It’s 2016. Where’s My ‘Hyperinflationary Great Depression’?

[The following post first appeared on the LSTB on January 1, 2012. What it said then still applies today, mutatis mutandis. Thanks for reading the blog and have a prosperous 2016!]

Behold, the curse of a long memory. Last January [2011], Google Alerts sent me an e-mail informing me that the National Inflation Association (“Preparing Americans for Hyperinflation”) issued a press release predicting that the higher ed bubble was “set to burst beginning in mid-2011. This bursting bubble will have effects that are even more far-reaching than the bursting of the Real Estate bubble in 2006.” The NIA press release then digressed into legal education (I’m guessing they’d just read David Segal’s first NYT piece a few days earlier), how evil lawyers are, how they produce nothing for society, and how 60 percent of the Senate and 37 percent of the House are lawyers who rig the economy to make jobs for lawyers. It editorializes:

“While everybody went to school to become a lawyer [really?], nobody went to school to become a farmer because Americans didn’t see any money in farming. With prices of nearly all agricultural commodities soaring through the roof in 2010 and with NIA expecting this trend to continue throughout 2011, the few new farmers out there are going to become rich while lawyers are standing at street corners with cups begging for money.”

The NIA would’ve been more helpful if it explained how lawyers could be a drain on society yet remain vulnerable to market forces. Also, one would think unemployed lawyers would try to find non-lawyer jobs instead of begging, but I think it’s important to note that agricultural prices weren’t “soaring through the roof” in 2010. They were growing, yes, but although the NIA was right that they continued to do so in 2011, (a) it’s stalled recently, and (b) they’re no worse than they were in the 1980s and early 1990s.

Oh well. The NIA sternly concluded:

“We must work hard to educate America to the truth if our country is going to have the wherewithal to survive the upcoming bursting college bubble and Hyperinflationary Great Depression.”

Whoa.

I can’t say I’m quite as disappointed as the NIA undoubtedly is that we’re not seeing much inflation these days, and in mid-2011 I didn’t see many colleges cutting their tuition, laying off faculty, closing programs, or trying to retrench themselves. I also remain unconvinced that $1 trillion in student debt can be worse than $8 trillion in mortgage debt. True, student debt is not dischargeable (unlike mortgage deficiencies) absent a showing of an undue hardship, and it’s hampering the recovery and ruining lives, but it’s not worse in quantity than the housing bubble. As for the NIA’s paranoid ranting about lawyers, all economic evidence I’ve seen indicates that legal services have all but stagnated for much of the last two decades. Apparently, those 60 percent of lawyer-senators aren’t very good at creating work for themselves. I suppose the NIA should express appreciation.

Anyway, if anything, inflation would be a boon to underwater homeowners and student debtors because it erodes the real value of their debts, which grew significantly in the 2000s. Here’s household debt to GDP:

Importantly, I’m no macroeconomist but I’ve never heard of a “hyperinflationary depression.” The terms contradict each other. Depressions occur when people take on excessive debt and begin paying it down simultaneously instead of spending money on other things. This is deflationary because new credit isn’t being created, even by the government. By contrast, hyperinflation has only occurred in unusual circumstances, like when a government owes debts to foreigners in a different currency. Weimar Germany, for example, owed gold-dominated war reparations to the Allied powers, and to purchase the gold, it printed money, causing hyperinflation. Zimbabwe isn’t a good comparison either because it’s a small, HIV-ridden landlocked state with an undiversified, oligopolistic agrarian economy while the U.S. is a wealthy, continent-spanning super-state.

As for inflation fears generally, maybe it’s the fact that I have no memory of high inflation, but why isn’t there a “National Personal Income Association” (NPIA) that regularly celebrates increases in Americans’ per capita personal income?

“Per capita personal income has quadrupled since 1980! Prices didn’t even triple! Hooray! We’re rich! Fiat currency forever and ever! ‘You shall not crucify mankind upon a cross of gold!'”

I’m sure the NPIA wouldn’t’ve been too thrilled with 2008-09, but personal income is increasing again. The problem has just been that over the decades those gains haven’t been distributed equally. This isn’t a problem of inflation but one of wages and taxation.

Intuition tells me the NIA won’t spend early 2012 carefully discussing why the higher ed bubble didn’t burst in mid-2011 as it predicted, nor will it take the time to explain why Americans—many of whom are net debtors—should be concerned about inflation. Instead it will prophecy even more hyperinflation later. But here’s hoping the National Inflation Association won’t provide me entertainment come January 1, 2013. Such is the curse of a long memory.

Full-Time Law School Tuition Still (Slowly) Rising

…But it’s certainly debatable how much students are actually paying.

Here’s the dispersion of stated law-school tuition for full-time students in constant dollars as of the end of second quarter 2015. (I’m not hugely into non-resident tuition.)

Full-Time Law School Tuition Dispersion (Excl. P.R., Constant $)

The law school at the median charged about $1,300 more than last year. Inflation has been so low that real tuition fell last year, but that’s been reversed.

There has been talk recently (I forget when specifically, and I’m too lazy to look it up right now) of law schools cutting their nominal tuition, but from the above chart it’s obvious that these are isolated cases that have not influenced any trends. In fact, I did a quick check and none of the private law schools that cut their tuition in the last two years (La Verne, Brooklyn, Elon, Ohio Northern, and Roger Williams spring from my spreadsheets) saw any increase in full-time applications. Certainly there’s something to be said about the elasticity of demand for law school, but I’ll consider that later.

Still, full-time private law schools’ tuition increases are slowing, but this year they hiccuped upward.

Dispersal of FT Private LS Tuition Price Increases (Current $, excl. PR, Zoomed In)

In each of the last three years, at least 10 percent of tuition increases among private law schools was 0 percent or less. I don’t think this year’s hiccup means anything.

Finally, here’s nominal tuition increases by tuition quintile mean.

Full-Time Private Law School Tuition Increases by Tuition Quintile Mean (Current $)

As with last year, the weight of tuition increases is still on the costlier end of law schools. Surprisingly, Columbia remains the only law school that charges more than $60,000 per year. (Cornell was 19 bucks short. *clap* … *clap*)

In closing, I want to extend my thanks to the law schools for not omitting tuition information from their 509 reports. Some didn’t last year, which is bizarre to me.

Full-Time Law-School Application Inequality Unchanged in 2015

Last year, I modified the Lorenz curve to measure the distribution of full-time law-school applications. A Lorenz curve measures the cumulative distribution of a quantity in order from the smallest recipient to the largest. Usually it’s the distribution of income among households. I’ve modified the Lorenz curve according to the U.S. News and World Report rankings for the previous year because the rankings are an independent measurement of law-school eliteness as seen by LSAT takers and applicants at the time that they apply.

The Lorenz curve can also be used to calculate the Gini coefficient, which is the area under the Lorenz curve divided by the total area of the right triangle representing a totally equal distribution of the quantity among the recipients.

I found last year that full-time application inequality had risen noticeably between 2009 and 2014. The Gini coefficient had shifted from 0.37 to 0.42, and the top 50 law schools captured half of all full-time applications—up about 5 percentage points from 2009. Finally, freestanding private law schools, and even among them for-profit law schools, lost only a small share of applications.

Repeating the analysis for 2015, the application distribution appears essentially unchanged.

Full-Time Law-School Applications (Adjusted) Lorenz Curve

If you can’t distinguish the 2015 Lorenz curve from the 2014 curve, that’s a feature, not a bug. The Gini coefficient rose from 0.427 to 0.429. Additionally, any shift in applications in favor of lower-ranked law schools, namely the 51-100s, is due in part to volatility and ties within the rankings. In fact, holding the rankings constant, law schools ranked 51-100 in 2014 saw only a 1 percent gain in application share in 2015, but the top 50 were largely unchanged.

I predicted interest in law school to become more unequal this year, but surprisingly it didn’t. Instead, there was a trivial shift in applications toward lower-ranked schools. Consequently, although the number of full-time applications fell 4.2 percent in 2015, the overall impact was felt proportionately among law schools. Notably, U.S. News‘ static top-14 law schools accounted for 40 percent of the total decline in full-time applications—in contrast to its ten percent gain against the application decline last year.

I interpret all this as mildly good news for law schools: Interest in legal education still fell, but the perception that non-elite law schools offer little to applicants appears to have softened. However, that might be little comfort to law schools whose budgets are deep in the red.

Law School Matriculant Crunch Coming to an End

That’s the most reasonable analysis one can make of the ABA’s Standard 509 Information Reports, which appeared on the Internet on December 15th.

