Month: June 2011

Quick Link: National Law Journal Praises Richard Matasar as He Steps Down

Karen Sloan, “Reformer Dean to Step Down after Long Tenure at New York Law School,” in the National Law Journal

Sloan proclaims:

Matasar has been one of the few legal educators publicly supporting controversial proposals to change the American Bar Association’s law school accreditation standards, including removal of what many law professors interpret as a tenure requirement.

Matasar has argued that law schools need the flexibility to experiment with new ways of delivering legal education, including untenured faculties made up primarily of adjunct professors. Those views haven’t always been popular with legal educators who support the traditional model, and some have accused Matasar of pushing cost cutting at the expense of quality.

I’ve always been cautious about Richard Matasar. Yes, he was arguing against his own interests in articles like, “The Rise and Fall of American Legal Education,” while he “oversaw a $40 million capital campaign, the opening of a new law school building in Manhattan’s Tribeca neighborhood,” served on the board of the student loan company, Access Group, and in his tenure NYLS supposedly created a practice-oriented curriculum that costs as much as Harvard’s. But when he says things like this

Legal education does cost too much, Mr. Matasar said, mainly because it is “grossly inefficient.” Schools could cut costs by stratifying—offering, as a friend characterized it to him, a “Motel 6″ education with few bells and whistles, in which practicing lawyers teach many of the courses, as well as a “Ritz-Carlton” version taught by full-time, tenure-track professors. Neighboring schools could share library, faculty, and other resources, he said, adding, “Does every law school need an expert in the law of Timbuktu?”

…I would get annoyed. Legal education costs too much because law schools are wholly dependent on the student loan complex. The government loans in particular are a privilege, not a right. If the head of the Department of Homeland Security said, “Yes, we’re grossly inefficient, we’re really redundant to the Defense Department, but we still deserve our full budget from tax dollars,” she’d be fired and DHS would be reassessed. By contrast, law schools can charge whatever they want without any duty to the taxpayers transferring their wealth to them and subsidizing their graduates’ IBR plans. He would also sometimes rebuke law firms for not hiring graduates from non-elite law schools even though the legal profession would do just fine if NYLS closed its doors. Indeed, I have hearsay evidence from an NYLS lawyer that Matasar is in favor of shutting down law schools. One wonders why he thinks NYLS would be exempt, or more cynically, whether he thinks it isn’t and he’s jumping ship.

Quick Link: EMSI Mostly Gets It Right on Attorney Overproduction

[UPDATE: The New York Times Economix blogger, Catherine Rampbell has reposted EMSI’s findings. Unfortunately, she does so uncritically.]

Joshua Wright of Economic Modeling Specialists, Inc. has generated his own calculation of attorney overproduction. Readers may recall that I did something similar here. I should say that he’s measuring overproduction of licensed attorneys while I look at the number of graduates. Here are my thoughts:

(1) EMSI comes to more optimistic conclusions than the BLS and state governments do. Over the 5-year period it surveyed (2010-2015), it found that nationally, the economy will produce 26,239 job openings per year. The BLS calculates 24,400 while state governments (less South Dakota) project only 19,470 jobs annually. I do not know if EMSI projects full national employment in its target year as the government does, but if it didn’t that would be cause for celebration.

(2) For my purposes, the number of bar passers is irrelevant. People who don’t pass the bar or take many years to pass it are a serious problem the legal profession is avoiding, especially since there’s a likely correlation between LSAT performance and bar passage, meaning many law schools know or should know their applicants will have difficulty passing the bar yet accepts them anyway. Bar passage numbers do give us an idea of where people end up after law school, but it’s not the most accurate measure. The ABA has updated its National Lawyer Population by State document, which counts attorneys who are “active and resident.” This is better than bar passage rates because it counts lawyers where they’re living and not in the potentially multiple states where they’re taking the bar.

(3) There are other pitfalls for focusing on bar passage rates. For instance, Wisconsin, Nebraska, and D.C. are the only states not overproducing lawyers by that measure. However, Wisconsin has diploma privilege and people can waive into D.C. if they pass elsewhere.

One of the criticisms my graduate overproduction research received was that people move around a lot, even though I explicitly stated that I wasn’t measuring that. EMSI’s research does a good job responding to that criticism, but it doesn’t anything new.

