NYT Supports Private Student Loan Bankruptcy Reform, Protects Financialized Dept. of ED

After trashing for-profit universities, the New York Times editorial, “Relief for Student Debtors” adds this:

It had long been the case that federally backed student loans were protected during bankruptcy proceedings. That is reasonable, since those loans were backed by taxpayer dollars and flexibly structured so that borrowers could receive deferment in tough times and resume payments when their finances improved. The country has a compelling interest in making it as difficult as possible for student borrowers to elude payment for federal loans.

Sort of. Congress extended the “undue hardship” exception on federal student loans into perpetuity in 1998. Before then, the law required people to wait seven years before discharging federal student loans. Even then, the exception has always been a solution in search of a problem. Default rates in the late 1970s never reached 1% when it was first enacted. Contrary to the Times’ belief, the bankruptcy restrictions obscure the fact that the government has a far more compelling interest in (a) ensuring consumers have purchasing power (economic growth), and (b) using its money towards productive purposes, which is the inherent problem to government lending because it is by definition taking on a greater risk than the private sector is willing to. Otherwise, normal banks would be making the loans themselves.

As a result of this “crowding-out per se,” the government tries to protect its inherently high-risk investment by changing the bankruptcy code, but that makes borrowers debt zombies, which runs contrary to the purpose of increasing their productivity through education. So the government sways the opposite direction, creating hardship deferments and income-based repayment programs, but then it starts losing more money on the loans while universities live high on the hog until at some point, tuition increases so high that the Direct Lending Program could be replaced with a cheaper, more effective national university system. The New York Times Editorial Board does not understand the Hegelian ouroborous Congress spawned by financializing the Department of Education. I suspect it will take a few more years until it and other mainstream media do.

In other news…

I eschewed the news on Hurricane Irene and favored the National Hurricane Service’s reports.  The whole time the government predicted it’d be a severe tropical storm by the time it hit NYC, so I wasn’t terribly worried–mostly annoyed that Bloomberg shut down the subway system. On Sunday I strolled around and found a bar near my home that had this to say:

Now tropical cyclones talk to me through drinking establishments.

Speed Link: Brief Thoughts on Two National Law Journal Articles

(1) Nicholas J. Spaeth, “At law schools, age bias co-exists with outdated practices.”

Spaeth blames law graduate unemployment on the lack of skills law schools impart to them. He writes:

The current recession is, of course, a prime reason for the diminution in available jobs. But The Wall Street Journal article [“Law Schools Get Practical”] also correctly focuses on another major issue — the disconnect between contemporary law school education and the skills needed to be an effective, and therefore employable, lawyer … In short, law schools must change their model of instruction if they expect to see an increase in hiring of their graduates.

This is inaccurate. No amount of skills training creates jobs. The actual reason is that law schools are over-enrolled.

Now for a subtler opinion of mine: If you were a hiring authority, of course you want employees who don’t require additional training. We should expect this, and though Spaeth is completely right that legal education is theory-heavy and obsolete, the solution he proposes, more clinical training in law school, is the exact kind an employer would want. The workers seek their own training, on their own time, and the costs are shifted to the workers and taxpayers. Ultimately, the real solution is going to require more training at the workplace, i.e. apprenticeship of some kind. Employers will have to accept that they will have to do more of this kind of work, not law schools, and they shouldn’t be upset about it. Most job training occurs on the job.

The remainder of Spaeth’s argument on age discrimination at law schools is worth reading.

(2) Connecticut Law Tribune (CLT), “The New JD: Just Debt? Job Disabled? Justifiably Depressed?”

The CLT presents the opinion of Keith Bradoc “Brad” Gallant, president of the Connecticut Bar Association:

“What really troubles me is not so much the cost of law school,” Gallant said. “The question is, how do they pay for it? How do they get to the point where they’ve got this education and there are no jobs? It’s just such a tragic situation.”

I’m surprised President Gallant isn’t troubled by the cost of law school, for lower tuition would mean lower debt levels.

Another of the CLT’s statements bothers me:

One reason that law school loan repayment is a growing problem, according to a growing number of observers, is that many students enter law school with unrealistic job and salary expectations upon graduation. Much of the blame has been placed on law schools, which release figures showing how many students are employed a certain period of time after graduation.

Law students’ expectations have nothing to do with their (in)ability to repay their loans. The reason that law school loan repayment is a growing problem is that the loans are bankruptcy-proof while law schools overcharge their students despite receiving generous subsidies from society, and they are allowed to enroll without regard to demand for law degrees in the economy. Law schools are not entitled to national accreditation, nonprofit tax status, grants and subsidies, and access to non-dischargeable student debt. Loan repayment wouldn’t be a problem if we rescinded these privileges.

Compounding the problem for some law graduates and others is the fact that student loan debt is not dischargeable in bankruptcy.

Compounding? This sounds like the source of the problem.

Andrew D. Balbus … said he believes federal government spending and borrowing policies will ultimately lead to an economic meltdown. “It’s going to be a gigantic problem,” Balbus said. “Imagine that we finally have a big recession; when that recession ends you have almost a generation of students, law and others, who will have no jobs and no way to satisfy those debts.” [Emphasis original]

For federal loans it’s not a problem at all: the solution is to cancel the loans (think of them grants). The federal government wouldn’t suddenly go bankrupt. It is not a bank; it doesn’t make money on debt. It makes money by taxing, borrowing, and printing money (all the same really). Canceling the loans would merely be cutting its losses on a bad investment. The upside would be economic recovery, which would lead to higher tax revenue. Would a federal loan cancelation be popular? Of course not. Not because it wouldn’t work but because it would mean helping zombie debtor lucky duckies and the macroeconomy rather than the folks who brought you Citizens United.

In addition to the ABA call to make loan payback easier, U.S. Sen. Dick Durbin, D.-Ill., and others are pushing legislation that would allow college graduates to discharge private loan debt in bankruptcy. Federal loan debt would still be non-dischargeable to protect the government’s investment in education [wealth transfer to universities at taxpayers’ and students’ expense].

I’ve already written on the ABA’s resolution this article refers to. You can read it here.

WSJ Op-Ed Brings Shock Doctrine to Law Practice

The Wall Street Journal provides space for Brookings Institute fellows Clifford Winston and Robert W. Crandall to publish their op-ed titled, “Time to Deregulate the Practice of Law.” Fuller text available at TaxpProf Blog. The authors use a fictitious attorney shortage and failing legal education system to advance their legal profession deregulation agenda. I’ll limit myself to the second and third paragraphs, and underscore the claims to which I’ll respond.

Is there really an excess supply of lawyers? The Senate Judiciary Committee is investigating the subject while the New York Law School and the Thomas Cooley Law School in Michigan are being hit with class action suits claiming that they fraudulently inflated employment statistics to lure prospective students. But the solution proffered by many in the legal community—to put new limits on entry into the legal profession—is not the answer and will make the problem worse over the long term.

The reality is that many more people could offer various forms of legal services today at far lower prices if the ABA did not artificially restrict the number of lawyers through its accreditation of law schools—most states require individuals to graduate from such a school to take their bar exam—and by inducing states to bar legal services by non-lawyer-owned entities. It would be better to deregulate the provision of legal services. This would lower prices for clients and lead to more jobs.

1). Yes Winston and Crandall, there is an excess supply of lawyers. Winston and Crandall cite no evidence showing this is not the case, just that the ABA accredits law schools and that most licensing authorities grant its system a monopoly; therefore, there must be a shortage. Had they realized that demand for legal education and demand for legal services are entirely separate, they would know that the ABA-accredited law schools have been over-enrolled for decades. There are roughly 1.5 million working-age juris doctor holders in the U.S. and just over half of them were employed as attorneys or judges in 2008. Today, that number is likely lower. This is an important point because if there are more people who could practice than are doing so, the question is why the bottom hasn’t fallen out of the legal sector due to practitioner surplus. In other words, “The reality is that many more people could offer various forms of legal services today at far lower prices,” but they’re choosing not to. Answering why this is the case requires a more nuanced approach than simply calling for deregulation.

2). Almost no one in the legal profession argues for enacting new limits on entry into the profession. I can only think of three people who’ve contemplated artificially limiting the number of lawyers via the law schools. The first is Mark Greenbaum, who suggested in his LA Times editorial that the ABA shut down “unneeded law schools.” To which ABA president Carolyn Lamm shot back that artificial limits would risk “antitrust concerns.” The second is Stephen Bainbridge, who argued for unilaterally shutting down one third—revised upward to one half—of the law schools. The third was Bill Henderson’s prediction in the January New York Times article by David Segal, that a public authority will intervene and shut down “a bunch of lower-tier law schools.” Bainbridge conditioned his solution on the existing entry barriers such as law schools and bar exams; Henderson has said elsewhere that he favors deregulation of some legal services. Thus, Winston and Crandall’s “many in the legal community” offering artificial shortages as a solution to the juris doctor surplus are essentially nonexistent.

3). The ABA does not “artificially restrict the number of lawyers through its accreditation of law schools.” First of all, the ABA doesn’t even place informal limits on how many people enter its law schools (such as minimum LSAT requirements and required undergraduate course streams), and no one accuses the ABA of stingily granting accreditation. Second, as fun as it is to bash the ABA Section of Legal Education, it doesn’t create lawyer licensing requirements but merely executes its mandate from the Department of Education that law school curricula be uniform nationally in schools choosing to participate in its system. Whether we like the substance of its regulations is a separate matter (we don’t). State bar authorities can allow other avenues to legal practice, and some do, such as California, where law licenses can be purchased relatively cheaply if not quickly. States can walk away from the ABA whenever they want to, which leads Winston and Crandall to their laughable accusation that the ABA “induces states to bar legal services by non-lawyer-owned entities,”as though the ABA has Nosferatu-like powers over bar authorities and state legislators.

4). Deregulation might lower prices but it won’t create jobs. Let’s begin with the questions, “Are legal services too expensive? And if so, why?” We know legal services are a free market and there is no shortage of lawyers. Buyers can shop around and demand discounts. We also know that legal services have become more expensive relative to inflation. Behold:

So the cost of legal services has nearly tripled since 1986 while the CPI hasn’t even doubled, and though the gap between them grew more in the last decade than in the preceding 13 years, it’s starting to narrow, especially in 2011. What caused this increase? It could be regulatory fees like malpractice insurance and CLEs, or legal publishers are gouging law firms, or large law firms may be overcharging their clients with excessive billable rates (the recent revelation of profits-per-partner juking by law firms fighting over their rankings comes to mind). As every legal education reformer worth listening to knows, the entry costs to legal practice are borne by lawyers and taxpayers. Lawyers who include their entry costs/debt as overhead will be outcompeted by those who paid less personally. Your law school debt isn’t your clients’ problem any more than your choice to rent an oversized office or buy a gas-guzzling car is. Lawyers can try to sneak these costs past clients, pad bills, perform and charge for unnecessary tasks, but someone who went to a state school and took on less debt or lived a frugal lifestyle will outcompete the zombie debtor lawyer. In Winston and Crandall’s world, buyers can’t shop around or demand discounts because the sellers operate a cartel that bribes lawmakers into passing laws that invalidate self-drafted wills and criminalize pro se litigants. Yet they provide no evidence of law firm price fixing, which would be illegal nonetheless, and all evidence indicates there’s an excess supply of legal training, not a deficit.

To the authors’ credit, I’m sure a majority of attorneys would like cheaper or non-mandatory malpractice insurance, doing away with trust accounts, and elimination of CLE requirements, and since these costs are borne by all lawyers, they do raise prices. However, they have nothing to do with the legal education system. If Winston and Crandall limited their argument to these regulatory hurdles, they would be technically accurate, unless we thought these regulations prevent client abuse that licensing and unauthorized practice of law rules are meant to prevent.

