
  • No need for gumshoe investigating (since everyone’s phones are tapped anyway)

The only additional challenge for the player would be the extra long travel times because you’d need to wait in line longer at the airport scanners.

Until then, there’s this:

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Give Credit Where Due

Rachel M. Zahorsky, “Law School Closings and Changes to Student Loan Bankruptcy Laws May Be Ahead, Says Former Dean,” ABA Journal.

Former law school dean at Nebraska and Houston, Nancy Rapoport, favors bankruptcy reform for student debtors. This is important because law professors are usually more interested in discussing the need for reforming legal education for new students than addressing the debt problems of recent (and not-so-recent) graduates, to say nothing of current students. I’m not sure if this is because they think the issue is simple—that everyone should realize the debt should be dischargeable or if they think this isn’t their problem. The ABA, for its part, frequently proclaims “IBR for everyone,” and hopes that the government doesn’t notice how much law schools cost it.

A few thoughts:

(1)  I haven’t done comprehensive research, but there have been some cases in which people were able to discharge their student loans despite the “undue hardship” exception, contrary to the single technical case Rapoport mentions. That doesn’t mean it’s readily doable, but it’s either making a gamble on filing an adversary proceeding or a scorched earth strategy of sequential Chapter 13 filings. The tougher call is advocating for bankruptcy reform for those who are up to their eyeballs in debt but are still able to pay on it without serious reduction in their living standards. I suppose we’re fortunate we don’t have to worry about that? Not much of a benefit if you ask me.

(2)  I like how she puts it, “Even if [the graduate employment statistics] were true at the time, they aren’t now.” Sure, the statistics probably pass internal and external validity tests, but are they relevant to what applicants want to know? I’d say no.

(3)  I like how the first day of the American Bankruptcy Institute’s meeting on reforming Chapter 11 included Congresspeople sounding alarms on student debt. How many corporations have education debt?

(4)  Rapoport believes that only a few schools at the bottom of the hierarchy will close. I think she bases this on what information the applicants get, which suggests that many schools that should close won’t.

(5)  This passage: “You have to balance that against- This is the government’s money for the most part; they really like getting paid back, and they don’t want to create a moral hazard where people- What used to happen is you’d go to medical school and you’d get $400,000 of debt, you file for Chapter 7 and you walk off clean. They don’t want that anymore, but there has to be a happy medium, and I keep thinking of the show Northern Exposure, where the doctors go into these underserved areas, and they work off their debt. If there were a way to work off the debt for the government, maybe that’s a compromise, but what’s not viable anymore from any perspective, is going to be people running around with this kind of debt that will haunt them for the rest of their natural lives.”

If the government wants to play private sector bank it must play by private sector rules. When I max out a credit card gambling in Las Vegas, or if I mismanage a company into the ground, the law says to my creditors that they’re sophisticated parties and they should’ve known better than to loan me money, not to mention that it might not be my fault that I may’ve lost the ability to pay down the debt. However, this is America, where we love our banks so much that we don’t think they should be burdened with those pesky things that make capitalism work, like “risk.” Thus, if you don’t want medical students to discharge $400,000 in student loan debt, don’t lend it to them. Now, that hasn’t happened since the 1970s, it certainly wasn’t six figures of debt, and it was exceedingly rare. Rapoport should’ve mentioned that.

As for Rapoport’s happy medium (Northern Exposure, great show), rural America doesn’t require hundreds of thousands of lawyers. Moreover, those lawyers need to be paid for their work. Even if we subsidize legal aid—and we should!—that’s not going to put the government that much further ahead.

Finally, too often we think of solutions for excessive student debt, specifically government debt, as a free lunch to debtors. We have to come up with a “fair solution!” Both sides must compromise! Aside from what I said above about government reaping private sector benefits without paying the costs, the problem is that this is still too narrowly construed. Government’s purpose is to maximize national income, not revenue. When people claim that the government is “making money on student loans,” even if we assume its accounting rules work (and I don’t, nor does the CBO), it’s not! Really! If the government borrows at 0.5% and lends at 3.4% or 6.8%, the interest is money that’s not spent in the real economy, which means people aren’t employed, and—watch this—they don’t pay income taxes. There’s a real sacrifice here, trading revenue for national income, and it’s not worth making. That doesn’t mean the government should cancel all debts it’s owed, not that doing so would reduce any non-debtor’s standard of living one bit, but it does mean that these compromise solutions and happy media aren’t genuine compromises.