Law Schools Oblivious to Applicant Nosedive

As you can see, I’ve been on a law school input kick recently, completely accidental. Although I’ve been aware of the LSAC Volume Summary for quite a while, the ABA’s chunk of the Official Guide also provides some numbers going back to the 80s (it’s completely wrong about the total number of LSATs in the 2010-2011 cycle though). This discovery along with a fairly good analysis about law schools reducing their enrollments by a few dozen at Inside Higher Ed, has prompted me to take another look at what’s happening. Here’s today’s pertinent quote:

Applications to law schools dropped about 11 percent this year after a spike last year. The reason behind this decline has been debated, with some individuals arguing that students took note of the grim job market and balked at taking out significant loans to pay for a legal education. Others argue that applications for law schools, like those for business schools, tend to be counter-cyclical. Individuals seek professional degrees when they don’t think there could be better options in the workforce, and spike in recessions. Between 2008 and 2009, the number of individuals taking the LSAT jumped from 151,398 to 171,514, according to the Law School Admissions Council. But with some economic recovery in 2010, that number receded to 155,050.

As I’ve written before, things are more complicated than people think.

Here’re a couple better graphs than the one I published last week.

I’m not going to labor through correlation coefficients again, but look at how little applicants per capita has increased in the wake of the financial collapse. As the second graph shows, we hit peak law school applicants in the previous recession in the mid-2000s, though law schools increased their incoming classes in the 2009-10 and 2010-11 school years. However, the 1L bump is only slightly higher than the mid-2000s’ and still lower than in the late 1980s and early 1990s, even if we must accept that it is more destructive now due to higher tuition rates and poorer long-term employment prospects. Nonetheless, claims of an “explosion” in law school enrollments over the last decade are exaggerated, and from a macro level the enrollment reductions we’re hearing of are cosmetic. So far.

The Inside Higher Ed article did blow it on one important point: it claimed applications are down 11% this year. Actually, the WSJ article it links to said that as of March 2011, applicants are down 11.5% compared to March 2010. This is more significant because as the second graph above shows, the number of applicants hasn’t really grown a whole lot. Here’re the actual numbers:

Applications surged (partly, I suspect, due to an increase in electronic submission practices by 2004, but perhaps law schools also nixed early decision processes); applicants did not. Check out the ratio:

So what’s really been happening is applicants were sending out more apps while their numbers were stable. Now, they’re decreasing. If we assume the 11.5% holds, then we’re looking at a reduction from 87,900 applicants in 2010 to 78,834 in 2011. As I write this, the Census clock estimates 311.6 million U.S. residents, leaving us 2.53 applicants per 10,000 residents, which is below the 1985 nadir, a record low. That’s significant because higher education administrators think prospective applicants are only “getting the message” now. As the WSJ relays:

“When the economy first went down, students saw law school as a way to dodge the work force,” said Ryan Heitkamp, a pre-law adviser at Ohio State University. “The news has gotten out that law school is not necessarily a safe backup plan.”

At Fordham University School of Law in New York, applications this year are down 15%, and those applying “appear to have analyzed the investment in law school closely and are serious about pursuing a career in law,” said Carrie Johnson, a school spokeswoman.

This is my favorite:

Kent Syverud, dean of the Washington University School of Law in St. Louis, where applications this year declined more than 11%, said it was a good thing prospective students now were more “clear eyed” about the risks and rewards of a law degree.

“The froth in the applicant pool—those who were just going to law school because they didn’t know what else to do and everyone told them it was a safe bet—is pretty well gone,” he said.

For the record, Dean Syverud’s “froth” between 2008 and 2010 was only 4% per capita. By comparison, the 2001 to 2003 froth was 26.5% per capita.

The statements above, of course, should be taken with great skepticism. How do law school deans know the motivations of those who choose not to apply to law school? (There’s a koan for you.) How many potentially brilliant legal minds have wisely chosen to avoid the floundering legal academy? Why should we believe that current applicants are nobler in their intents than those staying away? And why did law schools increase their enrollments 5% per capita between fall 2008 and fall 2010 when they knew or should’ve known that some of their applicants were merely trying to avoid unemployment?

Law schools want the public to think the evil, greedy prospective law students are staying clear. Instead, they should be worrying about when this applicant nosedive will affect their bottom lines.