As it is, the Legal Sector CPI increase can only price consumers out of the market if legal services has a unimodal cost system and that consumers purchase the same types of legal services in the same quantities. Clients can opt against hiring large law firms that exclusively hire Ivy League graduates if they think they’re overpriced. And guess what, they are doing exactly that as indicated by the declining gap between the CPI and Legal Sector CPI.

None of this is to say I’m against deregulating law practice (more like specializing?), but legal education reform won’t provide the kind of savings Winston and Crandall believe it will because the markets are unrelated. I certainly don’t think deregulation will result in net job growth because demand for legal services depends more on the real economy and personal incomes than on an attorney’s CLE fees.

Now you may be thinking, “Why LSTB, if you think restructuring the profession is a good idea, why are you arguing against Winston and Crandall?” Two reasons, dear reader: their opportunism and contempt towards their readers. Winston and Crandall are playing a trick on their readers (to say nothing of the Wall Street Journal’s editorial staff) to advance their agenda. They’re arguing:

Look! Everyone’s attacking the legal education system; ungrateful graduates are even—*gasp!*—SUING THEIR LAW SCHOOLS! even though they’ll all have jobs in the future because the ABA uses powers it doesn’t have to maintain an attorney shortage that doesn’t exist. Therefore, to reduce the cost of legal services, we need to wipe out the ABA system (even though it has little to do with the increase in the cost of legal services, and isn’t even a licensing authority) because we hate regulation.

They are not arguing:

The ABA system is costly to students and taxpayers; law school takes too long, there are way more than the economy needs, they don’t create practice-ready lawyers as its 19^th century progenitors promised, and oh my God, have you seen how much debt these students are taking on?? They’re never going to pay that down. Law schools are taking taxpayers for a ride. Therefore, we need to wipe out the ABA system.

Because it doesn’t further their goal of having non-lawyers at life insurance companies drafting wills. Instead, they both deny law school over-enrollment and use a besieged legal academy and the plight of student debtors to their advantage, none of which I can condone.

Wait, Did Cooley Expose Itself to Liability with Its “Report One”?

One thing I forgot to mention in my post about Cooley’s “Report One: National Employment” and then I’m off to the Mets/Brewers game.

Recall Cooley closed with this:

In sum, the data shows that the blogs and media segment have it almost completely wrong. Unbiased national data from the past ten years establishes that the legal profession has one of the lowest unemployment rates, one of the most stable job markets, and is one of the least susceptible to the effects of economic recession, making the legal profession one of the best career choices.

If you were a law school that just got hit with a lawsuit claiming you defrauded your students by enticing them with juked employment stats, should you really be publishing lines like these?

By the way, I already downloaded the pdf.

Cooley Embarrasses the Legal Profession with Its “Report One: National Employment”

The purpose of Report One is to insert the nation’s most authoritative employment data into the public dialogue about the national legal employment picture. Since the onset of the recession and during the slow recovery, this public dialogue has been dominated by bloggers and a small element within the media. According to their posts and stories, lawyers are largely unemployed, law school graduates have no hope for employment, and the investment in law school is not worthwhile. They assert that attending law school is a bad decision because of the lack of jobs, given the cost of legal education. Most of these assertions are anecdotal, unbalanced, lacking in factual support, and as Report One reveals, contrary to official U.S. employment data. (Report One: National Employment, page 1)

A reader sent me the link to a monumental face-palmer: Thomas M. Cooley Law School’s “Report One: National Employment.” As a blogger who does not (always) use evidence that is “anecdotal, unbalanced, and lacking in factual support” to show that lawyers are “largely unemployed, law school graduates have no hope for employment, and the investment in law school is not worthwhile,” I can tell you that Cooley’s efforts are unconvincing, and its defensive references to “the bloggers and media,” and the like are sure to entertain readers.

Readers may recall Cooley’s president, Don LeDuc, stating that the unemployment rate for lawyers in 2010 was 1.5% while legal sector unemployment stood at 2.7%, and the national rate was 9.6%. Now Cooley sneers, “These facts have been curiously absent in the public dialogue about the national legal employment picture … Both rates contradict the claims of high unemployment in the legal profession asserted by the bloggers and media.” I tried to find the exact unemployment number on the BLS’s website, but the best I could do was find it relayed by a Wall Street Journal article. In Report One, Cooley claims the data come from the Current Population Survey (CPS), but I can’t find the specific lawyer unemployment rate. Better researchers provide links to their data, so we will have to wait for Cooley to release the full version of Report One.