Before the fun a few preliminaries:

  • Blessedly, the ABA chose to release all the data in spreadsheet form at once, making my life much easier. Thank you. Thank you. Thank you.
  • However, its GPA and LSAT scores spreadsheet omits a few law schools, includes others it shouldn’t, and throws some curve balls.
  • Excluded: Concordia, Lincoln Memorial, Penn State (Dickinson), Penn State (State College). (Note, as of this fall, the Penn States are two separate law schools, but as far as I’m concerned, its State College school was founded and accredited this year.)
  • Included: University of Dallas (not accredited yet)
  • Curve-balled: Rutgers (as one law school, along with entries for Camden and Newark), Atlanta’s John Marshall (Savannah) (subset of its parent), Cooley-Michigan (subset of all Cooley campuses), and William Mitchell and Hamline are still separate law schools, which might surprise people.

I haven’t parsed all the spreadsheets, but some contain similar bizarreness. Hopefully, no one who has reported on the data already has committed any errors as a result.

So…

In the 2015-16 academic year, there were 32,595 full-time matriculants to 205 ABA-accredited law schools, down 850 matriculants from 2014-15. That year saw a 1,228-matriculant decline, so the crunch is slowing down for the law schools. (These figures exclude the three law school in Puerto Rico, as I usually do.)

Full-time applicant acceptance rates are largely flat, except at the 90th percentile.

Dispersion of Full-Time Law School Applicant Acceptance Rates

Matriculant yields are up slightly as well (omitted), but ultimately about 26 law schools account for half of the decline in matriculants since the last trough year, 2007, which I believe is a better comparison year than 2010, which was a peak year.

Meanwhile, application growth rates are still accelerating.

Dispersion of Full-Time Law School Application Growth Rates

Nearly a quarter of law schools saw a growth in applications. First place goes to Lincoln Memorial (124.1 percent), rising like an undead menace despite the ABA’s initial denials of accreditation. Number two, which I think is fair to report given that Lincoln Memorial was only recently accredited, is Denver at 56.7 percent. I’m not quite sure how it pulled that off.

Last year, I discussed at length how U.S. News‘ top-twentyish law schools saw an unusual bounce in applications. Curiously, that phenomenon has been blunted. Last year the top fourteen received 72,769 applications, but this year they hauled in 66,982—the lowest since 2000, which was back when paper applications were all the rage. I hypothesized that would-be applicants believed that no one was applying to elite law schools, so their applications would succeed. Maybe that was right, maybe not, but regardless, I’m stumped as to why the application decline resumed for these schools.

Consequently, I haven’t seen any real surprises from the application data yet, but there’s more stuff to comb through, so stay tuned.

BLS Projects Only 43,800 New Lawyer Jobs by 2024

On Tuesday, the Bureau of Labor Statistics released its employment projections for the next cycle: 2014-2024.

In 2014, the BLS estimated that there were 778,700 lawyer positions (as opposed to discrete lawyers) in the United States. This figure includes self-employed lawyers. In 2012, the Employment Projections Program found 759,800 lawyer positions, so there has been some growth. According to the Current Population Survey, in 2014, 1.132 million people worked as lawyers in the United States. The discrepancy between the CPS and the EPP has existed for some time. In their respective contexts, both figures are correct.

The BLS projects future employment trends in part to help job seekers evaluate career choices, and the projections play a significant role in the BLS’s Occupational Outlook Handbook. Here is an illustration, from various sources, of law-school graduate and lawyer growth since the 1980s.

Lawyer & Graduate Estimates (1983-2024)

Between 2014 and 2024, the BLS estimates a total 157,700 net lawyer jobs will be created. Of those, only 43,800 can be attributed to economic growth over the decade. The rest, 113,900, consist of net occupational replacements. Last year, I wrote about how the BLS plans to revise its replacement methodology, switching from a net replacement measurement to a gross one. When applied to lawyers, it appeared more jobs would be created annually than under the current methodology. The BLS has not yet adopted the new methodology.

Unfortunately—and despite my warnings—some law professors concluded that a higher replacement rate meant better job prospects for law school graduates. However, this position fails to account for turnover—the rate at which lawyers leave the law for different occupations or leave the labor force entirely. In fact, in a prototype analysis of the new methodology, the BLS estimated that over ten years one lawyer in four would move to a different occupation. By comparison, the rate for physicians was only 15 percent. It is unlikely that every lawyer moving to a different occupation will find work in a field that requires the skills and knowledge obtained in law school or pays accordingly.