March 2011: Economists Discover Tuition Increases

It’s really not as glamorous as it sounds. The main impetus for the discussion is the November election. Candidate Obama said:

“We’re putting colleges on notice: you can’t assume that you’ll just jack up tuition every single year … If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.”

Meanwhile, candidate Romney responded to a question about college tuition by a high school senior who, as far as I’m concerned, is the frontrunner for the “millennial of the Year” award:

“Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Paul Krugman—an economist I like but who has so far ducked the student debt question and does so again here—lays into Romney.

“For the past couple of generations, choosing a less expensive school has generally meant going to a public university rather than a private university. But these days, public higher education is very much under siege, facing even harsher budget cuts than the rest of the public sector. Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent.” (“Ignorance is Strength,” New York Times)

Here’s what he’s talking about, from Digest of Education Statistics data.

Since the early 1980s recession, there’ve been two broad humps in tuition increases, caused by cuts in state subsidies to public universities, coinciding with the next two recessions. I have two problems with Krugman’s characterization of the situation.

(1)  Cost is important, but spending is more important (in the long run). Digest data indicate that our 4-year public undergraduate institutions have increased spending per student by 5.5 percent between 2003 and 2008. I wish I could find longer term data easily, but I’m guessing it’s grown as public universities have tried to keep up with private ones. For instance we see this in legal education where state law schools like Michigan charge $46,800 for residents and Virginia $44,600 as well. These law schools are public in name only and should be treated as such.

(2)  The problem of subsidizing state schools boils down to whether the state needs the graduates and whether they stay in the state. Sure, adjacent states often have reciprocity agreements, but that doesn’t do a whole lot of good if jobs have moved south and west over the years or if the degrees provide questionable value to the state. Again in legal education, last week I questioned the point of public law schools. There isn’t much demand for new lawyers, and they’re not bound to staying in the state anyway, which is actually an argument for state rather than national accreditation for public law schools. Worse, even if we were to take the moderate view that some public legal education is necessary, some states have far more public law schools than they need, e.g. Ohio, which has five public law schools out of nine total.

We can contrast Krugman’s editorial with an article by Alex Tabarrok (“Tuning in to Dropping Out,” in the Chronicle of Higher Education)

“Our obsessive focus on college schooling has blinded us to basic truths. College is a place, not a magic formula. It matters what subjects students study, and subsidies should focus on the subjects that matter the most—not to the students but to everyone else.”

Tabarrok (who, let’s be honest, also has a badass name) is right, though I prefer comparing education to the mushroom power-ups from Super Mario, which I never really played because I’m not into console games. We can observe Mario growing when he eats the mushroom, but we never know what properties in the mushroom cause his gigantism. Same holds for education: it correlates to higher wages, but there’s no reason to believe that classroom learning directly causes this.

…Which leads us to our last economist, Robert H. Frank, who argues that taxing higher incomes will reduce the motivation of people to go to college based on salary outcomes via prestige:

“We might consider taking more direct aim at the component of tuition inflation that is attributable to growing salary gaps. Raising taxes on top salaries would be a good idea for American society in general, and not just for higher education. It would not only shrink the effect of salary disparities, but would also generate some much-needed revenue.” (“The Prestige Chase Is Raising College Costs,” in the New York Times)

I’m not sure if low income taxes on the wealthy is the precise cause of income inequality, but Frank, who, like Krugman, avoids discussing student debt, is right. If we actually cared about creating living wage jobs for productive young people, then college would be one path for people who are a good fit for it and not a toll booth on the road to “the middle class.” Spending and costs would drop accordingly.

In the meantime, we still have the candidates’ comments. Romney, like all spiteful Republicans believes that debt should be permanent, which makes sense since he’s a member of the class that carelessly lent the money and believes living wages and full employment are optional. With direct loans he’s not, as the tax burden has been shifted from him to poor people. The joke, if there is one, is on him. Obama’s solution to joblessness is to double-down by sending everyone to college and then throwing them into Income-Based Repayment. He’ll be able to get it both ways: college education remains sacrosanct in American ideology and no one goes broke because of it. Policy solutions that include everyone and offend no one are essentially political Enron accounting: the CFO lifts the problem from the books in the hope that it solves itself before catastrophe strikes. Except it does, leaving Obama’s successors to clean up his mess after he’s retired.

Good luck to Romney’s high school student until then.

(Fine, here’s some Mario…)

Two Worlds, Side by Side: ABA Journal & Letter from Law School

I received a letter from my law school subtly informing me that my name would be placed on “the permanent donor wall located near the entrance” if I gave a gift or commitment of $5,000.

The same day, the ABA Journal published Bill Henderson’s article titled, “The Law School Bubble: How Long Will It Last if Law Grads Can’t Pay the Bills?” in which the author writes in a section called, “ENDGAME”:

“Given the likelihood of some form of curb in federal student lending, there are gut-wrenching times ahead for law schools—even those that continue to enjoy a surplus of applicants … [T]he U.S. Bureau of Labor Statistics acknowledges a shortage of [doctors and dentists] and a growing glut of lawyers. Further, the Bureau projects that these shortages and surpluses will continue over the next decade.”

I don’t bring this up to attack my law school specifically—mine’s not alone in asking for alumni donations—and it’s no secret that my dollars are better spent on rent, groceries, and Screaming Trees’ discography than to have my name placed on a wall for vanity’s sake. Rather, I wonder aloud if lawyers who do have the disposable income and the class/professional/generational identity will gift their law schools money after reading Henderson’s argument that law schools are over-enrolled, overbuilt, yet devouring excessive amounts of federal debt money nonetheless.

I have four thoughts on Henderson’s article.

(1)  The law graduate surplus is not new. Here’s how Henderson characterizes the situation:

“Youthful overoptimism, bleak job prospects for college grads and the entry of several more universities and for-profit businesses into the legal education business are some of the root causes for the supply-and-demand imbalance in entry-level lawyers.”

The Bureau of Labor Statistics wrote in 1996:

“During the 1970s, the annual number of law school graduates more than doubled, outpacing the rapid growth of jobs. Growth in the yearly number of law school graduates tapered off during the 1980s, but again increased in the early 1990s. The high number of graduates will strain the economy’s capacity to absorb them.”

I repeat this point once again because (a) it still shocks me, and (b) it not only illustrates the scope of the law school bubble, but it also speaks to the ABA’s carelessness. Although I wrote last week that the Association’s Section of Legal Education’s accreditation system doesn’t cause tuition hikes, that doesn’t mean it’s blameless for the situation the profession is now in. The ABA was in the best position to inform the public that there were too many law graduates and it could’ve encouraged existing law schools to taper enrollments while dissuading universities from initiating new programs on frivolous justifications. It may’ve even been able to hamper enrollments by requiring more undergraduate prerequisites the way medical and dental schools do. These steps might not’ve worked, but contrast them to the ABA’s current ideology, which to this day has been to encourage access for anyone at any cost.

Now, the costs are coming in, and worse, otherwise excellent economists tell us that the ABA is greedily engineering a lawyer shortage contrary to the evidence. Catastrophe and ignorance do not combine for effective solutions, and the ABA will now have to manage both.

(2)  Speaking of the ABA, Henderson hints at the question that’s been slowly festering: Will the ABA, ED, and Congress throw indebted law grads under the bus?

“Although IBR may be viewed as a boon to law students, law school graduates may view it differently—15 percent of their monthly income paid over more than half of their career span is a severe burden, especially if the sought-after gains in earning power fail to materialize…”

“Still, scrutiny by the scamblogger movement and legal and mainstream media may speed up the process. One plausible outcome has the Education Department using its accreditation authority to force law schools to demonstrate, as a condition of receiving federal loan money, a minimum threshold of employability and income upon graduation.”

I’m more in the boon category than Henderson. When I enrolled, law school debtors had to make the monthly payments or watch the interest capitalize onto principal forever, so I still see IBR as better than the world without it. Plus, it’s now 10 percent of disposable income, and I’m guessing that a lot of people who have a few kids will see their monthly payments drop to the level of a utility bill they don’t discuss. They’ll worry about the income tax issues later, but that’s a long way off and there is an insolvency exclusion in the tax code.

Still, his is a fair point: there is no justice in forcing someone to pay a debt for something they cannot directly use. The whole point of student debt is to increase human capital more quickly so the economy can benefit from it sooner. If there is little human capital created or it’s unnecessary, then it’s morally wrong to force people to pay a cent for their degrees. Such is the risk of making unsecured loans.

However, look at Henderson’s prediction of ED more rigorously regulating law schools. What does this do for “Andrea,” the twice laid-off 2009 law school graduate the article uses to illustrate the problem? Sure, fewer law grads in the future shrinks the bottleneck and increases the present value of her law degree, but even if that were to happen tomorrow, are we really supposed to believe that lawyer salaries will rise to the point that she’s making payments on a 25-year monthly plan and not on IBR? It’s unlikely to happen, which is why we should be leery of partial fixes. Unfortunately, I doubt the ABA will start advocating for those it’s effectively abandoned. It should.

(3)  Speaking of solutions, we have a law school dean who does not like them:

“Mark Grunewald, interim dean of the law school at Washington and Lee University, thinks any blanket restrictions on federal student lending would be disastrous and unfair. ‘There are real differences among prospective law students’ economic circumstances, and new blanket restrictions on lending could hurt those most in need of financial support,’ he says. ‘It’s also unclear what the legal employment market might look like after a general economic recovery. Market forces may ultimately prove to be a better corrective.’”

Washington and Lee’s tuition has grown 35 percent over the inflation rate since 2004, above $40,000. Three years then buys two years today with no discernable increase in quality. Between 2004 and 2010, its full-time student-faculty ratio dropped roughly 18 percent to 9.5. Washington and Lee could easily provide cheaper legal educations without risking its accreditation, but it chooses not to. If Dean Grunewald were serious about ensuring access, he could persuade W&L’s Board of Trustees to invest in its students by giving them free legal educations conditioned on them paying 10 percent of their salaries back for 10 years. If this causes Washington and Lee to lose money or close, so be it. It’s not the federal government’s problem if a law school doesn’t increase human capital.

But the part that riles me is the “blanket restrictions on federal student lending” being “disastrous and unfair.” Does Dean Grunewald also think the blanket restriction on discharging student debt is “disastrous and unfair”? I bet not.

(4)  Henderson writes:

“Unless the government’s actuarial assumptions on student loan repayments turn out to be correct, federal funding of higher education is on a collision course with the federal deficit.”

It’s worse than this: the government knows its actuarial assumptions are wrong. The Congressional Budget Office directly told Congress that its accrual accounting methodology overstated the revenue of student loans, and when it used fair-value accounting it found the government loses 12¢ on the dollar on average over the next decade. This is without including IBR in the mix, so we’re looking at somewhere around $120 billion in losses on top of the drain on the economy that comes from zombie-debtors making good on bad debts rather than spending on houses and kids toys.

The CBO adds:

“The costs of income-contingent repayment, or of loan forgiveness or forbearance, are generally higher on a fair-value basis than under [accrual] accounting, because borrowers are more likely to take advantage of those opportunities in economic downturns, when the value of the forgone payments is greatest. (Page XI)”

I hope the student debt write-down Henderson writes about isn’t far off, but until then our lawyers are left with two worlds, side by side. In the one hand, the dean’s letter and the name on the wall near the door? Or in the other, Bill Henderson’s shameful law school debt factories?

I choose Screaming Trees.

(Oh, and this is my 200th post. Yay!)

Discredited Cooley Arguments Just … Won’t … DIE!

Today’s installment of law school zombie arguments comes from none other than Nelson Miller, dean of Cooley’s branch campus in Grand Rapids, who asked for an editorial slot on The Careerist, operated by Vivia Chen, who writes, “[H]e wanted to present a view that’s ‘data-based.’” Miller then presents data that are wholly irrelevant.

Data shows that the recession affected lawyers less than others, and that lawyer employment prospects remain strong. According to the U.S. Bureau of Labor Statistics, lawyer unemployment rose from 1.1 percent in 2007 to 1.9 percent in 2008 and 2.3 percent in 2009 but fell to 1.5 percent in 2010.

Now, my ego isn’t bruised if people decline to read my refutations of Cooleyist arguments here on the LSTB, but, well, I mean. Dude. The Careerist is owned by American Lawyer Media, which not two months ago published a very direct refutation of Dean Miller’s same arguments that lawyer unemployment data are useful to tell us anything about law school’s value. *sigh*

One the bright side, Dean Miller drums up a few new claims to refute, so don’t call Bruce Campbell just yet.

From 2000 to 2010, the economy created another 123,000 lawyer jobs while adding only 7,000 unemployed lawyers. Employed lawyers grew by 39,000 from 2007 to 2010 across the recession.

These numbers should immediately raise alarms. One sentence earlier, Dean Miller states that 1,040,000 lawyers worked in the U.S. According to ABA data, between 2000 and 2010 (11 years), 455,529 people graduated from an ABA law school. That means 332,529 lawyers would’ve had to’ve left the field in the previous decade, or 32 percent turnover. I’m no labor expert, but that sounds high for an industry that requires entry costs of three or more years of formal education and much debt.

But my favorite part is when Dean Miller says:

Negative media has discouraged applicants from pursuing a law career path that holds good employment prospects. Law school applications usually increase during economic downturns and decrease in periods of economic growth. Indeed, during the recession, applications rose 3.8 percent for the fall of 2009 and 1.5 percent for the fall of 2010. However, with a recent onslaught of negative publicity, national applications for the fall of 2011 nosedived. The preliminary figure is down 9.9 percent.