The Unofficial Guide to the “ABA-LSAC Official Guide to ABA-Approved Law Schools”

The LSAC and ABA websites have posted portions of the 2012 edition of the ABA-LSAC Official Guide to ABA-Approved Law Schools. The LSAC’s two-page spreads of each of the 198 JD-conferring ABA law schools is here; the remainder of the Official Guide is on the ABA’s website here. The Official Guide is a great resource for people researching the U.S. legal education system. It is not, however, without its pitfalls, and it can mislead the unwary because even the notes preceding the LSAC “spreads” in chapter 13 (pp. 69-71) are unclear. For the information I consider most important, a few things to keep in mind:

(1)  “Tuition and Fees” and “Living Expenses” data are from the 2010-2011 school year

(2)  “JD Enrollment and Ethnicity” data are taken from the fall 2010 except the “JD Degrees Awarded” subsection, which are those who graduated in the 2009-2010 academic year, i.e. by the previous May.

(3)  Similarly, “GPA and LSAT Scores” is for the incoming class in fall 2010, the class that will graduate in May 2013.

(4)  “Employment (9 months after graduation)” gives us a loose idea of May 2009 graduates’ fates. Quote of the day, “The employment percentages are based on the graduates whose employment status was ‘known.’ Hence, for the schools reporting a large percentage of graduates for whom the employment status is unknown, the percentage reported may not be a very accurate reflection of the actual percentage of the class as a whole.” (71)

(5)  “Bar Passage Rates” is the cumulative first-time bar passage rate for all takers in the calendar year of 2009, so it includes 2008 (and prior) grads who waited until 2009 to sit for a bar exam and 2009 grads who took it after graduation in May 2009.

(6)  “JD Attrition (from prior year)” refers to the period between October 2009 and October 2010, so generally the 2009-2010 academic year. “Transfers” is similar, the 2009-2010 academic year.

The general rule is that unless otherwise specified, you’re seeing data from the fall 2010, and any “(from prior year)” is from the fall 2009.

For those of you still reeling from the Villanova scandal, the Official Guide states this about how it compiles these data:

The two pages of numerical data about each school were compiled from questionnaires completed during the fall 2010 academic semester and submitted by ABA-approved law schools to the ABA’s Consultant on Legal Education as part of the accreditation process. The completed questionnaires provided to the Consultant’s Office are certified by the dean of each law school. Each certification is submitted to the Consultant’s Office as an assurance that the information provided accurately reflects prevailing conditions at the law school for which the certification is given. The Consultant’s Office, however, does not directly audit the information submitted by the respective institutions on an annual basis. (69)

One wonders what a dean’s certification is worth.

I’m not sure if the ABA published the non-law school specific section of the Official Guide in the past, but Chapter 12, which summarizes fall 2010 law school data, will be quite the boon for me. I intend to revise the long-term tuition information and tuition projections in the LSTB’s “pages” section over the summer.

Open Source Law School?

A few weeks ago, Richard Vedder asked whether we could take advantage of all these technological advances of the last half-century and sell education for a fraction of the cost we do today:

[W]hy doesn’t someone—say, the Gates Foundation—hire 100 or so stellar professors in 20 disciplines to offer perhaps 150 to 200 absolutely superb courses online, with testing administered by an outside agency (say, the ACT, SAT, or Underwriter’s Laboratories)? Even paying each professor $100,000 per course and allowing for 100 percent overhead, this would cost $30- to $40-million. There would be some expenses for administration and a need to redo lectures every few years, but the whole thing is within the financial capacity of several foundations in the private sector. The upshot would be that a student taking about 32 of the courses would have the equivalent of a B.A. degree, and it could be offered to the student free (with modest per-student private or government subsidies) or at very modest cost.

In pre-Higher Education Act America the only playback devices most Americans had were phonographs. Vinyl might be nice for audiophiles (I can’t tell the difference), but it’s obviously too cumbersome for distance education. With the advent of YouTube? Different story. Yet would Vedder’s idea work for legal education?

Certainly. Legal ed is a ripe target for this kind of innovation and deservedly so. Much of the coursework is geared towards rote memorization of theories of liability and defenses identical to portions of a bar exam, and even legal writing courses can be taught remotely (though I have a special place in my heart for legal writing instructors because their courses are down-to-earth). Moreover, it would be fairly cheap to do as well given how glacially many substantive areas of the law move. Anything more would require tailoring the lectures to state-specific circumstances.

When proposals to make the legal profession cheaper and more accessible emerge, one common criticism is that it’ll open the floodgates to even more unnecessary lawyers. Such concerns miss the point. Our priorities lie first in the consumers of legal services and second in ensuring that practitioners are educated as efficiently as possible so that they can leave the law easily if it’s not a good fit for them or if the economy tanks. I can’t speak to our success at the first, but we’ve failed at the second. Ideally, experience in the profession would precede education, which is a substantive change to the legal education process I believe is necessary notwithstanding its current problems. Supply and demand will correct the overproduction problem in the way that it does not today.