The BLS typically divides the ten-year employment projection by ten, suggesting that only 15,770 lawyer positions will be created each year until 2024. Despite falling law-school enrollments, but with the number of applicants possibly rising, it does not appear that the economy will be able to absorb all new lawyers completing law school. Indeed, in 2014, 43,800 people graduated from ABA law schools, but it’s likely that fewer than 40,000 graduated in 2015. The number of people admitted to the bar by admission and diploma privilege—a measure of new lawyer growth—was 54,820 in 2014, but this includes many duplicates.

The number of law school graduates and new bar admits far exceed the projected lawyer job growth rate. Consequently, it appears that although interest in law school has waned, far more people are attending law school than the profession can employ.

My opinions of J.D. advantage jobs can be found here.

My comprehensive explanation of the various measures of law-school grads and lawyers can be found on this page. It also should contain any links I may have omitted in this post.

Week 48: More Than 55,500 Applicants Projected for 2016

Like the lost, fictitious island of Atlantis, the LSAC’s first report of the 2016 law-school application cycle predicts an applicant rise! At 13,881 applicants as of week 48, it appears more than 55,500 people will apply to law school next year.

Importantly, the LSAC has changed its reporting from fall-term applicants only to applicants for all academic terms. I don’t like changes like these as they impair past comparisons, but it’s probably the right thing to do. It’s unclear when the 2016-17 academic year begins, so I’ll try to treat these concepts with caution until I’m sure.

As it is, in week 48 of 2014, there were 11,415 applicants for the fall term, so a substantial number of people are now being included who were not before, more than 2,000 applicants apparently. What is notable is the difference between the number of applications per applicant.

For fall 2015: 6.13

For all 2016: 5.36 (approx.)

For all 2016: 5.12

In fact, according to the current report, applicants are up slightly for 2016, but applications have fallen by 4.1 percent. Although final predictions based on the first reported week are volatile, these numbers suggest that while some people might believe now is the best time ever to go to law school, they don’t believe it for all law schools. I’ve posited that the distribution of applications matters too and will continue to do so going forward.

Here are links to my past reporting on the opening of the applicant horse race: November 2013 and November 2014, both predicting applicant declines that didn’t pan out. In both those years, the final applicant count rose above the initial projections, meaning that the number of applicants “accelerated” into the cycle. Here’s an illustration starting in January of the application year:

No. Applicants as a Percent of Preliminary Final Count by Week

(Note: This is based on old LSAC data that applies to the fall term only.)

Over the last three years, a growing proportion of applicants didn’t apply until later in the cycle. If this phenomenon continues, i.e. back-loading applicants, then we can expect more than 55,500 total applicants by fall 2016.

I’m not sure why applicants are appearing later than the in past. It’s possibly due to law schools moving their application deadlines further back to capture more bodies and those applicants obliging. Alternatively, the applicant crash that started in 2010 might have affected the earlier chunk of the application cycle. In other words, the type of people who chose not apply to law school are the ones who would’ve first applied in November-January.

Between back-loading applicants, rising applicants, and falling applications, this cycle might throw us some curve balls.

A Thanksgiving Troll From The New America Foundation

The New America Foundation’s article, “Income-Based Repayment Tops Repayment Plan Choice for First Time,” is such blatant policy trolling that you might wonder if it’s still Halloween and not Thanksgiving.

The NAF discovered that income-based-repayment program-enrollment efforts have borne fruit: It’s now the most popular plan among direct loan borrowers. (I haven’t checked myself, but let’s roll with it.) But the NAF’s response is confused: On the one hand, it likes low-income people enrolling in IBR, and it wants IBR to be the default repayment plan. This position is neither unusual or, superficially, disagreeable.

But on the other hand, growing IBR hordes keep the NAF awake at night:

Policymakers have to ask themselves, if college is a good investment, why are borrowers flocking to this insurance program? And why are those trends occurring while other economic indicators, like unemployment rates, are looking pretty good?

The easy answer is that college is not a good investment and “other economic indicators” are not looking pretty good. For one, the unemployment rate isn’t such a good measure of work when so many people leave the labor force.

Here’s the percent of 25-34-year-olds with zero earnings by education.

Percent of 25-to-34-Year-Olds With Zero Earnings by Education

(More here.)

In 2014, 13 percent of college-educated young ‘uns weren’t working; in 1997 that was 7.1 percent, equivalent to 640,000 people. It’s possible many of these folks are back in school, but that just tells us the opportunity cost of education is low—because there aren’t any good jobs. And yes, incomes are down too.