I’ve only seen one other law school dean say something like this: Larry Kramer of Stanford University in an alumni letter posted on Inside the Law School Scam. The argument is a dizzying shift from law school faculty and admissions personnel saying that the recent drop in applicants signifies that all the greedy Millenials who apply for the “wrong reasons” and would be awful lawyers no matter what the circumstances are now deciding against going to law school, and that now only those who are pure of heart (and are therefore destined for greatness) are applying. Nevertheless, I’m surprised when the dean of Stanford essentially says scam bloggers and journalists who see blood in the water are depriving America of its vitally necessary legally educated workers. When the Dean of a Cooley branch campus says the same thing? Not surprised.

Yet the core question is not what is good for lawyers or new law graduates … lawyers and their firms contribute substantially on their own to the national and global economies … I strongly suspect that we will continue to need them in a world that every day grows more complex, sophisticated, challenging, and uncertain.

No, the core question is what’s good for student debtors and taxpayers. Law schools create debt that taxpayers will be forced to cover, and law schools cost the economy in terms of labor output. We will not need new layers to handle the more complex world because contrary to popular perceptions the world is not becoming more complex. The vast majority of the U.S.’s GDP is and ever will be domestic consumption. The volume of international trade we have today is due to China undervaluing its currency and the U.S. borrowing money to overpay its own healthcare system, cut taxes on rich people, and spread democracy by invading other countries. Will we need more specialized lawyers? Very likely, but not even close to 45,000+ per year.

I used some strong language when discussing Cooley’s “Report One,” but I stand by it: Dean Miller is either “willfully misleading readers into believing the legal profession will provide jobs for law students,” or he is “irresponsibly ignorant.” Today, I’m guessing it’s the latter.

Two Quick Comments on David Segal’s Portrait of Richard Matasar

(1)  Law schools cannot self-terminate.

I suppose it’s safe to say that when NYLS dean Richard Matasar stepped down, I was easier on him than David Segal is in today’s NYT piece, “Law School Economics: Ka-Ching!” My personal opinion that I realized after I published my piece is that if you want to be a reformer who acts against your own interests, you must show some noblesse oblige. That means you do not criticize your peers’ practices while making half a million dollars off your students’ debt. You take a voluntary pay cut to show that you are serious, and you make enrollment cuts like Albany Law School supposedly did over the last decade. If you get ousted, you go back to teaching. At some point one must be willing to lose for one’s principles. Matasar’s ineffectualness/perceived hypocrisy never surprised or shocked me. To me it’s obvious that non-Ivy League law schools have no hope of internal reform without losing their place in the U.S. News rankings and by consequence access to high LSAT-scoring applicants, for they should realize by now that the legal education system has over-expanded and will certainly contract. If they’re not going to make symbolic gestures personally, reformers at lower status law schools might as well save their breath and tell the board of trustees that it’s time to close up shop.

(2)  Demand for legal education and demand for lawyers is not the same thing. One must fall.

Segal writes:

[T]here’s no business like the business of law school. The basic rules of a market economy — even golden oldies, like a link between supply and demand — just don’t apply. Legal diplomas have such allure that law schools have been able to jack up tuition four times faster than the soaring cost of college. And many law schools have added students to their incoming classes — a step that, for them, means almost pure profits — even during the worst recession in the legal profession’s history.

It should be clear: demand for lawyers is separate from demand for law degrees, and the ABA’s goal of law as an elite profession contradicts its concurrent goal of law as a democratic profession open to the masses (especially minorities, which is the ABA’s biggest insecurity). That’s the basic problem, and as J-Dog opined before taking a blogging break, the irreconcilable conflict entails the solution: Either:

(a)   A Gorbechev figure takes over at the ABA and initiates law school accreditation perestroika that circumvents antitrust concerns: minimum LSAT score requirements, mandatory experience in a legal position, or mandatory undergraduate course streams. Such reforms would smash the legal education system, and enrollments would fall to what they were in the 1960s. Law remains a selective, elite profession.

(b)  Water down legal education requirements (especially the costly wasteful ones) to the point that nearly anyone can get a law license provided they meet certain minimum criteria. Law becomes a democratic profession.

Until some kind of formal change is adopted, expect more legal education volatility: wary applicants, warier bondholders, and defiant law school behavior (like Vermont’s increasing its tuition and LL.M. students to compensate for declining JD enrollment).

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