‘After the JD’ Offers Weak Evidence of JD’s Value

…Is up on The Am Law Daily.

And now ladies and gentlemen, the band called Death.

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This band’s interesting story is the subject of a documentary titled, A Band Called Death, that’s on Netflix.

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.

Internet Era Has Neglible Effect on Legal Sector Productivity

…Is an unusual finding I made a while back, and it’s a reason not to go to law school. You can read about it on my most recent Am Law Daily article:

No, It’s Still Not a Good Time to Apply to Law School

In the meantime, I saw the Breeders last week, the night before my lecture at The Henry George School of Social Science, which went well thanks for asking. The Breeders are probably the only early ’90s band I’ve had any real interest in seeing. (The Pixies were a bit before my time.)

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I was standing probably 20 feet east by southeast of the bootlegger of this video. I was behind a tall young man wearing a bright orange tuque, indoors. I think people who do that should be arrested and given the indelible mark of the hipster.

The best part of the video is that it’s titled “Canonball,” meaning it complies with Church doctrine.

‘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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No Bubble, Just ROCK!!! Vol. 7: Government Shutdown Edition

Mellow is the Bubble

I’m working on law school tuition data right now, so there won’t be too many posts for spell, but in honor of legislative obstinacy, I give you two contributions in honor of government.

First, continuing the Talking Heads kick from a couple weeks ago:

Second, here’s one from the Magnetic Fields.

Cynics will appreciate line, “It’s not the people doing something real.” That’s 1999 for you.

Unsave the Date

For those of you paying attention to my Am Law Daily posts, at the bio blurb at the end I would note that I will be speaking on student loan debt at the Henry George School of Social Science in New York City on September 27, 2013. I hadn’t announced it here because it hadn’t been finalized.

…Which is fine because it’s been postponed until a later date for various reasons.

I’ll let y’all know when it is rescheduled.

In the meantime, here’s Martha Reeves and the Vandellas running through an auto plant.

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‘Law School Tuition Will Rise Despite Applicant Nosevdive’ on The Am Law Daily

Law School Tuition Will Rise Despite Applicant Nosedive

[MINI-UPDATE: In the article, I mentioned that the University of Arkansas still had its 2012-13 tuition rates posted as of the time of the dean's Bloomberg Law interview. As of September 4, it still hasn't been updated.]

I’ve been listening to this song on repeat, which I guess means I like it. I saw Fear of Men in New York City in June. Good show, but no one bootlegged this song for some reason.

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LSTB Is on Holiday

I’m taking a rare vacation, which may hamper blogging. In the meantime, outgoing Illinois State Bar Association president John E. Thies has written a letter to the editor at The Am Law Daily criticizing my article on state bar association proposals, “State Bar Proposals Fail to Address Law Students’ Woes.”

The good news is I have little quarrel with Thies as even he recognizes at the end of his letter. We agree on some of the means to reform but not the reasons, which is important but not important enough to dedicate an enormous number of mental clock cycles in rejoinder, and since I didn’t make any material misstatements of fact in my article I’ll spare The Am Law Daily any corrections. (They can thank me later.)

(1)  My argument was indirect, but I think my examples illustrated that the Special Committee claimed debt created a price floor. In fact, its report said “EXCESSIVE LAW SCHOOL DEBT DECREASES THE QUANTITY AND QUALITY OF LEGAL SERVICES AVAILABLE TO THE PUBLIC.” That sure sounds like a price floor to me. Then in his third paragraph, Thies agrees with me that the “public’s ability to pay” is keeping lawyer earnings down, which makes the rest of his letter confusing. Is he agreeing with me or not?

(2)  As for Thies’ examples of attorneys’ employment choices due to debt. They should have access to IBR/ICR (more on that below), and in some situations it sounded like the employers wanted experienced lawyers, not recent graduates.

(3)  Thus, Thies presents an economic theory stating that low-skill lawyers are discouraged from the profession by debt, creating a long-term shortage of high-skill lawyers. It sounds to me that when demand is slack for lawyers, new graduates don’t get hired. Indeed, this has been going on for a while as the profession is graying. As Thies and I agreed (I think), poor people are poor. This causes lawyer unemployment.

(4)  Regarding IBR and interest capitalization, 20 U.S.C. 1098e(b)(3) says that so long as the debtor has a “partial financial hardship” interest does not capitalize onto principal, which applies to the lawyers Thies mentions. Once someone no longer has a PFH, then the interest gets capitalized, but that’s when IBR essentially turns into a 10-year repayment plan. If anything, Thies’ lawyers would be better off staying at lower-paying jobs to prevent interest capitalization. (I guess the trick is to defer compensation until after the loans are canceled. Talk about bad incentives.)

The Department of Education prints this too. Only Illinois’ three public law schools’ graduates had less than $100,000 in disbursed debt on average at graduation as of 2012. Even U of Illinois’ was $95,830. These debtors will have to fork out $8,500 per year on a 25-year repayment plan unless it’s a graduated plan. Good luck to them if they can afford it, but they’ll almost certainly choose IBR since they’re either unemployed or it costs them less in the long run thanks to cancelation.

(5)  My fear isn’t of the John E. Thieses of the world but of the kinds of people who will be whispering the Philip Schrag (or worse Simkovic and McIntyre) argument into legislators’ ears that we’re wrong about student loan debt so keep shoveling the law schools money. (Better yet, pay the law schools up front and the government will recoup the costs by income taxes.)

(6)  It’s asking a bit much of the Special Committee, but why do graduates from NIU and SIU have less debt yet poorer outcomes than other Illinois law school grads? If that’s so, then it’s time to consider shutting them down because they’re unnecessary. And if U of Illinois is going to charge $38,500 (2012) for in-state students and defraud the ABA just to maintain its place in the U.S. News rankings, then it’s abandoned its public mission and should be shut down too.

Now for some ROCK AND ROLL!!!!!

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Okay it’s soul, but the video is genius.

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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