Positional Goods

Does Charlotte Law School Offer a Test of the Bennett Hypothesis?

The Charlotte Observer tells us that the Department of Education believes Charlotte Law School has engaged in “‘dishonest’ practices,” and as a result it is yanking CLS’s access to federal student aid by the end of the year. ED blindsided CLS—at least that’s the school’s story—but apparently its low bar-passage rates, the ABA’s probation of it, and its alleged misrepresentations to applicants and students are the culprits. Maybe CLS will successfully appeal the decision, but if it doesn’t then we’ll get the opportunity to test whether law schools absorb federal student loans and pass them back on to students, aka the Bennett hypothesis.

Okay, maybe the shock is so sudden that the school would need to scramble to balance its budget anyway (and I think the “90/10” rule applies, but I won’t go into that). However, we do know some things about how CLS’s revenue and spending.

For one, in the 2015-16 academic year a mere 31.3 percent of its full-time students paid full tuition ($41,348). Altogether, it made $8.5 million from these students. Thanks to the article and ED data, we know that last year the school was a conduit for $48.4 million: $19.1 million in direct unsubsidized Stafford loans and $29.3 million in Grad PLUS loans. Because CLS is relatively new and freestanding, it probably has no significant endowment or gift income.

Here’s how much federal loan money CLS has disbursed each year since it was founded and its revenue from full-time students paying full tuition.

cls-student-loan-disbursements-and-revenue

Note: CLS’s numbers of full-time students paying full tuition appear erratic for unknown reasons, probably misreporting by the law school, but that’s CLS’s problem, not mine.

And here’s how much it disbursed per student (including non-recipients), along with the weighted-average full tuition between full-time and part-time students. Not everyone borrows each type of loan, but the chart gives a sense of how much students are paying for both their educations and living expenses on top of that.

federal-loans-disbursed-per-cls-student

CLS is an unusual case because it was founded around the time odious Grad PLUS loans came into being. Its budget is undoubtedly acclimated to them and probably can’t be balanced without them. Moreover, I think I’ve underemphasized how crucial it is that they pay for law students’ living expenses. Without that, students would not be able to go to law school. Nevertheless, the Bennett hypothesis tells us that if this school is to remain in business as an ABA-accredited school but without access to federal loans, then we should expect it to charge much, much less than it currently does. Although, it may offset costs by encouraging students to borrow from private lenders, whose loans will not be dischargeable and probably require co-signers.

I doubt CLS is as bloated as an elite law school is, but it will soon cost a lot less to attend if it wants to stay in business. Unfortunately, I suspect liberals will see CLS’s downfall as a victory over predatory for-profit colleges rather than evidence that federal loans help law schools more than students. Still, it’s a victory. Maybe Infilaw will get the message that many nonprofit law schools should’ve years ago.

Finally, in passing I notice that CLS’s enrollment is quite lopsided: 452 women to 260 men. The mainstream discussion on law school enrollment in 2016 is emphasizing how women now outnumber men. Without CLS, the margin falls to a sliver. It’s a notable finding, but I’d like it if the coverage drew more attention to the fact that men attend more prestigious law schools (some articles do). I don’t see it as a milestone for the profession because it’s pretty clear that schools like CLS enroll a larger proportion of women—and schools like CLS don’t offer much of a path to a professional career.

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IfTashaYar’sRapeGangsHadaTransporter

…Is what I think about now whenever someone brings up the economics of Star Trek. For those unfamiliar, the title refers to a character from Star Trek: The Next Generation, Tasha Yar, who grew up on a politically collapsed colony populated by … rape gangs! Think Mad Max only ham-fisted. It’s also a reference to the 2007 combined tour of the bands Ifihadahifi and Replicator, “IfIHadARepliTour.” Yup, a show I never saw was so memorably named it stuck in my head for eight years.

Today’s “Economics of Star Trek” adventure appears courtesy of The New York Times, “A ‘Star Trek’ Future Might Be Closer Than We Think.” Reporting on the upcoming book Trekonomics– I know, I know, I hear you groaning in agony at your screens.

Okay, so the Times interviewed one of the authors and claimed:

When everything is free, said Mr. Saadia, objects will no longer be status symbols. Success will be measured in achievements, not in money: “You need to build up your reputation, you need to be a fantastic person, you need to be the captain.” People will work hard to reach those goals, even though they don’t need a paycheck to live.

Wrong. When you have teleporters—and set aside the obvious philosophical issues of voluntarily walking into a disintegrator beam so a duplicate of yourself can be incarnated somewhere else—you will have crime, mass terrorism, mayhem, and social collapse. Come on folks, show a little realism about human motivation.

So, now that we’ve dismissed the subject on the merits, we can pick it for less entertaining reasons. Let’s look at Star Trek without transporters. Would objects no longer be status symbols? Would people live to work and not work to live? Would we have … “post-scarcity”?

Hardly. We’d squabble over all the stuff that we can’t replicate, just like today. That’s the rub with productivity: There isn’t a whole lot of difference between mass-producing stuff cheaply versus for free. However, stuff that can’t be produced or easily substituted, i.e. positional goods, won’t disappear. This is precisely why I believe the concept is so important and write about it so frequently. Indeed, Trekonomics‘ author’s assertion that everyone needs to be the captain proves my point and discredits his: We can’t all be the captain. Someone will need to clean up replicator spills, so the future looks more like Red Dwarf than Star Trek.

Consequently, you’re going to need to produce something more substantial than menial labor to afford the location costs to live in San Francisco, Star Trek‘s preferred Earth location. But if the landowners of Trek can get everything they want for free, then we’re back to the robots-substituting-for-workers problem that I’ve addressed before.

And don’t waste your time arguing that people can always leave Earth for more space. That’s just kicking the can forward and ignoring the fact that even when land is free, poverty still exists in urban centers. Henry George observed this in the 1870s (and he cut his chops in San Francisco). At some point, “post-scarcity” stories only work if you tap location values. Nothing less will do.

Ultimately, “Economics of Star Trek” discussions raise two questions. One is concerned with filling the gaps created by the showrunners’ (mis)understandings of political economy, and the other is applying existing social science knowledge to the show. The first question disserves the show. It’s aspiration, not social theory. The second question, going by the author’s quotations, still needs work. We’re a long way from the characters chatting about how in the 21st century people actually believed consumption taxes were a good idea.

Oh, and since I’m talking about Ifihadahifi, here’s its Scott Walker protest song: