Day: 2011/08/23

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 thirdrevised 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 19th 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.