The other counterargument is that people who go to conventional ABA law schools are more likely to pass bar exams and be more qualified attorneys than those who don’t. However, the University of La Verne experience suggests enormous selection bias is at work: those who have the mental aptitude to pass a bar exam are the most likely to go to a highly-regarded ABA law school, for they earn prestige admitting those students and the students receive a prestigious diploma in return. I may test this in the future, but contrary to its intent, the LSAT appears to be an excellent predictor of bar exam success, which if true suggests that lesser-regarded law schools know or should know that they are admitting students who have a poor chance of success. The open source law school model helps prevent this immense waste of time and resources, but we should recognize up front that this model would likely wipe out numerous law schools. I’ll defer to Macchiarola and Abraham’s response to that criticism.

No one should be overly sympathetic to the plight of these schools; expensive, lower-tier schools in their current form never represented a good deal for non-upper income students to begin with. (130)

Don’t expect the tenured faculty of the AALS to endorse this idea anytime soon, but it’s certainly better than shoveling taxpayer dollars to universities.

La Verne’s Lessons

[UPDATE: The National Law Journal reports that UC-Irvine received provisional accreditation while Elon University and Charlotte School of Law both received full accreditation from the ABA]

The news is in, and as predicted, the University of La Verne lost its provisional ABA accreditation. La Verne’s administrators argue that it was improving, for its first-time bar passage rates went from 34% in July 2009 to 53% in 2010. This is a substantial improvement, though La Verne couldn’t’ve been responsible for it since all these students graduated at the same time in May 2009. Also, the 53% refers to the 7 out of 12 first-time takers in February 2010 while more recently in July 2010, 46.7% (35/75 first-time takers) passed.The ABA’s accreditation standards are remarkably clear on the topic, and you can see its extensive rules in Interpretation 301-6 and Appendix 3. Since I don’t have data on the bar fates of all of La Verne’s graduates, I’m going to assume the ABA followed its standards, yet even if we ignored them and took La Verne’s claims at face value, this still isn’t a glass half-full story of the ABA following its own rules and holding a law school accountable for its poor performance. Rather, it’s a glass half-empty story of the indie California legal education system’s tolerance for widespread bar exam failure.

Consider the results table for the July 2010 CA Bar exam:

California’s own law schools do far worse than the ABA ones, and La Verne was a California law school; it was founded in the early 1970s and sought ABA status only in the last decade. It just kept behaving like a California school. Look at La Verne’s LSAC data. We can see its incoming students didn’t have the best LSAT scores, which resembled those of California’s least-regarded ABA law schools, but they did improve over time:

Incoming Class 75% LSAT Median LSAT 25% LSAT
2005-2006 150 148 147
2006-2007 154 150 149
2007-2008 153 151 149
2008-2009 155 151 149

(I exclude GPA data because they’re a wash: in the age of grade inflation, we have no idea what La Verne’s students’ grades meant, especially when majors and institutions’ reputations differ so widely.)

You can criticize the LSAT for all sins under the sun: inaccurately prophesying law students’ potential (perhaps poor scorers have good business acumen or leadership skills), inaccurately assessing first-year performance (law school classes have narrow LSAT ranges and grade on curves), etc., but it’s safe to say that if you can sit for five hours and fill a few hundred bubbles on a Scantron sheet correctly, you’ll probably be able to do the same on the MBE portion of a bar exam. The eyeball correlation between California’s ABA law schools’ US News rankings and their bar passage rates bear this out, for US News leans heavily on LSAT scores to evaluate law schools (though admittedly bar passage rates factor in too so there is some feedback). Six of California’s ABA law schools had below average bar passage rates (<68.3%) in July 2010 for first-time takers, and all but San Diego report LSAT scores similar to La Verne’s.