Cooley’s argument, of course (and I do mean of course), is full of holes. It vainly assumes that the legal profession is a closed system, meaning that everyone who completed law school before 2010 had a lawyer position waiting for him or her upon graduation. This has probably never been the case as demand for lawyers and demand for law degrees has never been connected since the ABA locked in its near monopoly on legal education half a century ago. Anyone who could not find their way into practice, and anyone who was forced into a non-legal career won’t be counted by the CPS as an unemployed attorney. This explains why the lawyer unemployment rate is “absent in the public dialogue about the national legal employment picture”: it is useless.

Report One also fails to tell us what the CPS thinks of self-employed attorneys. Is an ousted partner unemployed or self-employed? What shocks me about attorney unemployment is that Cooley should have some idea of what’s happened to its graduates. Are all but a handful of Cooley grads over the last thirty-some years employed as attorneys? Really?

I don’t usually criticize the BLS’s numbers about anything, but the employment rate for legal sector Cooley quotes from the CPS is way higher than what its “Employment Situation” provides. This is very important given Cooley’s claim that the recession didn’t damage the legal sector. Here’s what legal sector employment has looked like since 1990:

Note that the legal sector has stagnated since 2009. Unless radical compositional changes are going on, i.e. every clerk and paralegal is being fired in favor of a licensed attorney, there is no way a reasonable person can arrive at Cooley’s conclusions. Report One closes:

In sum, the data shows that the blogs and media segment have it almost completely wrong. Unbiased national data from the past ten years establishes that the legal profession has one of the lowest unemployment rates, one of the most stable job markets, and is one of the least susceptible to the effects of economic recession, making the legal profession one of the best career choices.

Here’s the counterargument from the side whose “assertions are anecdotal, unbalanced, lacking in factual support.” This is what the Bureau of Labor Statistics’ Occupational Outlook Handbook (OOH) said about lawyers in 2008.

“Job prospects. Competition for job openings should continue to be keen because of the large number of students graduating from law school each year.” “Keen competition” means there will be fewer job openings than applicants. The OOH said the same thing as far back as the Internet goes. For instance, of 1994 it stated:

Individuals interested in pursuing careers as lawyers or judges should encounter keen competition through the year 2005. Law schools still attract large numbers of applicants and are not expected to decrease their enrollments, so the supply of persons trained as lawyers should continue to exceed job openings.

The OOH says the same thing in every intervening year. It will say it again when the 2010 edition comes out.

The OOH also projects future growth, and it predicts that between 2008 and 2018, the U.S. economy will add 240,400 lawyer jobs. In spring 2010, 44,258 received juris doctors from an ABA-accredited law school. 440,000 graduates over a ten-year period is totally unsustainable. Neither of these data appears in Report One. Perhaps Cooley will provide a surrebuttal showing me how I “have it almost completely wrong.”

Cooley’s Report One is bad enough for its amateur methodology (and this is coming from an amateur), but to close it with sweeping conclusions about the stability of the legal profession and the value of legal education marks it as a true embarrassment to Cooley and the profession.

Quick Link: Don’t Rely on the New York Fed’s Numbers

The Wall Street Journal’s Justin Lahart created a chart from the Federal Reserve Bank of New York showing the cumulative percent change in consumer debt by type since Q3 2008.

I’ve seen the NY Fed’s numbers before. Here’s the site. The WSJ took the data from the “Total Debt Balance and Composition” graph to create the chart. Reading the report, people will note that the amount of student loan debt outstanding is a lot lower than what we hear regularly from other outlets, particularly the popular Student Debt Clock operated by finaid.org. The WSJ says it’s $550 billion while finaid says it’s $934 billion. Which should we believe?

