Dean Baker Misses the Law School Tuition Bubble

You may know that economist Dean Baker of the Center for Economic Policy and Research is one of my inspirations, and he frequently criticizes major media outlets for failing to report on the $8 trillion housing bubble, e.g. “The Washington Post STILL Has Not Noticed the $8 Trillion Housing Bubble.”  He does, however, harbor dismissive views towards legal professionals.  Elsewhere, he’s included lawyers with doctors and others as professions that argue for “free trade,” (cheap foreign or immigrant replacement labor) just not for themselves.  Thus, I’m unsurprised that after reading Slate’s article, “A Case of Supply v. Demand,” he titled his response, “Lower Cost Legal Services: Why Isn’t That a Good Thing?

In fairness, he uses the Slate piece as a prop for attacking media outlets that tout globalization’s benefits:

Those who celebrate the low cost imports from China and the benefits of cheap immigrant labor should also be celebrating the fact that legal services should be costing us less in the future, unless of course they are partial to the relatively affluent types who tend to [end] up as lawyers.

I say “in fairness” because neither I nor any other legal industry reformer I know of “celebrates low cost imports” beyond our day-to-day lives.[i] I also can’t recall a Slate column (besides Mickey Kaus?) stridently advocating free-trade-working-class-be-damned globalization.  It even gave Timothy Noah two weeks to conduct an excellent analysis of income inequality in the U.S., which found international trade responsible for 10% and immigration responsible for 5% of the country’s unequal income distribution.  As a result, I don’t see Slate as a publication especially “partial to the relatively affluent types who tend to end up as lawyers.”

I have a few specific problems with Baker’s above quote.

  1. Will legal services cost us less in the future? I lack an economics background, but there’s a difference between saturation and over-saturation.  I, and I’m sure everyone else, is fully in favor of a saturated legal sector.  If it’s over-saturated, who does that help?  Prices stop dropping once lawyers who can’t break into the profession end up in different industries, losing three very productive years along the way.  That’s not good for the economy, nor does it help recipients of legal services.  It certainly doesn’t help if the government loaned students $120,000 for degrees they aren’t using and can’t afford to pay back.
  2. Are lawyers relatively affluent? Decreasingly so, and I think Baker falls into the trap of seeing D.C. lawyers who’ve been out of law school for 20 years strutting around for lobbying firms as the typical lawyer rather than the haggard small firm practitioner depicted in But I Did Everything Right’s first Xtranormal Video.  The Slate article rightly reported on recent lawyers because their relative inexperience and more expensive degrees hamper their long-term career prospects.
  3. Baker’s post (and more significantly the Slate piece) misses the law school tuition bubble. The price of legal education has increased well above inflation for many years, mainly for larger faculty and faculty salaries (often well into six-figures).  Excessive debt burdens on younger people hamper any economic recovery because these professionals were “supposed” to be the ones buying houses for raising families.  True, since 2009 law students can fully fund their legal educations with income-based repayment on federal loans, but this just shifts the tuition to taxpayers.  In 25 years graduates would then have to pay income tax on the forgiven debt, likely amounting to $200,000—enough to wipe out their life savings.

If the juris doctor’s labor market value plummets below its cost, and few of its newer holders can find jobs in the legal field at commensurate salaries, then the legal education system is creating structural unemployment in the U.S. economy.  This means that many law students and lawyers will have to be retrained in different fields, which will cost even more money.

Baker is right: cheaper legal services is a good thing.  Problem is, we’re there already, and now we have a tuition bubble that even Slate doesn’t adequately report on.[ii]


[i] Indeed, I’ve even taken the moderate view on outsourcing legal work to India because if the work was too menial for attorneys to begin with, then the attorney oversupply problem was already manifest.  For example, Managing Partner of The Legal Dollar writes in a comment, “I have done outsourcing work with India, and frankly – it sucks. Actually, let me clarify – it sucks for anything that requires judgment. If you just need someone to stamp bates numbers, then it is just fine (and cheap). I don’t find it to be a substitute for attorneys. I DO find it to be a substitute for the domestic companies that we were using for bates numbering.”  I know Down by Law recently took the opposing view.

[ii] And no, I’m not saying this because they didn’t mention my blog.  I’m not that vain yet.

4 comments

  1. Dean Baker appears to be another mainstream economist, i.e. corporate cheerleader. The same mentality served Rome well, didn’t it?!

    Anyway, does this guy honestly think that it is good that lawyers are willing to take on an entire case for $300? I have seen this with my own eyes. At these rates, poor people EXPECT and DEMAND free legal advice. Yes, it nearly becomes an entitlement. How the hell is someone with $150K in non-dischargeable student loan debt supposed to repay that amount when he is taking on cases for such paltry sums?

  2. On the contrary, Baker was one of the first economists to warn of the housing bubble, was virulently anti-TARP, and wrote a book titled, “The Conservative Nanny State,” which you can read in full here: http://www.conservativenannystate.org.

    I rib him precisely because he’s good enough to know the problems with higher education.

  3. Hi Matt! Thanks for the shout-out!
    You are right the tuition bubble is very dangerous. Unfortunately, we are not good at looking ahead here in America. When you have a sizable percentage of people with student loans who are not going to be able to pay them off, then that cost is going to have to be absorbed somewhere. When the government (who is handing out the money and therefore should have the responsibility to make sure that it delivers a return for the taxpayer) fails to make efforts to ensure that the money is well-spent, fails to monitor the return on the loan dollar, fails to ensure that accurate information is being provided to people making decisions about whether to go to law school – then that loss is going to be borne by the country one way or another. Either by taxpayers who see their tax dollars being taken by law schools who are misrepresenting or negligently representing an opportunity and therefore profiting – or by a combination of taxpayers and the law students, because when that law student can’t get a job or remains chronically underemployed, then the law student’s future is buried under debt – and the taxpayers have lost out on a brillant mind that could have been very productive in a different situation if they had not been enticed by false promises and buried under debt.

    The current unmanaged student loan progam seems rife with abuse by those getting the money – and it does not seem to be delivering on its promise of a better-educated and more productive workforce. Taking $250K of taxpayer dollars to produce a law graduate that is unable to get a job and therefore can’t pay back the loan or contribute toward the country’s GDP and tax base is not a good investment and should not be allowed.

  4. Managing Partner, I always appreciate your insights.

    I suspect I’m more liberal than you are (I cherish Dean Baker, for example), but what gets me is that forgiving the near trillion dollars in student debt (and reforming the system) would be a win-win for everyone. Every bailout rescues the debtor AND the creditor. Unlike TARP, which saved bank executives’ bonuses, a student loan bailout rescues the taxpayers as well. Win-win but I fear people don’t see it that way.

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