Law and Economics

The New York Times has a front-page story about the ongoing collapse in the number of people applying to law school (from 100,700 in 2004 down to about 54,000 this cycle, with a 38% total decline over the last three years alone). The story features some nice quotes from Brian Tamanaha and Bill Henderson regarding the dysfunctional economics of law school, which is important, because as any legal philosopher can tell you, in this culture the ontological status of an epistemological insight is greatly enhanced when it appears on the front page of the NYT. (“They wouldn’t print it if it wasn’t true.” F. Nietzsche, trans. J. Jackson.)

Oddly, the story fails to mention the crucial role the law school transparency movement, to which the Times gave such valuable attention in 2011 in a series of prominent stories, has had in all this. It’s hardly a coincidence that most of the collapse of the applicant pool has taken place over the last two years, which happens to be when something resembling accurate employment and salary statistics have been extracted from law schools via political pressure.

The story also features this strange claim:

“We have a significant mismatch between demand and supply,” said Gillian K. Hadfield, professor of law and economics at the University of Southern California. “It’s not a problem of producing too many lawyers. Actually, we have an exploding demand for both ordinary folk lawyers and big corporate ones.”

She said that, given the structure of the legal profession, it was hard to make a living dealing with matters like mortgage and divorce, and that big corporations were dissatisfied with what they see as the overly academic training at elite law schools.

This is a very peculiar use of the word “demand.” Big corporations have put the squeeze on BigLaw, because they’ve decided they will no longer subsidize the training of junior associates to do work people trained to be lawyers should do. Even more problematically for the Cravath model, they’ve also decided they won’t pay BigLaw rates any more for essentially clerical work. So firms can’t bill out a lot of what first and second year associates do, and a lot of other work that such people did is now outsourced to the document review mills and to non-lawyers.

In other words, client demand for various services that used to fatten the bottom lines of the big firms has imploded, not exploded, because it has been shifted to other service providers, or is no longer billable when performed by the firms themselves. This is a structural not a cyclical shift: it’s not as if GCs are going to decide that when and if more deals are being done it’ll be OK for firms to bill out monkey work at $300 an hour again.

The “overly academic training” at law schools has nothing to do with this. That’s an issue about failing to train people to do legal work. The collapse in demand from BigLaw clients is a product of the realization that a large amount of work traditionally done by lawyers can be done by non-lawyers with either no loss of quality, or not enough loss to make it worthwhile to pay the added cost of having lawyers do it.

The claim about “ordinary folk” is even stranger, but it’s one that’s being made a lot these days by legal academics desperately searching for a raison d’ paycheck. The argument goes something like this:

(1) Many people in this country who could benefit from legal services aren’t getting those services because they’re too expensive.

(2) Those services are too expensive because law school costs too much.

(3) If future lawyers could go to law school without incurring so much debt, they could afford to offer legal services at a price that far more people could afford to pay.

(1) is certainly true. (2) and (3) are just wrong, and obviously so.

The cost of legal services has almost nothing to do with the cost of law school. Why would it? No client cares about how much it cost you to get a law degree, which means that no client is willing to pay more for legal services because a lawyer has a lot of educational debt. This theoretical claim is confirmed by empirical observation: there are literally hundreds of thousands of lawyers in America who went to law school when it was radically cheaper than it is today, and it’s not as if they charge lower rates than recent law graduates (if anything they charge on average more more, because clients will to some extent pay for experience as a proxy for competence).

There are also hundreds of thousands of people with law licenses who are barely making a living by practicing law (A 2009 survey of Alabama lawyers found that 23% of the respondents with active law licenses had an income of less than $25,000 in the previous year). Such people are charging the absolute minimum they can charge while still maintaining an ongoing business.

The notion that the hundreds of thousands of lawyers in solo or very small practices in this country could somehow operate by billing out their services at X dollars per hour (with X being a figure that lots of “ordinary folk” currently priced out of the market for legal services could pay) if only law school didn’t cost so much is one of those ideas that sounds intuitively plausible until you actually think about it for three minutes, which is apparently why people in legal academia don’t.

The reason ordinary folk don’t pay for legal services even when in theory they could benefit from them is exactly the same reason they don’t pay for a lot of things they could in theory benefit from: because they don’t have any money for those things after paying for more pressing needs like food, shelter, clothing, medical expenses, transportation to work, etc.

Comments such as Hadfield’s indicate the lengths that legal academics will go to in order to talk themselves into believing that the basic problem isn’t really the basic problem. And that problem is that the economic demand in this country for people with law degrees will employ (at best) half the people who are paying us to grant them law degrees.