Law School ’07-’08 75% LSAT ’07-’08 Median LSAT ’07-’08 25% LSAT ’07-’08 Enrollment ’05-’06 Enrollment
Golden Gate 155 153 151 654 759
Southwestern 157 155 153 1,011 964
Thomas Jefferson 152 149 147 792 770
Whittier 155 N/A 151 506 673
La Verne 153 151 149 354 265
Total 3,317 3,431

Ultimately, most of this was La Verne’s fault. Upon reaching provisional ABA status, La Verne’s enrollment went from 265 in 2005-2006 to 392 in 2008-2009, nearly 50% increase. Meanwhile, tuition for full-time students went from $30,810 to $36,320 (+17.9%). Neither of these moves was warranted: required bar passage rates are based on percentages not a headcount, and tuition inflation isn’t necessary because US News doesn’t rank provisionally accredited law schools.

So what went wrong for La Verne? The answer is obvious: The university expanded too quickly and took in too many students who didn’t have a good chance of passing the bar. At best, it would’ve achieved rates such as Golden Gate’s, Southwestern’s, Thomas Jefferson’s, and Whittier’s. The lessons to take from this are:

  1. If California’s deregulated system is to offer an alternative to the ABA’s selective one, it has to show better results or change the metrics. That may mean moving from a generalized bar exam to multiple exams for specialized practice areas, or it may mean requiring universities to place an equity investment in their students to prevent enrolling applicants who have a low likelihood of obtaining a license, or it could even mean shifting even more heavily to an apprenticeship model than it already does. However, masquerading as ABA-lite with poorer performance on existing metrics is embarrassingly wasteful.
  2. La Verne’s experience is a fluke that does not signify the end of ABA law schools as we know it. There may be too few people with bar exam aptitudes living in or willing to move to Ontario, CA, or it was competing in the wrong market, that is, against TJSL, Whittier, etc. Nonetheless, so long as proposed law schools entice small numbers of quality students over opening their doors to anyone who can pay increasing tuition, they’ll make the ABA’s cut. Expand after full accreditation, not before. Therefore, since UC-Irvine’s inaugural class has a median LSAT of 167, expect its students to pass the CA bar and for the school to receive ABA accreditation without worry. Unlike La Verne, Irvine’s strategy of siphoning off standardized test-savvy applicants from the California pool has a better chance of success than competing with the glutted 153 LSAT market. Although, we’ll see whether Irvine’s more recent classes that aren’t getting free rides are similar caliber. Whether any of them will have jobs on the other hand…
  3. And now the rub: if LSAT performance correlates highly with bar exam performance, then, pray, what value does law school really add? Wasn’t the original point of law schools to train students to pass the bar? The term “law school” suggests that’s the case. Either the people who go to the best law schools could’ve just self-studied their way into passing the bar, or it doesn’t measure the value-added that law schools provide in which case we’d need a better exam. Regardless, if we’re going to keep our top-heavy legal education system as it is, rather than accredit law schools based on bar exams beyond their power and after occupying three years of their students’ lives, the ABA could just save everyone the trouble and require a minimum LSAT score for admission. Instead, the ABA is taking the opposite steps by allowing law schools to admit applicants who don’t take the LSAT.

La Verne, of course, plans to seek expedited reapproval for provisional accreditation, so this is not the last we will hear of the Inland Empire’s lone law school.

The 2011-2012 LSAT Year Begins

I didn’t realize the June 2011 LSAT administration occurred a week ago. I await the numbers, but we can expect them to be depressed as they were last year due to widespread knowledge of the legal education system’s failures. Before the LSAC’s chart is updated though, it’s time to put the numbers in context, particularly because the LSAC doesn’t account for population growth. Take a look.

(Note that the LSAT year is that of the February test date’s. The Civilian Employment-Population Ratio (CE-PR) is the reading at the beginning of the calendar year.)

There are several interesting facts about this graph:

  • The peak LSAT year was 1991, followed by 1992, 1990, 1989, and then 2009. 2011 was similar to 2009, 2004-05, 1994, and 1988.
  • Oddly, the CE-PR and the number of LSAT takers tracked each other somewhat until 1992. The Pearson correlation coefficient is only -0.344.
  • As we’d expect, for the most part, LSAT takers grow along with unemployment. From 1992 to 2008, the Pearson correlation coefficient is a whopping -0.959.
  • Starting in 2009 the correlation breaks down. In 2009, the increase in LSAT takers doesn’t correspond as tightly to the CE-PR as before, even though tons of jobs were lost in 2008, and in 2011, as we know, the trend reverses with LSAT takers declining along with the employment rate. From 2009 to 2011, the correlation is -0.473.