I don’t know the difference in the methodologies, but I find the NY Fed low-balls other amounts of debt, which weakens its credibility. For example, it says that as of Q2 2011, there’s $11.4 trillion of outstanding household debt. Meanwhile, the main Fed’s Flow of Funds Accounts release (Z.1) calculates $13.4 trillion household debt in Q1 2011. While I believe the WSJ calculated the percent changes accurately and in good faith, and that the NY Fed is consistent in its methodology, I don’t trust the latter’s numbers. Does that mean finaid’s debt clock is more accurate? Of course not; they could both be off. However, the main Fed branch generates the G.19 Release on consumer debt, not the NY Fed, so I’m going to trust its numbers before one of the branch’s, even if it doesn’t tell us what’s student debt and what isn’t. That said, I wish finaid cited sources and that the government would be more informative.

Quick Link: ABA House of Delegates Passes Annual Disappointing Student Debt Resolution

In 2010, the ABA House of Delegates passed Resolution 301, which according to the ABA’s report does the following:

This resolution addresses the [law school debt] 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].

In short, asking private lenders to take a haircut on loans that have a good chance of not getting paid back without any long-term relief for students.

This summer, the House of Delegates has risen to the challenge again with Resolution 111A. It proclaims:

RESOLVED, That the American Bar Association urges Congress to enact legislation that assists individuals who are experiencing financial hardship due to excessive levels of student loan debt but are not covered by the provisions of the student loan overhaul passed into law on March 30, 2010.

The law the ABA is referring to is the Health Care and Education Reconciliation Act of 2010, the health care reform. Aside from enraging Republicans, the law notably dismantles the FFEL system in which the government subsidized banks making student loans on its terms and instead transforms the Department of Education into a massive near-monopoly student loan lender (the Direct Lending program). Now the government lends out about $135-50 billion in new student loans every year, including Grad PLUS loans to law students that cover total attendance costs at whatever price law schools decide to raise tuition to any given year, and the ABA House of Delegates still can’t connect the dots between “excessive levels of student loan debt” and the legislature that enacts laws permitting its accumulation.

Like last year’s resolution, the ABA futilely seeks to change the terms of private student loans, and it does nothing for people who’ve taken out government loans that’re ineligible for IBR, e.g. Parent PLUS loans. The remainder of the resolution beseeches the same commercial banks that wrote the 2005 bankruptcy reform rendering private student loans nondischargeable in bankruptcy to voluntarily take another student loan haircut by offering their own income-based repayment programs. Banks do nothing voluntarily.

Like last year, the word “bankruptcy” does not appear in the resolution, and it couldn’t even bother to acknowledge to Private Student Loan Bankruptcy Fairness Act/Fairness for Struggling Students Act that’s stalled in Congress. The ABA simply lacks the courage to admit that universities capture student loan increases and raise tuition accordingly, an admission that would condemn the law schools’ practices worse than the transparency resolution accompanying 111A. Unsurprisingly, the ABA still haplessly champions universities’ goal of perpetual, unaccountable wealth transfer with only token support for student debtors and taxpayers.

Another Day, another Study Overvaluing Law Degrees

“The College Payoff” comes from Georgetown University’s Center on Education and the Workforce’s analysis of the Census Bureau’s 2007-2009 American Community Survey.

Here’re its basic findings for our purposes:

Four million dollars for your law degree?

No, for two reasons.

One, since a bachelors is required for a law degree, we can use Georgetown’s $2,268,000 (despite its likely inaccuracy) and lop that off, leaving us with a $1,764,000 margin. Then subtract opportunity cost (which is about zero these days) and debt service, and you find your law degree is worth less than that. Arguably half.

Two, Georgetown commits the sin of equivocation. It is not saying that people who have law degrees make four million dollars in lifetime earnings; rather, it’s saying that employed lawyers and judges make four million dollars in lifetime earnings. The $3,648,000 figure for professional degrees isn’t useful because it includes more consistently lucrative careers such as medicine. Richard Vedder arrives at similar conclusions; two of them of them in particular are applicable to our discussion. For instance, a stunted law career dramatically reduces earnings:

[A] huge percent of college graduates are taking jobs that are traditionally taken by those with high-school diplomas. Carnevale partially comes back with a counterargument: even for those persons, college grads earn more than those with just a high-school diploma. That is often true, but the differential associated with the college degree is almost certainly dramatically reduced. Do the 80,000 college grads who are bartenders gain the same $900,000 plus advantage from a diploma that others supposedly do? I doubt it. And remember the costs of college are rising, and likely will continue to do so in the future. Those costs, by the way, appropriately include the opportunity cost of income foregone during college years from lost labor income.

Likewise, if you don’t get into Biglaw and stick with it throughout your decades-long career, you will not make more than a couple million dollars in lifetime earnings, which you probably could’ve made not going to law school at all. This fact applies to public interest lawyers too. Vedder adds that university prestige impacts career opportunities:

[N]ot all colleges are created equal. If there is a $900,000 advantage associated with a college degree, there is plausibly three times that advantage associated with a degree from Harvard College. But what about the graduates of the University of the District Columbia?

Many law schools have little hope of seeing large numbers of their graduates earning high five-figure salaries, yet they charge as much as those that do. Hopefully no one will rely on this paper, but at least it wasn’t as bad as the Pew one from a few months back.

Indiana Tech’s Proponents Continue to Make Fools of Themselves, Amuse Critics

The Master's "Client Incarnation" CLE is always well attended.

The Fort Wayne Journal Gazette decided to update us on my new least-favorite new law school (Wilkes-Barre, I miss you!), Indiana Tech School of Law. Readers will recall I dipped into the topic after J-Dog did simply because the university’s reasons for establishing another law school were too absurdly self-serving to pass up, particularly in this line:

However, absent dramatic change in the way law is currently practiced and given the dynamics of the national demand for legal education, the United States may need to import foreign lawyers or increase the outsourcing of legal work to foreign lawyers in their home countries to meet this country’s projected demand for legal services. (Page 9, pdf page 17, emphasis LSTB)

After one month that line still makes me both laugh and shake my head in embarrassment for those who published it.

This month, Devon Haynie sets up the pins yet lacks the will to knock ‘em down. As you can imagine, I felt his article is too neutral rather than unbiased, particularly the heading titled, “Backed by research,” which contained this nugget:

The [feasibility study] also concluded that Indiana had few lawyers compared with other states, which could put the state at an economic development disadvantage. Many Hoosier college graduates would like to go to law school in-state, the report argued, but can’t get into Indiana’s other law schools. As a result, the report found, many Hoosier students attend law schools out of state, never to return.

Last time I checked, demand for lawyers is based on supply and demand for legal services. Unless Indiana tries to limit the practice of law to only those who have degrees from Indiana law schools, the state can easily import lawyers from other states. Neutral indeed. The real “research” that backed this move:

[Indiana Tech President Arthur] Snyder ultimately made the recommendation to move forward with the law school, he said the decision was a result of months of discussion among the board of trustees’ executive committee about how to broaden the school’s academic offerings and strengthen its reputation.

Why are broader academic offerings and a stronger reputation necessary? No answers. Fortunately, after carefully considering all the arguments thrown at them, President Snyder and Chairman Robert Wagner developed strong rebuttals:

The economy may look bleak today, they say, but that won’t last forever. And not every graduate will be clamoring for the kind of legal jobs that are in short supply today. Increasingly, Wagner notes, law school graduates are taking jobs in business and other fields where law degrees are considered an asset.

The Bottleneck Argument and the Versatile JD? That’s all they could come up with? No LSTB, they do try harder:

The school, Snyder said, will pair students with attorney mentors, place them in internships at local law firms, and draw on other local resources to ensure students are prepared to practice as attorneys immediately after graduation.

This is a non sequitur. Practice-ready attorneys are nice, but no amount of training wills clients into being. Stagnant demand for legal services is the issue.

Once Snyder appoints a dean, which he hopes to do by September, he said he will have a better idea of how the school will distinguish itself. For now, he plans for the school to concentrate on leadership, with a chance for students to earn a dual degree in law and organizational leadership.

