Month: October 2014

Too Bad TJSL’s Grads Can’t Get a 2/3ds Write-Off

Oh, I’m sorry, “restructuring.”

That’s all that really needs to be said about Thomas Jefferson School of Law’s “Restructuring Support Agreement” with 90 percent of its bondholders. I’ve refrained from editorializing on the most of troubled law schools, but an $87 million write-off for its Xanadu-esque building sounds high. I suppose it beats a chapter 7 corporate dissolution; there is still plenty of unsubsidized Stafford loan margin to be captured, after all.

TJSL’s students on the other hand at least get PAYE, which they’ll need because last year they left with an average disbursed debt of $180,665. In order to avoid loan cancellation, even without accrued interest, graduates would need to make $182,000 from their very first repayment. After that, it’s twenty years until the government forgives their balances and sends them a tax bill for it.

But I’m sure employers are committed to ensuring that TJSL grads receive more than triple median household income the day they walk through the door.

Applications ≠ Applicants ≠ Matriculants, Part XXVIII

Kaplan Test Prep tells us that out of 126 law school admissions officers it got on the horn, 46 percent believe their school will receive more applications in the 2015-16 cycle than last year (I think; it doesn’t say what the comparison is). Last year the same survey said that 34 percent believed the upcoming application cycle would see an applications increase. Given the dwindling LSATs reported last week, last year’s officers were very likely over-optimistic. Perhaps they use Kaplan’s survey as an opportunity to communicate to the outside world that they don’t think things are so bad for their institutions rather than as a candid assessment of their futures, or optimism is a job requirement. (For further reference here’s the 2012 and 2013 survey results.)

Nevertheless, what people want us to think they’re thinking is nice, but looking at facts helps too. Last year (’12-’13) only ten law schools saw an increase in full-time applications, which are always more interesting than part-time ones. The overall trend looks like this.

Dispersion of Full-Time Law School Application Growth Rates

For fall 2013, even the 90th percentile law school saw a four-percent decline in full-time applications. It’s possible that this year will see the average rate of decline level off or the dispersion “compress” among the schools, but it’s pretty hard to see why widespread prosperity would return. Since the applicant pool is still shrinking, the only way a substantial number of schools could increase their application rates is if they conveyed (low) cost information so clearly that prospective applicants didn’t bother applying elsewhere. Essentially, many schools higher in the pecking order would have to credibly undercut all the ones beneath them. This, I suspect, is unlikely.

If you understand the subtle hint in the title of this post, the obvious question is why we should care about applications, which people can send out willy-nilly, as opposed to the total number of applicants, which is what the schools are really fighting over. As to that, we have the fall 2014 applicant data:

Applicant Data Per Law School

This, if anything, should tell us that the trough is nearing, sadly. Now that’s newsworthy.

Then there’s the question of how many applicants bother showing up in the fall, aka “butts in seats” or, “the bottom line.” Here the story does show a widening of matriculant growth rate dispersions, meaning some law schools have been successful at pulling accepted applicants away from their peers.

Dispersion of Full-Time Matriculant Growth Rates

Still, about two-thirds saw their entering classes fall, and the dispersion is still skewed downward.

But hey, we’re talking about what’s happening two years away, and it’s not like anyone will call out Kaplan’s law school contacts on their optimism.

LSAT Tea-Leaf Reading: September 2014 Edition

You heard that right, the October LSAT happened in September. Not sure why. Maybe it’s a thing; maybe it’s not. I seriously doubt holding the test a week early affected the number of takers.

Speaking of which … Only 30,943 people sat for the LSAT last month, breaking the record low set in 1998 (33,558). Last October’s administration came close to doing it, but it wasn’t quite enough. As far as I can tell, October 2014 is now the record low probably going back to 1986 or the year before when the end-of-year LSAT had fallen below 100,000 for the first time since 1969. The rate of decline, 8.1 percent, has decelerated from 10.9 percent last year. Take a look:

No. LSAT Takers, 4-Testing Period Moving Sum

The four-period moving sum has fallen to 100,607, also breaching the October 1998 record (~102,000). In fact, there are now fewer LSAT-takers than first-time LSAT-takers in the peak years of ’02, ’03, and ’09.

So the last time October LSATs were this low, you had just bought the tapes to something like … Wait for it … Wait for it … True Blue by Madonna and the soundtrack to Top Gun. If the previous October LSAT record was 1985, then you were certainly listening to the Back to the Future soundtrack (very appropriately given its sequel took us to 2015)—and I don’t blame you—or Songs From the Big Chair by Tears for Fears.

Although falling LSATs is still a good thing, the downside is that I know almost nothing about ’80s music.

It’s Only Links ‘n Roll

It’s been ages since I’ve done a music-themed links page, but a bunch of little news items have popped up that are undeserving of full-article treatment.

Beth Akers, “How Income Share Agreements Could Play a Role in Higher Ed Financing,” The Brookings Institution, October 16, 2014.

When we last (and first) met Beth Akers she was trolling the student debt crisis, but now she’s doing some good advocacy with “income share agreements,” a novel term for what I’ve seen referred to as human capital contracts. It’s just replacing debt with equity for financing higher education, but it shifts the risk (and the rare windfall) away from the students. Unfortunately it hasn’t come up often in recent debates, aside from the University of Oregon’s decision to investigate using them. The fear was that human capital contracts would lead to an “adverse selection” problem as with health insurance: People in majors with the best job prospects will prefer to pay full tuition while those with the worst prospects will take the equity route, leaving the funders (the university in Oregon’s case) broke. Adverse selection is really a problem for universities that don’t sell lucrative degrees, so I’m not sure it’s really the problem at all.

Rashmi Rangan and James Angus, “Time for a state-sponsored law school in Delaware,”, October 12, 2014.

Remember the University of Delaware’s scheme to build a public law school? Well, Rangan and Angus don’t. The idea was first floated in late 2010, but several months later the university’s feasibility study produced some bad news: The project would cost $100 million and the law school would run at a $165 million operating deficit for ten years. Nothing about the rising wages and job vacancies for attorneys in Delaware. I guess those folks didn’t have the nerve to predict an attorney shortage that would have to be remedied with foreign lawyers like Indiana Tech did.

Rangan’s and Angus’s arguments for a public law school boil down to (a) the population of two of its counties is growing and (b) the school’s graduates would go into public service. Again, nothing on unfilled attorney positions and rising wages. Delaware would probably get a lot more out of a $100 million expenditure by funding legal aid clinics throughout the state.

Dean Baker, “Quick Note on Heavy Babies and GDP Accounting,” Beat the Press, October 16, 2014.

Baker writes:

I have always thought that for purposes like constructing cost-of-living indexes, we are best off just pulling out the money we spend on health care and measuring the price increases of non-health care consumption against the income we have left over after paying for health care expenses. This would treat spending on health care like a tax. If we want to then incorporate changes in our health into our assessment of living standards then we look directly at outcome measures (e.g. life expectancy, morbidity rates, self-rated health conditions), not the volume of health services we are consuming.

We could say the same thing about higher education costs, mutatis mutandis, given that there’s no evidence it increases national income yet we’re told it’s crucially necessary for “competitiveness.”

Kate Lao Shaffner, “Five Questions With … Altoona Mayor Matt Pacifico on walking routes, property taxes, and downtown struggles,”, October 14, 2014.

Altoona is a rare example of a municipality that has chosen to take advantage of Pennsylvania’s split-rate property tax system to implement land value taxation. In a Q&A with the city’s mayor, Matt Pacifico, though, he seems to think it “didn’t work.”

I think when we decided to go 100 percent Land Value Tax, it missed the mark on what it was intended to do. It was supposed to motivate homeowners to want to improve their dwellings without seeing their property taxes go up from the city, but a lot of homeowners in the city are unaware of how it works. So I don’t think it was properly promoted. For instance, you could build a $3 million house on a two acre parcel of land, and you’re only taxed by the city on the value of the land, and not the structure on it. However, the school district and the county still tax you by the structure, so it can be very confusing. If those two taxing bodies were also able to tax based on LVT, then it could have the right effect, but they are not.

This is a pretty muddled statement. On the one hand, Pacifico acknowledges that the effects of LVT have been hampered by concurrent property tax systems the city has no control over that still tax structures, but on the other hand he seems to think that the primary point of LVT is to stimulate home remodeling. I’d hazard that people don’t think much about property taxes when adding patios to their dwellings but do think about them when building new structures from scratch.

Pacifico isn’t alone, for even Altoona’s city council is going to investigate the results of the tax shift. Superficially, however, I think Altoona’s LVT been more successful than Pacifico believes. A 2011 article in the Altoona Mirror described residents calling the city asking why their property taxes had fallen—and land speculators complaining about their bills. Most persuasively, a study of the final phase of Altoona’s tax shift found that most parcels would receive a tax cut while most would see a hike if it shifted back to a flat property tax. Generally, the switch to LVT decreased revenue from residential parcels while increasing it from commercial parcels. Consequently, on an in personam basis, the findings should be that LVT has cut taxes on the majority of middle- and lower-income households and raised them on land owned by the wealthy.

Nevertheless, I hope that the investigation explores the effects of LVT on the land use of commercial properties and absentee or vacant parcels. Here’s hoping the results are both good and clearly presented.