Despite 2009-2010 being a peak LSAT year, the data may actually be hiding a “scamblogger effect” beginning at that time. This both is and is not surprising. On the one hand, we wouldn’t expect people to consider law school if they didn’t think there’d be any jobs; on the other hand, given the stagnant CE-PR and the fact that many prospective students can wholly finance legal education (and some living expenses) with loans eligible for income-based repayment, we can wonder if some 0Ls are pragmatically stalling for time as the economy improves (it’s not).

Bear in mind that with a CE-PR this low, the short-term opportunity cost of going to law school is almost negligible, contrary to the badly mutilated ROI calculation David Van Zandt came up with that the ABA as well as others frequently tout in its “Value Proposition of Attending Law School” document (omitted opportunity cost = $60,000 per year (HA!)). Herwig Schlunk’s vastly more accurate calculation uses salary numbers from that are around $30,000 per year, but I think as of 2011, the real opportunity cost of attending law school for today’s college graduates is lower than that because income gained by slaving away at the “McJobs” of 2011 is less than the living costs included in a Grad PLUS loan. I discourage anyone from going to law school just because IBR exists, but I wouldn’t be surprised if it starts happening.

Anyway, the 2012 LSAT year is on. Happy Summer.

Quick Link—ABA Death Spiral?

From TaxProf Blog, “ABA to Continue as Law School Accrediter, Despite Noncompliance With 17 Regs,” via The PresTTTigious Legal “Profession”.

[S]everal members of the [National Advisory Committee on Institutional Quality and Integrity, Dept. of ED] expressed reservations about approving that status for the ABA, which was found to be out of compliance with 17 regulations, including the need to consider student-loan default rates in assessing programs; to solicit and consider public comments; and to set a standard for job placement by its member institutions.

Arthur E. Keiser, chancellor of the Keiser Collegiate System, said that an accrediting agency would not accredit an institution with 17 outstanding issues. “There is a real concern that this agency doesn’t get it,” he said. Anne D. Neal, president of the American Council of Trustees and Alumni, was one of three committee members who opposed the motion to continue the bar association’s recognition, saying that she had no confidence it would be in compliance within a year.

I have no idea whether 17 noncompliances is a large number in the world of accreditation, but what disturbs me is that we have no idea how long the ABA has been out of compliance. How old are these particular regs? It doesn’t consider student loan default rates when accrediting? Then again, that probably won’t matter so much in the era of IBR.

The last point, setting a job standard, is an interesting one. I thought it was optional and not required. Optional because it says so in 34 CFR 602.16(a)(1)(i):

§ 602.16   Accreditation and preaccreditation standards.

(a) The agency must demonstrate that it has standards for accreditation, and preaccreditation, if offered, that are sufficiently rigorous to ensure that the agency is a reliable authority regarding the quality of the education or training provided by the institutions or programs it accredits. The agency meets this requirement if—

(1) The agency’s accreditation standards effectively address the quality of the institution or program in the following areas:

(i) Success with respect to student achievement in relation to the institution’s mission, which may include different standards for different institutions or programs, as established by the institution, including, as appropriate, consideration of State licensing examinations, course completion, and job placement rates. [Emphasis LSTB]

This is some of the most gummed up text I’ve read in my life. I think it means that the ABA can regulate law schools (“as appropriate”) by their job placement rates the same way it can by bar passage rates. The latter reason being why it may rescind the University of La Verne’s provisional accreditation in the next few weeks.

However, the ABA doesn’t care about job placement rates, and if I were to hazard a guess it’d be because so many graduates can’t get jobs until after they pass a bar exam, which is the origin of the arbitrary “Employment at Graduation + 9 Months” metric that transparency advocates tell us is sufficient to inform prospective law students of their potential decades-long career earnings as attorneys. If the ABA has a year to develop guidelines for establishing a job placement standard, it’s probably screwed, or at least it deserves to be screwed. Even if we were to magically start creating two million jobs a month, there would still be more law graduates than necessary for the U.S. economy. Law school overcapacity leaves the ABA with the task of determining exactly how many unemployed graduates law schools should be allowed to produce before losing accreditation.

Which is absurd. One would think that given the subsidies law schools receive (national accreditation, nonprofit tax status, direct government subsidies/grants, and access to student debt) that number would be zero. However, given what we know about attorney overproduction in the United States, that would involve demanding the law schools slash their enrollments in half (or more to compensate for the Third Depression) lest they lose their accreditation.

Instead of commenting on this, the law professors involved spent their time criticizing the specter of tenure lost.