The NAF then trots out (trolls out?) the discredited IBR deadbeat after linking to the GAO finding that only a fraction of IBR enrollees have high incomes:

Maybe IBR enrollment is not a good proxy for borrowers falling on hard times — at least not since the Obama administration … [changed the program] from what was a safety net in 2009 to a heavily subsidized loan program for even well-off borrowers if they borrow for graduate school.

Except the NAF’s research on the changes to IBR didn’t show anything of the kind. Its “Safety Net or Windfall” report never documented a single IBR deadbeat. Instead it crafted nothing other than hypotheticals: Its “narrated borrower examples” even included a law grad who went to California Western, a law school with bad employment outcomes, yet managed to start a job at $65,000 per year. After ten years “Robert” miraculously switched to a job that paid him more than $100,000 per year, and after 25 years, he was make more than $200,000.

Why not just say that he inherited $40,000,000,000 from his wealthy uncle who also happened to be the pretender to both the Qing dynasty’s and Ottoman Empire’s thrones? It’d still fit the NAF’s definition of research.

In truth, only 14 of California Western’s 219 graduates in 2014 found full-time, long-term work at law firms with more than 25 lawyers. 58 were either unemployed or couldn’t be found. The Pay-As-You-Earn changes to IBR benefited these people quite a bit because they will never repay their loans anyway. Income is the independent variable, not debt, and it’s pretty unlikely that after 30 years any California Western grads will be earning $240,000 annually like “Robert”—unless you live in the NAF’s world where one can pass off fantasy as policy analysis.

Because the economy is improving, the NAF reasons, there must—must—be another reason those folks are signing onto IBR:

Borrowers may be enrolling in IBR because they know a good deal when they see one. And as word gets out, more and more students are likely to borrow larger sums to pursue graduate school because they plan to use IBR. That is especially true if they qualify for earlier loan forgiveness under the Public Service Loan Forgiveness benefit. [Emphasis original.]

If this were true, then we’d expect law-school enrollments to swell, even at schools where the credential leads nowhere. Hey, who are students to argue if the government gives Grad PLUS dollars toward their living expenses and not demand they pay it back?

Except that’s still not happening, even three years after the NAF’s Kevin Carey predicted it would. It’s more likely that prospective applicants are sensitive to whether graduate programs lead to jobs at the other end, not whether they can get free money today. Here’s law school applicants:

Applicants, Admitted Applicants, 1Ls

(More here.)

I’ve asserted elsewhere that the law-school applicant crunch has slowed because of articles blathering about how now is the best time ever to go to law school. IBR is a secondary concern, if at all. Really, it’s bizarre that anyone would think that applicants are sophisticated enough to base their decision to go to law school on the existence of IBR but shallow enough to overlook evidence suggesting that J.D.s do not lead to long-term professional careers.

Moving on, the NAF then appears to argue that the Obama administration is wrong to characterize IBR as an insurance policy against student-loan defaults because defaults are still increasing. The NAF says this is a “strange trend” even though it offers no reason to believe that savvy borrowers might be signing on to IBR instead of defaulting, while others haven’t received the message. Maybe both types of borrowers have low incomes and can’t otherwise repay their loans in full, but this assumption negates the NAF’s position that the economy is improving. Oh well.

Finally, the NAF worries that outstanding student loans are growing despite falling issuances because either (a) debtors’ incomes are alarmingly low, or (b) IBR is too generous. Again, only a few paragraphs earlier, the NAF cited the GAO study that found 80 percent of IBR enrollees earn $20,000 or less. Incredible. The ghoulish IBR deadbeat lives on.

So there you have it: In one post the NAF starts by arguing that more people should enroll in IBR to avoid default and then concludes that we should be troubled by … more people enrolling in IBR to avoid default. If it’s (a), then the problem is underemployment and low-wage jobs, not IBR; if it’s (b), then the problem is excessive government lending for unneeded education, not IBR.

That’s enough troll, I’m ready for turkey now. Enjoy your Thanksgiving, too.

**********

Post-script: In case any of you were wondering, Congress can change or revoke IBR at any time because the Higher Education Act is incorporated by reference into student-loan promissory notes. Because the number of IBR variants is increasing, it’s probable that the government is hoping to simplify all of them into one that will probably not be so generous to graduate students as PAYE is. This is a compelling reason to stay away from grad school just because IBR is around. (More here.)