More Education ≠ More (National) Income

When I left you yesterday morning, darlings, I boldly claimed that Eduardo Porter “acknowledges widespread higher education but can’t connect that to higher national income. Because there isn’t one.”

Shortly thereafter, about ten minutes into my commute towards our eclipsed moon, it dawned on me (you heard that right) that there was a very easy way to illustrate college graduates’ higher personal earnings without a corresponding increase in national earnings: Simply multiply the number of 25-34 year-old earners by their average earnings by education. This is done with Current Population Survey data. If the East Coast Media Elite is right, then we’ll see the cohort’s aggregate income increase and much of that will go to college-educated workers. If higher education is a positional good, we’ll see little if any increase in the aggregate income but a greater proportion of the total will go to college graduates.

On my commute home—this time toward the rising, waning gibbous moon—I found that Paul Campos had the same idea.


Aggregate Personal Earnings by Education (25-34, Both Sexes)

Ouch. It appears college degrees are pretty much interchangeable with less education. Total income for 25-34 year-olds in 2013 was identical to 1990 after adjusting for inflation, and worse, the cohort is 8 percent larger today. In 1991, one quarter of the cohort had a bachelor’s degree or more; by 2013 nearly 40 percent did. The percentage of “some college, no degree” was about the same, below 20 percent.

You can trace the CPS data back to 1974 (before 1991, the Census Bureau used different education classifications), but the proportion of college graduates was mostly constant and aggregate income was rising because the 25-34 cohort was growing rapidly. It still doesn’t support the “more education = more income” argument. Nor does it help that even if there were an independent rise in national and college graduates’ incomes, it could still be caused by other factors.

Don’t hold your breath until the next lunar eclipse for the economics reporters and bloggers to stop weeping about how we need to help the dropouts graduate or hold the bad-apple for-profits accountable. They’re both noble goals that I support, but it’s obvious that higher education increases personal income, not national income.


Postscript: I would be cheating you if I didn’t mention the Pew Charitable Trusts’ report on “Generation X’s” financial position. Xers have higher incomes than their parents’ generation(s), but they also have more debt, including an average $25,000 in student loans among four in ten of them. Their net worth is also polarized, which is bad. My favorite part is in the special panel on page 11 where the report warns that Gen X’s student loan debt can “prohibit Gen Xers from saving to send their own children to college.”

Because it’s worked out so well for them.

But I Thought ‘More Education = More Income’

Not even a month after Eduardo Porter titled an article with that exact sublime algebraic line, he now appears to accept the Bennett hypothesis without any modifications. He even provides a helpful bibliography of studies backing it up. What the buh?

This is my favorite line:

In 2012, 44 percent of 25- to 34-year-old Americans had a college degree, whether from a community college or an ivy league university, 6 percentage points more than in 2000. By contrast, the college graduation rate of young Britons rose by 19 percentage points over the period, to 49 percent. In the O.E.C.D. as a whole it increased to 40 percent, 14 percentage points more than in 2000.

In other words, he acknowledges widespread higher education but can’t connect that to higher national income. Because there isn’t one.

Porter concludes that we need to replace loans with direct government spending, which is noble but misses the point. A dollar spent on tuition is then re-spent by colleges. This is an accounting identity; it can’t be escaped. Without a hypothesis as to what causes colleges to raise tuition, what they spend it on, and why—i.e. treating higher education as a positional good rather than a public good—Porter just looks confused and clueless.

Maybe it’s too damn early in the morning for this stuff. I going to see an eclipse and go to work.

Most Americans Don’t Want to Live in Rural America

…Which is why rural America is rural. Deep insight, Grasshopper, but the ABA Journal isn’t so easily persuaded, as implied in its recent feature article titled, “In rural America, there are job opportunities and a need for lawyers.”

I largely addressed this topic last year in a bluntly headlined post, “Law Grads Not Responsible for Lack of Rural Lawyers,” and its primary point still stands: If there is so much demand for (retiring) rural lawyers, why weren’t they replaced ages ago? It can’t be because of a quality specific to recent law graduates—including lack of practical training.

Unfortunately, I think the ABA Journal could’ve pursued the specific question of why lawyers won’t open practices in rural communities more analytically. For example, it accepted that there’s unmet demand for legal work in Wishek, N.D., based only on the word of its retiring sole lawyer. For a community of 1,002 people one wonders why it needs any. In fact, the Economic Census I discussed last week doesn’t have 2012 figures for states, but it does provide them for prior years. In 2007, law firm receipts per capita were $726 nationwide; in North Dakota they were only $255, an indicator that law is not in such high demand in North Dakota. As far as “offices of lawyers” goes, North Dakota, it seems, had a flat number of establishments from 1997 to 2007.