The bar association also got a negative review from a group of legal faculty members, the Clinical Legal Education Association, which accused the ABA of considering changes in its standards that would “strip important protections of academic freedom and faculty-governance rights … by eliminating tenure and security of position for deans and faculty members,” according to written comments submitted by the faculty group.

Readers may recall last March when the President of the Association of American Law Schools, the University of Houston’s Michael A. Olivas, wrote the ABA’s Hullett “Bucky” Askew to criticize these changes to the accreditation rules. It’s the biggest argument from incredulity I’ve seen since “Intelligent Design” creationism (“We can’t believe there can be legal education without tenured faculty producing law review articles at $100,000 a pop!” ), and, obviously, it’s funnier too:

One way to think about the overall body and effect of the proposed standards is to step back and ask whether, under the proposed standards, an open-access bar review course could be accredited as a law school if it also offered lectures about on-line research and traditional lawyer values, had student papers graded by people who had never met the students, and assigned each student to one field placement based “course,” taught and supervised by an adjunct. If not, what provisions of the proposed standards would preclude such a diminished educational opportunity? (3)

Professor, allow me to play gunner and answer your question:

The onus is solely on the law schools to demonstrate that they add value between college and the bar exam (where applicable). If they do not do this, then we should strip them of their privileges and subsidies.

We can quibble about the efficacy of bar exams at weeding out the incompetent (say, vs. diploma privilege), or the necessity of college education, but the fact that the faculty are more concerned with their tenure than job placement rates suggests that they’re indifferent to being held accountable for over-enrolling law students. If they’re cognizant of the problem at all perhaps they believe that if there is an enrollment reduction, the non-tenured faculty will be excused, not them. We’ll have to pay attention to the job placement standards the ABA creates and what the law schools think about them.

I doubt the ABA will be quietly defrocked by an ED committee for noncompliance next year, though it would be a sudden, amusing anticlimax to the ABA’s sclerotic accreditation program.

Consumer Credit Update (2011 June)

It’s the fifth business day of the month, which means the Federal Reserve has updated its G.19 Release, its estimate of outstanding consumer credit. One problem the U.S. economy faces is that consumer credit is growing faster than the economy. While the G.19 Release doesn’t quantify how much nonrevolving debt is student debt, it is very likely that any increases in that category is attributable to student loans because of the near impossibility of discharging them in bankruptcy.

I intend to report these updates monthly. This first one is important because I covered the topic of increasing nonrevolving debt relative to GDP recently.

First, the revised first quarter 2011 numbers are in. Link here to the preliminary ones. I only republished the Fed’s annualized growth rates, which are imprecise.

2010 Q4 r 2011 Q1 p 2011 Q1 r
Total $2,407.3 bln 2.1% $2,425.5 bln 3.0% $2,421.9 bln 2.4%
Revolving $800.6 bln -3.1% $796.1 bln -2.3% $791.1 bln -4.8%
Nonrevolving $1,606.7 bln 4.7% $1,629.4 bln 5.6% $1,630.9 bln 6.0%

The good news is revolving debt (which is almost exclusively credit card debt) contracted more than in the preliminary estimate. Unfortunately, nonrevolving debt increased faster than in the preliminary estimate. 6.0% is a lot, and worse, it’s accelerating on a quarterly basis.

Government holdings of nonrevolving debt did not change, and all other holders of nonrevolving debt still saw a decrease between February and March.

Here’s what we get in April.

2011 Q1 revised 2011 April preliminary
Total $2,421.9 bln 2.4% $2,428.2 bln 3.1%
Revolving $791.1 bln -4.8% $790.1 bln -1.4%
Nonrevolving $1,630.9 bln 6.0% $1,638.1 bln 5.3%

As for holdings of nonrevolving debt, only two holders’ quantities increased (annualized rates are mine):

March April (preliminary) Annualized Increase
Commercial Banks $481.9 bln $487.3 bln 14.3%
Government $355.2 bln $359.4 bln 15.1%

This is a big change in direction for commercial banks, which had seen their holdings decline starting first quarter 2010. Government holdings did not increase by as much as in the past. I predict it will tick upwards later in the summer when new student loans will be issued per the Direct Loan program, which superseded the guaranteed loan program mid-2010.

Contrast all this with the BLS’s Employment Situation release, which reported a net growth of 54,000 jobs in May 2011. More debt in April; few jobs in May. Not good.