Organizational Leadership? This is new to me, but here’s a link to Indiana Tech’s undergraduate OL degree. It’s a business degree with added courses like “Employee Development,” and, “Managing Organizational Change.” Interesting stuff but it still doesn’t create jobs. Bill Henderson comments:

“I don’t think it’s fair to heap scorn on the people starting this thing at Indiana Tech,” he said. “It creates problems for the legal profession when you have too many law schools cranking out lawyers – that’s something we’re going to have to deal with. But there’s room for improvement in legal education … It is possible to create a really terrific law school that does a better job than others.”

Yet this is not what Indiana Tech’s proponents argue. The university isn’t claiming that it’s trying to butt-out other law schools at a shrinking trough; rather, it’s claiming the trough is big enough for everyone, or that it will be when the economy recovers, or that demand for legal services doesn’t affect national lawyer mobility, or that we’ll need to import foreign lawyers in the coming decades, or that it doesn’t matter because Indiana Tech’s specialized professional degree is a Swiss army knife, and that the university needs to expand its graduate school and gain prestige without any explanation. Such is the extent of Indiana Tech’s overreach. I would not heap such scorn on Arthur Snyder’s plan if he argued that Indiana Tech was going to employ a superior curriculum to crowd out the Notre Dame 2Ls in OCI. He would be reckless and unprincipled if he planned that, given how legal education works, but we could not call him absurdly unrealistic.

However, there is no superior curriculum. No new law school can crowd out Notre Dame, law schools cannot create demand for legal services no matter what supplemental knowledge graduates receive, and no one can create financial aid ex nihilo. Consequently, it is very fair to heap scorn on Indiana Tech.

"Financial Aid ex nihilo," another of the Master's popular lectures

Consumer Credit Update (2011 August)

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 most increases in that category are attributable to student loans because of the near impossibility of discharging them in bankruptcy. Link here for my analysis of increasing nonrevolving debt relative to GDP.

This month, the Fed provides us with preliminary second quarter 2011 numbers. These are seasonally adjusted.

	2010 Q1 r		2011 Q1 r		2011 Q2 p
Total	$2,421.9 bln	2.4%	$2,419.9 bln	2.1%	$2,446.1 bln	4.3%
Revolving	$791.1 bln	-4.8%	$790.6 bln	-5.0%	$798.3 bln	3.9%
Nonrevolving	$1,630.9 bln	6.0%	$1,629.2 bln	5.6%	$1,647.8 bln	4.6%

Q2 is more a story of credit card debt. Here are the June numbers.

	2011 April r		2011 May r		2011 June p
Total	$2,425.5 bln	2.8%	$2,430.6 bln	2.5%	$2,446.1 bln	7.7%
Revolving	$789.8 bln	-1.3%	$793.1 bln	5.0%	$798.3 bln	7.9%
Nonrevolving	$1,635.8 bln	4.8%	$1,637.5 bln	1.3%	$1,647.8 bln	7.6%

Yikes. June was a bad month for consumer credit growth. Here’s the non-seasonally adjusted numbers by holder in billions of dollars. We find that government holdings drive growth, accounting for most of the net increase.

	May (revised)	June (preliminary)	Numeric Change	Annualized Increase
Total NRV	$1,629.7	$1,637.6	$7.9	6.0%
Government	$364.9	$370.1	$5.2	18.5%
Commercial Banks	$487.5	$490.4	$2.9	7.4%
Finance Companies	$430.0	$431.2	$1.2	3.4%
Credit Unions	$185.8	$184.9	-$0.9	-5.7%
Savings Institutions	$37.0	$37.0	$0.0	0.0%
Nonfinancial Business	$44.7	$44.9	$0.2	5.5%
Pools of Securitized Assets	$79.7	$79.2	-$0.5	-7.3%

Increase in government holdings of nonrevolving credit decelerated slightly from May, when it grew at a 20.0% annualized rate, and in Q2 it increased at a 17.9% annualized rate, which is a lot better than Q1’s 58.8% rate. According to the BEA, real economic output grew at a 0.4% annualized rate in Q1 2011, and 1.3% in Q2.