Industry Snapshot ND 1 Industry Snapshot ND 2

(Note that the number of law offices in McIntosh County, N.D., in 2011 is unavailable, but the neighboring counties appear very sparsely lawyered as well.)

The mean average population per law office establishment in North Dakota seven years ago was one firm per 1,893 persons—well above Wishek’s size—and I suspect the median firm is in a larger community. Not that I put a lot of stock in lawyer- or law-firm-per-capita estimates, but if there’s anything the LSTB will be remembered for, it’s those.

Nevertheless, aside from using Census data, the article could’ve investigated this unment demand by asking Wishek’s retiring attorney what his income was over the last five years, let’s say. Was it greater after tax, shelter, and transportation costs than what one could get in a college-type job in Bismarck or the Twin Cities, assuming all law graduates make equal student loan payments on IBR? How much of that income came just from serving Wishek clients? Did he regularly have to drive to represent people, and if so how far? What about his clients’ travels to consult with him? How much of his clients’ problems were due to rural poverty rather than lack of access to representation? Which problem should be prioritized?

More broadly, and this applies to the ABA’s immediate-past president’s apparent position that there’s a “paradox” of unment legal needs and too many law school graduates, there’s a difference between a “shortage” in economics and in common parlance. In economics, a shortage occurs when the price of a good or service falls below its equilibrium level, i.e. it’s so cheap that everyone buys it up before its price rises. By contrast, a shortage as commonly understood—the definition the Journal is using—is when poor people can’t afford to buy something but still need or want it.

The difference is important, and while I have my issues with neoclassical economics’ definitions and trivialization of poverty, its point is to distinguish between situations in which people merely want things as opposed to when market failures prevent them from buying them even though they have dollars in hand. One is measurable (usually); the other is not (usually). Maybe the legal profession relishes treating late-stage capitalist urbanization as a sudden problem rather than a long-term phenomenon, but I’ll take a stab: Even when rural Americans have the dollars in hand, the invisible costs of such a significant relocation cannot be ignored. Personally, I believe plenty of lawyers (even new grads) would be happier living in a rural community than they might think, but it’s still a big risk. It essentially means abandoning one’s connections, be they family or friends, and it isn’t any easier to shift jobs or restart careers in a city if things don’t work out.

Thus, the total cost of inducing people to move ends up being more than the community can really afford. Indeed, people are moving away from these communities, so why should lawyers move to them? It’s like encouraging homeless people to move to North Las Vegas because it has so many empty houses. Other forces are at work.

That having been said, like the South Dakota community discussed in my previous take on this topic, Wishek appears to have solved the problem by paying for office space to encourage lawyers to move there. Paying people to work often creates jobs, Grasshopper.

So, good luck to the two people who have taken Wishek up on its offer. The five-year median household income in McIntosh County in 2012 was $36,327 and per capita income was only $24,134 (source: Census Bureau). The averages are much higher indicating that there are some very well-off people in the area, but no one should mind if they have to take a day off and drive 90 miles to talk to a lawyer.

So, again, whenever the “no rural lawyers bogey” pops up, consider whether the claimants are hyping a long-term problem that’s festered for decades or are just equivocating their terminology and saying that the poverty of poor people is a paradox. It’s self-evidently not.

Economic Census Shows Legal Sector Battered by Depression

But first, it appears the link to my American Lawyer article was bad, so here it is correct.

Now, today’s fun.

The Census Bureau is slowly releasing data from its 2012 Economic Census, a survey it produces every five years. In government data years, it’s like waiting for a total solar eclipse. Because the last Economic Census was in 2007, we now get another look at the kind of damage the Lesser Depression has had on the private legal sector’s specific “Offices of Lawyers” category.

Economic Census--Industry Snapshot (2012)

(Source: Economic Census Industry Snapshots 541110)

Generally, it’s bad. There were fewer people employed in offices of lawyers in 2012 than in 2002. Nor does it help that Census doesn’t adjust the dollar amounts by any inflation measure, so while it looks like the revenues and payrolls are rising, in fact they are not.

Economic Census--Industry Snapshot (2012, 2013 $)

(2013 $, author’s calculations)

I have two observations to make: One, given that employees per establishment fell, it appears that larger firms have been the ones paring back. Two, similarly, like the employment projections I frequently write about, the number of firms and employees is a net growth figure that combines gross outflows with gross inflows. In other words, many people ejected from large firms may have started or joined smaller practices. Consider this a downshift in the sector’s performance.

The supply of lawyers and whatever capital they need exists, but the demand does not and it doesn’t look like it’s coming back any time soon.