Income Elasticity: Why The ABA is Not an Apolitical Trade Organization

Writing on lawyer oversupply and demand for legal services Andrea Hable concludes:

[M]aybe we’re framing the question wrong. Maybe there are too many lawyers for the legal profession as it stands today. But maybe there aren’t too many lawyers for society. If we all practiced more efficiently, and if we could have our ideal jobs without the burden of student loan debt, we might find there’s enough legal need to keep us employed and fulfilled.

Aside from the impossibility of increased practice efficiency creating more lawyer jobs, my opinion is that it’s still more column A than B, but getting there requires the elites of the profession to address one issue they’re ignoring (attorney overproduction) and another issue they really, really, really do not want to address: income elasticity of demand for legal services.

When it comes to attorney overproduction, the evidence is clear: universities open and maintain law schools without regard to economic demand, and the assembly-line mentality of legal education—that Rosie-the-Riveter law school professors can manufacture practice-ready attorneys like B-24s—is proving flawed. Experience and judgment cannot be taught, specialized work requires specialized training, and no amount of hands-on skill-building/clinical training/mentorship creates jobs.

The second problem, income elasticity, is much subtler. We can look at the BEA data and conclude that real demand for legal services has largely stagnated since 1990, save for the dotcom and housing bubbles. We also know that in the last few decades Americans’ incomes have diverged. Thus, Americans have less money to spend on lawyers. Why? As people’s incomes change, so do their spending habits. For example, when people make more money, they use less public transportation. It could be that when people aren’t making as much money, one of the first things they stop buying are legal services, and the alternative to hiring a lawyer to resolve a legal problem is making do without one or suffering the adverse consequences. I am persuaded this is the case.

Notice that I didn’t bring up student debt as Hable does because (IBR aside) it isn’t relevant to income elasticity: Your student debt isn’t your clients’ problem any more than your office rent is, and clients can demand a discount or shop for someone who isn’t as heavily indebted or who has better office lease terms. Student debt is a problem for lawyers because it makes their labor inelastic: those making good incomes in biglaw don’t have good alternatives to their current positions. (The high cost of legal services could be due to price signaling, as J-Dog illustrates, but again, that has nothing to do with student debt.) Instead, if there are no jobs for lawyers, they’ll work in other fields that pay better or more consistently, which could very well be food service. There’s no shame in seeking subsistence-level non-legal work instead of opening a doomed practice. That’s more the profession’s failure than yours.

Legal profession elites claim that the solution to income elasticity of demand for legal services is a lawyer glut, supply-side economics at its finest. However, if legal services are a necessary good, then we must conclude that they must be paid for collectively, i.e. by the government, in the same manner as fire protection. The ready solution to both oversupply and income elasticity, then, is to redirect existing subsidies from law schools to a public legal aid system and to promote full employment so clients can be wealthy enough to afford legal services.

However, the profession avoids this idea. Why? Because advocating full employment politicizes the profession. Demanding public funding to serve the poor and demanding poverty alleviation are political demands that coincidentally benefit the legal profession, and trade organizations such as the ABA don’t want to appear to favor some broad public policy measures over others because that would entail admitting that the legal profession has a large stake in the U.S. economy. This is something that a “noble profession” wishes to rise above.

Notice that I used the term “appear” politicized, for in fact, the ABA is already politicized, just not for serving the poor. For example since Hable brings up student debt, the ABA spent late 2009 and mid-2010 crafting and adopting Resolution 301, the executive summary of which states:

This resolution addresses the problem by calling upon Congress, the Executive Branch and/or Commercial Lenders to convert private debt into federal loans, which offer more flexible repayment options; and identify federal funding to cover interest payments for graduates who defer loans because of economic hardship. It also calls for more flexible repayment terms for federal law student loans. [Emphasis LSTB]

Converting private debt into federal loans is a discreet way of requesting the same government that issues subprime student loans to law students to bail out banks that also made bad law school loans outside of the federal lending program. Nowhere in Resolution 301 or its supporting documentation did the ABA use the word “bankruptcy.” It didn’t even bother to mention that the undue hardship exception was only completely extended to private student loans in 2005, implying that it didn’t advocate repealing that reform.

Obviously the ABA does not have an economist-in-residence who might point out that advocating full employment and bankruptcy reform would benefit the legal sector, and we shouldn’t expect the ABA House of Delegates to take on the attorney overproduction problem without saying, “Yup, we done messed up big.” However, we are well within our place to question whether the ABA seriously cares about helping the poor, whether as student debtors or as those who need legal services. Or both.